Ellen Roseman Toronto Star columnist [email protected] www.ellenroseman.com ¡  It’s the course I teach at University of Toronto since 2006 ¡  Many students have a mutual fund portfolio chosen by a broker or fund dealer §  They don’t know what they own §  They don’t know what they pay for advice §  They don’t know what their return is §  They DO know they’re not making much money and could do better with a different approach ¡ 
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If you invest $100,000 in a stock portfolio that averages 10% a year for 25 years, you end up with $1.08 million Now suppose you put a mutual fund bureaucracy between you and your stock ownership § 
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The funds have annual expenses of 2% Your return is reduced to 8% a year You end up with $685,000, a difference of $400,000+ Your nest egg is almost 40% less “With enough people investing and paying fees, you can see why there are so many luxury cars being driven around Bay Street,” says author Derek Foster in The Lazy Investor ¡ 
Start learning about investing ▪  It’s NOT that hard ¡ 
Be accountable for your results ▪  Track your returns each year ▪  Set goals and measure progress ¡ 
Make a few decisions ▪  Do it yourself ▪  Active vs. passive ▪  Rebalancing ¡  Here are the winning conditions The people who sell mutual funds have a duty to sell you suitable investments ¡  They don’t have a duty to put your interests ahead of their interests ¡ 
§  Suppose there are two funds with the same returns and risk level §  One has an expense ratio of 1.5%, the other 2.5% §  Which one do they choose? §  Both are suitable, but only the lower cost fund serves your interests ¡ 
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Ask for referrals from friends Interview at least three people §  Can you show me a sample investment plan? §  Can you tell me what you’re licensed to sell? §  Can you tell me how you’re paid (fees or commissions)? §  Can you explain the initials after your name? §  Can you track my annual returns against a benchmark? §  Can you give me names of a few clients to call? ¡  You save money in commissions and fees ¡  You learn to make your own decisions ¡  You can act quickly to buy and sell ¡  You can manage and control taxes ¡  You can buy the low-­‐cost index or exchange-­‐traded funds that many advisers don’t like to sell ¡ 
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You check your account too often You make too many or too few trades ▪  “Analysis paralysis, waiting for the right time to act,” says Dan Bortolotti in the Canadian Couch Potato blog ▪  You may not realize there is never a time when investing a lump sum feels good ¡ 
You sell too quickly in a crisis ▪  Dalbar surveys show most investors get lower returns than the funds they hold because they flit in and out ¡ 
You get too attached to your investments ▪  Ride them right down to the bottom ¡ 
You resist simple solutions ¡ 
Costs are one thing you can control ▪  Passive management has lower costs and outperforms 80% of actively managed funds ▪  With a few index funds, you can own the world ¡ 
Canadian Couch Potato has model portfolios ▪  Global couch potato (Canadian, U.S. and international stocks, bonds) ▪  Complete couch potato (adds emerging markets, real return bonds and real estate investment trusts) ▪  The Uber-­‐Tuber (has value stocks and small cap stocks, which tend to have higher returns than overall market) ¡  You can buy low-­‐cost index funds from banks ▪  Works for people with small amounts to invest on a gradual basis ▪  TD e-­‐series funds have lowest costs (under 0.5 per cent) ▪  ING Direct has Streetwise Portfolios with rebalancing and 1.07% annual expenses ¡  You can buy exchange-­‐traded funds through an online broker ▪  Works for people with $50,000 or more in assets who add new money annually rather than monthly ¡  If you haven’t put in the $25,500 maximum, catch up now ¡  Put in another $5,500 on Jan. 1, 2014 ¡  Track contributions to avoid tax penalties ▪  Check the rules at the Canada Revenue Agency website, http://www.cra-­‐arc.gc.ca/tfsa/ ▪  Read Gordon Pape (How TFSAs Can Make You Rich) and follow his model portfolios ▪  With a TFSA, unlike an RRSP, you know all the money is yours and you never pay tax on withdrawals ¡  Look for reliable Canadian dividend stocks §  They include banks, pipelines, utilities, telecoms, transport and real estate §  Invest directly in the stocks or buy dividend ETF (such as iShares CDZ or XDV) §  Reinvest dividends with a broker or use a company’s dividend reinvestment plan (DRIP) §  You can accumulate shares commission-­‐free §  Warning: You need to keep good records to determine your cost basis ¡  Canadian Dividend Reinvestment Plans, http://cdndrips.blogspot.ca ¡  “Show me the money: Why I’m a dividend Investor,” John Heinzl, Strategy Lab, www.theglobeandmail.com ¡  The Ultimate Dividend Playbook by Josh Peters of Morningstar Dividend Investor ¡  Canadian MoneySaver (DRIPs with SPPs) ¡ 
Do it yourself investing can be lonely §  Subscribe to advice newsletters, e.g. Gordon Pape or Patrick McKeough §  Listen to Preet Banerjee’s podcast, Mostly Money, Mostly Canadian, at iTunes stores §  Follow the experts’ advice on BNN at StockChase §  Find a share club at CanadianMoneySaver.ca §  I started a club that meets at the Miles Nadal JCC §  http://ellens-­‐degenerates.blogspot.ca/