blog17feb2008

Hot Off the Web
In WSJ’s “He invests, she invests: Who gets the better returns?” Jonathan Clements reports on differences between men and women’s approach to investment. While men trade much more frequently than women and thus lose 2.65% of the available stock performance, women still have lower portfolio performance due to being more risk averse and having a lower stock allocation. He recommends for men a one week cool-down period between the decision to trade and actual execution. In addition investment education is highly recommended for both men and women, with women likely benefiting more by increasing their willingness to assume risk.
Rob Carrick in “New ETFs a rung higher than mutual funds” praises Claymore funds for introducing two new ETFs, the Premium Money Market and the 1-5-yr Laddered Government Bond (CLF), with very competitive MERs of 0.25% and 0.15%, respectively (as long as you don’t buy the Advisor Class versions of these ETFs, which incur additional fees). He points out that this may be a good approach compared to the mutual fund alternatives, though frequent traders may not get full benefits due to the relatively large spreads associated with these low trading volume ETFs. Rob also points to the commendable performance over the past four years of the iShares Canadian Short Bond Index Fund and is rightly pleased that we are finally beginning to see some competitive MERs, especially important for money market and bond investments in a very low interest rate environment.
As it is RRSP season there are the usual article encouraging you to contribute even if you don’t have the cash. Tim Cestnick writes in Globe and Mail that you should “Borrow if you must but make sure to save for your retirement”  . He suggests options like: donating in-kind, borrowing to top up the contribution just enough that you can repay the borrowed sum from the tax refund resulting from the total contribution, and borrowing to catch up with your past under contributions so long as you commit to an affordable monthly repayment plan over a fixed term. Similarly Jonathan Chevreau, in Financial Post’s “To contribute or not” , advocates for contributing the maximum allowable amount each year. He also quotes advice from various sources as to: holding fixed income assets in the RRSP and equities outside, to splitting retirement income via spousal RRSPs, and to not forgetting to designate your spouse as your RRSP beneficiary in case of death.
On the subject of real estate, while Canada is still purring along, in the U.S., led by Florida (where I winter) and a couple of other states, property values are in free fall. But before we go there Jonathan Clements has an excellent article explaining “Why your nest is not your nest egg”  . Many who don’t save enough for retirement fool themselves by thinking that their home will be the source of their retirement assets, forgeting that you must sell it and move somewhere else cheaper; but that’s not all. Clements quickly dispels this misunderstanding by listing differences between houses and stocks, such as: (1) the value unknown until actual sale takes place (unlike the stock market, there are no published prices for your home), (2) a home is an asset of very high expense ratio (3-3.5% plus utilities even if you have no mortgage payments), (3) high sales commission (5-6% plus moving costs, lawyers’ fees, etc).
Peter Coy has a must read cover article in the BusinessWeek on the U.S. “Housing meltdown” . A couple of interesting notes include: (1) what is normal appreciation of housing prices over the past century(inflation plus 0.2-0.8%/year), (2) price appreciation between 2000-2006 was so far above their long-term trend that even after the recent price drops, many predict another 25-30% drop over the next couple of years. You should read if you are considering real estate purchase in the U.S. I haven’t seen similar data for the Canadian market, though I suspect the excesses are somewhat attenuated there.
And still on real estate, William Hanley writes in the Financial Post about “A registered revival southern plan”  . I would have difficulty arguing with him on the benefits of wintering in a warmer climate like Florida, but I would guess that despite the recent strength of the Canadian dollar and the recent property price declines in the U.S. (and Florida in particular), those looking to buy in the southern states, should not necessarily rush and they should seriously consider other southern states more tax friendly to part-time residents.
And finally there was a very interesting article in the WSJ this weekend on “12 people who are changing your retirement”  . Among those listed are: (1) William Bengen on withdrawal strategies from portfolios during retirement (readers of this website are likely familiar with his work referred to in Retired tab of the education section); he is now exploring the use of rising dividend stocks as potentially better basis of retirement portfolios than the S&P 500, (2) Eric Dishman on technology to help elders stay independent longer, (3) Charles Feeney on helping people in their 60s and 70s to find a new career with a social purpose (teaching children, improving the environment, and tackling society’s other big challenges), (4) Sheryl Garrett on financial planning for the masses, (5) Michael Merzenich on “brain exercises”, and others. Worth a read!
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