Slowest cinnamon buns EVER!!!!!

On Thursday morning as I watched the kids while my wife was in surgery, I decided to make cinnamon buns for when she got home. The recipe usually takes about 5 hours from mixing to completion but it is worth it. This time the buns were proofing in the pan right when I had to leave to pick up Sacha from school and go to swimming lessons with all three kids. My plan was to leave them just a little longer than prescribed and bake them when we got home. When I got home, I could smell cooked cinnamon buns as I got out of the car. Sarah had decided to surprise me and bake them for me. It was a nice thought. But she was still legally impaired as she had been under anesthesia just that morning. So she slept through the oven timer buzzing. And then some. An hour and a half AFTER they were due out of the oven, she woke up to a dozen charcoal briquettes. Fail number one.

Then Saturday night, I decided to try again. The kids had been at Carnaval all day with me and passed out early as a result. So I had some time and planned on doing the first stage of the process and then retarding them in the fridge over night. Well, ten minutes into kneading, Sacha woke up with a ridiculous fever and I ended up at the hospital until ten. When I got home, I finished kneading the dough and then put them in the fridge even though that is not the point in the process in which they are supposed to go in the fridge Then this morning both Sacha and Sarah had to return to the hospital so while I looked after the other two I tried to finish my cinnamon buns, which I did, but slowly.

So now, I present to you a new take on an old classic, what I have dubbed the 72 hour cinnamon bun!

My history brought to life

As president of the Peace River & District Chamber of Commerce, I get to chair our board meetings and our general membership meetings. The GM meetings are a lot of fun as we bring in guest speakers and it is open to the broad membership to attend. Depending on the month, we get anywhere from 30-60 people in attendance. This week we were lucky enough to hear from a member of the Eugene, Oregon Rotary Club, who is in Peace River with a contingent from his club to adjudicate the awarding of a will bequest to a community building project in our town. You can read the fascinating history of this project here.

The presentation connected me to my past in ways I could have never imagined. As such, I decided to end the meeting by telling a little about my past and continue to be so proud of it that I've decided to repost it here.

The first part is about my miraculous maternal grandfather, Arnold Washburn Holmes. There is more history about this man than can fit in one blog post, but I will highlight the most fascinating parts of his life as far as my recollection goes. He was an active Rotarian and spent 6 summers studying for his Masters of Education at the University of Oregon in Eugene, Oregon, thus the recollection of my past when this stately Rotarian from the same city was presenting to our group. Grandpa Holmes spent many years as principal of Eastglen High School in Edmonton. He was also president of the Edmonton Food Bank for numerous years, and was instrumental in partnering the Food Bank with the annual Heritage Festival that attracts 100s of 1000s of visitors to Hawrelak Park every year for a celebration of food and culture. As well, if you take a trip to Hawrelak and are blessed enough to attend an outdoor concert under the cover of the beautiful auditorium there, you will find a plaque outside the gates memorializing those involved in the preparation and construction of this community gathering place. On that plaque is the name of my grandfather, a constant source of pride for me as I trek there every year, a culinary Mecca of sorts for my religious devotion to good food.

Grandpa was a consummate story teller and he availed me with many tales of his past. I'm not sure which are true and which were stretched truths, but they were always fantastic. But his community service and lasting impact on the city of Edmonton is as true as the sun rises in the east.

The second part of my past tells of my maternal great grandfather, the father-in-law of my grandfather mentioned above. This amazing man was named Eric Stephen Huestis, and his story is just as fascinating. I don't know all that happened in his life, but what I know is so amazing that every time I tell the story, no one believes me! If you want proof, go here. Great-grandpa was Deputy Minister of Forestry for Alberta many moons ago. He was part of a group that was tasked with taking Walt Disney himself around Alberta's forests for the purposes of filming and film research. In exchange for this hospitality, great-grandpa asked Mr. Disney if he would collaborate on a project to design a unique forestry mascot for Alberta, not wanting to adopt Smokey the Bear. Thus was born Bertie Beaver, our provincial forestry mascot ever since. On top of that, great grandpa did so much for the province that a mountain in the Alberta Rockies is named after him, Mount Huestis. And if you ever drive through Whitecourt in Northern Alberta, you may come across the E.S. Huestis Demonstration Forest, another project created in his memory.

Listening to that Rotarian from Oregon talk about the unique gift with which the town of Peace River has been blessed brought back memories long past. My heart flooded with pride for all those who have gone before me, whose blood flows within me. And this is to only mention two, and mentions not of my incredible paternal grandparents who risked everything and traveled to a strange land called Canada from their home in the Netherlands many moons past to create a beautiful home and life for all their children. Nor of the amazing women, my grandmother Marilyn and my great-grandmother Ivy, after whom my baby girl is named, who were the guiding forces and supportive partners of the men named above. And, of course, the legacy and impact of my parents, their children, is still being written.

And no matter where I go, no matter what I do, and no matter what I call myself, the legacy of all of them, their blood and their history, will course through my veins and make me who I am. I've never been more proud of my past.

Family dinner

Growing up, I was blessed enough to live in a house where family dinner was not just a weekly occurrence. It happened every single night. With rare exceptions, we were all at the table each night, eating home cooked meals. It was not long after my departure from this idyllic setting that I discovered this is a rare thing these days. It is so rare, in fact, that public health agencies and addictions services authorities now actively promote the importance of regularly sitting down for family supper.

The beauty family dinner repeatedly emphasized for me when I watch what must be one of the best TV dramas in years, Blue Bloods, every Friday night. You see, besides the complex crime dramas that unfold and the rich characters on display, the true beauty of Blue Bloods is in its unforgiving depiction of traditional family values, most notably expressed in its repeated display of the Reagan family dinner.

Now, I like to think of myself as a fairly progressive guy. I took my wife's name when we got married for crying out loud. But I also understand that there are some traditions that should be continued because of their overall benefit not only to society as a whole, but to individuals within society, and one such tradition is family dinners.

The benefit is not just perceived. Research demonstrates the positive impact of regularly eating together as a family, like here and here. It is obvious why this would be so. But the beauty of the Reagan family dinner on Blue Bloods, and in my humble opinion, the recipe for perfect family dinners, is its insistence on consistency of attendance, thoughtful thankfulness prior to dining, preparation of home cooked whole foods, and most importantly, lively discussion.

This weeks episode outlined some of the rules of the Reagan family dinner table.

1. Nothing is secret. All topics are fair game.

2. Everyone's opinion counts.

3. You can't be criticized for expressing your thoughts, only debated.

This is what dinner should be among families, particularly those with a significant population of mature individuals. Of course my family dinner involves the kids telling me about their day, Ivy being silly by spitting out applesauce, and us trying to keep them entertained long enough to stay at the table for a full meal.

But I dream of a day when I can have my children over to my house every Sunday with their children. Where we'll all do our part to prepare the meal and all give thanks for what we receive. Where we'll all be fearless about expressing our opinions, even on controversial, emotional subjects and in the face of seemingly irreconcilable differences. A day of consistency and security in an otherwise fast-paced, unpredictable life where all the worries of the week gone past fade and the challenges of the week ahead become irrelevant. Because all that matters in life is before us in that short, sweet gathering of those we love known as the family dinner.

Questions to Expose a Bad Advisor

What does one do if they really want their investment portfolio to do well but they really don't care for all the numbers and complexities of investing? Well, for one, if you can't take a bit of time to educate yourself on one of the most important financial decisions in your life, than I have no sympathy for you if your retirement goals come crashing spectacularly down when 60 rolls around. And if you think just having your bank advisor take care of everything will solve your problems, think again. If you are wise enough to have a professional fee-only advisor managing your investments, than you can probably rest easy. But for the rest of you, buyer beware if you are not educated.

The beauty is, very little education is necessary to give you the tools you need to ask smart questions. And smart questions often lead to dumb answers. And dumb answers lead to fired advisors which leads to better served investors. Read on to find some excellent places to start and then to read a great list of simple questions you can make your advisor sweat with.

First read this post on the 7 Most Common Investor Mistakes. It is great. Educate yourself further by reading books like The Wealthy Barber and Millionaire Teacher. They're accessible and fun. If you want just as excellent information but maybe in a less jovial presentation check out some stuff by David Trahair and The Little Book of Common Sense Investing. And if you want to completely immerse yourself, try a subscription to Money Sense. One issue will give you more financial knowledge than you've possessed in your entire life.

And start questioning your advisor. Ask him things like "Well, if you were so confident of these funds last year, why are you moving me this year? I trust your decisions and I would rather we stick with your first instinct." Make them develop an asset allocation that fits your needs and ensure they review your current portfolio status at least once a year to see if it aligns with your planned asset allocation. If you have more than 5 funds in your portfolio, start to ask some serious questions. If your advisor is contacting you more than once a year to change your fund purchase allocations, get a new advisor. They are churning your portfolio to get rich on commissions and aren't worth your time. It's not illegal but it sure as hell should be.

Some other questions to ask your advisor.

1. What is my internal rate of return over the last 1 year, 3 years, 5 years, since inception?

Any advisor worth their salt should be able to give you this information. If they hesitate, fire them. If they don't know what you are talking about, fire them and then tell all your friends to avoid them like the plague. In fact, post that on their door.

2. What is the aggregate MER of my mutual fund portfolio? Anything over 2% is seriously questionable and you best be seeing some absolutely mind blowing answers to the following questions to justify that charge.

3. Am I in any load funds?

Answer should be No. If even one answer is Yes, get out. You will likely be locked into those funds for 7 years without taking a penalty on sale of the units, but get rid of this advisor immediately. There is absolutely no justification for selling load funds.

4. Am I in any funds-of-funds? If the answer is yes, seriously reconsider this individual or institution. If they answer No to the following question, proceed cautiously but they can live another day. And that question is "Are the MERs of the underlying funds charged to the unitholders of the overlying fund?" If the answer is YES, get the sam hell out of there. You are getting charged TWICE.

5. How long have my funds been around? I once had an advisor try to sell me a fund showing me a performance chart from 2008. It looked like roses. Of course it did. The fund was born when the market was at its lowest point in decades. Everything has looked like roses with 2008 as a starting point. You should ideally be invested in funds that have 10 years of performance data. Leave plugging millions of dollars into shiny new funds to the other suckers out there. You are not one of them anymore.

6. How have my funds performed compared to their benchmark? If the benchmark is some really complicated name, be skeptical. If it is a big benchmark like the S&P 500, MSCI EAFE, TSX 60 or TSX Composite, then great. If they are underperforming their benchmark by anymore than 1%, they cannot possibly be justifying the expenses they are charging you. If they can't provide that info, that is terrible. Because you can get it for free at Globefund.com by comparing your funds performance to the index and comparing it to any index. So check it anyways for your interest. And then fire them. Conversely, you could check the numbers based on your last statement and then come in with a barrage of really tough questions about your fund performance. Ooh, that would make them sweat!

7. How could you assist me in constructing a portfolio of low-cost index funds or broad market ETFs? If they start going on about the pitfalls of index funds and ETFs and how they won't do it because it will hurt your investment outlook, get out now. If they are honest with you and say they recognize the strengths of those approaches but their company requires they sell their mutual funds in order for the "free" advice they provide you, then go ahead. Again, the key here is consistency. If you like and trust this person and they have you in a simple mix of broad based equity and fixed income funds and they don't stray from that approach, then you could do worse than to just stick with them.

As always, if they looked totally stunned, confused, blank, or otherwise threatened or frightened by your question, you should seriously consider leaving them. And I'm not joking. And I cannot emphasize enough that if you have an advisor selling you load funds, you need a new advisor.

In the end, if you feel too overwhelmed by the whole process but are very seriously concerned about the performance of your portfolio and you reaching your retirement goals, consider professional advice from a second party. Companies like Weigh House Investor Services offer services like PortfolioCheck where they look over your existing portfolio and give objective advice....well, basically on how bad it looks. They charge for the service of course, but if you are interested in leaving your existing advisor, they will also help point you in the direction of an investment manager they trust that will serve your needs better. Again, you will pay a bit out of pocket up front, but your long term returns will be substantially higher and compounded over your working life will mean a substantial increase in the size of your retirement fund. As a last resort of course you could e-mail MoneySense magazine and come grovelling on your knees requesting a Financial Makeover. You'll get all these experts pouring over your portfolio for free!

Please feel free to contact me with any questions. I am not a certified expert but I can often point you in the right direction.

The Devastation Wrought by Performance Chasing

As promised, I give you my third post on why using bank advisors, or really any commission-based or products-based advisor, is a bad idea for your retirement plans. The first was based on the historically higher expenses charged by this group of advisors. The second idea was what I've seen many people do which is hold all their money until February when they scramble to max out their RRSPs. Of course, my hypothesis that this would harm their long term returns was not upheld by the data, as I posted. But it is still a risky situation to put yourself in, if for no other reason than you may never get around to it and then you are leaving money uninvested that could be compounding its growth. This never was a great argument against advisors anyways since it is often the fault of the investor, not the advisor. Advisors would likely be just as happy to have those regular funds come in so they can collect regular trailer fees.

The common advisor practice of encouraging performance chasing is, however, the fault of the advisor and it most certainly is detrimental to the retirement goals set by the investor.

Performance chasing, in its most common form, goes like this. When you go for your yearly review with your advisor, he goes over a variety of funds that have done great over the past year and convinces you that, because they are on such a hot streak, you should move your money into them. This is often done with no regard to the stated goals of your portfolio or your desired asset allocation, which is incredibly reckless in itself because asset allocation alone accounts for 75-80% of portfolio returns.

Now, I was going to research the effects of this but turns out I already did. Here. On this very blog. Hmm. Go figure. In that post I studied the impact of switching all your investments to the top performing mutual funds reported in MoneySense magazine each year versus just keeping your money in a balanced portfolio of index funds and rebalancing yearly. The per year difference worked out to roughly 1%. What is the impact of a 1% performance difference over a 30-40 year investment horizon? Well, I'll take my own example. We put roughly $10 000 per year away for retirement. The difference in 1% performance would work out to about $250000. That's a lot of dough that I lost by chasing hot performers versus just buying and holding and sticking to my asset allocation.

But don't take my word for it. Here is some excellent data from various resources to prove my point.

S&P study: source here

-Over a five year study period, only 1.12% of funds maintained a top-quartile ranking by the end of the study period. Given the MASSIVE universe of funds you have to choose from, guessing which 1 of those funds will remain in the top quartile is a losing game.

Report by Jason Zweig here:

-over a 24 year period, the typical mutual fund underperformed the broad stock market by 0.55%

-but the average INVESTOR underperformed by 0.7%

-this spread is the COST of investors moving their money around too often by chasing performance

-perfect example provided in the article:

-Fund A earned 20.7% in 1996, but their average investor LOST 35%

-Fund B earned 26.9% but the average investor LOST 20%

-THAT IS THE COST OF CHASING PERFORMANCE

Another great report here:

-only 16% of top 5 five funds make it to next years list

-top five funds average 15% LOWER returns the next year

-top five funds BARELY beat the market the next year (0.3%)

-21% of ALL TOP FIVE FUNDS CEASED TO EXIST IN 10 YEARS TIME

-average equity investor earned a measly 2.6% in the same time period that the S&P 500 gained 12.2% and inflation was 3.1%

So what is one to do instead of chasing performance? It's simple. Asset allocation and disciplined rebalancing.

First, you choose an asset allocation that suits your needs. For most this can be as simple as the stock to fixed income ratio. Many suggest that the portion of your portfolio in bonds/fixed income investments should roughly equal your age. I choose to change mine only every 5 years. So when I turn 30 in March I will realign my allocation from my current 25% bonds:75% stocks to 30% bonds:70% stocks. This ensures that as I draw closer to retirement, when I can ill afford significant volatility in my portfolio, less of it will be exposed to stocks, which are inherently more volatile.

The specific breakdown of your asset allocation is a matter for discussion, but can be as simple as 25% bonds, 25% Canadian stocks, 25% US stocks, and 25% international stocks. It's that simple. With that asset allocation, all you need is four index funds, and you are gold. Even the most widely diversified passive portfolio I've seen has only 10 funds in it and that is for very sophisticated investors. Most retail investors can do just fine with 4, even 3 funds and get very broad market diversification that will suit their needs.

Now that you've settled on an asset allocation, you setup pre-approved withdrawals from your bank into those funds EVERY month based on those percentages. Then, every year, if any of your funds is really out of whack on its percentage, you REBALANCE.

So, in my portfolio, I have 37.5% in CDN equity, 25% bonds, 25% international, and 12.5% US. At the end of a year, if any one of those composes 5% more or less than I set it to at the beginning of the year, I rebalance. The beauty of this is that it forces you to sell overpriced funds and purchase underpriced ones, a recipe for success. Look at it this way. If I've been putting exactly 37.5% of my funds each month into my Canadian equity fund but it is suddenly taking up 44% of the worth of my portfolio, the only explanation is a significant rise in the value of that fund. Or if the US fund is down to 8%, it means that US fund has totally tanked. So I sell the gains in my Canadian fund and buy more of the US fund, because the former is bound to come crashing down and the latter is bound to come racing back up. I just locked in my wins and bought some funds on sale. Plus, there was NO EMOTION involved. Just the numbers.

Is there any evidence that rebalancing based on asset allocation actually trumps performance chasing? You bet there is. In this study, the various portfolios that were rebalanced ALL trumped the performance chasing portfolio, until you got into portfolios with very low stock allocations, which only makes sense. The "average" portfolio construction many would use outperformed the performance chaser by 2%. I read a lot of other academic literature that showed similar results.

Now, what do you do if you are in the unenviable position of having a bank advisor for your main source of investment decisions and retirement planning? First of all, get out. But I recognize that some may not be able to do that. So, if you can't get away from your bank advisor or you don't want to, despite what you've read here, at least know thine enemy.

In the next post, I will give you questions to ask your advisor that are sure ways to find out if they are working for you or for themselves.

The Day Pharmadaddy Ate Crow

So I planned on posting a triumphant article about the benefits of dollar-cost averaging versus leaving your RRSP contribution to the last minute. I was going to show the devastating impact of holding onto your money and dumping it in your portfolio on February 28 versus divvying it up over 12 months in smaller amounts. Now, there is no denying that the monthly contribution is better from a psychological perspective in that it is less painful to dole out $1000 a month to your investment portfolio than it is to hand over $12 000 in one sitting. But after doing some research, my preconception has been smashed. I ran two portfolios through Globeinvestor Gold, one purchasing $12 000 in investments on February 28, one purchasing $1000 per month for the same amount of time. The test ran from 2002-present. The damn portfolios ended up almost identical. And then I came across all the academic economics research that debunks the whole theory of the financial benefit of dollar-cost averaging. Sure, in some cases, if you invested lump sums each year right before a massive market crash, DCA will look a heck of a lot better. But on the whole, DCA and lump-sum investing seem to work out quite equal. Damn. I shall eat crow and admit that my hypothesis was wrong. In theory, DCA should win. If you were investing in fixed-interest investments, that would be true. If you held onto your money, you'd be missing out on twelve months of growth. But in the case of a diversified portfolio exposed to volatile stock markets, you could just as likely be missing out on twelve months of tanking markets. Guess I should have seen that coming! Oh well, at least I had the good sense to check the facts first! Hopefully my hypothesis about chasing performance will turn out a lot better!

All Those With Bank Advisors: Beware!

I am a DYI investor. I've done and continue to do enough reading and have a simple enough financial situation that I feel comfortable with this. This will not always be so and there will be a point at which I will seek out professional help. But the last place I will go is my bank. Going to a bank advisor is one of the worst decisions you can make for your financial health, and over the course of 3 posts, I am going to show you why.

First we will discuss the impact of fees on portfolio performance. The second and third posts will discuss two tactics often employed by bank advisors that not only can I not understand but I believe they could never truly justify: the opportunity costs of lump sum investing and the devastating impact of chasing performance.

When I talk about going to an advisor for myself, I mean individuals who have no vested interest in the PRODUCTS they recommend but instead in the ADVICE they recommend. Bank advisors are handicapped by a limited product portfolio and, as such, you must purchase mutual funds from their bank. In some cases they will broaden the horizon somewhat, but they are still selling you actively managed mutual funds, a sure fire way to fall well short of expected returns (if you need me to explain why, look through some of my past posts or just comment, and I shall oblige with an appropriately indignant rant). Furthermore, most bank advisors have risen up from within the banks lower ranks, taking in-house training courses and learning "on the job". They have no more basic financial education than you or me. Of the 3 advisors I've already encountered in my travels by virtue of necessity in setting up my index investing account through TD, 1 was so delusional about actively managed mutual funds it was clear she was a lost cause, 1 looked at my situation and recommended a cookie-cutter fund-of-funds with an expense ratio of 2.5%, and 1 didn't know what index funds were. And I've heard enough stories from friends and family and in the media to know my experiences were not exceptional.

But if they are so detrimental to financial success, why does everyone use them? Why have the best advisors, that is, fee-only financial planners who don't sell products but advice, not caught on with the general public? One cynical answer would be that the big banks have a huge vested interest in promoting their advisors because that sells their products, which makes them money and brings more assets under their control. All of these are important factors guiding the success of their business, a pursuit that you cannot hold against them. But more pragmatically, fee-only advisors cost money. At least in the traditional I-can-see-the-money-leaving-my-bank-account sort of way.

But what if I were to tell you that bank advisors actually cost you a heck of a lot more than you think?

I'll admit, I've suffered the same pain of loss that comes with thinking about handing over $1500-2000 to a fee-only financial advisor for a comprehensive financial plan. But a simple hypothetical scenario will expose the fallacy of this reasoning.

Let's say I'm 30 and I have already built up a nest egg of roughly $100 000. For reasons beyond my control, I can no longer afford to save anything for retirement. I need this sucker to grow as much as it possibly can. Given my situation, I am holding off on retiring until 65, giving me a 35 year investment window. One hill I will die on is my asset allocation and so I tell my financial advisor I don't care what s/he puts me in, I want it to represent 40% fixed income and 60% equity.

To arrive at the numbers below I used my favorite online tool, Firecalc.com. This tool looks at all the American stock market data from 1871-present. When you enter your retirement time horizon as 35 years, how much you start with, and how much you plan to withdraw each year, it runs those numbers through every 35 year period in that time set. That is a lot of data!

In the first scenario, I walk into a bank. The individual dumps me into some bank-brand mutual funds. Considering an average MER of 1.6% (roughly the average of the big banks, particularly RBC and TD), at age 65 my portfolio would range from $125 757 to $628 782, averaging $287045. (As an aside: If you use other groups like Sunlife Financial or Investors Group, your MERs are likely closer to 2.5% and there are usually nasty load fees. At least the banks usually sell no-load funds.)

In the second scenario, I visit a fee-only advisor. They put me into passive index funds with an average MER of 0.4%. In this case my portfolio would be worth anywhere from $189 881 to $949 404, averaging $433 846.

The average difference is $146 801. What is my point? For one, fees matter. That small difference in management expense fees of 1.2% costs you almost $150 000 over 35 years. For two, bank advisors aren't free. You just paid for their advice with that money. How much could you have spent on a fee-only advisor each year over those 35 years for the same price? $4200. The most expensive I've come across so far is $2500/year and that was for a very comprehensive service.

So, you see, just because you aren't scratching a cheque or pulling money out of your account to pay that bank advisor, doesn't mean his advice is free. It comes at a substantial price. And the above considers that the advice and service they give you over your retirement saving years will produce as good results as that provided by a fee-only advisor. The above projections used the exact same portfolio with the exact same stock market return data. The only difference was the management fee paid on investments. In the next two posts, you will see that there is a pretty good chance that these fees aren't the only money you'll lose before retirement by employing a bank advisor.