Robo-advisors

November 20th, 2014 by Potato

I haven’t talked about the new wave of robo-advisors in large part because I’ve been neck-deep in book stuff, but now that Sandi has her excellent post up, let’s get into it.

Important book notice: there’s less than a week* left to go to pre-order and get free shipping or a special price on the ebook! Read more about the book here.

Not so long ago an article came out by Dan B/CCP concluding that robo-advisors were impossible in Canada. I took it as a challenge and started sketching out the plans for one and lining up programmers to make it happen — but then almost immediately sat back down to focus on the book first (which I was hoping would be successful enough to provide the risk capital to build the Canadian robo-advisor**).

It appears as though I’m not the only one who took the article as a call to arms, as less than 6 months later the robo-advisor invasion began.

It is a very cool concept: for less than the cost of a full advisor you can get access to a passive portfolio that will be automatically rebalanced: low-cost passive investing with the convenience of throwing cheques at your mutual fund salesman. As Sandi points out, not everyone is prepared or cut out to be a DIY investor, so some intermediate-fee, intermediate-service options are very welcome.

I do have a few concerns, however:

  • These are almost all new companies.
  • They launched within weeks of each other (or, inconveniently, within days of building the comparison spreadsheet).

Combine those two and I have some doubts that they will all still be here 5 years from now***. There are only a few discount brokerages in Canada: those with the big 6 banks, Questrade, Qtrade, and Canadian versions of multinationals (HSBC, VB, IB). That could be because of oligolopistic collusion, or because it takes some scale to survive. I’m not sure ~4 new players will survive — though if they do it will likely be because of a large shift away from high-cost funds, which will be welcome. And given how closely they launched, I have fears that at least a few of the offerings rushed to market not fully formed (though no reports yet of any problems so maybe all is copacetic).

On top of that is the challenge of deciding which one to go with: the fee schedules are like a tax return, with marginal rates and a dependence on which province you live in. Oh, and what exactly you invest in as the fees for the underlying funds are often on top of the headline price, and those vary with your risk tolerance choices. Yes, that helps them keep costs as low as possible, but means Sandi had to make a complicated spreadsheet just to compare the offerings. I have concerns that the complication and multiple layers of fees could turn people off.

Finally, they just aren’t that cheap. Yes, they’re head-and-shoulders better than a high-cost actively managed bank fund, but they can’t even match TD e-series on fees. If TD ever decides to open e-series to their salesforce then these guys could be in trouble. For some people, these offerings will be well worth it (and again, Sandi makes that point much better), with costs well below that of a high-fee mutual fund salescritter and possibly equivalent service. For others, saving a few hundred or even thousands of bucks a year will be worth going the DIY route and investing directly in the same ETFs these services use****.

Which of course brings me back around to The Value of Simple — the how-to guide to for all this ETF and investing stuff. You should at least read it so you know what you’re paying your robo-advisor (or human advisor) to do for you.



* - Why less than a week when the book doesn’t come out for almost two? Because it normally takes a few business days to ship, so if you order after ~Nov 26 it wouldn’t arrive until after Dec 1st anyway.
** - Also, all of the programmers/developers I knew were too busy doing something to try to improve cancer care and research. Priorities, I tell ya.
*** - Not to engage in fear-mongering. There’s no reason to suspect that any of them are on shaky footing, just talking about general competitive pressures. Also, your underlying holdings will be fine even if one does go under or get absorbed — the worst-case is more likely inconvenience and a triggering of capital gains in a non-registered account if funds have to be liquidated and converted to the new custodian’s nearly equivalent offerings.
**** - Of course, I come from the bias that DIY is not so hard and not so scary and lots of people could be doing it. If you’re stuck on the other side of the fence, then a robo-advisor is a much smaller hop from a “full”-service advisor.

Changing My Tires and Pants

November 12th, 2014 by Potato

I just changed my tires over to the winter rubber. It was a gorgeous day for it, but it made me reconsider what I’ve been doing.

It may surprise you to learn this, but not so very long ago I had something called “free time” — as a grad student (and then post-doc) I had a lot of flexibility in when I could show up to work. I didn’t have a daughter so I could do pretty much whatever I wanted to on the weekends. And I didn’t lose nearly 12 hours out of my week, each and every week, to the ever-fucking TTC. Because I didn’t make much at all, giving up some of my free time to save money was a good, good deal.

Back then I paid $20 each spring and summer to get my tires changed over. Well, the last time I went and had someone else do it they seriously scratched a hubcap trying to use a crowbar to take off a tool-less wheel cover, they said they were upping the price to $30 for a change over, and I had to spend nearly three hours to get it done between the drive there and waiting on-site. I said never again: I’d start doing my own tire change-overs. It’s not mechanically complicated, and a good wrench, jack, and jack stands were only a few hundred bucks — I’d make it back in just a few years. Plus it gave me the flexibility to do it on my schedule (like Sunday afternoons), something that suddenly mattered as I had just landed a “regular job.” An added bonus was that I wouldn’t have to remove the car-seat to fit the tires in, which would add an extra half hour or so to the process of going to a shop. Everything pointed to DIY tire change-overs. That Potatomas the in-laws got me a jack and stand kit and I was in business.

So I’ve done my own changeovers for a few years now. Each year I come out aching because I am too old for this ish. But it counts as exercise, so yay I guess. It takes me way longer than I ever expect — the first two times were nearly four hours, and even now that I’m better and faster it still takes at least two. But I can do it more-or-less on my schedule. And having a proper jack and practice came in handy when I got a flat and had to change it in sub-zero weather. The math has kind of balanced out and I have all the tools now, so I just keep going with it.

This fall’s iteration has changed the equation though: I ruined a pair of perfectly nice pants*. Now that’s partly my fault for not thinking ahead: I have not-nice pants and shirts specifically for tasks like that, so not getting changed into the proper attire was sheer idiocy. I keep thinking that my time is much more valuable these days and I should just pay someone, but it still takes about the same amount of time to go somewhere — and this year I was limited more by the never-ending fall drizzle than by weekend availability. And paying someone would entail a lot less effort and sweating — and I could possibly read or write something useful while in a waiting room somewhere.

Getting the equipment for changing my tires was going to lead me on a whole automobile maintenance self-sufficiency quest: next I would start doing my own oil changes, and well… actually, that was about as far as I ever intended to go. The pros can handle the rest. Anyway, ruining pants that were only a few months old has really thrown a wrench into the frugality aspect of DIY car maintenance — that’s like the cost of two changeovers right there. I like knowing that I can do it myself, and that it’s a minor challenge I have met, but it is not a fun pastime that I would do anyway. If I have to add in the cost of ruining clothing to the DIY column, taking the car to a shop looks a lot more appealing for this spring.

* - if you must know, by being fat and attempting to squat. Riiiiiip…

Publishing Behind-the-Scenes: Pricing

November 11th, 2014 by Potato

I have a few posts on the publishing process in the drafts folder, but I don’t plan on getting into that until a month or two after the book is released. However, I did want to talk briefly about pricing because I’m worried about a potential scam and other issues with the retailer listings of The Value of Simple.

The potential scam is that Indigo has a “used and rare” edition of the Value of Simple for sale. Rare is right — there are precisely 8 copies in existence* that are not currently in front of me. However, unless one of three reviewers has decided to flip their copy, the others are either accounted for or are still in the mail. The odds that someone actually has a copy at this point to be selling used is virtually zero — and they’re charging more for the used one than a new one, which also suggests a scam attempt.

The other pricing issue is that I set up the book’s barcode to encode a Canadian price of $16.95. It says in plain text “Canada $16.95″ on the back (which you can clearly see in the back cover image on Amazon). It is listed (from what I can see) in Ingram’s distribution catalog as having a Canadian price of $16.95, and the Library and Archives Canada ISBN service has it at $16.95. The price, in other words, is clearly intended to be $16.95 in Canada. Yet Indigo has it at an “online price” of $17.05 (”regular $17.95″) and Amazon.ca at a whopping $19.xx! I’m not too concerned about ten cents at Indigo, so I haven’t been bugging them, but Amazon could make people angry by charging so much more than the clearly labelled price (and I don’t want them angry with me!)

It seems that there’s a behind-the-scenes aspect to Canadian pricing that I wasn’t told and didn’t consider: Amazon, and maybe even Chapters, may not pay the Canadian price when they buy the book wholesale from the distributor. Often, books have what I sometimes call “FU Canada” pricing, where the price is higher in Canada, and by a fair bit more than the fair exchange rate would suggest. I figured this is my book and it’s not for Americans so I wouldn’t set a USD price at all. At the last stage in listing it with Ingram for distribution I found I had to include a US price (their “choose only those markets you wish to distribute to” turned out to mean “choose only those markets in addition to the US that you wish to distribute to”). So, on the fly, I set a price a bit higher than simply the fair exchange rate (also to try to discourage an unwary US bookstore owner who didn’t read the description closely enough from ordering it and disappointing an American buyer). This seems to have backfired as now the Canadian stores (and Amazon.ca) are using prices higher than what’s listed. I’ve tried contacting Amazon. I had a friend try contacting Amazon as a concerned customer, and they told him the “manufacturer” (I thought for books the term was printer or publisher?) set $19.xx as the MSRP and they do not “fix the price.” Retailers are of course free to set their own prices above MSRP if they so choose and can make money doing it, but I don’t like the fact that Amazon seem to be saying that $19.xx** is the MSRP when clearly — clearly – it is not. Update: Amazon has lowered the price to $17.05. Close enough.

Hopefully that will get sorted out after release. And while I will welcome any sale through Amazon, so far I’m only linking to the (correct!) [the Kindle listing was correct out of the box:] Kindle listing because I don’t feel right pointing people to a price that’s incorrect by such a margin.

In the meantime, if you’d like to order a copy at the “proper” price of $16.95 (plus a nickle in rounding fees) there’s always my own store — and pre-orders will get free shipping and no tax. After the pre-order period though, if you have a lot of things on your shopping list (or even just multiple copies of the Value of Simple) it may be better to pay slightly more at the retailers because they’ll give you free shipping if your order is large enough (and through dark magicks and unholy pacts they can make a parcel arrive in a day whereas Canada Post will take at least four to deliver the ones I send).

Finally, a while ago (when I was still pushing Potato’s Short Guide to DIY Investing) I set up an author account at Goodreads. The way they handle common names (like mine) is quite frustrating: neither of my books is actually linked to my profile, and despite submitting two trouble tickets with their “librarians”, I’m still listed as authoring just one work: Is That Cat Dead?: And Other Questions about Poison Plants, which I didn’t actually write. I know what you’re thinking: “but Potato, are you sure you didn’t write that? It does sound exactly like the kind of book you would have written in March 2010 when you were procrastinating on submitting your doctoral thesis and were seriously sleep-deprived. You might just not remember.” And ok, there are blocks of time that I can’t really account for during that period, but I’m pretty sure I lost them to StarCraft 2 and Facebook, not writing a book about cats and poison plants.

* Outside of the Ingram printing facility, as I just got the email that the first print run is done.
** The $*.xx here is because the price is fluctuating ($19.34 one day, $19.29 the next), which also suggests that they are doing some funny conversion and mark-up math on the USD price rather than using the CAD price.

The Paradox of Advice

November 5th, 2014 by Potato

I was on Because Money recently, and the podcast and transcript are now up! We got together to discuss anonymous advice available on many online forums and blogs.

Leading up to the day of the podcast, I started with the assumption that there would be a lot of bad advice and we could spend a half hour lampooning it. But when I started to tabulate it I was amazed at how much good advice was there. These communities are so giving with their knowledge. In some few cases it will lead to sales leads, but mostly not (Reddit, for example, doesn’t even allow signature lines with links back to your website). Yet people with knowledge still give of their time — whether they’re paying it forward from getting helped when they were newbies themselves or just being altruistic, it’s kind of amazing.

There is bad advice too, just not as rampant as we thought it might be. So you have to use anything you read online as a starting point for more research because it’s hard to know whether the advice you’re getting is wrong (or some minor detail of the facts even if the main point is right).

And that leads me to the Paradox of Advice: those most in need of advice least able to discern who should give it.

The other major issue is that if you’re paying a few thousand dollars for a planner or money coach you can just unload everything and let them sort it out. You can’t do that to strangers freely giving of their time on the internet — you need to focus in on what your main question is. And in order to do that, you need to have some idea of the field so you can ask intelligent questions. Good, focused questions are key to getting good advice out of forums. So you have to keep in mind that any question you pose is not going to present a full technicolour image of your situation — it will be a stick figure at best. It’s up to you to make sure the right details are highlighted. As an example of what not to do, back when I was on RFD there was a standard response to questions of the form “what should I do with $X?”: “hookers ‘n blow.” There is no sensible way to answer it otherwise. To a large extent the amount of money a poster has makes very little difference, and “what should I do with it?” is just so open-ended. These blow-off answers were of course reserved for the (many) cases where the poster gave no other details or indication that they had read any of the other thousands of similar questions — or done any other background reading. The unfortunate conclusion is that you need to do some homework on your own before seeking advice.

Another area where anonymous advice can run into problems is the central theme of personal finance: “it depends.” There are so many answers, and none will be precisely right or helpful.

Think of the problem “I’m cold and there are wolves after me.” One very useful, straightforward answer might be to get a house or cabin and go live in there. You’ll be warm and it will keep the wolves out. One that might also work for someone is to get a lightsaber, and pretend it’s a tauntaun. Engineers might then go on a side rant about the R-values the wall insulation should have to properly keep out the cold and the howling, but that debate doesn’t necessarily invalidate the solution.

One point I didn’t think of during the podcast is how anonymous advice can be good: because it’s anonymous, free advice on the internet you should be immediately and automatically critical and skeptical of what is said. Whereas similar advice from a non-anonymous person who doesn’t have your best interests at heart (e.g. a salescritter with conflicting incentives and impressive-looking letters after their name) may not raise any warning flags for you.

“Of course you can’t ‘trust’ what people tell you on the web anymore than you can ‘trust’ what people tell you on megaphones, postcards or in restaurants. Working out the social politics of who you can trust and why is, quite literally, what a very large part of our brain has evolved to do. For some batty reason we turn off this natural scepticism when we see things in any medium which require a lot of work or resources to work in, or in which we can’t easily answer back – like newspapers, television or granite. Hence ‘carved in stone.’ What should concern us is not that we can’t take what we read on the internet on trust – of course you can’t, it’s just people talking – but that we ever got into the dangerous habit of believing what we read in the newspapers or saw on the TV – a mistake that no one who has met an actual journalist would ever make. One of the most important things you learn from the internet is that there is no ‘them’ out there. It’s just an awful lot of ‘us’.” — Douglas Adams

There is a lot of ‘us’ out there. Amazing and wonderful, the lot of you. Freely giving of time and wisdom to help those with questions and doubts.

For those with questions, do try to make it as easy as possible on the volunteer counselors by doing some research first, and crafting good questions. For complex situations or even simple ones with overwhelming detail where free anonymous advice won’t do, there are always advisors, planners, coaches, educators, and geeks with spreadsheets available for hire.

Index Investing: Beyond the Three Options

October 29th, 2014 by Potato

I provided a table of three great options for index investing in The Value of Simple (excerpt in the last blog post). Why those three? Quite simply because they represent the best options available in the market, at various points of trading off cost and simplicity. Aside from paying an advisor to do it for you, nothing gets simpler than Tangerine’s single fund and super-simple website and tablet app. You don’t even have to call someone to set up a preauthorized purchase plan. Many fund companies have regular (no-load) mutual funds that track the main indexes, which will let you set up a good index portfolio with ~4 funds. However, rebalancing 4 funds is the level of difficultly that TD e-series sits at, and nothing is as cheap as that in the mutual fund game. Beyond mutual funds there are ETFs, which is where it gets as cheap as it possibly can, but at a significant step up in terms of difficultly. Questrade offers no-commission purchases, low commissions for sales, and accounts only have to have $5000 to avoid maintenance/inactivity fees.

Here’s a list of the other options, and why they didn’t make the book:

  • BMO: Though BMO offers low-cost index funds traded on the stock exchange (ETFs), and in a quasi-Vanguard manner allows its mutual fund investors to invest in the same indexes, it does not manage to make the offering very attractive. Though you can buy in with as little as $50, the MER on their Canadian equity fund is 1.05% — barely a hair below Tangerine.
  • CIBC: Index funds have high minimum purchase ($500) and high MERs — at 1.14% it’s higher than Tangerine’s.
  • National Bank: Their index funds are moderately competitive, with MERs of just 0.66%. The funds are a little less diverse than I would like — the Canadian index tracks the TSX 60 rather than the full composite, and the US index tracks the Dow (30) rather than one of the larger indexes like the S&P500. The minimum initial investment is $500.
  • PC Financial: It looks like PCF has recently updated their offerings to get closer to Tangerine. Their portfolios are marginally more expensive, and include more asset classes. Their “Balanced” fund, for example, has 50% fixed income, of which 5% (of the total fund) is in international bonds. The international equity component is split with separate European and Asia-Pacific indexes. Each fund “portfolio” has a slightly different MER; the balanced fund is 1.09%. Like their CIBC parent, they require $500 to invest at a time. PCF offers a 0.1% discount to the CIBC MER (it’s not clear from their website whether this is included in the MER listed), but this discount is distributed quarterly as extra units — a nightmare for bookkeeping in a non-registered account.
  • RBC: Their index funds are not outrageous with MERs between TD’s e-series and Tangerine — but at 0.72% it’s still beaten by TD’s e-series.
  • Scotiabank: The mutual funds arm of Scotia has high initial investment requirements ($1000) and with an MER of 1.00% on their Canadian Index fund they are not competitive with TD — it’s barely better than the simpler Tangerine.
  • Scotia iTrade: Scotia’s discount brokerage arm was one of the first to come out with commission-free ETFs (mere weeks after the release of the first book, I might add). However, only a select list of ETFs are available, and none of them are the mainline ultra-low-cost broad indexes. You can build a decent portfolio from their offerings (e.g. to follow the broad TSX composite you would buy both HTX for the TSX 60, and XMD to cover the rest), but the average MER will be closer to ~0.3%, at which point TD’s e-series don’t look so bad, or for large accounts even paying the commission for XIC will put you ahead of using the list of free-to-purchase ETFs.
  • QTrade: (Different from Questrade) has some commission-free ETFs; basically the same list as Scotia iTrade.
  • Virtual Brokers: Very competitive with no-commission ETF purchases, but require $15,000 minimum account to avoid fees. This was basically a coin-flip as to whether I wanted to include it or not, and in the end I didn’t see anything from VB that Questrade wasn’t already offering, so I kept the line-up as simple as I could.

I was a little hesitant at first to recommend specific companies, but the fact is that they offer indisputable advantages for the reader, and giving detailed step-by-step instructions is only feasible with a few definite options.

For the average investor, a low-cost index investing approach is the easiest and simplest method available, and also provides the highest chances of long-term success. While there is a lot of material available on why investors should choose passive approaches over high-fee active mutual funds and what passive investing products exist, the average investor is at a loss on how to implement a passive index investing plan. The Value of Simple: A Practical Guide to Taking the Complexity Out of Investing provides a plain-language explanation of how Canadians can implement a low-cost index investing strategy, with step-by-step instructions and a focus on developing good investing processes. Coming December 1st.



The Value of Simple - Three Index Investing Options

October 26th, 2014 by Potato

This is a brief excerpt from my upcoming book The Value of Simple: A Practical Guide to Taking the Complexity Out of Investing. It has been edited to stand alone.


After you’ve done your planning and are ready to invest you have to set up an account somewhere and implement your plan. For most people passive investing through index funds is the best way to go, but even within that strategy there are many options out there. Two key considerations are the cost of investing and the complexity of the system, which may become a balancing act between the two. Don’t underestimate the value of simple — an easy-to-follow investment plan will pay in the long-term if you’re more likely to stick to it. Though nearly every bank and brokerage provider will have some form of account and fund for you to invest in, three excellent options using low-cost index mutual funds or exchange-traded funds (ETFs) are at Tangerine, TD Direct Investing, and Questrade. Each one provides greater cost savings at the trade-off of increased complexity.

In my opinion, TD Direct Investing and their e-series index mutual funds represents the best balance between cost savings and effort required. This is not because I receive any kind of compensation from TD, but rather because I truly believe that the e-series index funds are the hands-down winner for investors starting out. They offer the ability to invest in passive stock and bond indexes, in non-registered, TFSA, RESP, and RRSP accounts, with low MERs on the funds and (if you satisfy certain conditions) no other annual fees. Then they are not much more expensive for ETFs when your account grows larger and you’ll already be familiar with the platform.

Tangerine (formerly ING Direct) is a good option for people with smaller accounts. Things are even easier than TD with their investment funds: all you have to do is pick from one of four basic asset allocations, and they will take care of the rebalancing — and they will even help you decide on your asset allocation through a questionnaire. Just make your regular contributions to the fund you’ve chosen, which you can easily automate with a pre-authorized payment plan. There are no extraneous fees beyond the MER. Tangerine is, simply put, as easy as investing gets without paying a commission to have a salesperson do it for you. The simplicity is great, but the MER of the Tangerine funds is more than double that of the TD e-series funds (yet still half that of typical funds). As your assets grow, this cost difference will become more noticeable. At the hundreds-of-thousands level, you’d be able to go with a fee-based advisor who would use index products for you for a similar fee.

For the absolute cheapest option, commission-free ETFs at Questrade can’t be beat. You pay nearly nothing to buy, and a small commission to sell (about $5-10 per trade, depending on how much you’re selling). And the on-going MER of the ETFs is as low as you can possibly get for investments. However, the order-entry process is a fair bit more complex than with the mutual funds for Tangerine and TD, and you have to deal with rounding off to whole units rather than just investing a given dollar amount.

Three Investing Options — Effort vs. Cost
A comparison of 3 ideal investing options, trading off simplicity for cost

There are many other options available: every major bank has an associated discount brokerage arm where you can buy the same ETFs available at Questrade or TD Direct Investing; some banks and mutual fund companies offer relatively low-cost funds that are competitive with Tangerine’s. These three options, however, are the archetypical combinations of low fees and convenience at various points along the trade-off. I will provide step-by-steps for using each, along with general information for buying ETFs at brokerages other than Questrade.

Footnote from the table: 40. Assuming 25% in each of a bond fund, Canadian, US, and International equities. For dollar comparisons, assumes $10 in commissions per year. If you decide to shift to ETFs and want to stay with TD Direct Investing, assume that you will have about $40/yr in additional commissions over Questrade. Rounded to 3 significant figures.



This has been an excerpt from The Value of Simple, a how-to guide to index investing for Canadians coming out December 1, 2014.

If you’re interested in opening a Tangerine or Questrade account, I have referral codes in the sidebar which will provide both of us with a bonus.



On Pricing and Breaking Conventions

October 19th, 2014 by Potato

A little while ago I discussed pricing for the book. I wanted to grow up and move away from the *.99 type pricing to a scheme that would give an even amount after tax, for the few people that might be paying in cash.

Since then I’ve had a little bit of time to very superficially skim the literature on pricing and it looks like yes, people are used to prices set just below a dollar break point, and if you ask them they will rationally round up: show them a book at $16.95 and they’ll say “yes, that’s a $17 book.” No one is fooled by this pricing. But studies also show that despite knowing that, people will still be more likely to buy an item at $16.99 than at $17.00.

On top of that, even if it doesn’t work, that’s the way everyone else does it. So sure, I’d like to move to more rational pre-tax (and thus after-tax) pricing, but Wayfare had a good point: for a book that isn’t going to fly off the shelves no matter the price, why take the risk of setting a price that looks weird? Even though I have full control over my pricing and could set it up to fit my idea of how things should be, it doesn’t make sense for me to try to tilt at that windmill now. The risk of someone going “What’s with that price? This guy must be some crazy self-publisher, I’m out.” are far greater than the chances of someone going “What a novel idea! This book must be even more fantastic!” So when the book comes out, you’ll see the price ends in .95.

Similarly, all-in pricing would make sense. Right now if you pre-order the book from my e-store the special pre-order price is all-inclusive: when you get to PayPal for the final checkout step the price you saw on the front page is the price you’ll pay, no extra taxes or shipping. But again, as Wayfare says, no other store works this way. Sure, Amazon and Chapters will offer free shipping, but only if you order multiple books. Yes, I hate added fees and taxes calculated later — and it makes setting up the e-commerce software much simpler on the back-end — but everyone is just used to those things, and seeing a higher up-front headline price may scare people away. So when the special pre-order discounts go away you may actually see the headline price on my storefront decrease while the all-in price increases as I add a shipping & handling fee on the back-end.

Of course on the flip side, extra shipping costs are the main reason people abandon their shopping carts, so I’ll try to head that off by noting the flat-rate Canada Post shipping in the product description on my page. And all this hand-wringing may not matter past the pre-order period as once the book is listed in Amazon most people will likely follow that link rather than the one to my own store.

The Shopkeep Model of Investing

October 8th, 2014 by Potato

One of the challenges I think people have with investing is that the actual purchasing part is quite unlike other aspects of our daily lives. We use metaphors like “fruits and baskets”, describing different accounts (RRSP, TFSA, etc.) as baskets where you place investments (cash, stocks, bonds, funds thereof) — but you can’t go down to your local general store and ask the shopkeep for a half dozen index funds off the back shelf to stick in your basket.

A shopkeep from Oregon Trail sells oxen and other goods to eager travellers, but not many mutual funds.

Even after you decide that you want to keep things simple and use a straightforward indexing approach, and you have to figured out what to buy to fit that plan, you have to figure out how to buy those investment products. The big barrier can come when you have to go and “buy an XIC.” There’s no counter you can walk up to and make that happen.

The investment industry is either full-service (with associated fees) or a completely do-it-yourself “wholesale/auction” experience. The high fees attached to many products are built in assuming that you will pay for planning, stock-picking, and other help even if you never get it and you’re only after someone to help you make the transaction. Many people are disappointed with the depth and quality of the advice they receive in a bank branch, and are surprised to find that the staff are in fact in a sales role. Whether satisfied with the advice or not (and in many cases one needs more background knowledge to know that they should be dissatisfied), I think many Canadians are shocked at the fees when put in context.

I think some Canadians do go into the bank not looking for advice, but for a shopkeep. So they’re not dissatisfied with advice because they never really expected any — they were just looking for help making a transaction. But again, the fees for that level of service are shocking.

I would have thought that with TD’s e-series there was enough of a MER there to let the branch staff help with placing orders — even if they were not allowed to spend time on e-series clients — but instead the e-series are completely off-limits to branch staff. There is no minimal-cost “purchase assistance” type service. The closest equivalent is Tangerine, which packages everything together for you so you just need to throw money at the account — it’s the closest implementation I’ve seen to how many people talk about “buying an RRSP.”

And that’s just mutual funds: with ETFs there are added levels of confusion for people expecting the shopkeep model. It is not at all like going in and picking up a cool book that your friend recommended from the shelf — it’s more like buying livestock at auction crossed with a old-time bazaar where everyone is selling everything to everyone else and the prices change by the second.

It would be interesting if someone could take a one-time commission (not an ongoing trailer fee forever and ever amen) to make that a more pleasant retail experience. Put up a list of prices that stay where you put them, and the shopkeep eats the fluctuations; or to make buying ETFs more like buying mutual funds where the division from the money you have to throw at the asset class happens automatically, and where no one gets burned by limit orders or the lack thereof. Getting back to reality, there’s no getting around having to learn this somewhat different (but once you get it, not difficult) way of purchasing investments.

Of course, to help people navigate on their own when there is no clerk to guide them is why I wrote The Value of Simple, and that implementation part forms the meaty middle of the book. Maybe one day more banks and fund companies will drop the pretense of offering high-cost advice and stock picking to every customer, and instead offer transaction assistance for low-cost index funds. Until that day comes, sign up below to receive updates on the book.



Announcing The Value of Simple

September 28th, 2014 by Potato

By now you all know that I’ve been working on an investing book. I’m pleased to announce that the title is The Value of Simple: A Practical Guide to Taking the Complexity Out of Investing.

I’m aiming for a December 1 release and I’m really excited about it. I’ve put a lot of work into refining the book and testing it out with readers (novices and experts) to make sure it works. I even like love the title.

Briefly, The Value of Simple: A Practical Guide to Taking the Complexity Out of Investing is a plain-language guide to implementing an index investing strategy for Canadians. With a focus on developing good processes to minimize the room for human error and step-by-step instructions, the book walks investors through the elements of managing their finances for the long term: how they can determine an appropriate asset allocation, devise a savings plan, stick to it through automation, track their investments, and deal with the inevitable issue of taxation. It provides tools and templates, along with default suggestions and rules-of-thumb to help prevent analysis paralysis and get investors started as soon as possible. Moreover, it directs the reader to focus on what can be controlled, to minimize effort and complexity.

For the average investor, a low-cost index investing approach is the easiest and simplest method available, and also provides the highest chances of long-term success. While there is a lot of material available on why investors should choose passive approaches over high-fee active mutual funds and what passive investing products exist, the average investor is at a loss on how to implement a passive index investing plan.

Investing doesn’t have to be complex to be successful. Indeed, simple solutions are valuable and are more likely to succeed in the long term. This book will guide you through implementing those simple solutions.

There is a separate webpage for the book (click here!) where you can find more details and pre-order it (and soon, purchase it). You can also sign up for email updates below (and I promise to only send a few):



I Am Not Good At Marketing

September 26th, 2014 by Potato

The book is very nearly done. The text is all in there and has had multiple runs of editing. Now it’s down to formatting all the little things, remastering a few images for print, getting the cataloging-in-publication data, the cover art, etc.

I’m proud of it — I think it will truly help people get started at investing, and covers a lot of important elements that are not covered by the books that are currently out there. While I usually have a lot of problems with self-promotion, I can think of the book as being separate from me, as a thing I can promote and herald without it being self-promotion in my damaged mind. But I’m still not particularly talented at it.

I can do the Fermi estimation and figure that there are millions of Canadians out there between 24 and 60 who could really benefit from this book. Yes, many won’t need it; others won’t invest on their own no matter how helpful the book; some are in debt and in no position to use it. Even if just 5-10% of them need it and would use it though, that’s a big market.

And I have no idea how to reach it. The simple fact is that I am not good at marketing. I can maybe write decent copy if I focus on not letting the loquacity run away from me and give it a few revisions. But that depends on having people actually there reading something, and I don’t know how to get to those people in the first place.

My big hope is that everyone who reads it will love it as much as my beta readers did. That they will recommend it to their friends, family, and frenemies. Sadly, people don’t talk about personal finance and investing. Even if I put a copy into someone’s hands and they adored it, to the extent of writing me a little email about how it totally opened their eyes to investing fees and changed their life, the odds are that they will not tell anyone else about it*. For whatever reason, vampire bondage erotica is a more acceptable dinner table, coffee with friends, or book club topic than personal finance. So I can’t rely on word-of-mouth to spread the news of how awesome and helpful the book is.

But beyond word-of-mouth, what have I got? I tried contacting some people in the media. I’ve had online interactions with Rob Carrick, Ellen Roseman, and Melissa Leong in the past when I wasn’t trying to sell them anything (not necessarily deep ones — moreso with Ellen and Rob than Melissa), so I started by contacting them. They were polite, but it wasn’t very promising. There are other people I can try to contact, but those would be completely cold calls. Somewhere I saw a suggestion to get some freelance articles in the paper or a magazine to build name recognition before a book release, which sounds like suggesting that to successfully sell your book, you start with having a past bestseller first — the book started because Adam Mayers didn’t want my how-to articles for the Star! So the media’s a bust.

Advertising? I got a free credit for Google AdWords a few years ago and I tried advertising for the predecessor book. The ads were a complete waste. Maybe subway posters would have a better ROI, but I suspect not.

Last time around I was really bad with social networking: the timing really worked against me, releasing right into my PhD defense, and then having Blueberry. This time I will try to distribute sample chapters and deeper discussions as guest posts on other blogs (if they’ll have me). Of course the problem there is that I might be hitting the wrong audience: it’s the people who aren’t reading personal finance/investing blogs who need the book the most. Good reviews on Amazon help, and I will plead with people to fill those out (their honest opinions — I’m not down for astroturfing). But if readers who liked it are already not telling their friends, going to the effort of writing a review may be out of the question.

So I have to admit it: I am not good at marketing. I have no idea what else to do. Suggestions, blogosphere?

Help me Obi-Wan Kenobi, you’re my only hope.

* — True story, nearly no hyperbole (at least, not in the retelling).