Author Topic: Investment Culture (Read 1403 times)

segnosaur · « **Reply #75 on:** June 19, 2017, 02:33:18 pm »

Quote from: dia on June 19, 2017, 01:09:28 pm

I'm not very risk-adverse, although obviously I'd prefer not to lose my money. I don't know what a broad-based index fund is.

Generally, an index fund is an investment (you can get it from a bank) which tracks the stock markets. (They do so by buying stocks in proportion to the Toronto Stock Exchange, or something similar. )

The advantages? Since you're not betting everything on one stock (or one sector of the economy) then it can be much more stable and you're less likely to loose money. Index funds also tend to have lower management fees (since whomever is offering the fund doesn't actually have to do any work to pick which stocks are going to do better... they just look at whatever the exchange is doing).

The disadvantages? Well, many index funds are based on the stock market, which can be volatile (like after the problems in 2008) so there is some risk.

They usually do pretty good... on average, you might expect them to go up around 5-10% per year (although keep in mind that some years they may actually go down in value.) I'm risk-adverse, but I use Index funds for the majority of my investments.

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The other option I'm considering is to do a small kitchen reno, because I plan to sell this townhouse in a year or two and kitchen reno would make it pretty and easier to sell. it's a bit 'dated' and has some minor cosmetic damage.

If you want to put money into your home, the best investment is to paint or put up new siding. Maybe put in a new front door or do some landscaping. (And make sure there are no leaks.)

Remodeling a kitchen may improve your home's value, but you don't always get as much increase in value as you put into the renovations. Remember, what YOU might like in a kitchen may not be what a potential buyer wants in a kitchen, and they may decide your renovations are horrible and will want to make their own changes.

guest4 · « **Reply #76 on:** June 19, 2017, 07:58:58 pm »

Quote from: segnosaur on June 19, 2017, 02:33:18 pm

Generally, an index fund is an investment (you can get it from a bank) which tracks the stock markets. (They do so by buying stocks in proportion to the Toronto Stock Exchange, or something similar. )

The advantages? Since you're not betting everything on one stock (or one sector of the economy) then it can be much more stable and you're less likely to loose money. Index funds also tend to have lower management fees (since whomever is offering the fund doesn't actually have to do any work to pick which stocks are going to do better... they just look at whatever the exchange is doing).

The disadvantages? Well, many index funds are based on the stock market, which can be volatile (like after the problems in 2008) so there is some risk.

They usually do pretty good... on average, you might expect them to go up around 5-10% per year (although keep in mind that some years they may actually go down in value.) I'm risk-adverse, but I use Index funds for the majority of my investments.
If you want to put money into your home, the best investment is to paint or put up new siding. Maybe put in a new front door or do some landscaping. (And make sure there are no leaks.)

Thanks very much for the information, appreciate that you kept it simple and clear for me. I may go talk to a bank person, or in my case a Credit Union person since that's who I bank with.

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Remodeling a kitchen may improve your home's value, but you don't always get as much increase in value as you put into the renovations. Remember, what YOU might like in a kitchen may not be what a potential buyer wants in a kitchen, and they may decide your renovations are horrible and will want to make their own changes.

It's in poor enough condition right now that a buyer could reasonably say "Drop the price because I'll have to fix the kitchen". It's all cosmetic, so shouldn't cost too much to spruce it up, even if I do spring for a stone counter top, and I would keep colors neutral - no bright orange feature walls in my future.

I'm definitely doing some landscaping, regardless of what I do with the kitchen.

msj · « **Reply #77 on:** June 22, 2017, 02:14:33 pm »

Anyone following the latest on Home Capital Group (HCG)?

After the OSC gets them for $30 million in penalties, and seeing their liquidity drop dangerously low (remember, this is a mortgage lender at 20:1 ratio) they get a loan from an Ontario pension plan (for which an investigation should be undergoing - if I was a member of that pension I would be livid about the relationship between HCG and the HOOP).

Now Warren Buffett steps in to save the day as one of his subsidiaries will replace the HOOP loan with a equity/debt deal.

On the equity side he gets 38% for about $400 million.

His real goal, however, is to get $4-5 billion in mortgages which backstop the $2 billion loan on offer (at 9% rate plus other details).

If HCG goes broke, he gets those mortgages and loses on the equity (although who knows, maybe he sells out of the equity after the lock up period).

If HCG does survive, then he can ride the equity which he got on the relatively cheap ($10 per share) while still earning 9% on his loan.

Either way, hard for WB to lose on this deal even if GTA RE collapsed by 40%. So good for him.

Then we have the chicken farmer from San Francisco, Marc Cohodes, who is shorting HCG from when the stock was around $53, allegedly is still shorting it.

He is convinced that the equity will go to $0 and is waiting for the "fat lady" to sing.

Frankly, I would have ended my short when HCB touched $7 but whatever.

I think it is still possible for both Cohodes and Buffett to make a lot money here:

A) HCG goes to $0 so Cohodes makes his $50+ per share (since he sold shares around $50 or so and would be buying them at $0 he will have done very well).

B) Buffett loses, worst case, $400 million on the equity and the $2 billion on the loan. However, he gets $4+ billion in high interest (albeit subprime) mortgages.

Who knows, maybe Buffett will start shorting HCG to hedge his position - hope HCG considered that and wrote it into the deal to not allow him to do this.

Isn't high finance fun?!

kimmy · « **Reply #78 on:** September 17, 2017, 02:14:18 pm »

So, 10 years ago Warren Buffett offered a $1 million bet to any hedge fund manager willing to step up to take him on. The bet was that investing in a low-cost S&P Index would yield better returns than a professionally managed hedge fund over a ten year period. Only one hedge fund manager accepted the challenge, and the results have been lop-sided:

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The chart above shows the annual returns on the S&P 500 index and the average annual returns on a comprehensive index of thousands of hedge funds maintained by Barclay over the period of Buffett’s bet: From 2008 through August of this year. A $100,000 investment at the beginning of 2008 would have more than doubled to about $208,000 at the end of August this year, compared to only about $142,000 invested in the average hedge fund. The average annual return for the S&P 500 index over that period was 7.8%, or more than double the average return on the Barclay Hedge Fund index since January 2008. And except for 2008, the S&P 500 index outperformed the Hedge Fund index in every other year: 2009 (26.4% vs. 23.7%), 2010 (15% vs. 11%), 2011 (2% vs. -5%), 2012 (16% vs. 8.25%), 2013 (33% vs. 11%), 2014 (13.7% vs. 2.9%), 2015 (1.38% vs. 0%), 2016 (12% vs. 6%), and 2017 (through August, 12% vs. 6.3%). Not. Even. Close.

http://www.aei.org/publication/warren-buffett-wins-1m-bet-made-a-decade-ago-that-the-sp-500-stock-index-would-outperform-hedge-funds/

In short, the management fees associated with the hedge fund don't even come close to paying for themselves. Compared to investing in an average index fund, the person investing in the professionally managed hedge fund lost $66,000.

So... what can the average citizen do with this information?

I save in RRSPs every month, and these consist of funds managed by my bank. I have long had a sense that these aren't providing a great return. However, I also have a sense of powerlessness about this... I don't know anything about investing, and am concerned that attempting to manage my own investments would just make me lose a bunch of money.

As well, I somewhat need to use actual Canada Revenue Agency recognized RRSP investments... I need to replace the RRSP funds I withdrew to make the down payment on my home, and I also need to reduce my taxable income for tax purposes. So my hands are tied in that respect for at least the time being.

Given that limitation, are there alternatives to wasting a bunch of money on fund management fees that don't pay for themselves?

-k

Michael Hardner · « **Reply #79 on:** September 17, 2017, 02:53:00 pm »

Can't you just get a trading account, and buy index funds on your own inside an RRSP ?

I have been thinking about this dilemma myself, actually.

SirJohn · « **Reply #80 on:** September 17, 2017, 03:24:58 pm »

Quote from: MH on September 17, 2017, 02:53:00 pm

Can't you just get a trading account, and buy index funds on your own inside an RRSP ?

I have been thinking about this dilemma myself, actually.

Yes. That's what I did some years ago. But of course, the selection is important. A straight TSX index fund would have made very little money this year, because the TSX is heavily influenced by the banks and oil companies, neither of which has done well. If you're a long term investor, however, one year or so doesn't matter. I like some sector funds. BMO has a lot of good ones. It also wouldn't hurt to get a fund from other indexes, like the Dow, S&P and Nasdaq. Not all index funds are super cheap. If you want to go US SPDR funds are good and cheap. The best Canadian index funds this year all contain foreign holdings. ZQQ and ZUH, for example, as well as XSP, XEC and TXF. ZIN is the best performing Canadian stock fund I'm aware of, but you can find more at Ishares, Vanguard and Bmo.

kimmy · « **Reply #81 on:** September 22, 2017, 01:37:05 am »

I spent a bit more time reading about this today, and it looks as though if I want to buy these funds with low management fees for my RRSP contributions, I have to buy them and pay a flat rate transaction fee of $10 on each purchase. Is that typical, or is that just my bank being jerks? If I tried this, am I just exchanging my management fee for transaction fees?

-k

Michael Hardner · « **Reply #82 on:** September 22, 2017, 05:56:07 am »

My investment advisor isn't getting back to me.

I am seriously thinking about taking an investment course and doing this myself...

SirJohn · « **Reply #83 on:** September 23, 2017, 12:04:46 pm »

Quote from: kimmy on September 22, 2017, 01:37:05 am

I spent a bit more time reading about this today, and it looks as though if I want to buy these funds with low management fees for my RRSP contributions, I have to buy them and pay a flat rate transaction fee of $10 on each purchase. Is that typical, or is that just my bank being jerks? If I tried this, am I just exchanging my management fee for transaction fees?

-k

Banks and investment firms treat the purchase of ETFs the same as they do the purchase of stocks. They charge a flat fee of anywhere from $7-$10. But that's all the fee they charge. After that, you pay only the low management fee of the ETF, which, theoretically, you hold for years and years. And, if you set a DRIP (dividend reinvestment plan) on the account, any dividends will automatically be reinvested in purchasing more units which you will not have to pay a further fee for.

And incidentally, this article appeared today which should be of interest.

It seems that a decade ago Warren Buffet made a million dollar bet with the hedge fund/mutual fund industry. He would pick a few ETFS and ignore them, and his returns would outperform the best of any group of hedge funds or mutual funds over a ten year period. He won his bet. His passive ETFs completely ran away from the managed funds by all those expensive fund managers.

http://business.financialpost.com/investing/investing-pro/better-to-bet-with-buffett-than-against-him-barry-ritholtz

kimmy · « **Reply #84 on:** September 23, 2017, 12:17:23 pm »

Yeah, reading about the outcome of that bet is what got a bee in my bonnet about fund management fees in the first place.

Where do people learn about stuff like this? I'm sure that some people get it from their parents, but I sure didn't. I learned some basic financial skills in a class in high school, and the rest has mostly been through trial and error and some reading.

-k

guest4 · « **Reply #85 on:** September 23, 2017, 12:34:41 pm »

Quote from: MH on September 22, 2017, 05:56:07 am

My investment advisor isn't getting back to me. I am seriously thinking about taking an investment course and doing this myself...

Skip the course, get some darts and a monkey:

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Give a monkey enough darts and they’ll beat the market. So says a draft article by Research Affiliates highlighting the simulated results of 100 monkeys throwing darts at the stock pages in a newspaper. The average monkey outperformed the index by an average of 1.7 percent per year since 1964.

https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/#20bb856a630a

(Just kidding, I'm sure there is more to it than throwing darts. Isn't there?)

SirJohn · « **Reply #86 on:** September 23, 2017, 04:54:59 pm »

Quote from: kimmy on September 23, 2017, 12:17:23 pm

Yeah, reading about the outcome of that bet is what got a bee in my bonnet about fund management fees in the first place.

Where do people learn about stuff like this? I'm sure that some people get it from their parents, but I sure didn't. I learned some basic financial skills in a class in high school, and the rest has mostly been through trial and error and some reading.

-k

I learned by doing. Trial and error. The only book I read, and I would recommend it to anyone who wants to invest - as would Warren Buffet - is The Intelligent Investor, by Benjamin Graham.

http://www.investopedia.com/articles/07/ben_graham.asp

Queefer Sutherland · « **Reply #87 on:** September 26, 2017, 10:52:35 pm »

Quote from: kimmy on September 22, 2017, 01:37:05 am

I spent a bit more time reading about this today, and it looks as though if I want to buy these funds with low management fees for my RRSP contributions, I have to buy them and pay a flat rate transaction fee of $10 on each purchase. Is that typical, or is that just my bank being jerks? If I tried this, am I just exchanging my management fee for transaction fees?

-k

Index funds you're ideally supposed to just buy and hold over the long-term, so small transaction fees are moot. You pay much more to your advisor & active fund managers for sure even if you buy and hold for years.. Over the long term you'll historically get around 8% return a year, averaging the ups and downs.

The fact that financial advisors at the big banks have no legal duty to act in your best interests is one of the most disgusting things in this country. Just goes to show how powerful the banks are in influencing politicians & laws.

Queefer Sutherland · « **Reply #88 on:** September 26, 2017, 10:54:46 pm »

Quote from: SirJohn on September 23, 2017, 04:54:59 pm

I learned by doing. Trial and error. The only book I read, and I would recommend it to anyone who wants to invest - as would Warren Buffet - is The Intelligent Investor, by Benjamin Graham.

http://www.investopedia.com/articles/07/ben_graham.asp

The way Buffett operates is very knowledge & time intensive though. Even Buffett doesn't recommend the average investor invest how he does. He recommends investing in an index fund tracking the S&P 500 & letting it sit.

SirJohn · « **Reply #89 on:** September 27, 2017, 12:07:17 pm »

Quote from: Moonlight Graham on September 26, 2017, 10:54:46 pm

The way Buffett operates is very knowledge & time intensive though. Even Buffett doesn't recommend the average investor invest how he does. He recommends investing in an index fund tracking the S&P 500 & letting it sit.

True, but unlike in Graham's time we have ready access to a vast array of research on individual stocks. You don't have to go through the books yourself, but can read the numbers right on the Globe's web site if you're a member, and can get tons of opinions (which you have to take with a grain of salt, granted). There is so much more information available about industries and their prospects, about companies, their debt loads, their future spending plans, their growth rates and what's driving them, etc. etc. Still, I do generally agree with Buffett that the average investor is better in Index funds. I'm not the buy and hold type, though, not even with these. I would not have held a broad TSX index fund this year, for example.

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Author Topic: Investment Culture (Read 1403 times)

segnosaur

Re: Investments

guest4

Re: Investments

msj

Re: Investment Culture

kimmy

Re: Investment Culture

Michael Hardner

Re: Investment Culture

SirJohn

Re: Investment Culture

kimmy

Re: Investment Culture

Michael Hardner

Re: Investment Culture

SirJohn

Re: Investment Culture

kimmy

Re: Investment Culture

guest4

Re: Investment Culture

SirJohn

Re: Investment Culture

Queefer Sutherland

Re: Investment Culture

Queefer Sutherland

Re: Investment Culture

SirJohn

Re: Investment Culture