It amazes me that millions of Canadians have billions of dollars invested in Money Market Funds (MMFs) that are earning no interest for all intents and purposes. In fact in the six months to the end of 2009, the average Canadian Money Market Fund earned just 0.02% after costs.*
The potential opportunity cost for Canadians is between $300 million and $400 million. That is because secure, higher interest savings options do exist. We know this because we use them for our clients.
So why are Canadians not selling their MMFs and finding better alternatives? Here is what I think:
• Investors are unaware that they are not earning any interest on their MMF investments.
• Inertia – it’s easier to do nothing than do something.
• Advisors are not incentivized – There is a lot of work and administration and very little (or no) compensation related to moving clients into higher yielding savings vehicles.
• Investors are stuck in Deferred Sales Charge funds and would pay a redemption fee to get out, thus negating the benefit of earning more interest.
None of the above reasons are acceptable in my view. If you own a money market fund, ask your advisor what you are earning on it and why you haven’t been presented with a better alternative.
I was having coffee with a friend recently who has three beautiful daughters age 6 and under. She asked me when I began giving my soon-to-be 11 year old daughter Rachel an allowance.
Now, there are many philosophies on the subject, and sharing my own is not meant to be prescriptive. I do find, however, that people tend to be interested in my personal money decisions given that I give so many people financial advice. (yes, I practice what I preach!).
My daughter started getting a weekly allowance about 3 months ago. Here is how it happened:
I was preparing dinner after work and she was doing her homework at the kitchen table. Out of the blue she said, “Mom, when can I get an allowance?”
Me: “Why do you ask?”
Daughter: “Well, my friends get an allowance.” (bad answer)
Me: “What would you spend an allowance on?”
Daughter: “hmmmm, well, birthday presents and mother’s day and father’s day presents. Stuff like that. (good answer!) And I will do chores around the house.”
Me: Rachel, your responsibilities at home are yours whether or not you get an allowance. Everyone in the family pitches in, even though we don’t get paid for it. That will not change. Dad and I will discuss this and let you know.
We did discuss it, and neither of us have anything against giving Rachel an allowance. She has learned the value of money over the years and when she has received gifts in the form of cash, she hands over most of it for her savings account. So, having a little spending money for presents etc. will get her used to making buying decisions.
We surveyed a number of parents and found out that the going rate within her group of friends is $5. Wow, when I was a kid it was 50 cents! But back then, I could buy two chocolate bars for 50 cents.
So, how is it going? Pretty well I think. She has made a couple of purchases, but has also been saving. Just this weekend she mentioned that she is saving up for a laptop. Good thing they get less expensive every day!!!
Feel free to share your allowance stories. I’d love to hear them!
We ask a lot of questions before developing an investor policy statement for our clients and one of them is about their rate of return expectations.
But we don't ask with the intention of developing a portfolio designed to achieve those expectations. So why bother asking?
Well, we ask to get a sense of how much, and what type of client education will be necessary when we present the optimal portfolio.
One of the things we might discuss is the impact of volatility on returns. Here is a theoretical illustration to prove the point:
Beginning investment $100,000
Now, we realize that these numbers are constructed to illustrate the point, but the point is an important one nonetheless.
Individuals seeking double digit returns will typically purchase the Portfolio B investment in year three or four after the great returns have come to their attention. Then they experience the declines of years five and six. Typically, by year seven a number of them will decide that it wasn't such a good investment after all and sell at a loss. With this kind of volatility, most investors don't hold on long enough to receive the average 6.5% rate of return. And the bad news is that even if they were invested for the full 10 years, the 6.5% average gets them less money at the end of the day than the boring portfolio that generates 6% each year.
The bottom line is that volatility and sequence of returns matter. More on both of those subjects to come.
Since May 1, 2010, travellers must present proof of health insurance in order to enter the country. Upon arrival, travellers may be required to present an insurance policy, insurance certificate, or medical assistance card valid for the period of their stay in Cuba. Those who do not have proof of insurance coverage may be required to obtain health insurance from a Cuban insurance company when they arrive.
Although proof of Canadian provincial health insurance is sufficient for visitors to enter Cuba, your provincial plan may cover only part of the costs and will not pay the bill up-front, as required. It is therefore recommended that travellers purchase supplemental health insurance. Note that some private insurers also require the traveller to pay costs up-front and be reimbursed later. Travellers should note that Cuban authorities will not allow anyone with outstanding medical bills to leave the country.
If you have travel medical insurance through your employee group benefits or as a credit card benefit, read the fine print and ensure that the insurer will pay for medical expenses up front. If not, ensure that you have easy access to cash in the event of a medical emergency or purchase a separate policy that will pay expenses up front. For example, Manulife Financial Travel Medical Insurance will pay expenses up front if they are contacted as soon as the illness or accident occurs. Otherwise, you are on the hook for 25% of the costs.
All health insurance policies are recognized, except those issued by U.S. insurance companies, as they cannot provide coverage in Cuba.
A client of mine told me that her banker suggested that she might be able to reduce her account service charges if she switched to a "senior's account". My client was skeptical and had no intention to make the change.
I asked her what she pays now, and her answer was $25 per month. Now, $300 per year seems like a sizeable amount to me (I pay $60 for unlimited activity) and I suggested that the alternative being suggested may indeed save her a few dollars.
So, why was she skeptical? There are two reasons in my opinion.
1. Baggage - The banks have focused so much of their efforts trying to upsell and cross sell products to their customers, that customers regularly question whose best interest is at heart. This will take a cultural change at the banks, and a lot of time, to overcome.
2. They still don't get it - How did this banker endeavor to convince my client that she would be better off with a different type of account? She handed my client a glossy brochure highlighting the advantages of the "senior's account". This is a not so subtle message to the customer to "figure it out yourself".
Rather than miss out on potential savings, I told my client to go back to the banker and ask for an illustration on how much she would save by switching - using her individual transaction history for the illustration. In my practice that's the approach I take when illustrating why one financial decision is preferable over another. Time consuming? Yes. A better result for clients? Definitely.
Great customer service is more than handing out a brochure. Insist that you get it.
Clients sometimes ask which credit card I use when they are considering the myriad of options.
Ultimate this, infinite that, gold, silver, platinum.....an almost endless list of choices.
One of my life philosophies is simplicity, so the obvious choice for me is PC Financial Mastercard.
There is no annual fee and points on all purchases equate to 1% cash back.
I can redeem my points for a bunch of items from the PC Financial online store, but the best value is using the points to buy groceries at Loblaws. I shop at Loblaws or No Frils (a Loblaws division) weekly, so as soon as I rack up points I can redeem them. Just yesterday I got three large bags of king crab legs for the value of my points!
By being able to redeem for groceries I know that my points will never languish unutilized for months or years and I get real value once a month (everytime I pay my monthly Mastercard bill).
So, my card may not be fancy and may not impress anyone when I flash it, but when my family digs into crab legs with melted butter oohing and aahing, the reward is.........priceless.
If after reading that tip, you are still here, that is a good sign. For many, the idea of cooking most meals at home is simply too overwhelming to consider. Keep reading though, because the returns on this tip are more than just financial.
For working professionals and families, dining out is one of the largest variable expenses.
Dining out sounds fancy, but it includes family meals at Swiss Chalet, ordering in Pizza or Sushi, or having dinner out in a moderately priced local restaurant. And of course it includes those special occasion meals. It can add up to hundreds of dollars each month, thousands each year.
I started cooking for real six years ago at the age of 37. Before that my repetoire consisted of spaghetti, omelets, and the odd stir fry. I regularly heated up prepared, frozen food. Then I moved in with my (now husband) Clifford, two of his children and my daughter. Clifford is traditional. Only nutritional homemade food will do for the nightly family meal. Since he had committed to doing the laundry, yardwork, and general maintenance, I could hardly say no.
The solution? www.recipezaar.com and some planning and discipline. Each Friday night I make a meal plan and grocery list (usually built around the Loblaws flyer). I shop on Saturday and have the recipes set up for the week. If I am out on Friday night I do it on Saturday morning.
I must say, that as a working parent, most days when I get home from work I'm not overflowing with energy, but that's where the discipline part kicks in. And the sous chefs.....I get the kids (and sometimes Clifford) involved chopping, setting the table and cleaning up. We have fun chatting about the day, and doing some general horsing around. It's wonderful together time and they are learning important life skills.
Try it....your health, family dynamic and budget will all benefit.
The weather, the shows, the restaurants and yes....the casinos.
So how do I reconcile my healthy relationship with, and respect for, money with the fun of slot machines?
Well, as with so many other things I set a budget and stick to it. Now by most measures my budget is laughable. I set myself a daily budget of $40. That's $20 during daytime hours and $20 during nighttime hours. It works because of a fabulous invention called the "penny" slot machine. During a visit to Las Vegas about 6 years ago, I discovered that if I bet 9 cents each time I can make $20 last about 2 hours. Sometimes that $20 becomes $25 or even $40 and sometimes I lose it all but I figure that if I lose $20 over 2 hours that is pretty good entertainment value at $10 per hour. (and they serve free drinks to me all the while!!!). When I walk away with more than $20 it is with a skip in my step and the feeling that I "won" by being ahead.
Now when I tell people about my approach, they usually laugh, or roll their eyes. "You can't win much that way" they say. And I tell them that they are absolutely correct, which is fine with me. That's because I know that the odds are stacked against me and that all casino games are designed to separate partipants from their money. I truly don't believe that I can beat those odds and because of that I don't put at stake any more than I am comfortable parting with. Whereas the majority of gamblers cling to the belief that they will be one of the few lucky ones.
The casinos use every psychological trick in the books to encourage visitors to part with more and more cash. It takes a lot of discipline not to get caught up in it all. The same kind of discipline is helpful in all financial endeavors, whether it's saving, investing or spending.
I'm off to Las Vegas tomorrow morning. Wish me luck! ;-)
Some of our clients call us nags and we thank them for the compliment.
Actually, because we believe in complete professional transparency, we tell prospective clients up front that nagging is part of our job.
As a result, 95% of our clients have well crafted Wills and Powers of Attorney. We know how important these documents are for individuals of any age and our value as advisors is diminished if this piece of the financial plan is not completed.
So we nag.
We even draft up instructions and deliver them to the lawyer for review and discussion with the client if that will move things along. Whatever it takes, really. It is just not good enough to think that our responsibility ends when the recommendation to get Wills and Powers of Attorney completed is given. We know that human nature often puts this task at the bottom of the "to do" list.
So what about the 5% who don't have these documents complete yet? Well, we are still nagging them.......!!
We just received our first electricity bill featuring the new Time-of-Use rates.
Since receiving the details of the new rates a few months ago, in our home we have
been trying to shift our energy usage to the off-peak times as much as possible. Why? Well, the cost of energy on peak is more than twice the cost of energy off peak.
So how did we do at our home? I give us a B+
Our overall energy usage in February and March was 34% lower than the same period last year. That's moving in the right direction.
64% of our usage was during off-peak hours
12% of our usage was during mid-peak hours
24% of our usage was during on-peak hours
That is a reasonable mix but not enough to earn an A+
The other reason why there is room for improvement is that the bill was still high at $183.
Granted, if we hadn't shifted some of our energy use to off peak hours, the bill could have
been as high as $250.
If you haven't familiarized yourself with the new rate system, go to