What frustrates you most about banking?
If you have a mortgage and a chequing or savings account (with the same institution), what is the spread they are they are taking on you?
What is your mortgage cost (interest rate): 4% perhaps?
What are they paying you for the money that you are lending them back in your chequing account? 0% (they get this money from you for free).
In your savings account? 0 .5%.
So the spread they are taking on you in this scenario is 3.5% to 4%.
If you have a mortgage of $250,000 and savings of 40,000 (savings account), your net borrowing should be $210,000 if you were able to apply your savings to your mortgage. You would be paying approximately $1400 less per year in interest costs (that are not tax deductible). That adds up over time.
So why do the banks not let you do this?
They don’t want to lose the free $1400.
Then there are the fees and don’t forget the gouging spread on foreign exchange.
I can help solve the first issue and generate very good ideas for flexibility in your cash flow, especially if you have a variable income stream.
Of course: cash flow is the engine that drives a financial plan.
If you want to explore any of these options, let me know, we build Wealth Forecasts to show you how to maximize efficiencies in your financial plan and mitigate risk in your investment portfolio.
jstomenson@wellwest.ca
www.jstomenson.ca
http://www.financialpost.com/magazine/story.html?id=2514256
Wednesday, February 24, 2010
Monday, February 1, 2010
Do more of that which is working
“Do more of that which is working and less of that which is not”!
That is one of Dennis Gartman’s 20 rules of trading. Dennis Gartman, if you do not already know, is a widely read and admired market commentator who writes a daily letter to which I subscribe and it is the first reading on my agenda every morning. Ever insightful and informational on a variety of topics: markets, currencies, commodities, economics and politics.
Every year on the Friday after US Thanksgiving he publishes his 20 rules of trading.
“Do more of that which is working and less of that which is not”!
So what is working?
1) Clients both old and new are slowly coming around to the idea of seeing their “Wealth Forecast”.
a. Generally speaking, this is a spreadsheet that we create that shows clients their income streams now and those that are forecasted for their future vs. their desired or expected lifestyle needs (cost of living) and then analyzes what the approximate impact will be on their assets.
b. We make a number of adjustable assumptions on things like return (after fees and taxes), inflation, tax rates and we create a “working model” from which we can project 10, 20, 30 or more years into the future.
c. We have the ability to create a number of different models that represent scenarios from which we can select the most advantageous options.
d. From this we have a full understanding of the clients risk profile.
e. We make the appropriate asset allocation strategy and implement it.
f. What we have is our “benchmark” from which we can gage the client’s progress.
g. If (as we fully expect there will be) there are any changes that need to be addressed we can quickly re-asses strategy by making adjustments and visualizing their impact on our model, followed-up with an adjustment of strategy.
2) While we believe that over the longer term, 5 to 10 years, equity markets will resume their upward trajectory, we also know that:
a. Clients have cash needs (from their assets)
b. Depending on specific needs, we believe that a diversified, balanced portfolio will allow easier access to client assets for these purposes.
c. Where are we finding balance and low volatility (i.e.while equity markets are down, what is up) ?
i. One Capital Management, managed portfolios
ii. Waterfront Nxt Income and Growth
iii. Norrep Yield Fund
Visit our website at www.jstomenson.ca
Envision your future
That is one of Dennis Gartman’s 20 rules of trading. Dennis Gartman, if you do not already know, is a widely read and admired market commentator who writes a daily letter to which I subscribe and it is the first reading on my agenda every morning. Ever insightful and informational on a variety of topics: markets, currencies, commodities, economics and politics.
Every year on the Friday after US Thanksgiving he publishes his 20 rules of trading.
“Do more of that which is working and less of that which is not”!
So what is working?
1) Clients both old and new are slowly coming around to the idea of seeing their “Wealth Forecast”.
a. Generally speaking, this is a spreadsheet that we create that shows clients their income streams now and those that are forecasted for their future vs. their desired or expected lifestyle needs (cost of living) and then analyzes what the approximate impact will be on their assets.
b. We make a number of adjustable assumptions on things like return (after fees and taxes), inflation, tax rates and we create a “working model” from which we can project 10, 20, 30 or more years into the future.
c. We have the ability to create a number of different models that represent scenarios from which we can select the most advantageous options.
d. From this we have a full understanding of the clients risk profile.
e. We make the appropriate asset allocation strategy and implement it.
f. What we have is our “benchmark” from which we can gage the client’s progress.
g. If (as we fully expect there will be) there are any changes that need to be addressed we can quickly re-asses strategy by making adjustments and visualizing their impact on our model, followed-up with an adjustment of strategy.
2) While we believe that over the longer term, 5 to 10 years, equity markets will resume their upward trajectory, we also know that:
a. Clients have cash needs (from their assets)
b. Depending on specific needs, we believe that a diversified, balanced portfolio will allow easier access to client assets for these purposes.
c. Where are we finding balance and low volatility (i.e.while equity markets are down, what is up) ?
i. One Capital Management, managed portfolios
ii. Waterfront Nxt Income and Growth
iii. Norrep Yield Fund
Visit our website at www.jstomenson.ca
Envision your future
Thursday, December 10, 2009
"Investing Themes" for 2010
I was recently asked by a leading Canadian finance journalist what "themes or ideas" I was working on for the new year.
My response:
Let me preface this by stating my somewhat contrarian approach to the idea of "themes" which, experience has taught me, are usually being utilized to generate "turnover". The ongoing dilemma in our "industry" is that the folks that run the business are focused on the "turn rate" from a productivity perspective.
However, my responsibility to my clients is to protect them from unnecessary and potentially costly trading ideas.
My clients are encouraged to be "fee based" unless their portfolios are so static (bond ladders for example) that it is not economically viable. However, I do have a minimum annual commission/fee for my wealth management consulting work.
That being said, this is how I review client accounts at year end:
1) Cash flow analysis:
When I first sit down with a prospect, we have a "discovery" interview. From this interview we gather the information necessary to prepare a projected cash flow analysis prior to making any investment recommendations.
This cash flow analysis allows us to fully understand the clients needs and risk tolerance. It is my experience that even clients who think that they have a high tolerance for risk, do not, especially when that is put to the test in a declining market. If we know their lifestyle cash flow needs, we can actually see the risk that they can and should be taking.
At year end we review this and look forward for the next few years to make sure there is ample liquidity. It will depend on each specific clients needs: "portfolio builders" have usually net positive savings and higher risk tolerance, "portfolio utilizers" (who need their portfolios for lifestyle cash flow) have less room to take risk unless they need to generate significant amounts of income.
2) Portfolio diversity and re-balancing
If cash flow needs require portfolio adjustments, we look at total asset diversification, not just the portfolio but the clients entire net worth, including their exposure to real estate (home or vacation property) and their own business.
For example: a retired client needs $10,000 per month to cover lifestyle needs. They will need a minimum of $240,00 in cash/money market (2 years). Assume that this is 10% of their portfolio.
We will examine their portfolio holdings to ensure that income, dividends and capital growth are replenishing this pool of cash, because it is the clients wish to not reduce the principle (if possible) for estate planning reasons. (But they also have a participating life insurance plan to back up their needs).
This gives them the comfort of being able to be a little more aggressive to get the 10% annual return that they desire.
If any of the asset classes that they own have out-performed, we will re-balance: reducing exposure to the out-performers (i.e. taking profits) and redistributing it to the under-performers (who may just be the performers in the next phase of the cycle).
Most of our clients have 3rd party managers to whom we actively engage with these issues and we work through a number of combinations for adjustments:
Perhaps, for example, reducing exposure to Canadian Banks who have had a considerable capital return lately also making the portfolio "over-weight") and finding some diversification (and increased risk) in Income Trusts that have good yield and are expected to have limited impact on distributions when conversion occurs.
3) Tax efficiencies
We also confer with clients tax experts to ensure that we have a thorough understanding of the implications for clients on any transactions and work closely with the managers to find ways of minimizing the tax impacts of the portfolio adjustments (Tax Harvesting)
As in the above example, if the selling of a Canadian Bank was to have a significant capital gain, are there capital losses that could be taken to offset this without greatly impacting the portfolio? We often use sector ETF's to maintain exposure for the required 30 day period if we want to subsequently repurchase the sold position.
We like to keep things simple and boring and steady. We loathe volatility and find every way possible to reduce it, because we believe that over the long run, volatility is the enemy of any portfolio and wealth management plan. Recent history has proven our methodology to be correct. We have happy clients and that is why I am in this business: to make clients happy .
Want to be a happy client?
www.jstomenson.ca
http://twitter.com/JSTomenson
Thinking ahead of the curve.
My response:
Let me preface this by stating my somewhat contrarian approach to the idea of "themes" which, experience has taught me, are usually being utilized to generate "turnover". The ongoing dilemma in our "industry" is that the folks that run the business are focused on the "turn rate" from a productivity perspective.
However, my responsibility to my clients is to protect them from unnecessary and potentially costly trading ideas.
My clients are encouraged to be "fee based" unless their portfolios are so static (bond ladders for example) that it is not economically viable. However, I do have a minimum annual commission/fee for my wealth management consulting work.
That being said, this is how I review client accounts at year end:
1) Cash flow analysis:
When I first sit down with a prospect, we have a "discovery" interview. From this interview we gather the information necessary to prepare a projected cash flow analysis prior to making any investment recommendations.
This cash flow analysis allows us to fully understand the clients needs and risk tolerance. It is my experience that even clients who think that they have a high tolerance for risk, do not, especially when that is put to the test in a declining market. If we know their lifestyle cash flow needs, we can actually see the risk that they can and should be taking.
At year end we review this and look forward for the next few years to make sure there is ample liquidity. It will depend on each specific clients needs: "portfolio builders" have usually net positive savings and higher risk tolerance, "portfolio utilizers" (who need their portfolios for lifestyle cash flow) have less room to take risk unless they need to generate significant amounts of income.
2) Portfolio diversity and re-balancing
If cash flow needs require portfolio adjustments, we look at total asset diversification, not just the portfolio but the clients entire net worth, including their exposure to real estate (home or vacation property) and their own business.
For example: a retired client needs $10,000 per month to cover lifestyle needs. They will need a minimum of $240,00 in cash/money market (2 years). Assume that this is 10% of their portfolio.
We will examine their portfolio holdings to ensure that income, dividends and capital growth are replenishing this pool of cash, because it is the clients wish to not reduce the principle (if possible) for estate planning reasons. (But they also have a participating life insurance plan to back up their needs).
This gives them the comfort of being able to be a little more aggressive to get the 10% annual return that they desire.
If any of the asset classes that they own have out-performed, we will re-balance: reducing exposure to the out-performers (i.e. taking profits) and redistributing it to the under-performers (who may just be the performers in the next phase of the cycle).
Most of our clients have 3rd party managers to whom we actively engage with these issues and we work through a number of combinations for adjustments:
Perhaps, for example, reducing exposure to Canadian Banks who have had a considerable capital return lately also making the portfolio "over-weight") and finding some diversification (and increased risk) in Income Trusts that have good yield and are expected to have limited impact on distributions when conversion occurs.
3) Tax efficiencies
We also confer with clients tax experts to ensure that we have a thorough understanding of the implications for clients on any transactions and work closely with the managers to find ways of minimizing the tax impacts of the portfolio adjustments (Tax Harvesting)
As in the above example, if the selling of a Canadian Bank was to have a significant capital gain, are there capital losses that could be taken to offset this without greatly impacting the portfolio? We often use sector ETF's to maintain exposure for the required 30 day period if we want to subsequently repurchase the sold position.
We like to keep things simple and boring and steady. We loathe volatility and find every way possible to reduce it, because we believe that over the long run, volatility is the enemy of any portfolio and wealth management plan. Recent history has proven our methodology to be correct. We have happy clients and that is why I am in this business: to make clients happy .
Want to be a happy client?
www.jstomenson.ca
http://twitter.com/JSTomenson
Thinking ahead of the curve.
Saturday, November 21, 2009
Heading South? Converting to $US?
A client asked the question and since many clients may also want my opinion:
The $US is a very challenging topic for multiple reasons. There are greater minds than mine who all have opinions and I like to be on top of them, so I will break down the arguments for you.
First and foremost, despite what they may say publicly, the US administration under Obama want a weak $US to revive the US manufacturing and export sector. The consumer, historically 2/3 of the US economy, is not going to lead the recovery.
Also, while the growing economic powers are looking to move away from the $US as a reserve currency, that will take years to change.
But the market knows this and the large players in the foreign exchange world are already short $US.
The other side of the equation for you, of course, is the $Cda. The trend since 2003 has been towards a stronger $Cda (from the US 1.60 level to .96 pre meltdown).
The meltdown caused a flight away from risky assets and into $US, which took the $US/Cda back to 1.30. As the appetite for higher yielding and riskier assets came back and there were expectations of a stronger recovery for the Cdn economy, the $US/Cda improved to 1.02.
So basically that is, in a nutshell, the setting for thinking forward.
Predicting short-term fluctuations in currency movement is more technical than fundamental, but basically, right now it is a function of the risk trade, i.e. when capital market participants are willing to take on risk, equity markets rise and the $US/Cda will move towards parity (i.e. 1.00).
Also year-end is approaching and the holiday season, which has historically been favourable for the $US.
While the Global economy has still got considerable challenges, the appetite for risk going forward is a tricky call: There are significant amounts of liquidity in the system and this has forced investors into risk to get return, because the safe investments are yielding 0% (last week US T-bills auctioned at negative yields!). Arguably equity markets are ahead of themselves and a pull-back is not out of the question. A pull-back would entice a trade away from risk and likely force the $US higher. As foreign exchange participants are already short $US (and they may feel the pressure to buy in those positions as they get "offside"), that could add to a short-term $US rally which could get volatile with holiday and year-end liquidity drying up.
Longer-term, as economies recover, the liquidity will be withdrawn, but the timing on this is difficult. It may be 6 months or longer, depending on the recovery and how long it takes to get traction. The US will lag the rest of the world, because the consumer will not be participating. US housing and mortgage default issues are going to continue to be problematic well into 2010. So it is likely that the $US will continue to decline.
Also increasing demand for Cdn commodities from Asia will likely boost the $Cda and it will resume its upward trend, quite possibly beyond parity. As the Cdn economy out-performs the US economy, the Bank of Canada will start to drain liquidity sooner and interest rates in Canada may move up adding to demand for $Cda.
In summary, given the gradual recovery and Canada outperforming the US economically (I never like to underestimate the entrepreneurial spirit of the US, but their problems are deep and their government is as far left as any we've seen in since Roosevelt) I think the long-term play is to wait. Sorry for the long missive, but I wanted my arguments to be clear.
OCM diversifies across asset classes which means, ultimately, that you will likely hold between 15-25% $US in your portfolio, invested globally. You could always draw on this $US portion to avoid foreign exchange conversion hassles. One of the reasons OCM was able to keep volatility out of portfolios in the meltdown was that as equity markets crumbled in late 2008/early 2009, the $US soared and portfolio declines were mitigated.
Traditionally banks "rape and pillage" the consumer with surcharges of 4-5% (from the wholesale market) on currency transactions (inside info). We are much more competitive and I hate what the banks do, so rest assured, I will make sure that we are. Taryn (my associate) is well-trained in my thinking as we have a number of clients who "winter" south of the border and it is my fiduciary responsibility to ensure that they are not taken advantage of when they need to have their $Cda converted to $US.
Want to have a more thorough discussion? Call me, email me: jstomenson@wellwest.ca
www.jstomenson.ca
The $US is a very challenging topic for multiple reasons. There are greater minds than mine who all have opinions and I like to be on top of them, so I will break down the arguments for you.
First and foremost, despite what they may say publicly, the US administration under Obama want a weak $US to revive the US manufacturing and export sector. The consumer, historically 2/3 of the US economy, is not going to lead the recovery.
Also, while the growing economic powers are looking to move away from the $US as a reserve currency, that will take years to change.
But the market knows this and the large players in the foreign exchange world are already short $US.
The other side of the equation for you, of course, is the $Cda. The trend since 2003 has been towards a stronger $Cda (from the US 1.60 level to .96 pre meltdown).
The meltdown caused a flight away from risky assets and into $US, which took the $US/Cda back to 1.30. As the appetite for higher yielding and riskier assets came back and there were expectations of a stronger recovery for the Cdn economy, the $US/Cda improved to 1.02.
So basically that is, in a nutshell, the setting for thinking forward.
Predicting short-term fluctuations in currency movement is more technical than fundamental, but basically, right now it is a function of the risk trade, i.e. when capital market participants are willing to take on risk, equity markets rise and the $US/Cda will move towards parity (i.e. 1.00).
Also year-end is approaching and the holiday season, which has historically been favourable for the $US.
While the Global economy has still got considerable challenges, the appetite for risk going forward is a tricky call: There are significant amounts of liquidity in the system and this has forced investors into risk to get return, because the safe investments are yielding 0% (last week US T-bills auctioned at negative yields!). Arguably equity markets are ahead of themselves and a pull-back is not out of the question. A pull-back would entice a trade away from risk and likely force the $US higher. As foreign exchange participants are already short $US (and they may feel the pressure to buy in those positions as they get "offside"), that could add to a short-term $US rally which could get volatile with holiday and year-end liquidity drying up.
Longer-term, as economies recover, the liquidity will be withdrawn, but the timing on this is difficult. It may be 6 months or longer, depending on the recovery and how long it takes to get traction. The US will lag the rest of the world, because the consumer will not be participating. US housing and mortgage default issues are going to continue to be problematic well into 2010. So it is likely that the $US will continue to decline.
Also increasing demand for Cdn commodities from Asia will likely boost the $Cda and it will resume its upward trend, quite possibly beyond parity. As the Cdn economy out-performs the US economy, the Bank of Canada will start to drain liquidity sooner and interest rates in Canada may move up adding to demand for $Cda.
In summary, given the gradual recovery and Canada outperforming the US economically (I never like to underestimate the entrepreneurial spirit of the US, but their problems are deep and their government is as far left as any we've seen in since Roosevelt) I think the long-term play is to wait. Sorry for the long missive, but I wanted my arguments to be clear.
OCM diversifies across asset classes which means, ultimately, that you will likely hold between 15-25% $US in your portfolio, invested globally. You could always draw on this $US portion to avoid foreign exchange conversion hassles. One of the reasons OCM was able to keep volatility out of portfolios in the meltdown was that as equity markets crumbled in late 2008/early 2009, the $US soared and portfolio declines were mitigated.
Traditionally banks "rape and pillage" the consumer with surcharges of 4-5% (from the wholesale market) on currency transactions (inside info). We are much more competitive and I hate what the banks do, so rest assured, I will make sure that we are. Taryn (my associate) is well-trained in my thinking as we have a number of clients who "winter" south of the border and it is my fiduciary responsibility to ensure that they are not taken advantage of when they need to have their $Cda converted to $US.
Want to have a more thorough discussion? Call me, email me: jstomenson@wellwest.ca
www.jstomenson.ca
Wednesday, November 18, 2009
The Advisor "Checklist"
In his column from November 18, John Heinzl wrote:
http://www.theglobeandmail.com/globe-investor/investment-ideas/features/investor-clinic/do-your-homework-to-find-adviser-best-for-you/article1367571/
Here's a checklist if you're shopping for a financial adviser, or if you want to evaluate the service you're getting from your current one. My comments in bold.
1. Fees are transparent
Low fees are one of the most important ingredients in a successful investing plan, but many investors have no idea how much they're paying or how their adviser is compensated.
Good advisers make the information available in plain English and are happy to answer questions. "It needs to be straightforward and in writing," Mr. Heath says.
We are fee based for most clients. Depending on complexity and size of investible assets, between .75 and 1.25%. That includes cash-flow and risk analysis, strategic asset allocation and tax efficient, comprehensive wealth management plan.
Portfolio management will cost an additional .60 to 1.0% depending on the manager, portfolio size and strategy complexity.
Also included is on-going monitoring and regular updates according to the client’s wishes.
2. They were recommended
Getting invited to a free dinner at a ritzy club may make you feel special, but it's no way to hire an adviser. The best advisers are those that come highly recommended by someone whose opinion you trust.
But don't stop there: Ask the adviser for a couple of other references, and be sure to call them. You'd do this when hiring a contractor, so do just as much research - if not more - when selecting someone to manage your money.
www.jstomenson.ca
http://www.wellingtonwest.com/advisors/jstomenson/WhatOurClientsSay.aspx
3. They pass the "like" test
Money can be a touchy topic, so if you want to have a productive relationship with your adviser, you'll have to feel comfortable opening up to him or her. But you won't do that if you don't hit it off on a personal level.
"You need to have someone you can confide in and somebody you can trust and tell them the whole story. If you can't tell them everything, you're not going to get the best possible advice," says Jim Ruta, author of Master Your Money Management: How to Manage the Advisors Who Work for You.
Too busy to come and see us? We’ll come to you if you want…we’ll even bring lunch!!
4. They use plain language
"The financial business is so overrun with jargon and complicated language that some folks say yes to things they don't understand," says Mr. Ruta, a Burlington, Ont.,-based consultant to the financial industry. "Unless you can understand your adviser they can't help you."
There is no such thing as a stupid question.
Read Stuart Lucas’ Wealth, we think it is accessible and very client oriented.
5. They have a process
The best advisers explain, in writing, the process they will follow to meet your financial goals. The "client connection letter," as Mr. Ruta calls it, might include a description of the investment products to be used (stocks, bonds, mutual funds or exchange-traded funds), how the adviser is compensated (commissions or asset-based fees) and the frequency of adviser-client meetings.
http://www.wellingtonwest.com/advisors/jstomenson/ourProcess.aspx
6. They favour lower risk
Instead of trading frequently and trying to make a big score on a speculative stocks, good advisers follow a boring approach.
"While they may hold stocks, they are usually just the big-name financials, utilities, resource companies, and they don't trade them," says Garth Rustand, founder of the Vancouver-based Investors-Aid Co-operative of Canada.
Good advisers also don't claim to have any special ability to predict what the market will do. Rather, they recommend indexing - buying and holding low-cost ETFs or mutual funds that track broad market indexes.
Lower risk, well balanced across multiple asset classes, lowers volatility. Volatility is in the long-term (20to 30 years) very harmful to a portfolio.
Read : The Informed Investor: Five key concepts for financial success under “our process” on our website.
7. They aren't into bling
The best investment advisers often drive sensible cars and live in modest houses. "Their small offices won't be cluttered with sales trophies," says Mr. Rustand, a former broker.
They are "personally frugal and try to keep their client costs at 1 per cent or below, knowing that the lower their costs, the better the client's return," he says.
Remember that every dollar that goes into your adviser's pocket is one that doesn't stay in yours.
I drive a Jeep Wrangler (4 door).
More info ? Call me, or email me: jstomenson@wellwest.ca
Follow me on Twitter at JSTomenson
http://www.theglobeandmail.com/globe-investor/investment-ideas/features/investor-clinic/do-your-homework-to-find-adviser-best-for-you/article1367571/
Here's a checklist if you're shopping for a financial adviser, or if you want to evaluate the service you're getting from your current one. My comments in bold.
1. Fees are transparent
Low fees are one of the most important ingredients in a successful investing plan, but many investors have no idea how much they're paying or how their adviser is compensated.
Good advisers make the information available in plain English and are happy to answer questions. "It needs to be straightforward and in writing," Mr. Heath says.
We are fee based for most clients. Depending on complexity and size of investible assets, between .75 and 1.25%. That includes cash-flow and risk analysis, strategic asset allocation and tax efficient, comprehensive wealth management plan.
Portfolio management will cost an additional .60 to 1.0% depending on the manager, portfolio size and strategy complexity.
Also included is on-going monitoring and regular updates according to the client’s wishes.
2. They were recommended
Getting invited to a free dinner at a ritzy club may make you feel special, but it's no way to hire an adviser. The best advisers are those that come highly recommended by someone whose opinion you trust.
But don't stop there: Ask the adviser for a couple of other references, and be sure to call them. You'd do this when hiring a contractor, so do just as much research - if not more - when selecting someone to manage your money.
www.jstomenson.ca
http://www.wellingtonwest.com/advisors/jstomenson/WhatOurClientsSay.aspx
3. They pass the "like" test
Money can be a touchy topic, so if you want to have a productive relationship with your adviser, you'll have to feel comfortable opening up to him or her. But you won't do that if you don't hit it off on a personal level.
"You need to have someone you can confide in and somebody you can trust and tell them the whole story. If you can't tell them everything, you're not going to get the best possible advice," says Jim Ruta, author of Master Your Money Management: How to Manage the Advisors Who Work for You.
Too busy to come and see us? We’ll come to you if you want…we’ll even bring lunch!!
4. They use plain language
"The financial business is so overrun with jargon and complicated language that some folks say yes to things they don't understand," says Mr. Ruta, a Burlington, Ont.,-based consultant to the financial industry. "Unless you can understand your adviser they can't help you."
There is no such thing as a stupid question.
Read Stuart Lucas’ Wealth, we think it is accessible and very client oriented.
5. They have a process
The best advisers explain, in writing, the process they will follow to meet your financial goals. The "client connection letter," as Mr. Ruta calls it, might include a description of the investment products to be used (stocks, bonds, mutual funds or exchange-traded funds), how the adviser is compensated (commissions or asset-based fees) and the frequency of adviser-client meetings.
http://www.wellingtonwest.com/advisors/jstomenson/ourProcess.aspx
6. They favour lower risk
Instead of trading frequently and trying to make a big score on a speculative stocks, good advisers follow a boring approach.
"While they may hold stocks, they are usually just the big-name financials, utilities, resource companies, and they don't trade them," says Garth Rustand, founder of the Vancouver-based Investors-Aid Co-operative of Canada.
Good advisers also don't claim to have any special ability to predict what the market will do. Rather, they recommend indexing - buying and holding low-cost ETFs or mutual funds that track broad market indexes.
Lower risk, well balanced across multiple asset classes, lowers volatility. Volatility is in the long-term (20to 30 years) very harmful to a portfolio.
Read : The Informed Investor: Five key concepts for financial success under “our process” on our website.
7. They aren't into bling
The best investment advisers often drive sensible cars and live in modest houses. "Their small offices won't be cluttered with sales trophies," says Mr. Rustand, a former broker.
They are "personally frugal and try to keep their client costs at 1 per cent or below, knowing that the lower their costs, the better the client's return," he says.
Remember that every dollar that goes into your adviser's pocket is one that doesn't stay in yours.
I drive a Jeep Wrangler (4 door).
More info ? Call me, or email me: jstomenson@wellwest.ca
Follow me on Twitter at JSTomenson
Tuesday, October 13, 2009
Risk: too much or not enough?
Many of the new clients who have come to me in the last 6 months did not have a strong understanding of the composition of risk in their investment portfolios and in the structure of their net worth prior to the economic downturn and ensuing stock market volatility last year.
Just like any business enterprise , the composition of your family's net worth is crucial in determining where you sit on the risk spectrum.
Now that your investment assets ( stocks, bonds, managed funds, private equity holdings, etc. ) have bounced from the early March lows, it may be considerably less painful to spend the time to re-assess your current balance sheet.Breaking your holdings out into %'s on a relative basis will give you a general overview :
Assets:
1) Investment (non-reg. / reg (RSP/RIF)
a) Liquid
b) Less liquid (penalties for early selling/ limited market for re-sale)
- Asset class : Fixed Income (Bonds/Debentures), Preferred Equity, Common Equity, Private Equity (including your own business)
- Economic Sector
- Geographic Location
2) Fixed assets: property
Liabilities:
Debt should be assigned to any of the above asset classes for a true picture of (net assets) risk.
After establishing your Net Worth and the risk apportioned to each sector and/or sub-sector, it is necessary to create a cash flow analysis from which to regard your lifestyle needs.
Simply:
Income (less taxes) less Lifestyle Expenses = either positive cash flow to be added and apportioned to your investments or negative cash flow from which we need to draw from your liquid investments (and cash holdings).
Your cash flow, now and projected into the future (either negative or positive) will then determine how your investments need to be structured.
In which case you need to look back to those %'s that you attached to your assets and make sure that there is appropriate liquidity, appropriate (or not) income being generated, appropriate allocation (or not) to investments with greater potential for growth ( and likely greater volatility).
Now that your statements are looking a little better and interest rates are the lowest in years (and will likely not remain low beyond the next 6 months) it is worth taking the time to re-assess.
There is still considerable uncertainty over the fragility of the economic rebound, which has gathered strength with enormous assistance from government spending.
There is substantial debate amongst the experts as to the timing of the recovery and the possible consequences that may result.
Understanding the risk that you carry becomes even more important as a result of this uncertainty.
I have spent 28 years analyzing risk, let me know if i can help you.
Monday, September 14, 2009
The mistakes we make—and why we make them
The Wall Street Journal, September 2009
How investors think often gets in the way of their results.
Meir Statman looks into our heads and tells us what we’re doing wrong.
(Dr. Meir Statman, Glenn Klimek Professor of Finance at the Leavey School of Business at Santa Clara University, is an industry expert and consultant to the Nxt Funds and Wellington West Asset Management Inc. Investment Committee)
What was I thinking?
If there’s one question that investors have asked themselves over the past year and a half, it’s that one. If only I had acted differently, they say. If only, if only, if only.
Yet here’s the problem: While we know that we made investment mistakes, and vow not to repeat them, most people have only the vaguest sense of what those mistakes were, or, more important, why they made them. Why did we think and feel and behave as we did? Why did we act in a way that today, in hindsight, seems so obviously stupid? Only by understanding the answer to these questions can we begin to improve our financial future.
This is where behavioral finance comes in. Most investors are intelligent people, neither irrational nor insane. But behavioral finance tells us we are also normal, with brains that are often full and emotions that are often overflowing. And that means we are normal smart at times, and normal stupid at others.
The trick, therefore, is to learn to increase our ratio of smart behavior to stupid. And since we cannot (thank goodness) turn ourselves into computer-like people, we need to find tools to help us act smart even when our thinking and feelings tempt us to be stupid.
Let me give you one example. Investors tend to think about each stock we purchase in a vacuum, distinct from other stocks in our portfolio. We are happy to realize “paper” gains in each stock quickly, but procrastinate when it comes to realizing losses. Why? Because while
regret over a paper loss stings, we can console ourselves in the hope that, in time, the stock will roar back into a gain. By contrast, all hope would be extinguished if we sold the stock and realized our loss. We would feel the searing pain of regret. So we do pretty much anything to avoid that pain—including holding on to the stock long after we should have sold it. Indeed, I’ve recently encountered an investor who procrastinated in realizing his losses on WorldCom stock until a letter from his broker informed him that the stock was worthless.
Successful professional traders are subject to the same emotions as the rest of us. But they counter it in two ways. First, they know their weakness, placing them on guard against it. Second, they establish “sell disciplines” that force them to realize losses even when they know that the pain of regret is sure to follow.
So in what other ways do our misguided thoughts and feelings get in the way of successful investing—not to mention increasing our stress levels? And what are the lessons we should learn, once we recognize those cognitive and emotional errors? Here are eight of them....
No. 1: Goldman Sachs is faster than you.
There is an old story about two hikers who encounter a tiger. One says: There is no point in running because the tiger is faster than either of us. The other says: It is not about whether the tiger is faster than either of us. It is about whether I’m faster than you. And with that he runs away. The speed of the Goldman Sachses of the world has been boosted most recently by computerized high-frequency trading. Can you really outrun them?
It is normal for us, the individual investors, to frame the market race as a race against the market. We hope to win by buying and selling investments at the right time. That doesn’t seem so hard. But we are much too slow in our race with the Goldman Sachses.
So what does this mean in practical terms? The most obvious lesson is that individual investors should never enter a race against faster runners by trading frequently on every little bit of news (or rumors).
Instead, simply buy and hold a diversified portfolio. Banal? Yes. Obvious? Yes. Typically followed? Sadly, no. Too often cognitive errors and emotions get in our way.
to be continued..........
How investors think often gets in the way of their results.
Meir Statman looks into our heads and tells us what we’re doing wrong.
(Dr. Meir Statman, Glenn Klimek Professor of Finance at the Leavey School of Business at Santa Clara University, is an industry expert and consultant to the Nxt Funds and Wellington West Asset Management Inc. Investment Committee)
What was I thinking?
If there’s one question that investors have asked themselves over the past year and a half, it’s that one. If only I had acted differently, they say. If only, if only, if only.
Yet here’s the problem: While we know that we made investment mistakes, and vow not to repeat them, most people have only the vaguest sense of what those mistakes were, or, more important, why they made them. Why did we think and feel and behave as we did? Why did we act in a way that today, in hindsight, seems so obviously stupid? Only by understanding the answer to these questions can we begin to improve our financial future.
This is where behavioral finance comes in. Most investors are intelligent people, neither irrational nor insane. But behavioral finance tells us we are also normal, with brains that are often full and emotions that are often overflowing. And that means we are normal smart at times, and normal stupid at others.
The trick, therefore, is to learn to increase our ratio of smart behavior to stupid. And since we cannot (thank goodness) turn ourselves into computer-like people, we need to find tools to help us act smart even when our thinking and feelings tempt us to be stupid.
Let me give you one example. Investors tend to think about each stock we purchase in a vacuum, distinct from other stocks in our portfolio. We are happy to realize “paper” gains in each stock quickly, but procrastinate when it comes to realizing losses. Why? Because while
regret over a paper loss stings, we can console ourselves in the hope that, in time, the stock will roar back into a gain. By contrast, all hope would be extinguished if we sold the stock and realized our loss. We would feel the searing pain of regret. So we do pretty much anything to avoid that pain—including holding on to the stock long after we should have sold it. Indeed, I’ve recently encountered an investor who procrastinated in realizing his losses on WorldCom stock until a letter from his broker informed him that the stock was worthless.
Successful professional traders are subject to the same emotions as the rest of us. But they counter it in two ways. First, they know their weakness, placing them on guard against it. Second, they establish “sell disciplines” that force them to realize losses even when they know that the pain of regret is sure to follow.
So in what other ways do our misguided thoughts and feelings get in the way of successful investing—not to mention increasing our stress levels? And what are the lessons we should learn, once we recognize those cognitive and emotional errors? Here are eight of them....
No. 1: Goldman Sachs is faster than you.
There is an old story about two hikers who encounter a tiger. One says: There is no point in running because the tiger is faster than either of us. The other says: It is not about whether the tiger is faster than either of us. It is about whether I’m faster than you. And with that he runs away. The speed of the Goldman Sachses of the world has been boosted most recently by computerized high-frequency trading. Can you really outrun them?
It is normal for us, the individual investors, to frame the market race as a race against the market. We hope to win by buying and selling investments at the right time. That doesn’t seem so hard. But we are much too slow in our race with the Goldman Sachses.
So what does this mean in practical terms? The most obvious lesson is that individual investors should never enter a race against faster runners by trading frequently on every little bit of news (or rumors).
Instead, simply buy and hold a diversified portfolio. Banal? Yes. Obvious? Yes. Typically followed? Sadly, no. Too often cognitive errors and emotions get in our way.
to be continued..........
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