If you have read my last post you will know by now that I am set to start my new portfolio at Clearsight. I have been debating what to choose for my US equity component, and whether or not to go with my advisor’s recommendation of CI Value Trust (satellite fund of Legg Mason Value Trust). I said in my last post that am not interested in investing in Bill Miller‘s Value Trust fund but that I said I would rather go with the Rydex S&P 500 Equal Weight Index ETF (RSP) instead. I have now come to the realization that RSP is very similar to the S&P 400 Midcap Index which is also available as an ETF (MDY). It is very highly correlated and comparing the performance of these two ETFs makes this obvious. There is also a small advantage to getting MDY over RSP in that “the higher volume on MDY is an advantage for that fund, as is the typically tighter bid/ask spread” but this is probably splitting hairs. Comparing either of these two funds to Bill Miller’s Value Trust is probably not a fair comparison, just as comparing S&P 500 (huge-cap) to S&P 500 Equal Weight (semi-large to large-cap) is not exactly a fair comparison as they are in different classes and will of course perform differently. I found yet another index choice today, the S&P 500 Value Index (IVE). It has beaten the S&P 500 index but it has not been able to catch Bill Miller’s Value Trust. Sounds like a great alternative to the S&P 500 index though as it screens out some stocks which aren’t a good value.
At this point I began to get frustrated with the number of choices out there. RSP, SPY, MDY, IVE, and that is only a few of the ETFs available. Then there are the actively managed mutual funds, LMVTX being only one of many, and of course there are the index mutual funds of which there are probably one for every index just like the ETFs I mentioned above. Sometimes I feel like I know exactly what I want, other times I can not makes heads or tails of it with all the choices and knowing there are even more choices out there that I have not examined is daunting. It is frustrating for some someone like me, skilled in the maths and sciences and now software, that there is not some exact deterministic way of determining the ideal choice.
When I left TD, one of the main reasons was because I did not have a proper selection process for what I would buy for my RRSPs. Usually I would scan the performance (usually the longest term possible, 10-years or since inception if available) and choose funds that looked like they had done well in the past. This was flawed because crappy funds can have a few stellar years and good funds can have a few bad years. Or sometimes I would look for funds that did well in the past, but might have just come off a bad year (hoping to catch the fund on the up-swing). This method was also flawed. The second reason I left TD was that I did not want to be a DIYer anymore. I felt like an amateur/hack trying to do a professional’s job, and I was not succeeding. Not only that but I did not have enough time to spend on this. You may think that writing and researching articles for this blog takes time, and yes is does (and I have learned a lot about investing by writing this blog), but it cannot compare to the amount of time financial advisors and their superiors have spent day in and day out trying to answer these same questions. It is after all their full-time job. My financial advisor says that he does not pick stocks. He leaves that to the professionals, such as Ross Healy or Bill Miller. He does not have time to research stocks for his clients. By the same token, I should leave the management of my portfolio to my advisor because I do not have time to do it myself.
This does not mean that I should leave everything up to my advisor. Much like my advisor will monitor the actions of Ross Healy and Bill Miller I should also vet all actions my advisor recommends for my portfolio. Right now I think I am ready to give up and let him decide what is best. I would like to have a say in the asset allocation and I really want to have 25% bonds and the rest balanced between Canadian, US, and International. But as for what is inside those categories I really do not have the time to examine his choices of holdings for me in microscopic detail. It has already taken far too much of my time. The portfolio that my advisor is recommending is already much better than my old TD portfolio for many reasons, and if going with an advisor helps keep my hands off my portfolio and helps me keep this allocation over the long term, then it will surely achieve much better performance in the long run than I was getting with TD as a DIYer.
No time to read over this rant, it’s too long. Grammar mistakes be damned!
10 thoughts on “Too Many Choices (or why I am ready to give up)”
The more research you do, the more frustrated you will become. I was having the same problem. I got frustrated and decided to just go with the cheapeast index funds I could find (Altimira at the time). I’ll will contribute every month, & rebalance every year. It’s not very exciting, but I’m sure I will do okay when all is said and done. It sounds like you should stand firm on your 25% bonds/fixed income, as it’s clear that is important to you. For the other 75%, let the advisor do his job as long as you are comfortable with him…just keep contributing every month and you’ll be okay…
I definitely feel your pain. The choices of mutual funds are absolutely ENDLESS! The key is to keep it simple. And do what is best for you. You can’t put a price on a good night’s sleep. So do what makes you comfortable.
As for financial advisors knowing more, I would argue that. Most of the financial advisors I have met (and there have only been 2), were pure salespeople. I also know people that work at the banks and are qualified to sell mutual funds. Let me tell you, it scares me how much these salespeople know about financials. At least you are going to more of a specialized firm, so hopefully they are better than the banks.
Like Tom Connolly (http://dividendgrowth.ca/pages/old_site/) says “Mutual Funds are sold, not bought.”
Also, read his section on Why I Refuse to be Sold Mutual Funds. I would love to subscribe to his newsletter, but he isn’t taking any new readers at the moment.
I remember another saying I heard. Kevin O’Leary from SqueezePlay on ROBTV once said, “Don’t buy mutual funds. Buy the mutual fund companies!”
You are still young and have lots of time to learn. So go with what is comfortable, keep on blogging and learning, and keep your advisor in check.
I’ve been to a ClearSight openhouse/presentation (whatever you call it) and their presentation didn’t really grab me. I’m wondering what you thought of them?
There are so many excellent Canadian Mutual Fund companies out there like Saxon, NorthWest, ABC, PH&N.. the list goes on, but one common thing is that they don’t use the traditional distribution channels. That’s not a knock on the companies, they’re saving you money that way! But it means that many advisors will refuse to recommend them simply because they don’t earn comissions or trailers on them.
That was ClearSight’s stance when I asked them, they said that they would arrange up-front negotiated fees and won’t look to manage them on-going. Didn’t impress me at all.
Average Joe, I agree with your comment about the salespeople. Well said!
One often used tactic, that also gave birth to the idea of portfolios, fund of funds because these salespeople cannot be bothered with examining your portfoliio. They don’t make money servicing, the make money selling and receiving new investment capital. The fund-of-funds approach was perfect for advisors because
1. They allow the “advisors” to concentrate on what they do best. Guess what that is?
2. They are an easy sell for consumers (note that I didn’t say investors) because they contain all the “worry-free” catch phrases and features!
Investorial: I can’t exactly remeber how I found out about them (Clearsight). I think it was through UBC’s alumni web site. They have a relationship whereby UBC (and other universities) recommend their alumni to Clearsight and in exchange Clearsight has to (I guess) remain “reputable” and keep their employees non-commission based or risk losing the university’s recommendation. That’s how I see it.
Anyways, I think I found out about them that way. I went to Clearsight’s website (their old website which had a bit more information on it) and noticed this “RRSP stock basket” thing they were advertising. I called them up to inquire and the guy on the phone mentioned it was a portfolio managed by Ross Healy. I ended up researching Ross Healy and I really liked the guy. He was value-oriented, has an amazing track-record, and two amazing mutual funds (perhaps I’ll save the detail here for a future post!). I consider his 2 companies to be 2 of those excellent companies who “don’t use the traditional distribution channels” as you say. Anyways apparently Clearsight is the only place where you can get access to Ross Healy’s stock basket (you need $250,000 minimum to go to his company directly). I also liked the fact that they were commission-free (ie. the individual advisors don’t make commissions) and I really like some of the things the advisor I met with said during our first 2 meetings before signing up.
I checked out those fund companies you mentioned and looked at their Canadian equity offerings:
So nothing really stellar there except for ABC Funds which has a minimum required investment of $150,000. Healy can generate similar returns for a $250,000 minimum. My goal right now is to build up enough money so that I can take my money to ABC Funds or Ross Healy! Either through Clearsight or on my own if I have to.
Nice to hear your thoughts. Maybe I’m a little biased from my meeting with ClearSight, the people there were certainly not Ross Healy and their office is glittery but alright in Toronto. I also went through my affiliation with UW (Waterloo). I thought it was interesting to hear more about Ross. As you know, I’m always a cynic in regards to mutual fund industry, investment media and marketing in general, the inspiration for Investorial.
I mentioned NorthWest because of its flagship fund – The Speciality Equity which has a proven track record of 20.58% in the last 15 years. Among the top 5 mutual funds in Canada with that length of history, its since been closed to the public. But since you’re looking for a Canadian Equity fund, I admit those boutique mutual fund companies are only so so in that arena.
The reason is that they function much better in their specialized expertise. For example, Chou Associates, great Canadian small cap fund with 14.33% over 15 years.
Guess I’ve already talked too much in these comments. I’ll save it for upcoming posts on my Blog!
P.S. one way for the regular consumer to invest in ABC is through Canada Life’s UL policies, BUT there are many pros and cons with that approach too.
BTW, I should disclose that I got into the NW Speciality Equity before it closed, that’s why I’m happy with it!
I noticed Specialty Equity when I went to Northwest‘s page. Did you know that they have reopened it since February 24, 2006? They will close it when it reaches $500 million in assets. Their performance is impresive although once again we need to remind ourselves that past performance is not everything and does not predict future performance. Looks like all Canadian small-caps have had a good run. I wonder which ones will perform the best during bad times.
Clearsight’s Vancouver office isn’t glittery. It’s pretty quiet but they probably have less people there because I am guessing Clearsight started in Toronto.
There’s a lot of choices out there, but I think that’s part of the fun. For people with less free time, an advisor may be the solution.
I would rather do everything myself. I do not trust advisors and think that I can do a better job than them.