When you're leaving your employer — voluntarily or not — you have much to consider about your future. You could easily forget or undervalue the employee benefits you've been receiving.
Unless you put similar protection in place, you are transferring risks to yourself. You have other options.
Health and Dental Benefits
If you act fast, you likely qualify for Manulife FollowMe health and dental without underwriting. You need to apply and pay within 60 days of losing your current coverage (sooner is safer). You can apply for FollowMe through Costco to save money if you don't need guidance.
If you'd like better coverage with fewer limitations, consider Association plans, which are only available through advisors.
Tip: If you're out of time, get FollowMe first and then compare with the Association plans.
Disability Insurance
Your group Long Term Disability (LTD) will likely end. Personal disability insurance is worth considering if you or your dependants would be heavily impacted if you became unable to work due to a sickness or injury. The cost may seem high but the benefits are valuable.
The best time to apply is while you're still working since a discount usually applies. Upon leaving your employer, a well-constructed plan allows a special one-time top-up to replace the group LTD you're losing.
Tip: Group LTD has limitations. Consider personal disability insurance as a top-up even if you're working.
Life Insurance
You likely have a right to a short period to convert your group life insurance to personal coverage (e.g., 30 days) after your employment ends. Your employer may not emphasize this option because the insurer charges them a penalty on the assumption that some of those who convert are in below-average health. Personal life insurance is likely cheaper but takes time to put into place.
Tip: If you're out of time, convert your group life and then compare with personal life insurance.
Be Ready
When you're starting out on your own and uncertain about the future, insurance brings stability and peace of mind. Waiting until you're established brings risk.
Reminder: simplified for clarity. For specific answers to your personal questions, arrange a private chat.
There are lots of reasons to read a book about money and there are lots of books about money. Tony Robbins has a new one, Money: Master The Game.
Unfortunately, not many people read books. Even fewer read nonfiction. Only a small sliver read books about money. Be an exception and join them.
Not Perfect
There are various criticisms of the book, such as
an outsider: but being outside the traditional financial community gives Tony a different perspective
contradicting advice: but that’s common in life. He interviews 50 money experts with varying views.
over-simplified: but isn’t that better than over-complicating and confusing? Complexity can be added once the A-B-Cs (or 1-2-3s) are known.
conflicts of interest: Tony recommends companies in which he might have financial interests (see dealing with biased financial advice). That doesn’t mean the choices are bad but they but warrant more investigation.
too long: yes … I got the audiobook which runs over 21 hours and sped up the playback by 30%
US-centric: yes but the general ideas apply everywhere
Tony responded to some criticism in this interview for The Wall Street Journal.
At the other extreme, you’ll find gushing praise.
Tony’s Advantage
Do celebrities give better financial advice? Maybe not but Tony reaches the unreachable — people who get missed by conventional financial education. Even when Tony says things you’ve heard before, you might be more likely to believe them now. For instance, I’ve covered things like
We often know the keys about money (e.g., spend less than you earn, disaster-proof your life, save for the future). That doesn’t mean we do. Tony helps people change. He might get you to change too. He has a knack for making financial education engaging. He explains his terms and uses many examples.
Differently
Instead of writing a book, Tony could have created videos and an app. That’s what I thought before getting the book. I don’t see videos, but he has a free app (if you’re willing to give your contact information).
Instead of using a conventional publisher, Tony could have self-published. He could have made the book cheaper. He could have narrated the full audiobook, rather than portions.
Overall, what he did is fine.
Free Meals
Tony is paying for 50 million free meals. Besides donating all his book royalties, he’s made an additional personal financial contribution. That’s rare. Chances are good that you’ll end up on his mailing list, though. That gives him the opportunity to sell you his other stuff with the money you’re saving.
Caution
Tony tackles tough topics such as the conflicts of interest rampant in the financial sector. He gives solutions too. Think before you leap.
The stories from successes like Richard Branson are interesting but may not provide much practical guidance (e.g., how Honest Ed turned $212 into $100 million). Look for patterns rather than a guaranteed formula to financial independence.
I wasn’t expecting much from Tony’s book but because he’s popular, I knew that I had an obligation to read it. Overall, I’m impressed and highly recommend Money: Master The Game. There’s lots of practical advice.
Money books get stale. Tony’s book is new, which means now is the best time to read it.
Life keeps breaking bad. Floods. Plane crashes. Shootings. Bombings. Diseases. Power outages. Forest fires. Computer viruses. Sometimes bad happens to strangers in a distant continent. Sometimes to people we know or places we’ve been. Good happens too, but gets less attention. Who would watch The Walking Alive, The Empire Doesn’t Strike Back or Breaking Good?
Many headline-grabbers fall into what Stephen Covey calls our large Circle of Concern. We can only make a difference in our smaller Circle of Influence which lies within. Do we do what we can?
Looking Back
When we look back, mistakes looks “obvious”. They weren’t at the time. No one can take all precautions all the time. Right Maleficent? Situations also change. A locked barn door doesn’t protect against leaks, tornados or termites.
Our priorities shift. One day we want lower taxes and convenient access. Another day we want more services and strict security.
At a personal level, memories fade. We forget to prepare (or stay prepared) for next time to the extent we intended.
Mismatched Resources
When disaster strikes outside our homes, society at large can help. Billions of dollars can be committed. There’s an outpouring of support, sometimes from other countries.
When disaster strikes within our homes, we can’t count on the same help. We can take precautions
We can also transfer the financial risks in advance. That’s precisely what insurance does. Because there’s a price and underwriting, we can’t buy an unlimited amount. We’re forced to evaluate the risks, which can be difficult on our own. We tend to fear the wrong risks (e.g., sharks or terrorists) instead of higher probability risks (e.g., disability and longevity).
Looking Forward
To paraphrase Jim Rohn’s dad: You can’t fix the roof when it’s raining. And when it’s sunny, you don’t need to.
What will you do with what you know now? It’s easy to become desensitized (and do nothing) and hard to mobilized (and take action steps within your control).
The very first blog post was published over 20 years ago. Newspapers, magazines, books, radio and television started even earlier. The personal finance educators tend to use those media. Yet financial literacy remains a serious problem. Maybe the audience has been shifting their attention elsewhere.
What about the trends towards video and mobile devices? Canadians are big users. According to the 2014 Canada Digital Future In Focus report
video viewing is up 33% since 2012
74% watch online video
viewing time is 1,769 minutes per month – 43% higher than Americans
There’s a huge (and growing) audience on YouTube. How much personal finance information is available there?
As we’ll see from case studies, current approaches to using video for financial education aren’t working well. There are opportunities to experiment and make breakthroughs. If you’re a less established blogger, you might want to focus on video. Ditto if you’re established and looking to evolve.
Case Study: Investor Education Fund (585 views)
You’ll find good videos on the InvestorEDFund channel from the nonprofit Investor Education Fund. Host Rob Carrick conducts short 1-2 minute interviews which are co-branded with The Globe and Mail. The last 15 videos garnered 585 views. The most popular title got 84 views.
Viewership might improve with
Better thumbnails: the current images aren’t always enticing; might show the title, guest and host
Longer videos: short clips tends to simplify and generalize (e.g., 84 seconds on whether to cancel your home insurance); more time might let guests give better, less rushed answers
Case Study: Financial Post (714 views)
You’ll find good videos on the Financial Post channel. I especially like the ones with Melissa Leong. The last 15 videos got 714 views. The most popular had 134 views (an ice bucket challenge).
Viewership might improve with
Better thumbnails: generally good but some don’t look enticing or relevant (e.g., “Can I leave my estate to my pet?” could show an animal)
Start titles with the important information: move the less important like “Save your #@%* money” or “What the what?!?” to the end (e.g., “What the what?!? My husband drives like a…” is incomplete)
Case Study: Money Minute (undisclosed views)
Money Minute with Ashleigh Patterson has good content and lots of visuals. The title is odd since the videos tend to be 3-4 minutes long (a satisfying length). The thumbnails are nicely done.
The basic problem is that the videos aren’t on YouTube. That means you won’t find them with the #2 search engine and there’s a learning curve. For instance, I couldn’t figure out how to improve the playback quality or share a video with Buffer or Hootsuite (each video uses the same URL ca.finance.yahoo.com/video/money-minute). I couldn’t find a way to subscribe either.
Viewership might improve with
Hosting on YouTube: likely a nonstarter but who goes to Yahoo for video?
Transparency: Yahoo hides the number of views and even the publication dates
Case Study: Taxevity (737 views)
Our new Taxevity Insurance Advisory channel features in-person interviews over tea in my office. The last 15 videos got 737 views with less than 50 subscribers. The most popular title had 124 views. The lengths varied from 13:54 to 64:03 minutes. As much as 1,290 minutes of content was viewed on a single day.
The topics are diverse but all relate to money (especially the often overlooked aspect of investing in yourself). The guests are diverse and some wouldn’t be considered conventional money experts. That helps reach people who avoid financial education. The questions and flow are planned with the guest before recording. The thumbnails are going to be redone to include the interview title. Most of the marketing takes place on LinkedIn, the place you’ll find people with money. Canadians are big users --- #5 in the world.
You'll have your own approach.
Your Turn
If you create personal finance content, why not create three new videos? One isn’t enough because of the learning curve.
All you need is a webcam or smartphone, a free video editor and free natural daylight. You can upgrade later (e.g., our recommended gear on Amazon).
You might want to
talk directly to the camera: impromptu or with a script (which you can re-use in a blog post and the YouTube video description)
get creative: say with a whiteboard, an animated whiteboard or a PowerPoint voiceover. Use your imagination (e.g., the funny series The Tax Man from Allan Madan).
Video has impact and is easy to share. Your tools include visuals, audio, text, music and movement. You don’t have to use them all. Maybe you’ll find that video is more enjoyable for you and more valuable for the vast audience waiting.
We can learn valuable lessons about money from Jack Bauer (Kiefer Sutherland) and others in the Counter Terrorism Unit (CTU) . Here are five.
1. Communicate Clearly
When time is tight, every word and second matters. In 24, you know what’s said and what’s meant. Simple questions get asked if there’s a need for clarification or confirmation.
Does your advisor have a clear understanding of what you want? Your goals and priorities may have changed since your last meeting. Advisors are not mind readers and may not be proactive. Tell them.
Conversely, your advisor also has an obligation to communicate clearly with you. If you don’t understand, ask. Since you’re paying, you’re in charge. Get your money’s worth.
2. Trust With Caution
The world of 24 is filled with mistrust. You can't tell who’s telling the truth or how long the honest will stay truthful. The stakes are very high and human motivation is complicated. There are conflicting interests. The losers don't accept defeat willingly.
Defiance harms trust. When people think they're doing right, they may bend rules, violate direct orders and tell blatant lies. The bad people have an advantage because they aren't constrained by rules of law.
Building relationships is a key strategy for advisors. Relationships help retain you as a client and make you more receptive to advice. As the years pass, you can become more vulnerable. For instance, Tom Hanks got cheated by his insurance advisor but the process took years. In 24, the process is much faster.
3. Each Moment Is Unpredictable
The world of 24 is filled with twists and shocks. We don't know what’ll happen in the next moment or next hour. That’s true in real life too.
On 24, we know Jack will overcome setbacks and achieve the key goal. Our lives have drama but don't come with the same assurances. Unpredictable events like injury, sickness or death are rare in our working lives (low probability) but can cause serious financial hardship (high severity). Insurance is a cost-effective way to transfer the risks.
4. We All Need Help
Jack is the main character but he relies on help from many others. Sometimes he asks the wrong person but things eventually work out. Diligence is important. Keep inspecting what you're expecting.
Since each organization has different strengths and limitations, Jack gets help from different places (CTU, FBI, the NSA, the President). If you rely on advisors from the same firm, you get convenience but risk unknown compromises. You get more options with independent outside advisors.
Sometimes Jack can’t get the help he needs because the providers havce conflicting interests. The good of the many can take precedence over one life. That makes sense unless you’re the one. That’s when you need to look out for yourself.
5. Be Flexible
Events don’t happen as expected. When a plan fails in 24, Jack and team make instant changes with minimal discussions based on the little information they have.
Our own lives often lack the excitement a viewing audience demands. That's good. Precautions like insurance reduce the drama further.
After all, Jack Bauer and CTU are forms of insurance — well worth the premiums.
The big challenge is exercise. Good intentions haven’t translated into ongoing habits,
Intentions vs Actions
Visiting a fitness club takes time, planning and waiting for equipment. Yoga looked like a good way to exercise at home before breakfast. Since pure yoga melds body, mind and soul, I wanted
sevaks (teachers) who knew the ancient ways from India but taught in English
an extended, structured course (rather than a workshop)
personalized attention (rather than a student in a large class)
Is that asking too much?
The Solution
A fellow Toastmaster told us of a free 16 week course in West Toronto (Etobicoke near Kipling/Rexdale). My wife attended Shri Ambika Yoga Kutir and recommended I join. That’s a big commitment. The classes take place at 7:00:00 AM on Saturdays. I’m not a morning person and don’t like sleeping early on Friday nights. Would I have energy to travel and take a two hour class before breakfast?
I made a commitment and haven’t missed a single class despite the extreme winter. Since lessons build on each others, that’s important.
Benefits
Here the main benefits I’ve already achieved
more energy all day: the breathing exercises help you get more oxygen into your blood — especially via Kapal Bhati (shallow bellows breathing)
better posture: you tone muscles which often get ignored (e.g. in your spine and neck)
more flexibility: we don’t use positions like padmasana (lotus posture) in our daily lives
Perhaps the greatest benefit is the confidence that comes from persisting and not quitting. My life has changed and will continue to improve as I continue the yoga.
The Catch?
The course is free and that’s not a trick. You’re not put on a commercial mailing list. There are no attempts to upsell you (because there’s nothing to sell). The only way you can spend money is on the optional course materials. The best ways to repay the generosity of the volunteer sevaks is by
continuing to practice yoga
encouraging others to join (a goal of this post)
You attend to learn. Students (sadhaks) are discouraged from the usual networking and exchange of business cards.
The Format
Each class starts with all students on yoga mats facing a row of teachers at the front of the large room.
The week’s agenda is shown on a whiteboard. Different teachers explain the theory behind the new postures, the benefits and the precautions. There are demonstrations of the new postures.
Practice
We then go to one of four groups based on our age and gender. My group (males 45+) had about a dozen students and two teachers. That’s an excellent student-to-teacher ratio. As we practiced, we got personalized attention. That’s what I really appreciated since I wanted to do the exercises properly. You can’t get that from YouTube or a conventional show-up-if-you-want class.
Each student in my group had his own strengths and challenges. We weren’t competing, though. We were encouraged to do what we could. We weren’t pressured to do exercises for which we made us uncomfortable. Some exercises had variations for different needs.
Tips
For the best results in the Shri Ambika Yoga Kutir class
take notes (photography and videography is discouraged; manuals aren’t available until near the end)
practice daily (I averaged 5-6 days a week … only skipping mornings when travelling or having unusually early meetings)
After you graduate, you can return anytime you want to repeat the basics or take advanced classes. If you’re interested, get details about the next course.
It’s funny how our bodies respond when we take care of them. What better investment can you make?
Companies make money by enticing us to buy stuff that looks “new and improved” but really isn’t. Windows 8 falls into this category. Windows 7 still works very well. It’s quick. It’s stable. What’s missing?
Microsoft is hardly successful at innovation. Did you buy a Zune MP3 player, Windows tablet, Windows phone or switch to Bing (reached an all-time high of 16.5% market share in January compared with Google’s 67.0%). The world is moving online where Microsoft hasn’t made a penny since 2005. In Q1, Microsoft’s online operations lost $262 million. That’s considered an improvement.
At the same time, Microsoft continues making lots of money because of the prevalence of Windows and Office. Times change and Microsoft tried to catch up with the launch of Windows 8. As usual, they created confusion with the various edition for different devices. Should you get Windows 8 or Windows 8 Pro for your desktop. What is Windows RT and why can’t it run the programs you already have?
In Q1 2013, Windows 8 only reached 3.31% market share, despite promotions like a $15 upgrade offer (now over). Even the horrible Windows Vista has more market share (about 5%).
Forced Upgraded
I recently got a new notebook computer with Windows 8 and started detesting the operating system within hours. I don't mind change as long as change makes life simpler or better.
Windows 8 may be appealing if you have a computer with a touch screen. Many of today's high end computers still rely on a touchpad. Many users still use a mouse. Why force us to use an interface designed for touch? That’s unnecessary and annoying. This new interface called Metro slows work down.
Common features like the button to shut down your computer are now hidden away under settings. Shutting down your computer is an action its not a setting.
Stop
You can switch to desktop mode but the Start button is gone. This is progress?
Full Scream
Applications designed for Windows 8 take up the whole screen. Where are the windows?
There is rarely a reason to run Skype in full screen mode. There are many reasons to run Skype in a window while you're working on other windows. On a small screen like a tablet, having an application fill the whole screen is fine. On a computer designed for productivity, the restriction is silly. I have a full HD screen with a resolution of 1920x1080 pixels. I have no good reason to devote all that space to Skype or Weather or Messaging. What is Microsoft thinking?
Better But …
Overall, Windows 8 feels faster than Windows 7. Maybe this is because of the operating system or the newer hardware. The upgrade does not do anything important that I could not do before. The initial annoyances are gone. I’ve restored the Start button with Start8 ($5 from Stardock), which blends the old and new elegantly.
When companies tell you something is new and improved, be wary. You may not get the benefits promised. The time you spend learning how to use the new could be better spent mastering the old. You'll also save money.
The very same applies with financial products and services. You may not know what you're giving up. Maybe there is more fine print. Maybe prices are higher. Maybe guarantees are worse. Buyer beware.
If insurance were free, how much would you get? [I heard that at a seminar.]
You’d probably get as much as the underwriters would approve based on your physical and financial health. Since cost is a factor, you've got to prioritize. You may skip some forms of insurance, or reduce the amount you buy.
How do you find the money to pay the premiums?
Types Of Money
We mentally put money into buckets. This for groceries, that for vacation. Don’t touch the beer money. We end up with conflicting goals such as topping up your RRSP or paying down your mortgage (Globe and Mail, Feb 2012).
We might spend "found" money such as lottery winnings, bonuses and perhaps tax refunds with less care. Easy-come, easy-go.
Yet money is money. Knowing this lets us stretch our savings by using one pot for more than one purpose.
Universal Needs
You probably have life insurance, especially if you have a family. Inexpensive term coverage is widely available.
There are bigger risks.
We can face a critical illness or disability and survive. Since the probabilities of getting stricken are relatively high, the premiums look high compared with term life insurance. The easy solution is to skip getting coverage. You're winning ... until you're not.
Untapped FUNDS
You probably understand that saving for retirement is important. We can’t rely on governments. We might not have guaranteed pension benefits from work.
What if your health impedes your journey to a financially-secure retirement? If you get a critical illness or disability, you risk higher expenses and less income. You might be unable to work again. You could take some of the money earmarked for your retirement to buy insurance for critical illnesses and disability. You're then protected while you're working.
With permanent life insurance, you get lifelong protection and an envelope for tax sheltered growth. Maybe you put some of your savings here for access later.
Get Your Money Back
If you’re convinced you’ll have a claim, the insurer doesn’t want to cover you. If you don’t think you’ll have a claim, buying insurance may look like a waste of money. We can’t tell what will happen.
What if you could get your money back if you didn’t make a claim? You’d lose the investment growth on the money but returns are unpredictable anyway.
Some critical illness and income replacement plans refund your premiums if you cancel your policy at an age like 65 (assuming you haven’t had a claim). You now have another form of retirement savings. The money comes from the insurer's investments and other buyers who didn’t have the patience to wait.
With life insurance, you can’t get a return of premium when you retire but can at death.
You do pay more to get your premiums refunded. Because of the poor investment environment, the option is becoming more expensive or disappearing.
Ideal For you
Unless you have money for everything, you might want to combine pots for related goals like getting to retirement. You won't get money back from your car or home insurance. You can with insurance on your health and life.
The best insurance is what remains at the time of a claim. [I also heard that at a seminar.]
Who decided that November is the right time for Financial Literacy Month? We need skill with numbers all year round.
Besides, financial literacy is boring compared to Black Friday and the latest Apple iDevice. Maybe that’s why we need a special month.
You Already Pay
You pay for advice for financial decisions relating to banking, financial planning, investments, insurance and tax. Thirty days hath November. How did your advisors specifically help you improve your financial literacy?
Maybe you received generic information from them or the financial institutions they represent. That doesn’t count. Maybe you received sales pitches disguised as advice. That doesn’t count either.
You are paying — directly or indirectly — for advice. What are you getting?
Do you get emails from advisors telling you that instead of sending you a holiday card, they’re donating an undisclosed amount to a worthy charity? That’s fine but how charitable are they being to you? Information is free. Emails are free. Videos are free.
Your advisors don’t even need to create fresh, original content, They can send you links for free. What did they send you?
Too High A Price
As you become more educated, you become more discerning and demanding. Will that make your advisor more money? If not, don’t expect much help. We saw how a pizza flyer deceives. Financial offerings are far more complex.
You pay a higher price when you don’t take the initiative to learn on your own. If you’re passive, you might get advice which is better for the giver than for you. How would you know? By improving your skills, you can ask better questions, evaluate the answers, and spot what’s left out.
Your Advocates
When you’re ready to learn, you’ll find help. Here are three excellent free sources:
You can also visit the Riscario wiki which started in 2006 and accompanies this blog.
Caution
There are other sources of information with potential conflicts of interest. For instance, VISA offers Practical Money Skills. You won’t find standard debt-fighting advice like
pay off your credit card balance every month
borrow from less expensive sources (if you must borrow)
cut up your credit card
Instead, there’s an example of paying 18% interest on a $3,000 loan. If you pay the monthly minimum of $60, you pay an astounding $2,870 in interest. If you pay $110 monthly, you pay “only” $1,070 in interest — a “saving” of $1,800. Wow, let’s borrow $6,000 to “save” $3,600.
We get in the way of our own plans. You might need outside help or discipline. If you have a spouse, friend or colleague with the same goals, support each other. A 12-week Pick Four goals program may be ideal: each member has their objectives (may not be financial).
Your paid skilled advisors can certainly help you improve your financial literacy. That doesn’t mean they will. You can also improve without their help. That doesn’t mean you will. Will you?
Don't it always seem to go, that you don't know what you've got til it's gone? — Joni Mitchell, Big Yellow Taxi
Superstorm Sandy. Blackouts, Ice storms. Hurricanes. Tsunamis. Fire. As disaster looms, we change our priorities. The email can wait. Laundry too. Safety of our families and ourselves becomes the priority.
Do we have food, fuel, heat, water? Do we have flashlights, batteries, a radio and our mobile phones?
We can't stop the devastation but can take steps for our protection. You may find you’re not as ready as you thought. At home, we encountered issues which caused us greater harm than Sandy.
Immobilized
Sometimes we don't know what to do. In groups, the bystander effect (Wikipedia) leads to inertia.
The northeast blackout of 2003 affected 50 million people (Wikipedia), I was working at National Life in downtown Toronto. We were told to go home. I checked to make sure my floor was clear first. I found staff in one department huddled with a radio, unsure what to do. We figured out ways to get them home. I didn’t know how I’d get home. Luckily, the President was still there and lived in my neighborhood. I got a ride — much better than walking 18 km home in dress shoes.
Scientific American looked back at the mega-blackout five years later and found little changed. Where is the “smart grid”? Blackouts affecting 50,000+ people remained as frequent as before. Another mega-blackout could happen each 25 years.
Afterward
At the time of turmoil, we know what we’d do differently. Scientists have suggestions for how New York can prepare for the next Sandy (Scientific American, Nov 5, 2012). Perhaps insurers can also help by demanding higher standards and more protection (Wired, Oct 31, 2012). Will much really change once routine life returns?
We’re not good at preparing for serious-but-rare outlier events (“black swans”). What do we overlook, discount or delay at the personal level?
Preparation
Advance preparation is a form of insurance. Insurance is a form of advance preparation. Coverage is often mandatory for our vehicles and strongly encouraged for our homes.
We aren't required to insure our health or lives. Not everyone has income replacement insurance, critical illness insurance, medical expense reimbursement insurance or life insurance. Affording all types gets costly. We often need to compromise.
Qualifying
There's also the problem of qualifying. When insurance is optional, the insurers get suspicious of motivated buyers. They worry about “anti-selection”: you know more than you tell the insurer, which leads to more claims. A study of denied critical illness claims found that in 40% of the cases clients misrepresented the facts.
Timing
You can’t easily buy a generator and fuel the day of a big storm (even if you get to the store). You can't get insurance the moment you want it either. You must apply in advance before anyone can tell there may be a claim.
When disaster hits, we find out how well protected we really are.
Insurance contracts have exclusions. Sometimes riders can add what’s missing. Other times, we're stuck and bear the risk ourselves. Deductibles save premiums but also increase our out-of-pocket expenses at a less-than-ideal time. Trade offs.
Following Sandy, 1/2 to 2/3 of homeowners found they were underinsured (San Francisco Chronicle, Nov 3, 2012). That can’t be fixed now. A homeowner policy may not cover flooding without flood insurance. Also, “many insurers have added hurricane and wind deductibles that can run as high as 5 percent of the covered value of the home” (Insurance Journal, Nov 2, 2012).
Life insurance and critical illness insurance don't have deductibles. Disability insurance does. Any of these plans could have exclusions. It’s best to find out in advance. Maybe you can strengthen the protection.
Sometimes disaster strikes without warning. The scale can be large (like 9/11) or confined to our families. We can’t tell but can prepare. If not now, then when?
You can repay a financial debt with money. What about nonfinancial debts?
When someone helps you in a powerful way, a debt of sorts has been created. That doesn't mean you can or must repay it.
Suppose you got an idea or an a-ha moment that changes your life. There's no possible way to repay the giver, even if they're “doing their job” (e.g., your grade two teacher).
Maybe you got free publicity or an award nomination. An attempt to repay whoever referred or nominated you may look like a bribe and cheapen the gift.
You might never have met the source of the inspiration, which might be:
a song ("Did you exchange a walk on part in the war for a lead role in a cage?" --- Wish You Were Here, Pink Floyd)
a quote (e.g., "I am not bound to succeed but I am bound to live up to the light I have" --- Abraham Lincoln)
a movie scene (e.g., this time lapse at the end of Gangs Of New York, which is even more poignant with the loss of the twin towers)
Was the goal of your benefactor to create a debt you're meant to repay or were you given a no-strings-attached gift?
Here are two ways to (try to) repay
Help others
Shine your spotlight
Help Others
This is perhaps the best way. Do unto others. Pay it forward.
We know how other people can fix up their live ... but don't tell them how. How selfish of us. How unfortunate for them.
Are we afraid to give our opinions?
I have a habit of giving unsolicited feedback (blog post). This polarizes the recipients. In most cases they are appreciative. In rare cases, they are not interested in feedback. Either way, you get a better understanding of how that person is. To quote someone anonymous, a closed mind, like a closed room gathers only dust.
If they agree with your suggestions, do they actually change? If not, maybe they don't care enough to improve. At least you offered help.
Tact
Please don't say the first thing that comes to your lips or mind. Think. If you don't know how to give feedback, visit Toastmaster clubs. You can go for free with no obligation to join. You'll see how feedback is given to speakers and members with major roles. If you join, you'll get to practice giving feedback in a safe environment.
Your feedback is simply your opinion. It's neither right nor wrong. The recipient needn't act upon it. You still benefit by having the courage to give it.
Shine The Spotlight
You can pay your benefactors with more attention. You become part of their tribe or group. You look out for them. Maybe you find opportunities for them. Perhaps you support their causes.
You can thank in public. In this way, you go on the record with your views. If they're on LinkedIn, write testimonials. I often occasionally get thanks, usually in person. That’s nice but of limited value since no one else knows. If you repeat the nice things said about you, you risk looking like you’re you’re praising yourself (and perhaps exaggerating).
Maybe you thank someone who goes bad later. That doesn't take away from the help they’ve given you. That does not mean that thanking them was a mistake.
Example
In my case, Seth Godin has been especially influential. If he sent me a bill, I'd have trouble paying it. Instead, I read his blog, buy his books, support his initiatives (e.g. Triiibes.com), attend his events (e.g., The Linchpin Session) and share his ideas. Most recently, I helped fund the Kickstarter campaign for his next book, The Icarus Deception. Nothing I've done is major but it's sincere. It's better than silence.
We're not ostriches and in winter there's no soft sand to hide our heads. We might cover our ears with hats or wear headphones but we can't pretend we don't know what's going on around us.
Still, we love fooling ourselves and doing nothing while we’re being harmed slowly. Like lobsters in a pot.
In honesty, can you claim you don't know that Canada has extremely high investment expenses? Especially after this week’s extensive media attention?
Compound interest is the secret ingredient in investment growth. The Management Expense Ratio (MER) is the enemy. Yes, we need to pay something but the more we pay, the worse our returns. Since the MER is often deducted on a daily basis, the effect of the cost is compounded too. The damage builds over time. Plus, in absolute dollars, you pay more as your investments grow.
The Facts
Let’s start with research and reports from credible sources.
Morningstar Global Fund Investor Experience (Mar 2011)
“Canada is the only country [out of 22] in the survey with TERs [Total Expense Ratios] in the highest grouping for each of the three broad categories [equity funds, fixed-income funds and money market funds] … These costs cannot be explained by pointing to unique features of the Canadian fund market.” (page 22)
“Positively for fund investors, sales and media practices are excellent and disclosure is very good. Unfortunately, these benefits are counterbalanced by steep taxes and the highest fund costs found in this survey … Nor does it [Canada] offer fund investors the protection of a board of directors.” (page 24)
“ … the Canadian funds community is the only funds groups to claim last year’s Global Fund Investor Experience report was methodologically flawed in its treatment of fund expenses … A final claim is made that Canadian mutual fund costs should not be compared to those of the United States, because the U.S. marketplace is much larger and therefore enjoys greater economies of scale. This argument has some merit, but it does not explain why Canadian fund expenses are significantly higher than those in other countries with modest population bases, such as Belgium, Australia, Sweden, Norway, and Hong Kong, to name a few.” (page 58)
Jonathan Chevreau wrote: “I doubt any objective advisor would counsel against buying the iShares ETF through a discount brokerage though my bet is quite a few would counsel against buying Investors [Group] Dividend Fund for the simple reason it’s overpriced … when a far cheaper alternative exists. It’s beyond me how the firm can countenance this stance while also trying to wrap themselves in the rhetoric of their alleged efforts to improve financial literacy. — OK, Investors Group, now the gloves are off on your financial literacy stance (Dec 1, 2011)
“Has there been a sea change in consumer attitudes to fees and the dramatic contrast revealed by the surging ETF industry? Or are we so helpless as investors that we willingly turn over 2.7% in management fees to companies like Investors Group to make our decisions for us?” — The MER Debate (Dec 6, 2011)
Investment Executive
“Outside of deposit accounts (held by 90%), affluent Canadians are most likely to invest in mutual funds (held by 56%). This is one of the highest levels of mutual fund ownership of all countries surveyed.” — Affluent investors in Canada rely on professional advisors: survey (Dec 8, 2011)
The Globe and Mail
“The Canadian Foundation for Advancement of Investor Rights (FAIR Canada) complained that under the current regulatory environment, there’s limited price competition and demanded that Ottawa look into the high cost of investing. Federal Finance Minister Jim Flaherty said he would ask the Senate national finance committee to investigate.” — Canadian Investors ‘gouged’ by fees (Dec 5, 2011)
“Given that Canada has some of the highest mutual fund fees in the world, we are used to seeing fees of 2.4 per cent and higher. Investors Group, however, stands out among fund companies in Canada because their fees often hit around 2.7 per cent. This is but one of the red flags.” — Investors Group mutual fund fees among the highest in Canada (Dec 6, 2011)
“It is beyond pathetic that no mutual fund company in this country wants to make low fees a key part of its marketing pitch to investors. Our fund industry abides. It’s insular, complacent and arrogant. It too often charges high fees for lame funds that investors buy through advisers who provide no advice.” — The no-gouge way to better investing (Dec 7, 2011)
Canadian Labour Congress (CLC)
An online calculator shows what happens when you invest a lump sum of $10,000 and earn a compound return of 5%. With a mutual fund charging 2.5% guess what happens after 30 years? You have under $21,000 and your advisor has over $22,000. This is a win/lose and you’re on the wrong side.
After 45 years, the results continue to compound against you. You have less than $30,000 and your advisor gets over $60,000.
With low fees of 0.5%, you win. After 45 years, you have over $72,000 and your advisor gets less than $18,000. Don’t cry for your advisor. You aren’t their only client and the investment was entirely yours.
Disagreement
The Canadian investment industry doesn’t see a problem. Surprised?
They argue that we lack economies of scale. That makes for sense for physical things like installing fiber optic cable or paving roads. An investment is an electronic transaction, and computations keep getting cheaper.
Another argument is that you're paying for advice. Perhaps but there are questions too
how good is the advice? what are the objective measures of quality? what are the penalties for bad advice?
how much are you paying?
how much does the advice cost? Is this cost dropping?
Has your advisor ever told you how much you pay for their advice? In the world of for-fee advice, you would. Since that model is rare, you probably don't know.
How meaningful is advice without guarantees or penalties?
If you've been burned by bad investment advice before, do you still believe your advisor has a magic crystal ball? Do you believe you get the same quality of advice as the big investors like pension funds, insurance companies and banks?
If you're not getting amazing advice, maybe your best option is to lower your costs.
Why Hide?
Why is the cost of advice hidden from you? Maybe that's because you wouldn't pay for the advice if you saw the bill. Maybe you would demand more for your money or demand to pay less for what you are getting. Maybe you’d look for better advice even if that cost more. After all, most advisors are close to average, which impairs the advice they are capable of offering.
The Real Purpose Of MERs
I've been to nonpublic seminars where investments are introduced to advisors. There's a standard pattern. The presenter shows how the new investment team beats the gang that just got turfed. We see carefully-constructed examples of amazing past returns that no one actually achieved. Advisors are shown the point-of-sale material. Who needs skill when you’ve got nice coloured charts? The best is last: slides on how high the compensation is. Now go out and sell sell sell!!!
I've never seen a slide that shows the portion of the MER intended for advice. As an investor, have you?
A big portion of the MER is a sales commission. Advice is the cost of making the sale, an attempt to show the expertise of the advisor.
The MERs are high because we continue to buy. Would lower MERs increase the investment manufacturer’s market share? Probably not because of buyer inertia and since competitors can quickly copy. It's like gas prices. There are different chains but the prices match. You get a sense of the margins when you see how much less Costco charges for gas.
Unbundle
Bundles often have compromises that boost profits. Who really eats the ketchup chips in the variety pack? How good is the headset that came with your smartphone?
When you invest, you pay for advice and administration (including transactions and record keeping). You won't know how much unless the components are separated. You might then be surprised and decide to do something. Not now, but later. Until then your inertia costs you a bundle.
In this week’s Globe and Mail, Preet Banerjee investigates the financial aid available to the disabled. I’m quoted. The interview took place via Bluetooth while I was driving to the sold-out Toastmasters conference. (There, Jonathan Holowka and I showed ways to turbocharge clubs with social media.)
Disability is a dreary subject and you avoid buying insurance, but the topic is popular this week. Advisor.ca, has articles to help salespeople clear the sales hurdle and pitch disability coverage. There is even a script for them to use on you. If you start getting contacted in the near future, maybe that’s why.
This post gives you more insider thoughts about disability insurance, which is sometimes given the glitzier name of income replacement insurance.
Statistics
There are many eye-popping statistics about the high risk of disability and how long income can be lost. You can watch a no-longer-embeddable video from PPI Solutions.
You probably know people who are disabled at least partially.
Differences
Death is something an actuary can calculate fairly easily and accurately. Predicting who will become disabled is not so easy. It is a calculation based on chance. — New York Times, April 2011
Life insurance pays a fixed amount upon death. Critical illness insurance pays a fixed amount upon diagnosis of a covered illness. Within reason, you decide how much coverage you want.
Disability insurance is different. It only replaces a portion of your lost income. If you were able to replace your full income and get indexed benefits, where is the financial incentive to return to work? If the economy is bad and layoffs are pending, getting disabled may look like an exit strategy.
To counter abuse, insurers have ongoing checks to make sure you still qualify. With life and critical illness insurance, you're only checked at the time of the claim.
Nortel is a sad example. Instead of getting real insurance, the company decided to insure employees themselves. Since Nortel is bankrupt, their promises mean nothing. The disabled lost their benefits. If real insurance were used, then benefits would have continued. If the insurer failed, Assuris protection would step in.
If you can't rely on an employer or government, can you rely on yourself? If you don't have your own DI coverage, you are your own insurer. Since you cannot tell if you're going to become disabled or for how long, self-insuring can prove very costly unless you're independently wealthy.
Problem
Statistics Canada reports that 1 in 7 Canadians are disabled. The rates increase with age. Not only is disability common during your working years, the benefits could be paid until age 65 and might even be indexed. While the protection is worthwhile, it's pricey. It has to be. That’s why some people buy critical illness insurance instead. That's valuable coverage but hardly a substitute.
The perceived problem is that you can spend lots of hard-earned money on insurance and never get a long term disability. Isn't that better than having a claim? You had peace of mind and your health.
PS Relying on your employer for your pension is also risky. Defined benefit plans are becoming rare in the private sector and we're living longer than ever.
