Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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15 Responses

  1. Wow, charging close to 2.5% for a balanced fund is robbery. Congrats to Harry for br=eating the big boys with little to no effort.

  2. Great update Andrew!

    My wife & I have about 30% of our RRSPs in bonds but we're probably younger than Harry (mid-30s) so we can afford to take a little more risk…for now (that bond allocation will increase with our ages).

    As for the banks, very true, their balanced funds are never great performers and your post proves it; their fees are high as well and fees always "bite" (literally). While some of the banks' dividend-equity funds offer decent returns, their fees will still get you.

    How do I avoid that? I own the banks themselves 🙂

    In closing, great to see the analysis of how ETFs like iShares can be leveraged to build a nice, passive lil' portfolio.

    Cheers!

    Mark

  3. larry macdonald says:

    Andrew

    Wow. The performance discrepancy is alarming.

  4. Marco says:

    I totally agree. I'm in the process of moving from monthly income funds to index ETFs and/or stocks. This will save approx. 1% in mutual fund fees which impacts net profits (for the better!).

    I believe that the majority of the general public should be in ETFs and for those who want to be "active" then perhaps allocating 10-20% to stock selection. Since I will be investing mostly in Canadian securities it may be feasible to replicate some sector ETFs with stocks (i.e. Financial sector, the big 5 Canadian banks, and mostly dividend paying securities) that way one can get the added benefit of capturing the dividend growth… just my two cents.

  5. @The Biz of Life

    Hey Biz,

    I figured an explanation of those kinds of fees would attract some attention south of the border. As an American yourself, it's pretty eye-opening, isn't it? Canadian equity fund average expenses are between 2.4% and 2.5% annually. With those kinds of fees, given enough time, pretty much everything is going to lose to the markets.

    The same banks offer indexes charging close to 1% annually—and they will practically fight tooth and nail to keep people out of them, via scare tactics etc. I used to see it every summer when helping friends with accounts. For those willing to avoid advisors, there are reasonably priced indexes available to TD bank customers, but if you talk to a bank rep about them, they'll do their best to push you to higher cost products.

  6. @Financial Cents

    Thanks Mark,

    Yeah, Harry is older than you are. He's retired, but his wife collects a nice pension from Telus so he didn't want to be too conservative with the rest of his money. This balance suits him just fine.

    By the way, I really enjoyed your last post on withholdig taxes, via LIRAs. Nice work!

  7. @larry macdonald

    Hey Larry,

    I guess it has to be (and probably always will be) an alarming performance discrepancy, right? With costs that compound at 2%+ annually above a simple basket of ETFs, the managed alternatives have virtually no option but to lose at least 2.5% to the balanced ETF portfolio, annually, as an aggregate, after their expense ratios and trading fees are considered.

    Plus, I watched these funds somewhat closely to see if they rebalanced in a disciplined manner when the markets really got hammered in 2008/2009. Based on their performance and my basic tracking of them, I concluded that the managers didn't have enough courage to rebalance when they should have. That adds the further discrepancy. Harry rebalanced a bit (not at the low, or anything close to it) but he still rebalanced and gained a further edge.

  8. @Marco

    Hey Marco,

    You're not going to get any arguments to the contrary from my end. You sound like you have a great plan in order. In my post before this one, I wrote about some expensive index funds in Singapore, costing 1.04%. You might get a kick out of what small fees will do to money over an investment lifetime—even a small 1% fee. Please check it out if you have time.

    Thanks for the comment!

  9. Marco says:

    Andrew,

    Thanks for the link. Yup, small fees over time can really hurt ones portfolio return. People really need to sit down and do the math to see the real impact fees can have on their portfolio. Unfortunately not enough people do and hence the reason why fund companies can continue to charge such high fees.

  10. @Marco

    Marco,

    I've always felt that this stuff needs to be taught in schools. If fees were lower, you'd still get the majority of actively managed funds losing to the indexes, but those that beat the market would have a greater advantage over the index, and those that lost to the market wouldn't be as far behind the indexes.

    Yale University's Dave Swensen goes as far to suggest that the excessive fees require government action, to stop the exploitation. If he calls the average American fee of 1.5% "exploitation" I wonder what he'd think of Canadian mutual fund fees, at roughly 2.5%, as an average.

  11. People sure seem to love starting off with a disadvantage by investing in a mutual fund.

    Plus, fund managers are often short sighted because even if they aren't, their clients are, and that pressures them to worry more about short-term performance.

  12. Didn't you ever wonder how the banks can afford to host big galas, give money to charity, and make a nice image for themselves, all while the portfolio managers live in big houses, drive expensive cars, and feel smug?

    The expression "Laughing all the way to the bank" has never been more appropriate!

    IIRC, Google brought in some guys to give basic personal finance lessons to recent hires and people who made out well with their stock options. They didn't want their employees making bad decisions, suffering… and perhaps being unhappy. An employee knowing that they saved money is happier, and a happier employee is more productive, right?

    I don't have any faith in the government to change the cirriculum because the banks and the MPs sleep in the same beds. I do have faith in some of the educated teachers such as yourself, though!

    The key is education, and to make people aware of the unseen. It has nothing to do with intelligence because even the smartest people can get hoodwinked. It's all about a lack of information, and spreading this information is how we reduce ignorance and exploitation.

  13. @Kevin@InvestItWisely

    You're absolutely right Kevin. And blogs are a wonderful way of spreading the word. We'll keep fighting the good fight as we reveal the naked emperors for what they are.

  14. Nil Jhonson says:

    You’re absolutely right Kevin. The performance discrepancy is alarming. I’ve always felt that this stuff needs to be taught in schools. Thanks!

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