Mikestrathdee’s Blog

Higher fees the price paid for not learning about investing
January 21, 2011, 10:17 pm
Filed under: Investing

published in the January 2011 issue of Christian Week Ontario, Your Money column


How can I avoid paying such high fees on my investments?

This question is increasingly common at financial literacy seminars.

Canadians are not that financially literate. We also pay some of the highest mutual fund fees in the world.

Getting a better understanding of your investments, and whether you are getting good value for money invested, would be a great New Years’ resolution. It will have lasting impact on your financial future.

Excessive mutual fund fees are the price we pay for  not educating ourselves about investing. We pay too much because we naively expect someone else to look out for our best interests.

Ratings agency Standard & Poor’s regularly studies how actively managed mutual funds perform compared to the index for various fund categories. (An index is a measurement of the ups and downs of a particular market by monitoring a group of securities over time).

S&P gives failing grades to the mutual fund industry.

In the first three months of 2010, six out of every 10 Canadian equity funds did worse than their index. The same results were found for funds made up of smaller and medium sized companies (Canadian Small/Mid Cap equity, in industry jargon).

Some types of mutual funds did better than their index during the period studied. But over a longer period of time, the poor record of most mutual funds looks even worse.

In the three and five year periods ending March 31, 2010, only 10.9 per cent and 3.3 per cent of actively managed Canadian equity funds  did better than the S&P/TSX Composite Index.

The picture isn’t much different for actively managed foreign mutual funds. Less than one in 10 International equity or U.S. equity funds did better than their respective indexes, S&P found.

Author John Lawrence Reynolds’ “The Skeptical Investor – How to Grow and Protect Your Retirement Savings” is a good start for people who haven’t thought much about the fees they are paying, and what possible alternatives might be.

For people who have a bit more understanding how the markets work, there are lots of places to go for ideas.

Two of my favourites are the Money Smarts blog, www.moneysmartsblog.com/, and Money Sense magazine.

Mike Holman, a Toronto-based writer who pens the MoneySmart blog, worked in financial services for several decades. His blog combines articles written from his own experience and links to insightful pieces on various topics related to investing and personal finance from a number of other blogs and websites.

Money Sense magazine, and its www.moneysense.ca website, provide lots of ideas of cost-effective ways to invest.  For people who want to deal with a stock broker or set up their own self-directed account, their “couch potato” approach is worth considering.

For people with smaller portfolios, at least one major bank offers e-series index funds that are much less expensive than regular mutual funds. But you won’t find it prominently advertised, as other products make them bigger profits.

Another alternative is to hire a fee-only financial planner to evaluate where you are at and what a suitable investment mix would be for your age and stage of life. More on that in my next column.


January 21, 2011, 10:14 pm
Filed under: Debt

An interesting e-newsletter that is particularly relevant in today’s difficult economic climate is Gary Foreman’s “The Dollar Stretcher” www.stretcher.com.

In a recent issue, Foreman wrote about how the human gift of self-deception can hurt our finances, in serious ways. Despite our ability to think, “we also have an amazing ability to deny the facts and believe whatever we want,” he said.

Foreman’s list of examples provides a series of inconvenient truths, but barely scratches the surface.

An article in a national business paper pointed out that consumers’ expectations about how they will pay for their retirement plans frequently bear little resemblance to reality. Up to 40 per cent of pre-retirees plan to work longer in order to build their nest egg. Yet about that same proportion of the population find themselves involuntarily retired, due to health issues or job loss, well before they would want.

When it comes to spending, one-third of people say they will be more frugal in retirement, but 40 per cent spend as much or more once they leave the workforce.

Fewer and fewer, it seems are those who take the advice of 1 Timothy 6 “if we have food and clothing, we will be content with that,” to heart.

Many of us have to work at learning to live within our means to make room for saving for retirement, let alone dreaming of how soon it will happen. Bank of Canada governor Mark Carney told an interviewer recently that he is worried Canadian households are getting too deeply into debt. Consumer debt in Canada increased by 10 per cent last year.

Outstanding credit card balances in Canada have grown by 40 per cent since 2004, even as the cost of more sensible means of borrowing, such as mortgages and lines of credit, dipped to historic lows.

Overspending is one end of the self-deception spectrum . There are also the people who mistakenly under-estimate or dismiss their good fortune with the comment: “I’m not rich.”

A quick visit to the Global Rich List website: www.globalrichlist.com provides a sobering piece of evidence to the contrary for those of us who feel that the rich are those people better off than we are.

An income of $35,000 a year puts a person in the top six per cent of the world.

Earned income of  $50,000 moves you up to the top 1.78%.

An average Canadian household, with an income of $78,689 (a figure sourced from Canadian Demographics 2009), is in the top .85% in the world in terms of income.

Even when 14 per cent of Canadians are out of work or underemployed, that still leaves 86 per cent of the workforce who are blessed to have jobs.

In the early Christian Church, believers shared freely of their possessions, giving to everyone as they had need. (Acts. 2: 44-45) These days, our communal bonds have frayed to the point where people are reluctant to let their congregation know about job loss or financial difficulty.

In a time when Christian schools, camps, relief agencies and even some of our congregations struggle due to decreased giving, how shall we respond? Let’s talk about it.

Retirement- a welcome or worrying prospect?
January 21, 2011, 10:13 pm
Filed under: retirement | Tags:

Retirement . How do you feel when you are asked about it?

Are you somewhat jealous of teacher friends, who, in their early 50s, are already counting the days, only a few years away, when they can say goodbye to their day job while enjoying a full pension?

Do you wonder how your circumstances will ever make retiring possible?

It is pretty difficult to find any Biblical support for the modern notion of retirement – turning our back on work at a certain age. God made us to be productive. But society has taught us all to look forward to retirement, if not how to plan for it properly.

Concerns about retirement are increasingly common in media and government discussions as the largest generation of Canadians ever approaches and enters the “retirement years.”

Fear about not having enough is a dominant theme.

One recent poll of Canadians aged 50 or more found that about half of them weren’t sure that pensions, government and otherwise, would provide them with a comfortable retirement.

Close to two-thirds of people polled in another recent study said they think the Canada Pension Plan will have to reduce payments in future. (This is unlikely given the way that the federal government has increased premium payments in recent years to ensure CPP has more than enough money to meet obligations for decades to come. Full CPP and Old Age Security benefits are designed to replace 25 per cent of working income.)

Part of that pessimism may relate to ever-increasing expectations of what a “comfortable retirement” means. Most North Americans now view as necessities many things that previous generations would have called luxuries, or in many cases, not even have dreamed of.

The financial industry contributes to the retirement fears/gloom by insisting that people need to save $1 million or more to avoid being in dire straits in the autumn and winter of life. Hearing what seems an impossible goal induces paralysis and denial for some.

It is also true that many of us aren’t making retirement savings a priority.  Some may be better off paying down debt or contributing to the new Tax Free Savings Account (especially people earning $36,000 a year or less). Only a third of Canadians put money into an RRSP this year, and 30 per cent haven’t yet started saving for retirement. This suggests many people don’t have the cash to save for retirement or are spending it on other things.

The picture is not all bleak. Actuary Malcolm Hamilton says even people who start saving for retirement at age 50 with their debts paid off, and make large contributions every year until they retire, will be ok.

He thinks many Canadians can live comfortably on a much lower retirement nest egg than what other expert voices claim. Saving $300,000 in an RRSP and receiving full CPP and OAS benefits, a retired Canadian would have an annual income of about $30,000 after tax.

What’s the church’s role in all of this? Will leaders help people to live within their means, save for later years and to maintain God-honouring expectations?

Help us oh Lord to number our days and to count the cost of getting there.

January 21, 2011, 10:12 pm
Filed under: Generosity, Investing, Work

Think much about use of fruit?  – published in Canadian Mennonite

In January, Beryl Jantzi, a U.S. stewardship educator, told a gathering of pastors at the Mennonite seminary in Indiana that they should spend some time pondering the concept of Usufruct.

Usufruct is the legal right to use and derive profit from something that belongs to another person, so long as the property is not damaged. The concept dates back to Roman times.

The word doesn’t appear in the Bible. But it has great application to a Christian world view. Spend some time with it and you will come to realize that there is a really rich vein to be mined.

Usufruct comes from the Latin expression usus et fructus, meaning using and enjoyment. We can also think of “use of fruit.” How do we use the fruits of our life for our enjoyment, in ways that honor God and aren’t damaging to God’s property? We’re called to do both, to enjoy what we have been given, in ways that honor God and aren’t damaging to God’s property. And God’s property is everything we have been given.

As we accept God’s lordship and ownership of all, the conduct of our lives becomes pretty relevant to a discussion of use of fruit.

In the Old Testament book of Leviticus, God told Moses that people working the land need to leave some of the harvest for the less fortunate. “Now when you reap the harvest of your land, you shall not reap to the very corners of your fields, nor shall you gather the gleanings of your harvest.” Lev 19: v 9

The media and culture of our world encourage us to harvest right to the edge of the field, and often beyond, unfortunately.

We live in a country where the average person spends $1.47 for every dollar they earn, where a staggering proportion of the trillion dollar debt Canadians owe was put on credit cards for things that have no lasting temporal, let alone eternal, value.

Leaving anything around the edges, let alone for anyone else’s benefit, is a pretty countercultural concept.

Part of me really is attracted by the arguments in Richard Swenson’s book “Margin.” Swenson stresses the need to leave space, or margin, in four areas of our lives: finances, physical energy, emotional energy and time. Part of that involves the word “NO.” If we are given 100 choices of good things but can only do, or buy, 10 of them, we have to say no 90 times, or lose out on the 10 best.

It’s also a question of will, of being committed to under scheduling our lives and budgets, to “leaving room to respond to the unexpected that God sends our way,” in Swenson’s words.

Swenson’s book has been around for decades. The cover on the edition I bought a few years back was incredibly compelling. It pictured an expired parking meter, a sad metaphor for how our society often lives.

To live in the heart of God, to experience or grow into a life of Faithful, Joyful Giving that we are called to, means that we have to do the hard work of thinking about and working at things that aren’t so common. To live with margin in our lives, to be ever conscious of our responsibility to carefully steward the fruit that God has provided.

Things like not harvesting to the edge of the field of our lives – leaving some reserves of time, energy and money so we can respond to God’s call in our life. Things like margin and Usufruct – use of fruit.

Is your church financially healthy?
January 21, 2011, 10:10 pm
Filed under: Charitable Giving

Is your church financially healthy?  – published in Christian Week Ontario, September, 2010

It’s not just about whether your congregation meets its annual budget. A church’s financial health speaks to its vision, whether it recognizes and acts on the spiritual importance of being intentional around money, and if it helps you wrestle with practical financial issues in your life.

Barbara Fullerton, a stewardship educator for the United Church of Canada, investigated congregational financial best practices in her doctor of ministry dissertation at Wesley Theological Seminary.  Fullerton studied giving trends in thousands of United Church congregations over a six year period, from 1998 through 2003.

She found a connection between increased giving levels and a number of intentional stewardship development habits.

“If the congregation is clear about who they are as a community of faith and their reason for being and explains this well, people will be excited about that mission and will more likely commit to it their gifts of time, talent and financial support, if explicitly invited to do so,” Fullerton wrote.

She found strong “links between increased generosity and lifting up stewardship in worship on a regular basis, preferably every Sunday.”

Other research suggests that what Fullerton, who is of Lutheran background, discovered in her United Church study is applicable in other churches, be they mainline or evangelical. A Lilly Endowment study found that denominational differences in individual giving are generated “almost entirely by the giving of the most committed members within each denomination.”

Annual financial response (pledge) campaigns are an important tool that most churches avoid Fullerton’s research shows.  Healthy churches were twice as likely to have annual campaigns as average congregations. Others suggest that people who pledge give twice as much as those who don’t make a commitment.

Sadly, some churches try these and abandon them after a year or two, missing out on positive change that could occur if the effort lasted a few years longer.

Thanking donors is an important strategy used by healthy churches. Something as simple as including thank-you notes with year-end tax receipts can make a big difference, Fullerton writes.

Pre-authorized remittance or electronic transfer programs for giving are also useful. Fullerton found that donations from people who give electronically are higher than from average givers, often half as much again in each calendar year.

A strong focus on personal spirituality is common to the healthiest churches. Fullerton discovered that churches with growing generosity are more likely to offer Bible study opportunities.

And the healthier a church is, the more likely to provide opportunities for personal finance training that can benefit everyone.  Churches that are growing in the numbers of people attending, number of givers and amounts of money coming in are more than twice as likely to offer personal finance or budgeting training as other congregations. Coincidence? Not likely.

Fullerton’s research will be incorporated in a revised edition of U.S. stewardship educator Mark Vincent’s book “A Christian View of Money: celebrating God’s generosity.”

The co-authored and expanded book will be released in early 2011 by Design Group International.

Tax Free Savings Accounts worth a look
January 21, 2011, 10:07 pm
Filed under: Investing

Tax Free Savings Accounts worth a look –  published in July 2010 Christian Week Ontario

Tax Free Savings Accounts (TFSAs) are the best savings and planning break Canadians have been given since the Registered Retirement Savings Plan (RRSP) was created in the late 1950s. For many lower income folks, it may well be a better way to save for retirement than RRSPs.

Almost one in three Canadians have put money into a TFSA since the new tax sheltered savings vehicle was introduced in 2009. But nearly as many people have no idea how a TFSA works, or why they might consider opening a TFSA.


Who can open a TFSA? Any Canadian resident 18 years of age or older who has a valid Social Insurance (SIN) number will earn TFSA contribution room every year.

How much money can I put into a TFSA?

The current contribution limit is $5,000 per year. That amount is indexed to inflation and will rise over time, rounded to the nearest $500. Unused contribution room can be carried forward to a future year. So if Jane Doe put $2,000 into a TFSA in 2009, she can contribute up to $8,000 (the regular $5,000 plus the $3,000 she didn’t contribute in 2009) in 2010.

Why would I put money in a TFSA?

-While you do not get a tax deduction for contributions, you do not have to declare TFSA earnings as income, nor is the money taxed when it is withdrawn.

-Young people saving for a home purchase or for education may in some circumstances want to use a TFSA instead of an RRSP. There is no requirement to repay funds from a TFSA.

-TFSAs are a good choice to build an emergency fund, or saving for a larger purchase such as replacing a vehicle.

– TFSAs can be used as collateral for a loan.

-A TFSA can be used for income splitting within a family. The higher income spouse can give the lower income spouse money to put in a TFSA.

-TFSAs don’t affect eligibility for the federal Old Age Security (OAS), Guaranteed Income Supplement (GIS) or other government benefits.

-Unlike RRSPs, which must eventually be converted to a RIF (or annuity) and withdrawn, a TFSA doesn’t expire. For people with income less than $36,000, a TFSA is a better choice for retirement savings than an RRSP.

-Money withdrawn from a TFSA can be recontributed later, which is not the case with an RRSP.

– TFSAs can be useful estate planning tools.  A TFSA can be passed on, tax-free, outside of an estate, to a surviving spouse, or to charity, if the owner of the plan completes a beneficiary designation form.  If you donate a TFSA to charity, your estate will receive a charitable receipt for the value of the gift.

What can I invest in a TFSA?

Cash, GICs, stocks, mutual funds, bonds, real estate investment trusts (REITS) and a wide range of other financial instruments can be invested in TFSAs.


What should I watch for?

Check the fine print before opening an account. Some organizations charge higher fees than others for opening or maintaining a TFSA account, or for withdrawals from your account.

Living like a rich person is different than you might think
January 21, 2011, 10:05 pm
Filed under: Debt, Financial Management, Investing

Living like a rich person is different than what you might think

As spring approaches, some people will start planning annual spring cleaning projects.

Spring is also a great time to re-examine habits and ways of thinking around money.

For anyone who is interested in building wealth for the future, Thomas J. Stanley’s new book Stop Acting Rich …And start living like a real millionaire is worth a read.

Stanley, a U.S. researcher known for his best-selling book The Millionaire Next Door, has a lot to say about spending.

He takes the old “a dollar saved is $2 earned” thinking several steps further, explaining how the truly wealthy free up money to invest by sticking to reasonably priced goods.

Acting rich is a major obstacle to becoming wealthy, he writes, detailing items that “aspirationals” (his term for wannabes) overspend on for the sake of perceived prestige: homes, cars, clothing, watches, food, beverages, vacations and entertainment.

“Eating off the appetizer menu is what many of us do. We buy select prestige brands, symbols from within product categories that we can barely afford.”

About 86 per cent of all luxury makes of cars are driven by non-millionaires, he discovered. As for the truly wealthy, think Toyota, not BMW. Stanley includes the story of a surgeon who was stopped by a hospital parking lot attendant who didn’t believe that someone in a beat up Honda Civic really worked there, and could be who he said he was.

From the many rich people he studies, Stanley found that ego products and brands are not common among the affluent population. Most rich people become wealthy and stay that way because they are frugal and are investment, not consumption, oriented.

The principles he outlines have wide application, whatever your income level. There is much better chance of becoming wealthy, he suggests, if you don’t imitate the consumption patterns of people who society tends to look up to. Often high status leads to big spending urges, apparently.

In many ways, it is not how much one earns annually that counts: It is how one lives each year. It is how much one saves and how much one invests annually that really matters, he writes.

If you want to become wealthy, the market value of the home you purchase should be less than three times your household’s total annual income, he says.  Nothing has a greater impact on your wealth and your consumption than your choice of house and neighbourhood.

And speaking of property, most millionaires do not own a vacation home.

Stanley found that while there is a strong relationship between income and satisfaction with life, spending the extra money doesn’t make people happier. There is some evidence that giving “enhances one’s level of happiness.’

Within groups of people with the same income level, people who save, invest and are frugal give more, and spenders give less.

Overall, the happiest people are those who live below their means.

Living below our means and giving as a route to happiness. What will they think of next?