Tag: bonds

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Investing

Questrade Mutual Fund Fee Rebate And Free Transfer Offer

Questrade discount brokerage has just come out with a great way for retail mutual  fund owners to save on high management fees by offering to rebate up to 1% of those  fees.

What’s the deal with the Questrade mutual fund rebate?

Questrade will rebate up to 1% of the management fee for any mutual funds  held at Questrade.  This amount has to exceed $29.95 per month for the  investor to get any rebate.  This means that you need to have more than $36,000 in mutual funds before the rebate kicks in.

How is this possible?

When an investor buys a mutual fund from an advisor then the advisor is paid  a “trailer” each year which is based on the amount of the investment.   Typical trailers for equity mutual funds are 1%.  Bond and money market funds  will be lower.  The amount Questrade will rebate will be equal to the trailer  paid on the funds you owned.

The problem is for a do-it-yourself investor who wants to buy retail mutual  funds is that they can only buy them through an advisor or a discount  brokerage and they are charged for the trailer even if they don’t have an  advisor.  With this new program the investor will be able to save most of the trailer amount.

How much will it cost to transfer my mutual funds to Questrade?

If you transfer before March 2, 2009 from a different financial institution and transfer at least $25,000 then it will be  free of charge.

How much are mutual fund trading fees?

Questrade charges $9.95 per mutual fund trade.

I don’t have $36,000 – is it still worthwhile?

Depends on the situation – if you are close enough to $36k (ie $30k or more)  and will be buying more mutual funds then it might be worth doing even though  you won’t get the rebate for a while.  At the very least it won’t cost you  anything.

Another situation might be if you have some back-end funds that you don’t want to pay commissions on.  If you are planning to just buy low cost ETFs then you might consider moving the mutual funds to the same institution.

Where do I sign up?

Click on the banner below or on any of the links you see in the article.

I demand more information!

Check out my Questrade discount brokerage review and my Questrade referral promotion articles for more information.

Is it really cheaper to pay $10 per trade rather than get my advisor to do it for me?

Let’s look at an example – say you have $100k in mutual funds with an average mer of 2.5% and the only service you get from your “advisor” is he completes 12 trades per year for you “free of charge”.

With the advisor you will pay a total of $2,500 per year for the fund management, the advisor’s services and the 12 trades.

With Questrade you will get a rebate of $1,000 (approx) and you will pay $120 for the trading fees for a grand total of $1620 for the fund management and the 12 trades.

$2,500 (current fees) – $1620 (Questrade fees) = a savings of $880 per year.

Personally, I’d rather invest in passive index funds and ETFs which are way cheaper (also available at Questrade) but for anyone who wants to own retail mutual funds – this is a great deal.

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Investing

Why Retirees Need Equity In Their Portfolios

One of the standard pieces of advice for retirees is that they have to have a very conservative portfolio since they are too old to take any chances with equities. There are “rules” around what percentage of fixed income (ie bonds) a retiree should have. “90 minus your age” is one that I’ve heard a lot.

These rules were probably pretty good guidance at a time when your average retiree finished work at 65 and could reasonably be expected to live for another ten years or so. With a short term investment horizon it didn’t make sense to invest a lot of money in equities because the retiree wouldn’t live long enough to recover from any major losses. Inflation was also not a major concern since the time line was fairly short.

Fast forward to now and there are two major differences in retirees – first of all they are retiring earlier which lengthens the retirement time and they are living longer which of course also increases the retirement time which in turn means that they have a longer investment time horizon so a higher allocation of equities is appropriate. Typically most financial planners will assume an estimate lifetime of around 90, so if an investor retired at aged 60 and lived until age 90 – that’s a 30 year time horizon.

You might be asking – who cares how long the retirement lasts for? Shouldn’t you just be conservative and buy guaranteed fixed income products or annuities and live off the payments? One problem is that while retirees might be living longer once retired, they aren’t working longer, in fact they might even have slightly shorter careers on average so current retirees might not have any more money saved (adjusted for inflation) than someone who retired a generation or two ago and they are less likely to have any kind of company pension plan to help fund the retirement.

The reality is that historically equities have outperformed bonds by a long shot. According to William Bernstein – author of “The Four Pillars of Investing”, two reasons to invest in equities are for the higher expected return and because equities can keep up to rising inflation. If you are retired and your portfolio is entirely fixed income (or annuity) you might run into the problem of a steadily lower standard of living if inflation increases.

Other reasons to invest in equities are that interest is taxed at a higher rate than dividends and capital gains (in Canada and USA) so you will probably be better off if you can only pay dividend and capital gains taxes rather than income tax on interest payments.

What to do?

The answer is two fold. First of all, retirees should have a significant equity holding in their portfolio. Bernstein recommends anywhere between 50% to 75% equities depending on your tolerance for risk. One of the key points that Bernstein emphasizes is that whatever asset allocation you choose, you have to stick with it so pick an allocation that you can handle in rough times. If you choose a higher percentage of equities and then sell when the equities drop and then buy back in when they go up, then you will be further behind compared to if you had just picked a more conservative portfolio and stuck with it. Even if you choose to have an equity allocation of less than 50% then stick with that allocation.

Tomorrow we’re going to discuss the 4% withdrawal rule which will help determine when you can retire.

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Investing

My New Asset Allocation (Part XIV)

Yes, that’s right – after reading countless books and posts about asset allocation and writing several convoluted and contradictory posts on the topic myself, I’ve finally decided on an asset allocation model for our investments. The problem with asset allocation is that there is a lot of theory behind various models and the more you know about the subject then the more confused you will probably get. I’ve concluded recently that maybe just picking a simpler asset allocation is probably the best approach since I’m not sure how much it really matters what your exact asset allocation is, as long as you pick one and stick with it.

And now (drum roll please..) on with the allocation!

Equities vs Bonds

The split will be 75% equities and 25% bonds. I like to have a fairly aggressive portfolio but at the same time the bonds will steady the returns and will also allow for more equity purchases in case the equity markets go off a cliff. According to Mr. Bernstein, 75% equity gives you the maximum benefit from owning equities.

Equities 75%

These percentages are of the equity portion (not percentage of the total portfolio).

Canadian equity – 25%

US equity – 37.5%

International equity – 37.5%

Bonds – 25%

20% is a short term Canadian bond ETF (iShares XSB) and some GICs.

5% is a real return bond ETF (iShares XRB). Real return bonds are a hedge against inflation and are supposed to be negatively correlated with regular bonds.

Other asset classes?

What about real estate and emerging markets? I’ve decided not to invest in those right now because both of these classes have done so well in the past several years that it’s hard for me to justify buying them. I’m also not convinced that emerging markets are all that great an investment. When you consider the exposure that a lot of North American companies have to developing markets, I already have enough emerging market in my portfolio.

Anybody want to share their asset allocation philosophies?

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