Saturday, 17 December 2016

What CRM2 Means for Your Investment Statements

New Investment Account Statements


I've been a little MIA lately so first off let me apologize for that! December is always a busy month, and we are hosting Christmas this year which means I've got a long list of things to do before next weekend. I was also flattened by a bad cold last week and am just now feeling human again. Basically, I've had zero motivation to do anything but lie on the couch and watch Law & Order SVU on Netflix. Enough for my excuses, let's get to a real post! 

There's a pretty good chance you've never heard of CRM2, but if you're an investor, you should familiarize yourself with the basics to avoid any confusion when you get some weird statements in the New Year. Let's first get the acronym out of the way (finance people sure love a good (bad) acronym); CRM2 stands for the 'Client Relationship Model part 2'. And what it means for you is more transparency when it comes to the fees you pay for your investments and the returns you are earning on said investments. Sounds great right? Yes, it's a good thing, but there are some factors you need to keep in mind when you're evaluating the new reports. You may have heard some negative opinions regarding CRM2 and financial advisors complaining about how it's going to ruin them...it's not, or at least it shouldn't. The advisors who are most concerned about the effects of CRM2 are the problem children that have made it necessary in the first place by not properly disclosing fees and manipulating performance data.  


The new CRM2 model was implemented on July 15, 2016 but all investment firms were given one year to gather the necessary data before they had to start sending the reports to clients....that would bring us to July 2017. So why are we talking about this now? Well, a lot of firms in the industry have decided it's easier to run the numbers based on the calendar year, so most of you will see the more detailed statements hit your mailboxes (inboxes) in January. 

Fee Disclosure - How much are you actually paying? 
The biggest factor in this is likely to be the cost transparency. As investors, we pay certain fees to get into the market, and these include commission charged directly by your advisor, mutual fund fees, administration fees charged by your financial institution and taxes. Some of these fees you'll be aware of but others, like the mutual fund fees, have always been embedded within the investment and not openly disclosed. Now you'll get a neat little print out of everything you have paid to your to your financial institution. One thing to note if you've got an advisor you work with is that they are not lining their pockets with all of that money...a lot of what you pay will go back to the bank or dealer they work for. 

This is a change for the better but maybe take a deep breath before you read the actual dollar amounts. Your advisor may be really open about fees but only ever talk about them as a percentage of your portfolio. A 2% fee on a $100,000 portfolio might not sound like much, but that's $2,000/year...how are those the same thing right?! It helps to think about all the things your advisor provides for you...maybe they prepare financial plans (they should be!), maybe they run free seminars, maybe they give you advice to reduce your tax bill, or can walk you through your pension plan. All of these things would cost you money if you went to a fee for service planner....we're talking $500+ to get a comprehensive financial plan. 

There is an exception that you won't find on the new reporting and that's mutual fund MER's (management expense ratios). These fees are charged directly by the fund company and are their cost of doing business. Because they aren't paid out to your advisor/dealer, they are exempt from CRM2. The MER will depend on the fund with more aggressive funds usually charging higher fees (more active trading); a bond fund will usually cost between 1% and 1.5% while an equity fund will be >2%. MER information is included in the 'Fund Facts' document you should receive before purchasing a mutual fund. You will see information regarding trailer fees (what the mutual fund company pays your advisor for buying the fund) and DSC (deferred sales charges). DSC funds are bad news, and a lot of firms are moving away from them, so if you're being pushed towards in that direction, you might want to run away.  

Performance Disclosure - How much are you actually making? 
The whole reason you invest your money is to make more of it, so you want to see your statement balances going up, up and up some more. Naturally, this doesn't always happen, you're going to have some bad months or even years, but over the long term, you want to be growing your net worth. The new performance disclosure with CRM2 is going to give you easier access to that information on a more standardized level. Prior to this, dealers could choose their method of calculating your returns, but now all Canadian dealers have to use a money-weighted calculation...I'm not going to go into detail about that here, but you can read this article if you'd like more info. You will now be given annual information that includes any deposits and/or withdrawals from your accounts, the change in dollar value of your account, and rates of return based on the last one, three, five and ten years. Because this initiative was only introduced in July of 2013, the dealer only needs to go back to this point so you won't be seeing a five or ten-year return in 2017. These values will also be impacted by how long you have held your investments with your current firm if you've only been a client for two years your returns will only date back that far. 

Seeing positive returns on your statement is great, but you have to keep your risk level in perspective. If you're a low-risk investor you cannot expect to see double-digit returns on either the positive or negative side and shouldn't be disappointed with returns under 5%...if you put that money in a 100% safe savings accounts, you'd be lucky to get 1%. Also, keep in mind how the market has done as a whole. If an appropriate benchmark (an index with similar investments to yours) is sitting at -20% for the year and you're at -8% you really didn't do so poorly did you? 

It can be frustrating to see all the fees you are being charged in a year when your returns are low but as long as your longer-term returns are positive and your advisor is providing you with services you feel are important you shouldn't stress about it too much. However, if you see poor returns year over year, it might just be time to look for a new strategy.

Those are the basics of the new CRM2 model if you have any questions feel free to leave them in the comments. And keep an eye on your January (or maybe July) investment statements to see the new detailed reporting. 

New Investment Account Statements

Wednesday, 7 December 2016

Why I'm a Downtown(ish) Dweller

Perks of Downtown Living

It might not look like it from the summery looking shot above, but winter struck Edmonton with a vengeance this week, and it doesn't look like there is much relief in the near future. The one positive is that we got a little bit of snow, so everything is now white instead of brown, but that doesn't nearly make up for having to suffer through -30 temperatures for the next week or so. I really hate the cold weather...I realize I'm not alone in this and that I did decide to plant roots here in Edmonton but complaining about the weather (not risk taking) is about the most Edmonton thing we can do ;) 


One thing this weather makes me appreciate is where I live; there's no long commute for this girl! When we decided to buy a house six years ago the most important thing for us was to be centrally located, and we made that happen by buying in Westmount (a great little neighborhood just off downtown). Chances were pretty good at the time that we would both have jobs downtown (which we do) and being close to work to avoid a long daily commute topped the necessity list. 

I grew up in St. Albert (a suburb of Edmonton) and suffered through the commute down to the University for years so when house hunting became a reality, I knew that would be a deal breaker. Rush hour makes me crazy (even on my current 5-minute drive), add winter road conditions to the mix, and you get one very cranky Sarah. I don't even have winter tires on my car (I know, sacrilege) because of how little I actually drive. And when the weather isn't so apocalyptic cold I can even walk to work...exercise and convenience. There's also the added perk of cheaper vehicle-related costs. My limited driving means that I don't have to allow much of my budget to gas; I usually only fill up my tank once a month, and it costs about $45. This also translates to low mileage on my car and less frequent maintenance requirements. I purchased my car brand new in October 2010, and it currently has just over 62,000 km on it. I've also never had to have anything major fixed on it (I'm knocking on wood right now because my warranty also just expired). One last thing that you may not have considered is cheaper auto insurance. Lots of companies will give you a bit of a discount for having a short commute or for using your car only for pleasure. Less gas and maintenance and discounted insurance all put extra money in my pocket because I made the decision to live and work in the same area. 

The lack of a lengthy commute was the big thing for me, but there are also plenty of other advantages to living near the core. For most cities I've traveled to there tends to be more activities in the downtown core than in other parts of the city and this is certainly the case in Edmonton. I'm sure there are exceptions (my downtown bias might be showing), but most of the good restaurants we have are located in or around downtown whereas the suburbs usually have more chain restaurants. Sure, every once in awhile you might just want Swiss Chalet for dinner and not have any locations near you (this is actually a thing for us; someone bring me a festive special!) but most of the time we go out for a nice meal it's to a local restaurant and not a chain. The same logic also applies to events and festivals. Our new downtown arena has made this even more true, but even before that most of the concert venues, theaters and festival grounds are all within easy access to our house and makes it more likely that we'll actually get out and experience things. If I had to drive 30+ minutes to go see a show, it would limit how often I'd be willing to do that. 

Living downtown isn't all sunshine and roses, there a few things you should consider. The most common con you hear about buying a home central is that you get less bang for your buck, meaning you'll pay more for a smaller home. And that's not wrong, so if square footage is the most important thing on your house hunting list, then the suburbs might be perfect for you. For me, this really wasn't even worth considering...more space means more cleaning, and I really hate cleaning. Our current place is about 1300 square feet, and it's perfect for us. We'll likely need to up-size if we add kids to the mix but that's a problem for another day, and I'll enjoy only having to clean 1.5 bathrooms for the time being. There's also a good chance your dollar won't stretch as far as you might think. If you factor in the added commuting costs to your budget some of that suburb advantage will disappear. 

One factor I can't write off and has caused us a few headaches is the age of the homes. By their very essence, central neighbourhoods are old, and that means you're likely going to end up with a house that's got a little history in its walls. Now don't get me wrong, I think old homes are charming and mature neighbourhoods have so much more character with their unique (non-cookie-cutter) homes and mature trees, but brand new homes give you more stability. If you buy new, you aren't going to have to worry about your furnace conking out in the middle of winter, replacing a leaky roof, or lining up pictures on crooked walls. Side note, I just had a complete mental block on how to spell crooked....I've grown to embrace the quirks in our 80-year-old home, but a small part of me would appreciate not always having a nagging worry about what the next big expense will be. But why can't I have it all?! Maybe that's what you're asking right now, and sure, if you've got the bankroll to do it you can buy a new build in an old neighbourhood. It's going to cost you, though...back to the old bang for your buck cliche. That is actually my end goal one day, tear down our current place and rebuild on the same lot. We've got a big, corner lot on a perfect block and I can't imagine moving so now we just have to win the lottery ;) I do think it would be so much fun to plan and design a new place, that might just be the biggest perk of a new build...as long as I don't have to move out to the boons! 

What are your thoughts? Where do you guys fall on the downtown vs. suburbs debate? 

Perks of Downtown Living

Friday, 2 December 2016

7 Ways to Pinch Pennies

Money Saving Tips


Maybe the Christmas season has you seeing red and dreading the January credit card bills, or maybe you want to set some money aside for a new car, fancy vacation or just simply increase your cash flow. Whatever the case, everyone can use a little extra cash in their wallets, especially at this time of year. Today I'm going to share a few of my favourite penny-pinching tips. 

If you are dealing with a little (or a lot) of debt, you can check my post here to help you get started on a repayment plan. Every little bit of extra money really comes in handy too when you're trying to kick start your debt elimination. 

Here we go folks, try a couple or try them all and make sure to brag about how much you cut out of your budget in the comments. 

Ditch Unnecessary Monthly Expenses
Perhaps you're a sucker for magazine subscriptions, still have a home phone, or maybe you pay for Spotify premium and hardly ever use it (note to self...) Whatever your weakness is, monthly expenses can do some serious damage to your budget and save you some serious coin if you're willing to let go. The easiest way to do this is pull up your last couple months of bank account and credit card statements and see what you are actually paying for. If there's anything you can live without cancel it, right now, you can always get it back later if you find you really do miss it. If you've got a magazine subscription and maybe one too many TV streaming services that can be cancelled you could save yourself around $15 a month or $180 a year. That's not nothing folks. Or maybe you can go even bigger and cancel your cable altogether, even if you just do it for the summer months when you're likely watching less TV you'll save a ton of money. We still have cable in this house, but I would be a-ok cancelling except for watching sports. We're big Oilers fans and there really just isn't a great option to live stream sports at this point. I know Sportsnet has a streaming service for all their channels, but it's $25/month which is as much as our basic cable package...seems crazy. 

Negotiate with Service Providers
It really is worth your time to run through your list of recurring bills and make a few phone calls to negotiate a lower rate. Even if you're still under contract it's worth giving it a shot, there might be something you're paying for that you don't use; a speciality TV channel package, or voicemail on your phone (who doesn't hate voicemail). If you're out of contract, then it can be even more worthwhile as you can use the threat of leaving to get the most bang for your buck (ask for the retention department as they are usually the ones who can give the biggest discounts). Do some research before calling to see what other providers are offering to new customers and use those numbers in your negotiations. And if you're not having much success, don't be afraid to switch providers. We switched our TV and internet to Telus last year because they offered us a really fantastic promo. Just remember that promo rates are temporary, so make sure the regular rate is cheaper or comparable to what you're currently paying, so it doesn't end up costing you more in the long run. These tactics can be used for internet, cable, cell phones, insurance...just about anything you have to sign a contract for. 

Make a Budget and Stick to it
You don't need some crazy detailed, elaborate budget but you do need to figure out what money is coming in and going out every month. Run the numbers to work out how much you actually need to live on each month and set that aside, whether that's kept in your chequing account or you take it out as cash. Don't forget to leave yourself a little room in the budget for fun. I'm a big believer in living for now and living for the future...it's a balancing act. Living on a too tight budget can just end up making you frustrated and not having enough motivation to stick with it. Budgeting is just like dieting, you need to leave room for the odd treat to save yourself from eating an entire pizza. Any leftover cash flow will go towards savings or pay off debt, and I want you to set these up as automatic payments. That way money goes where it's supposed to as soon as it comes in, so you're not tempted to spend it on that cute blouse you saw at the mall (or online, because who still goes to the mall). Give yourself a couple of months to tweak the amounts if needed, but if you're serious about this, you want to stay strict with yourself. Your budget can be as simple as a post-it note on the fridge, but there are also great apps you can use so your budget is always accessible on your phone. I like Mint, it's free and links up with most Canadian banks and lets you track bank accounts, investment accounts and credit cards. 

Sell Stuff
Have a basement overflowing with stuff you don't use anymore? Get listing on Kijiji and make some extra cash! What could be better than getting paid to purge?! I know some people really hate cleaning out their closets or getting rid of things, but I actually love it. I find it so frustrating to pull something out of my closet that I hate or have kitchen cabinets overflowing with appliances that never get used. As long as the things you want to get rid of still have a little life left in them then you should definitely be listing them on Kijiji instead of tossing them in the trash...environmentally and economically friendly. You can sell just about any household items on Kijiji, another's person's junk right. Make sure to set realistic prices (check out some similar listings) and be prepared to barter with people. If your item does sell within the first few days, it's a good idea to delete and re-post the ad, so it goes back to the top of the list, older ads tend to disappear into obscurity. 

Get Paid to Shop Online
I love getting my shopping done online, and you can often get better discounts than you can in store, especially if there's free shipping available. I don't think I've stepped foot in a brick and mortar store for Christmas presents yet this year, everything has been done either online or at a couple of local craft sales. Another perk is that there are sites you can use to get rewards for buying stuff online. My favourite is Ebates because you get actual cash back from shopping at lots of online stores you're probably buying from anyway (think Amazon, Sephora, Old Navy, etc.). Swagbucks is another good option and lets you earn rewards for online shopping but also doing surveys and other tasks. For both sites, you set up an account and then link through there to any of the sites they partner with and then do your online shopping just like normal. For Ebates you will earn cash back, and they will send you a cheque when you get to $25. Swagbucks is a bit different in that you earn points (Swagbucks) and you use those points to redeem for gift cards.


Pack a Lunch
Everyone already knows this, but it's worth the reminder because it will save you a ton of money. Eating out is expensive so if you can cook most of your meals at home, you should. I'm horrible at packing lunch, but we are good about cooking dinner at home, so I try to pick meals that will have enough for leftovers the next day. If I have to make a sandwich in the morning, I'm setting myself up for failure but if there's a container of leftovers I'm good to go. Plus, I hate wasting food, so I'll make sure those leftovers get eaten. The hardest part of sticking to a bag lunch plan for me is resisting the temptation when co-workers go out. My office is terrible for eating out way to often so we've made a deal (that we try very, very hard to stick to) that we can only eat out once a week. 

Use the Library
I only just got a library membership last year, but holy man is it ever amazing! Depending on where you live this might not be as beneficial for you, but the Edmonton Public Library is seriously impressive. Membership is 100% FREE, and they have a huge selection of books, ebooks, movies, music...pretty much everything. Sure, sometimes you need to need to go on a waiting list for more popular books (I think I'm still number 1 million and some for 'The Nest'), but if you're an avid reader, there is no other way to read as much as you want for free. The EPL website is easy to use, and you can download ebooks, save books to read in the future and access online resources. When you put a book on hold, they even transfer it between libraries so you can always pick-up at the most convenient location while still having access to resources across the city. And, if there's a book the EPL doesn't have you can request it, and they actually do listen!

There you have it, 7 ways to limit to expenses and free up some extra money to pay your bills or stash away for the future. If you'd like to share any of your favourite penny-pinching tips feel free to post in the comments.  

Money Saving Tips