Tuesday, 14 October 2025

A Lifelong Investment Plan for the Reluctant Investor

"Everything should be made as simple as possible, but not simpler." - Albert Einstein

This idea started as a 30 May 2014 post proposing a portfolio for a reluctant investor that can be carried through an entire lifetime from working and saving to retirement and spending. We updated it slightly on June 6th 2025, after finding that it worked fine during the ensuing eleven years! After doing a little more investigating, I've found an even simpler version that requires even less time and effort to manage yet should work just as well in terms of overall returns and stability.
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Drum roll ...
the new improved Reluctant Investor's Lifelong Portfolio and Investing Plan

1) Portfolio structure: The portfolio will consist of one fund -

XBAL is a fund that contains several other funds to achieve wide diversification in a classic 60/40 equity/fixed income mix, with an acceptably low MER of 0.20%

2) Account setup: Start with a TFSA. Open a TFSA account at a discount broker. Make it easy to contribute or withdraw money by using the broker offered by your bank. If you have less in total to invest than $102,000, which is the cumulative maximum contribution limit up to and including to 2025 that can be invested in a TFSA, put it all in the TFSA. When there is more than $102k to invest put the excess into an RRSP (another account that will need to be opened at a discount broker), up to the cumulative unused contribution limit shown on tax assessment letter from the Canada Revenue Agency that it sends out after you have filed your taxes every year. It you have more than the total limits of TFSA plus RRSP to invest (happy days!), open a taxable account.

3) Automate investing: Set up automatic transfers to contribute from your bank account to the TFSA/RRSP/taxable account if in savings mode, of course keeping in mind the contribution limits. Leave the transferred money in cash until there is at least $1000 to invest. Less than a $1000 for a trade and the commissions start to add up too much and hurt investment returns. Sign up for the automatic dividend reinvestment plan (DRIP) with the broker. This will have all of XBAL's interest and dividend distributions automatically used to buy more XBAL without any commission to pay. All of your money is thus constantly invested and not sitting as idle cash.

D
uring retirement, you will have to sell enough XBAL for the amount you want to withdraw.

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Historical Estimated Performance - To see what kind of performance the Reluctant Investor Portfolio would have provided, we again turn to the Stingy Investor Asset Mixer tool. We have approximated XBAL's holdings using Stingy's available assets. The biggest discrepancy is in the fixed income part of the portfolio, especially the US bond holdings. But the Stingy tool gives us a pretty good idea.

From 1988 to 2024 inclusive, 37 years in total, XBAL would have performed quite well.

An investor in the saving phase who deposited $1000 in a TFSA in 1988, whose returns are not subject to taxes, would have about $19,000 at the end of 2024, a compound annual return of 8.3%. The real, after inflation end value was about $6,200, a solid real return of 5.9%.

For a retiree withdrawing 4% of the year-end portfolio value every year, XBAL still gained and grew. $1000 of XBAL at the start of retirement would have grown to $1800 despite annual withdrawals. It is also quite interesting that only in one year - 1990, the 3rd year of withdrawals - did the real after-inflation withdrawal dip below the first year withdrawal.

Unfortunately the Stingy Investor tool does not include inflation data before 1980, so the period of high inflation, and its effects on real after-inflation returns, which is something that really matters, cannot be examined.

Such a portfolio has value. Not everyone can, or should be, an investor who spends time and effort on investing. That's why our post's title says the portfolio is both inspired by, and intended for, someone like Albert Einstein. After all, could anyone think that Einstein, or the world, would have been better off, if he had applied his time to investing at the expense of physics?

Disclaimer: This post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.

This post is dedicated to my daughters, accomplished professionals who are plenty smart enough but whose time is better spent on their other endeavours instead of investing.

Sunday, 12 October 2025

Retirement Investment and Income: the Ultra-Simple Plan

Following on our last post, here's an even simpler strategy! The aim is that everyone can do this and it will perform fine.

You are about to retire or are in early retirement and want to set up your finances with the utmost simplicity to ensure you will have enough money for as long as you live. 

Step 1 Cover your essential living expenses

Take your bank and credit card statements for the past 12 months. Go through the spending. Eliminate the big-ticket non-essential luxury items, like holidays abroad, that you could defer for years or never do at all. What's left is food, rent, clothing, house repairs and insurance, taxes, car payments and repairs, dentist, physio, eating out, loan repayments, all the spending of your existing life. It's your basic lifestyle, and you want to maintain it, right? That is the essential income goal.

Now comes the key principle: you will match the critical spending with income that is similar in terms of: lasting as long as you live; security and safety or guarantee of payment; automaticness - it's deposited in your bank account without you needing to do anything after setting it up; frequency, i.e. every month.

Next, list any income you have that meets those criteria. A Defined Benefit pension does. Obtain your retirement payment income amount from your employer or pension plan administrator. The Canada Pension Plan (CPP) meets the criteria, as does Old Age Security (OAS), both paid by the federal government. In Quebec, the Province has its own identical parallel substitute version of CPP (politics!). If you have not yet asked to start CPP and OAS, see whether you can get your essential income with the annuity purchase described below first. Defer CPP and OAS to age 71 if you possibly can, it's very worthwhile since you get a lot more income later that fights the inflation devil.

A Defined Contribution plan does not, it's not a pension. A pension is regular guaranteed income for your lifetime. A DC plan is the same as an RRSP (we'll use this as shorthand as the same goes for all the related RRIF, LIF, LRIF account types) in this regard. Same for a TFSA. They're just accounts holding savings and investments.

Find a local life insurance agent who is licensed to sell annuities. Find one that sells annuities from all the insurance companies, not just one. Get quotes for a single life, if you're single, joint life if you're married. Take the version with no guarantee period of years to pay out. Take the highest income quote. Buy enough, to a maximum amount per insurance company of $100,000, to cover your annual essential expenses.

Note: If that totally depletes your savings, you obviously have too high spending, too high "essential" expenses. Fixing that might be possible in multiple different ways: stricter definition of essential expenses, working longer, taking CPP and/or OAS right away, house downsizing. In this version of a retirement plan, it's assumed you have saved enough. The task is to make sure it lasts as long as you do. Step 1 is complete, more or less. There's always a limitation, in this case it's inflation, which will inexorably eat away at the purchasing power of the fixed-for-life annuity payments. On to step 2.

Step 2 Investing during retirement

First, the one-time setup process. Unless you have a whopping bank balance, you probably already have an RRSP and/or a TFSA account. If such accounts are not already in place at the discount brokerage arm of the bank you deal with, go open one or both. If already open, sell all the holdings and transfer the entire cash balances to the discount brokerage account RRSP or TFSA. If it's an RRSP be careful to transfer direct and not to withdraw the cash as that would entail a large income tax bill.

If you have an ordinary taxable account as well, it's probably better not to sell all the holdings if there are significant unrealized capital gains. Those capital gains mean that those investments have been reasonably successful, so there's no crying need to ditch them. Selling will provoke capital gains income tax to pay. Always defer taxes if you can. If the ordinary account total of unrealized gains and losses is small, then by all means sell all the holdings and transfer the cash over to the discount broker account.

Once all the cash is over at the same institution's discount brokerage accounts, if any of it is in an ordinary taxable account, check if you if you have any remaining contribution room for your RRSP (shown on your tax return notice of assessment) or your TFSA (total cumulative max up to 2025 of $102,000 minus whatever you have already contributed over the years). Fill the RRSP first, then the TFSA, then the surplus stays in the ordinary account.

Next, in each of the RRSP, TFSA and ordinary accounts, use all the cash to buy at the then current market price, this Exchange Traded Fund: iShares Core Growth ETF Portfolio with TSX trading symbol XGRO.

Ta da, you are done. That is the one and only investment you will ever need to own. There are other fancier more sophisticated investment portfolio strategies, especially as your investable money climbs. But they take more time, effort and attention. At $100k to invest just do this, it is not worth the hassle to do more. Even double it to $200k or triple the amount, it's still a very good investment strategy..

Sign up for the broker's optional Dividend Reinvestment Plan (DRIP). Cash received from distributions is automatically used to buy more shares of XGRO.

Receive more money to invest? Buy more XGRO in the tax-advantaged RRSP/TFSA accounts first.

Want to withdraw money to spend on discretionary items or through forced withdrawals after age 71 from RRSP-type accounts? Sell some XGRO.

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Why this income and investing strategy?

  • Simplicity - essential income is deposited automatically every month; only one tax slip to fill out; no tricky involved decisions for ever after during your life

  • Guaranteed income for life - no worries about market ups and downs for your essential living expenses; no worries about how long you will live and trying to figure out how much you can spend each year

  • Peace of mind - financial worries are drastically lessened, you can focus more on meaningful aspects of life; statistically, people with annuities live longer! Not being obliged to sell during a severe market downturn like the 2008 financial crisis makes riding it out much much less stressful

  • Legacy / inheritance funds - the XGRO fund provides for leaving an inheritance if you wish, since that is the part you do not absolutely require to live off

  • Inflation compensation - fixed annuities progressively lost value from inflation; even at the government annual 2% target, over 30 years of retirement it is huge; in the long term (say 10 years, to be conservative), equities do recover their value; that is why the fund choice is heavily slanted to equities - more equities means more long term portfolio growth

  • Portfolio growth - in addition, equities not only compensate for inflation, they provide real growth over time, which is what XGRO should do over years despite up and down bumpiness

  • Automatic & no decision - as we get older, some of us lose our mental faculties; dementia is an increasingly common old age retirement disease; fewer decision to make results in fewer bad decisions and should help reduce exploitative abuse; for those with power of attorney, it is easier to check and control finances; settling an estate is also far easier

  • Reasonable fees - at an annual 0.2%, XGRO's fees are not far above rock bottom fees of 0.05% for some of the individual funds, but they are a good trade-off for the convenience of portfolio management services, such as rebalancing and foreign exchange exposure and conversion. It is impressive value considering that XGRO, through the multiple sub-funds, allows us ordinary people investors, to own slices of more than 21700 different stocks and bonds. That very broad diversification reduces risk.

  • Non-critical negatives, just so you know - the downsides of XGRO are not so bad that they overwhelm the positives:

    • higher fees, as noted;

    • sub-optimal income tax structure - foreign equity funds within a RRSP/TFSA accounts pay non-recoverable (invisibly to the investor but it does inevitably occur!) foreign government witholding taxes; similarly having XGRO's bond holdings would be better split off in a RRSP/TFSA to help protect against taxation of interest income

    • missing real estate exposure - most standard classic portfolios include some portion of real estate holdings as a useful diversifying holding, but XGRO has none

    • non-adjustable proportions of holdings - XGRO maintains a 36% weight of its holdings in USA stocks and 21% in Canadian stocks; we would prefer a greater weight in Canadian stocks than in USA on the principle that money spent by a Canadian should mostly match up with Canadian sources, but that is my personal judgement

    • no low volatility fund holdings - it is a longggggg technical story but there is a good argument that ETFs which construct their portfolio holdings and weights by favouring stocks with lower day to day historical ups and downs of price, perform better than the market capitalization selected and weighted funds within XGRO; given that a retired person's objective is more wealth preservation than growth, lower volatility with the same returns is a desirable feature.

    • Missing gold as a holding - gold is an eternal store of wealth that assists with wealth preservation in certain circumstances; we would prefer to have a portion of the XGRO portfolio fund dedicated to gold.

What circumstances might make this a poor strategy?

  • Poor health and short life expectancy - Obviously, if you have terminal cancer and know you are going to die in a few months, handing over a large chuck of cash to an insurance company that you cannot get back makes no sense; annuities are priced fairly for the remaining life expectancy at your age; check out some online life expectancy calculators to your number based on various factors, like lifestyle, family history, current health - note that the results vary quite a bit

Disclaimer: This post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.

Friday, 6 June 2025

The Reluctant Investor's Lifelong Portfolio - a Portfolio Inspired by, and for, Albert Einstein

"Everything should be made as simple as possible, but not simpler." Albert Einstein
In a 30 May 2014 post we defined what a portfolio for a reluctant investor should do, and reviewed several alternatives that don't quite do the best job. We've updated the subsequent June 2014 post to June 2025. Happily, what we said then has been proven by eleven more years still to work fine!
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This is what we propose, the Reluctant Investor's Lifelong Portfolio and Investing Plan

1) Portfolio structure: The portfolio will consist of two funds -
2) Account setup: Start with a TFSA. Open a TFSA account at a discount broker. If there is less in total to invest than $102,000, which is the cumulative maximum contribution limit up to and including to 2025 that can be invested in a TFSA, put it all in the TFSA. When there is more than $102k to invest put the excess into an RRSP (another account that will need to be opened at a discount broker), up to the cumualtive unused contribution limit shown on tax assessment letter from the Canada Revenue Agency that it sends out after you have filed your taxes every year. It there is more than the total limits of TFSA plus RRSP to invest, open a taxable account.

3) Initial allocation to target: Within each account, buy equal amounts of both XQB and XIC.

4) Automate investing: Set up automatic transfers to contribute to the TFSA/RRSP/taxable account if in savings mode. XQB has the wonderful feature of being part of the Pre-authorized cash contribution plan at iShares, which is free and automatic, so sign up for the amount going into XQB.  Unfortunately, XIC is not part of the PACC so purchases of XIC you will have to do yourself. Leave the money going into XIC in cash until there is at least $1000 to invest. Less than a $1000 for a trade and the commissions start to add up too much and hurt investment returns.

Similarly, during retirement withdrawal when regular amounts are to come out, sign up for the Systematic withdrawal plan for XQB (also not available for XIC). You will have to sell the appropriate amount to leave approximately half each in XIC and XQB.

Note: Not all brokers participate in the PACC and SWP. Check out here the in/out listing of brokers, along with details and forms for all the plans, including the DRIP. If the broker does not do the PACC and SWP, you must carry out buy and sell transactions yourself.

Sign up for the Dividend reinvestment plan (DRIP) for both XIC and XQB. That way, the regular cash distributions will not sit idle and will get reinvested automatically and for free in XIC and XQB.

5) Rebalance: Once a year, perhaps on a birthday to remember more easily, check the latest monthly market values of XIC and XQB holdings totalled across all accounts. If either is more than 5% away from the target 50%, sell the excess amount of the greater value ETF and buy that amount of the lesser. If less than $1000 is at stake to be re-allocated, don't bother, the cost of trading commissions is not worth it.

In the same manner, any large lump sum contributions or withdrawals can be used to even up the 50% allocation to each ETF.
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Historical Performance - To see what kind of performance the Reluctant Investor Portfolio would have provided, we again turn to the Stingy Investor Asset Mixer tool. XIC's performance matches exactly with the tool's TSX Composite, while XQB lines up fairly well with All Canadian Bonds. (Note: Stingy Investor has a model portfolio it calls the Simply Canadian ETF Portfolio which has almost the same composition as our Reluctant Investor, i.e. we did not invent the idea but we are promoting it with a different name to emphasize its potential usefulness.)

From 1980 to 2024 inclusive, our portfolio performed quite well. Compared to more complicated and sophisticated alternatives, the portfolio trades off some performance and some volatility to gain simplicity and convenience.

For a retiree withdrawing 4% a year the worst down year was 2008, when it incurred a 17% loss. The portfolio had fully recovered its loss within two years. Over the whole 45 year time span, despite constant yearly withdrawals, the portfolio gained an average of 4.2% compounded per year and it never dropped below its retirement start date value despite a number of down years (12 out of 45).

For a saver, the fact of making no withdrawals reduces the worst 2008 down to only 13% and there were only 9 down years in total. Recovery from down years never took longer than two years. The compound return was a healthy 9% a year.

Unfortunately the Stingy Investor tool does not include inflation data before 1980, so the period of high inflation, and its effects on real after-inflation returns, which is what really matters, cannot be examined. From 1980 to 2024, the real return of the Reluctant Investor Portfolio was 5.7% compounded during the savings no-withdrawal phase, with only 10 years out of 45 showing a decline that never took longer than two years till recovery from a decline. When the added stress on the portfolio of a 4% annual withdrawal was included, the portfolio still managed an average gain of 1.5% annually, but had 15 down years, and a decline of 22.2% starting in 2008 that still has not been recaptured.

Thus, though there is no absolute assurance of never taking a loss by selling out at any time we believe the Reluctant Investor's Lifelong Portfolio is a pretty good balance of the objectives. Overall, we believe the solution works pretty well, delivering 80% or more of the benefits of more time-consuming and complicated investing.

Such a portfolio has value. Not everyone can, or should be, an investor who spends time and effort on investing. That's why our post's title says the portfolio is both inspired by, and intended for, someone like Albert Einstein. After all, could anyone think that Einstein, or the world, would have been better off, if he had applied his time to investing at the expense of physics?

Disclaimer: This post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.

Sunday, 12 January 2025

Wind blows away capital, Solar burns it away, EVs run down the juice

 In his recent post on WUWT Why are Renewable Equipment Companies Such Poor Investments? Steve Goreham shows us that virtually no publicly traded companies making wind and solar equipment, electric vehicles, hydrogen battery cells or electrolyzers, or EV charging providers have been good investments. As a whole, based on the global Renewable Energy Industrial Index of the 30 largest global companies in the sector, investors would have made no money since 2006. Without the one giant blow-out winner - Tesla - there would have been big losses.

The reason he says is quite simply that none of these companies are financially viable profitable businesses. They have not been able to make money in general even with massive government subsidies. One commenter below the post notes the venerable Warren Buffett's pithy assessment of wind and solar: “without the subsidies and tax breaks, they just don’t make financial sense”. 

Goreham notes that the investor in the S&P 500, available through multiple low cost ETFs, would have quadrupled their capital. Therein lies the durable critical lesson for most of us small-guy investors. Recognizing that very few of us have the time, the smarts, the information or the interest to find the Tesla pot of gold, we are far better off to resist the latest investment fad and invest in broad whole of market ETFs. By their construction, indexes like the S&P 500 will incorporate winners like Tesla. Tesla is currently the 6th largest holding in that index. The many losers aren't there frittering away your capital at all. Sure, you won't be among the early now much richer investors in Tesla but you will be modestly richer and not poorer.

In Canada the current poster-boy glamour stock is Shopify. It has come from nowhere twenty years ago - the company did not even exist then. The company only went public in 2015. Yet it's now the second largest company by market cap in the dominant Canadian index, the S&P TSX60. Its stock price is extremely volatile and the PE ratio is an astronomical 97, i.e. it is priced for massive future growth. Want a piece of the action? Buy the stock directly itself ... or more cautiously, buy an index ETF like BlackRock's S&P TSX 60 (XIU) or Global X's offering (HXT). 

Sunday, 16 June 2024

A Modest Proposal for preventing seniors in Canada from being a burden to their children or country ... 2024

It is a melancholy object spectacle to those, who walk through this great town Canadian cities, or travel in the country, when they see the streets, the roads homeless shelters, and cabin doors old age homes crowded with beggars government benefits dependants of the female two sexes, followed by three, four, one or six two pet dogs, all in rags second-hand shop hand-me-downs, and importuning every passenger for an alms handout. These mothers seniors, instead of being able to enjoy their retirement work for their honest livelihood, are forced to employ all their time in strolling to beg sustenance for from the public or their helpless infants struggling working children, or in low-paid menial jobs; ... who, as they grow up get older, either turn thieves benefits cheats, for want of work grocery money or leave their dear native country senses to fight vote for the pretender in Spain Ottawa, or sell themselves to the Barbadoes PornHub.

I think it is agreed by all parties, that this prodigious number of children old people in grabbing at the arms, or on the backs, or at the heels of their mothers daughters, and frequently of their fathers sons is, in the present deplorable state of the kingdom, a very great additional grievance; and therefore whoever could find out a fair, cheap, and easy method of making these children parents sound useful members of the commonwealth, would deserve so well of the publick, as to have his statue set up (in place of that cancelled founding Prime Minister of Canada) for a preserver of the nation.

But my intention is very far from being confined to provide only for the children of professed beggars: it is of a much greater extent, and shall take in the whole number of infants adults at a certain age, who are born of parents in effect as little able to support them, as those who demand our charity in the streets.

As to my own part, having turned my thoughts written for many years upon this important subject, and maturely weighed the several schemes of our projectors, I have always found them grossly mistaken in their computation. It is true, a child person just dropped from its dam employer may be supported by her/his milk savings for a solar year, with little other nourishment income.  It is exactly at one 66 years old that I propose to provide for them in such a manner, as, instead of being a charge upon their parents children, or the parish state, or wanting food and raiment for the rest of their lives, they shall, on the contrary, contribute to the feeding, and partly to the clothing  well-being of many thousands millions. 

I shall now therefore humbly propose my own thoughts, which I hope will not be liable to the least objection.

The authorities, having in their wisdom determined that ending life is an honourable, sensible and even laudable action, not merely before it has properly started, but additionally at any time and age before natural causes bring about this inevitable final event and taking into account the considered and wise opinion of the better class members of society who have carefully deliberated these matters over many years in Davos that there are far too many humans on the earth with consequent mounting damage to our dear mother earth, rapid and decisive action suggests itself imperatively.

I grant that our wise and beneficent national government has with great foresight installed a very active and successful policy to assist people to die whenever the fancy strikes them. Indeed we observe its success with the rapidly growing numbers of casualties right across this bountiful but over-populated land. Reports from the far-flung corners of Canada bring news of the enthusiasm with which the undertaking is being encouraged to all and sundry by the diligent public employees we are all so fortunate to have in our service. Sadly, the fundamental idea is correct but requires a minor adjustment to achieve the perfection that the most intelligent minds can discern. 

I shall return to my proposal shortly but I beg the reader's indulgence to detour through a significant problem for older people that this proposal resolves most satisfactorily. I speak of retirement income and the problem for most private individuals who do not work in the public service, for whom this problem does not exist due to their perpetual inflation-matching pensions, that one cannot know if money will run out before one dies and how much to spend each year in consequence. This pernicious and mentally debilitating guessing game leads many to constrain their spending and restrict their enjoyment of life after retirement. I am confident the reader would agree that no one would deny that this situation needs to be addressed. Millions of Canadians facing this Gordian knot will be eternally grateful for a practical, effective solution, particularly if it costs them nothing.

By now, the astute reader may have divined the essence of my modest proposal, which is none other than to make the MAID program mandatory at age 66. 

The brilliance of this scheme becomes apparent on examining the multitude of its benefits and the absence of disadvantages. 

First, consider the public good. There is consensus - 97% of scientists agree - that the world human population is unsustainably high. Survival of the planet requires a cull of humans, though morality dictates this must be done humanely according to strict principles of equity and fairness. A fringe minority of malcontents might object that they wish to opt out but how can we tolerate such people when the fate of the planet is at stake and the overwhelming majority supports the view that over-population is an existential threat. MAID+ will significantly contribute to fighting climate change. 

In any case, well-crafted blanket positive messaging, with the central idea of "do your bit as a citizen", along with monetary incentive programs, for example a $50,000 cash bonus paid at age 65 to fund an enjoyable final year of life, would get people on board such that opposition would be sufficiently marginalised as to be of no consequence.

Fairness is ensured automatically by the proposed rule that everyone reaching age 66 is subject to what we modestly shall call MAID+. Equity is ensured as well when we recognize that the bulk of people who will be affected, at least in the initial ramping up period, are the coddled old toxic white population. These same old people do not work and do not contribute economically to society. They merely consume vastly disproportionate resources of the medical system. Fewer people also means less carbon emissions, an existential threat to the planet, not merely by their use of fossils fueling their lifestyle, but also from the mere breathing out of CO2. The 20th century witnessed a number of brutal messy pilot projects for the mass culling of humans. The public need not worry. Carrying out MAID+ gently and humanely is ensured by the advances in medical technology that now provide society with utterly painless and instantaneous cessation of life, as amply demonstrated by the growing success of MAID. 

We note that the historical injustice that the early recipients of Canada Pension Plan have been receiving much more than their fair share at the expense of younger generations will be corrected. The free riders will be gone. MAID+ will enhance social equity and peace.

The effect on public finances, recently endangered by ballooning federal debt, will be massively beneficial during the initial transition period of the policy. Consider that upon death all a person's assets are considered to have been sold from a tax viewpoint and capital gains become payable. All registered savings plans are deemed to be liquidated and the money taken into income. Those billions of immediate taxes will eliminate the deficit and balance the budget, as the Prime Minister himself presciently predicted some years ago. Readers may be assured that the Prime Minister has not contributed to this modest proposal though some may harbour suspicions.

In addition, consider the inevitable massive savings to healthcare spending by the elimination of a population that occasions a hugely disproportionate share of provincial medical budgets as bodies and minds deteriorate.

Next, consider the individual's perspective. The enormous intractable financial planning problem of how many years to plan and how much to set aside for retirement income is instantly resolved. It's exactly one year after 65. Financial planning becomes easy, alleviating the individual's worry altogether. All the intricate legal arrangements can be planned and carried out precisely at the right time. Whether it is to have a blow-out party year to spend it all living like the King, the Prime Minister or the Governor General, or to set aside money for children and grand-children, all the corrosive uncertainty disappears. The pernicious long term erosion of spending power by the recent high inflation disappears as well. Children will be freed both from the concern that mum and dad will either foolishly fritter away their inheritance or that they will become a financial burden. MAID+ will improve relations between seniors and their adult children.

All an individual's worries about declining physical and mental health as he or she ages will instantly vanish. The dreary years of diminishing capacity and debilitating chronic diseases will be gone. Human suffering will be much reduced, an undeniable benefit. Children will be freed from the significant time and monetary burden of caring for elderly parents and be able instead to be more productive for the nation's economy.

After all, I am not so violently bent upon my own opinion, as to reject any offer, proposed by wise men, which shall be found equally innocent, cheap, easy, and effectual. But before something of that kind shall be advanced in contradiction to my scheme, and offering a better, I desire the author or authors will be pleased maturely to consider, as things now stand, how they will be able to find food and raiment for millions of useless mouths and backs.

I profess in the sincerity of my heart, that I have not the least personal interest in endeavouring to promote this necessary work, having no other motive than the publick good of my country, by advancing our trade economy and public finances, providing for infants seniors, relieving the poor, helping to save the planet and giving some pleasure to the rich. I have no children living parents, by which I can propose to get inherit a single penny; the youngest being nine years old, and my wife past child-bearing and, my modest proposal being adopted, my residence will be relocated to another country, having attained 66 years and being desirous of saving the government the cost of MAID+ for myself.

Published this Father's Day 2024 in memory of my father who passed away a few years ago at the age of 96 years 359 days having fought for every second of life. 

This text is my creation only in keeping with the principles of Harvard's Claudine Gay school of scholarship. To forestall accusations of plagiarism, any resemblance to any writings of Jonathan Swift are purely accidental.

 

PS I fear this post is too close to the truth to be proper satire. cf https://www.conservativewoman.co.uk/horrific-rise-of-canadas-euthanasia-industry-is-a-warning-to-us-all/

Tuesday, 20 December 2022

ESG, a good idea gone bad

Some years ago we praised the assessment of Environmental, Social and Governance (ESG) factors to evaluate potential investments. Now we unfortunately must say, forget it, don't do it. Whether you are looking to ESG to apply your morals or values, or you simply want to find investments that outperform in the long run, ESG has become a waste of time and money.

Problem #1 ESG Scores are inconsistent, contradictory and opaque and therefore useless to the investor

Brian Tayan has saved us a lot of time compiling the details of ESG's sorry condition in a lengthy well-documented review article at the Harvard Law School Forum on Corporate Governance titled ESG Ratings: A Compass without Direction. A key comment in the review highlights a critical problem:

"Studies find low correlations across ESG ratings providers. [professional ratings companies like MSCI, FTSE, S&P, Sustainalytics, Refinitiv] This is perhaps surprising if ESG ratings are supposed to measure the same construct." 

They don't come up with the same evaluation result at all, so whose is one to believe? Which ESG fund is best amongst the many with non-overlapping holdings? It's impossible to tell. Diving into the details of the hundreds of data points each ESG evaluator collects would be daunting in itself. It is impossible in practice given the opaqueness of the assessment criteria along with the considerable dose of judgement calls by analysts looking at the exact same facts and figures. Even professional investors like big pension funds cannot figure out what the ESG scores mean. Do you think we individuals have the faintest hope of doing so?

An indication that ESG has become a fad that the investment industry is exploiting to "skin the rubes" is that the marketing of many ESG funds to the public emphasizes making the world a better place (i.e. the moral virtue argument) while the rating scheme actually aims to gauge the risk the world poses to the company (i.e. the maximize investment performance approach). Worse yet, Tayan cites research that "... companies in ESG portfolios (those with high Sustainalytics ratings) have worse records for compliance with labor and environmental laws relative to companies in non-ESG portfolios during the same period." High ESG can thus mean the exact opposite of what many morally-driven investors seek! Yiles!

More research is cited indicating a doubtful link between ESG and investment performance: "They conclude that “the financial performance of ESG investing has on average been indistinguishable from conventional investing.”

Bottom line, individual investors are best off in low-expense broad-market funds. There's little point to ESG funds. The top ESG scoring companies are all in the broad market funds anyway.

Problem #2 Mandated ESG scoring and reporting replaces markets with government coercion towards political and social objectives

An example is already here. The Canadian federal government announced in its spring 2022 Budget that banks, insurance companies and pension funds will be obliged to report "climate-related risks and exposures" after 2024. And not only about themselves but about their clients too. The climate crusade against fossil fuels is being institutionalised by force. The extension from reporting to mandatory financing restrictions on oil, gas and coal is merely a next step already being pursued. Banks are being forced to abandon lending at a profit as their primary driver to a different one imposed by force by political agents. ESG has become dominated by the single factor of climate. That's not healthy or sensible.

An excellent summary of the debasement of ESG is Why Business Should Dispense with ESG by Samuel Gregg on 4 Dec 2022 at the American Institute for Economic Research. The key knock Gregg levies against the new and useless strain of ESG is Stakeholder Theory, which maintains "... that the purpose of business goes far beyond profit and maximizing shareholder value". ESG is thus no longer "... the practice of businesses prudentially assessing their surrounding economic, political, and social environment to identify those constituencies (“stakeholders”) with whom any company must work if it is to realize profit."

Hilariously, Tayan reports a study that found more ESG disclosure does not improve consistency of scores, it widens the divergence due to the subjective nature of evaluations. 

Whatever value ESG had for investors to be able to invest as they see fit has rapidly been usurped and corrupted. 

Thursday, 9 June 2016

Retirement Risks - Unexpected Events: Family Trouble, House Repairs, Bankruptcy, Funerals, Divorce etc

Bad things with significant negative financial effects can and do happen in retirement, not just occasionally but often. The 2015 survey by the Ontario Securities Commission Financial Life Stages of Older Canadians found that close to 60% of people 50 and over had experienced an event that was major enough to affect their retirement plans or ability to live off their retirement savings. Health issues were certainly prominent but a range of other matters also caused serious financial problems – helping out adult family members, permanently losing money in the stock market, major home repair bills after a disaster, losing employee benefits, divorce or separation, funeral expenses, collapse of real estate value, business or personal bankruptcy and investment scams. Often more than one event descends on the unlucky. Such events do not lessen the longer one is into retirement either. They happen at any age with about the same frequency.

You may well find that your job as a parent never really ceases. Retired parents often find themselves providing financial help to adult children. You never cease being a sibling or a child either. If brothers, sisters, mom and dad, maybe even cousins, aunts, uncles run into financial trouble there might well be requests for help or a perceived obligation to do so, especially if you are comfortably well off. However much one may wish to apply “tough love” and say no, it seems to be very difficult to overcome emotional bonds. A 2015 survey from the Bank of Montreal Wealth Institute, aptly named The Family Bank, found that parents were willing to delay their own retirement, save less, withdraw savings and have a less comfortable retirement, even take on debt at times, to provide financial support. Very often it's not just emergency or one-time support, it's also monthly bills and day-to-day expenses as the survey found.

People retired nowadays are giving support about twice as much to their adult children as they received from their own parents. BMO quotes psychotherapist and parenting expert Alyson Schafer who says there is a danger that this will create an unhealthy dependency and prevent the child from attaining the mental resiliency, skills and strategies to deal with life's inevitable frustrations, challenges and setbacks. It's tough to find the right balance between helping people get on the road to self-reliance and creating dependency.

There are various possible ways to deal with these life events to ease or avoid the financial pain. The simplest and most general plan is to have a larger cash emergency fund and a spending buffer in the form of a higher income than you need strictly for yourself. On specific events, pre-paying for a funeral is one tactic. Home insurance is a natural protection against major home accident repair bills. Permanently losing money in the stock market, to the extent that it could cause serious financial harm, should simply be avoided with a proper set of investments, as we have explained in many previous posts (see our Guide to Self-Directed Investing). One of the key principles to do that – diversification – also applies to preventing catastrophic harm from personal or business bankruptcy and real estate value collapse. When bad events do happen, most already-retired people end up cutting back their spending i.e. being forced into a lower standard of living and / or cashing in savings earlier than desired.