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Insights

Investment Principles

Information sheets for investors

The Power of Time and Returns

Saving and investing is about the accumulation of wealth in order to achieve an appropriate standard of living during retirement. This document illustrates the importance of starting to save early and the impact of higher returns. It also illustrates the significant cost of waiting to start saving and of being, perhaps, too conservative, or afraid, as a long-term investor.

The impact of fees

There are two types of fees: investment-related fees (such as those directly related to product management and transaction costs) and advisory fees (such as those related to the support a financial expert can provide). Total fees can
be significant, and investors would be wise to ensure they are paying reasonable all-in fees. Investors must assume greater risks in order to hope for greater investment returns, but fees will reduce returns whether the investment strategy is successful or not. Download the PDF to learn more!

The Impact of Taxes

There are two important issues related to taxation. Firstly, several governments have allowed tax- exempt and tax-deferred accounts designed
to promote and facilitate wealth accumulation for the purposes of retirement. Secondly, when investment income is taxed, the tax rates may differ according to the sources of investment income. Even foreign governments may tax part of your investment income. Download the PDF to learn more!

The impact of Inflation

Inflation depreciates the value of wealth and acts as a form of tax on income and wealth. Although there are many discussions among experts concerning the inflation protection provided by specific asset classes, most studies show that it is hard to protect ourselves against the impact of increased inflation. For example, it is far from certain that real estate and gold are effective long- term inflation hedges, despite the rhetoric. At the very least, we can estimate the potential impact of inflation on our standard of living.

The Impact of Diversification and risk

Until now, we have assumed that returns are stable at 3% or 6% yearly. Of course, investment returns are not stable. Not only is there no guarantee that a portfolio will deliver a return of 3% or 6% on average, realized returns may
vary greatly from year to year. Risk is about the likelihood that our return expectations are not met. Download the PDF to learn more!

The role of an advisor

Contrary to popular belief, it should be understood that the role of an advisor is not to forecast short-term performance and implement short-term market timing strategies. It is to provide expertise on many different dimensions of the retirement planning process, promote discipline and help the investor deal with the anxieties caused by the process itself and by financial market instabilities.

The investor's tolerance for risk

We often think of risk as the likelihood of sustaining short-term losses. However, risk is also about not meeting our long-term goals, such as failing to reach a specific level of expected income at retirement. It is a challenge to reconcile both risks. Reducing the likelihood of short-term losses requires running a lower risk portfolio, while achieving higher expected income at retirement requires running a higher risk portfolio. It’s a delicate balance.

What drives market returns

We’ve been making the argument that most experts cannot forecast market returns. However, there are some guidelines and principles that may help understand what range of returns investors can reasonably expect. Furthermore, we seek to illustrate that historical performance is unreliable as a source of information on future performance. This is a complex topic, and we will address it in the simplest way possible.

How to diversify

There are many ways to diversify a portfolio. We diversify because we cannot easily forecast expected returns. This document focuses on the basic approach to diversification: across asset classes, styles and geography. Furthermore, we will make the argument that US investors do not need to diversify internationally as much as Canadian investors. Furthermore, US investors need to reduce their exposure to foreign currency while Canadian investors should embrace it.

Building portfolios

Since Canadian and US investors have different diversification requirements, we need to build portfolios from both perspectives. Two portfolio allocations are considered: a riskier 70/30 (equity/ fixed income) and a less risky 30/70. For each risk level, there are two portfolio structures: a simple structure with two or three assets and a more comprehensive structure designed to provide greater geographic and style diversification. Download the PDF to learn more!

The income I can expect from my savings

How much must be saved periodically to ensure a comfortable retirement is not a simple question. There are many relevant variables to consider, but it is possible to develop a reasonable estimate that will give an indication of the scope of the savings effort required. Download the PDF to learn more!

Putting it all together

We have covered a significant amount of material in the previous documents. It may seem overwhelming, but the main dimensions of the retirement process can in fact be easily summarized. This last document in this educational series seeks to present the main dimensions of the investment process in a clear framework.