1. In this hard-hitting article in The Globe and Mail, Fabrice Taylor says only suckers invest in a closed-end fund IPO. About 6 percent of the initial capital goes to feed all those bankers, brokers and lawyers and the fun is only just beginning.
2. With the deadline for taxing income trusts fast approaching, what’s an income investor to do? Investing Thesis finds out some alternatives to finding income after trust conversions.
3. Steadyhand Fund’s Tom Bradley takes ING Direct to task for misleading advertising of their Streetwise funds.
4. The Financial Blogger listed some of the perks in being a resident of la belle province.
5. We can put money into the account but can we take it out? Gail Vaz-Oxlade is surprised by the restrictions on withdrawing money from a RESP.
6. Larry MacDonald is all praises for a new book titled 10 Things I Wish Someone Had Told Me About Retirement.
7. Michael James on Money highlights an interesting article that contains colourful quotes from a Q&A with Charlie Munger. If you have an hour or so, you can view the video here.
8. In Search of Salt urges students to save money by buying used books and taking full advantages of scholarships and bursaries.
9. DirectBuy charges an initial membership fee of $5,000 plus annual fees. A Canadian Money Forum member debates whether if any savings will be worth the outlay.
10. Million Dollar Journey featured an interview with the CEO of a private REIT. Private REITs may be less volatile than publicly-traded ones but investors should keep in mind that private REITs have lower liquidity.
11. Money Smart Blog’s Mike Holman has just published a book on RESPs.

I’m unable to highlight all the articles worth checking out in my weekly round up but you can check them out through my Twitter feed. Thanks for reading and have a great weekend!

Related Reading:

• Performance Chasing by Professional Investors
• Manulife IncomePlus versus a Bond Portfolio
• This and That
• This and That: Housing, Retirement and more…
• Notes From The Berkshire Hathaway Annual Report

This and That: Buffett, Closed-End Fund IPOs and more… is brought to you by Canadian Capitalist — Helping you to invest & prosper.

In fact, buying a repo can save you big bucks—between 25% and 40% off the cost of a similar used car. But keep in mind that you could find yourself with a big fat lemon on your hands. You might not even be able to drive it off the lot. The key is to keep in mind that when you’re buying a repo, it’s buyer beware.

The biggest problem with buying a repo is getting a handle on what shape the car is really in. When you buy a used car, you can always get a mechanic to check the car out for you, but not with repos. This is disconcerting, because the type of person who defaults on his or her car payments is not necessarily the type who makes sure that all the scheduled car maintenance is done on time.

Of course, the unknown condition of the cars is one reason why they’re so cheap. For instance a British Columbia repo bailiff (who didn’t want to be named), says he sold a motorcycle that was worth $6,000 for just $1,500 because it had a blown engine. But the buyer only had to pay another $1,000 to fix it. “Those are the sweet deals,” he says.

The other reason the cars are so cheap is because the banks and lenders just want to recover their money—they’re not looking to make a big profit. “In their mind they’re not really selling a car,” says London, Ont., bailiff Scott Ewart. “They’re selling an asset that belongs to the bank.”

There are several websites that specialize in selling repossessed cars, such as Repo.com and RepoDepo.ca. Marvin Bowman of Burnaby, B.C.-based Repo.com says his company gets about 200 repo cars a month. Many such online dealers offer reports and warranties to help defray some of the risk. For instance, Repo.com provides an 88-point report outlining the vehicles deficiencies, and offers a 30-day warranty on components like the engine and transmission. You can extend that warranty up to two years for an additional $670 fee.

Another way to buy repo vehicles is through auctions. Ewart, the bailiff, bought a Ford Explorer this way himself. While you can’t get the cars checked out by a mechanic before the sale, you can kick the tires yourself. Before his auction took place Ewart wandered over to the Explorer he was interested in and started it to hear the engine sound. He also checked the oil, the transmission, the tire rod and looked under the hood. He liked what he saw, so when the SUV came on the block he started bidding. He got it for a couple of thousand dollars less than he would have paid to buy a similar SUV used.

When buying a repo, George Iny, president of the Automobile Protection Agency, suggests sticking to vehicles that are less than 18 months old. The newer the car, the fewer problems it will have. As well, there is a large supply of lease returns for three- to four-year-old vehicles that people can buy on the cheap. “Repossession is an advantage when there isn’t a large supply of similar cars on the market,” he explains.

While the deals are still out there, the repo business is getting smaller. An increasing number of car dealers are buying up repo cars, and the auction sites are starting to host dealer-only auctions. Thus, many of the best cars are snapped up by the dealers, leaving the leftovers for the general public.

You definitely can find a great deal on a repo if you know your way around a car, and you’re willing to take a chance. But you’ll probably only save a few thousand dollars. If the prospect of coming home with a lemon is enough to keep you up at night, you might want to just stick to the used car lot.

Investors have access to plenty of low-cost products when it comes to annuities and traditional stocks and bonds. But that’s not true of GMWB products such as Manulife’s IncomePlus in existence today. These products have two significant drawbacks: (1) High fees and (2) No inflation protection on the withdrawal benefits.

GMWB products charge annual fees that average 3.5 to 4.1 percent depending on the bells and whistles added to the base model. Most of these products also limit the equity exposure in the fund to 70 to 80 percent. The high fees combined with capped equity exposure reduces the odds of the investment resetting at a higher level than the base. So, investors in GMWBs available today are essentially purchasing an annuity without any inflation protection. A period of sustained high inflation in future can easily eat away the purchasing power of the guaranteed income from a GMWB.

Due to these drawbacks, it should be asked if GMWBs even have a role in a retiree’s portfolio. Wouldn’t a retiree achieve better results from purchasing annuities with a portion of the capital and investing the rest in equities?

Related Reading:

• Manulife IncomePlus: The high cost of peace of mind
• Book Review: Pensionize Your Nest Egg
• Should Canadians Add Commodities to their Portfolios?
• Investing in a period of high inflation
• Manulife IncomePlus versus a Bond Portfolio

Do Retirees Require GMWB Products? is brought to you by Canadian Capitalist — Helping you to invest & prosper.

Last week I posted an e-mail from Shannon, a reader who related her difficulties in opening a TD e-Series Funds account. That post (and an earlier one about her experiences with TD) generated a huge number of comments. Many were supportive; others were rather condescending.

Shannon sent along another follow-up, which I’ve posted below. (Note that you may have to refer back to the comments section of the earlier to post to follow the discussion.)

I’ve spent so much space covering Shannon’s story because I’ve come to appreciate just how much resistance many investors face from financial firms when they try to simplify their investments and lower their costs. Shannon and her husband were screwed by their first investment advisor. When she went looking for help elsewhere, she didn’t get it.

As she notes, many of us who are experienced DIY investors know what to expect, and we know how to push back against the sales pitches. But many people don’t have that knowledge or confidence. I hope by sharing these stories, this blog and its readers can be a supportive community for investors who want to take back control of their own finances.

Here’s the letter:

I’m Shannon, the woman the Couch Potato respectfully listened to and guided. Thank you, CP. I have a few additional comments to make based on some of the posts.

1. I did not begin this process as a “lark.” Some of my comments may sound funny, but that’s my way of coping, and they were only a portion of what I wrote. I was certainly not laughing while I was sitting through the session with the people at the TD branch.

My husband and I lost over 40% of our retirement portfolio with a well-known investment company, where we were in 90%+ equities. We didn’t know what a DSC was, or an MER, what a split between equities and fixed income meant, diversification, etc. Seven months from retirement, we had to go back to work, as many others have had to. I certainly wasn’t laughing then.

Perhaps, as Paul L says, I am too dumb to live (not an exact quote, but that’s the gist). All my husband and I can do is try and learn as much as we can and take advice from those who know better. At least those who are actually trying to help.

2. My experience with the TD branch in our community was factual. In my conversation with the Couch Potato, I even left out some really depressing bits. I appreciate that others have had great experiences, and that gives me hope. Perhaps it was a situation of a e-Series newbie (me) meeting a newbie mutual fund representative and her super-trained (in traditional mutual funds) supervisor. I don’t know, I don’t have anything to compare it to. But it was peculiar that even the EasyLine rep basically told me to lie to his own colleagues at the branch so as not to rock the boat. Perhaps, if I’d followed his advice, things would have gone better. But I’m not very good at lying, and I didn’t get why I should have to.

3. I did investigate the TD Waterhouse route. Since we do not have a household account of $100,000 stuffed under our mattress (in order to qualify for the cheaper trading fees), it would mean moving our money from our current investment company (which is currently holding our money captive with exorbitant DSC fees) into a kind of holding account.

To avoid the annual $100 fee on an RRSP account, we had to have a minimum of $25,000 in each registered account with TD. We don’t have that extra money. And this seemed too complicated for us, particularly since we simply wanted to determine how the e-Series process worked with a basic $1,000 deposit. In this, in my opinion, TD failed. As we have still not received notification that we can do the conversion online, we’ll see how the second part of the process goes. I am hopeful, based on the helpful experiences shared here.

4. After all we’ve been through this past two years, we are weary of more sales talk. Perhaps more sophisticated investors can shut it out, but that’s more difficult for me. My conversation with the TD branch supervisor and the TD Waterhouse rep involved the same spiel my husband and I have heard (and succumbed to) countless times before. Eventually the TD Waterhouse rep realized that not only had I been there, done that, and had the T-shirt, but a permanent tattoo on my backside. I wanted to hear about other possibilities, and I think by the end of our conversation he got that.

5. Finally, thanks to those who posted helpful comments. Knowledge shared between positive, helpful, concerned people is, I have come to believe, our only weapon against the investment industry juggernaut. As for those who can only make themselves feel superior with sarcasm, you are wasting my time. I consider it an achievement to have finally figured that out.

More to the point, they introduced middle-class North America to the world of ultra high-end cuisine, even if this world remains, for most, deliciously out of reach. After all, who can realistically afford to eat at Emeril’s eponymous New Orleans eatery, or Ducasse’s Manhattan restaurant Del Posto? As for Michelin three-star restaurants, the flashiest jewels in the culinary crowns of Europe, Asia and North America, fuggedaboutit: they remain the exclusive playgrounds of uber-wealthy, globe-trotting gastronomes.

Or do they?

To be sure, a meal at Paris’s sublime l’Ambroisie, where truffles and foie gras rule the roost, will never be cheap. Nor will dinner for two at London’s Fat Duck, where the 42 chefs who ply the kitchen outnumber the place settings on any given night.

There are, however, ways and means—tricks if you will—to dine at even the glitziest, most expensive restaurants, without breaking the bank. Here are a few of the best.

Lunch, not dinner
The aforementioned globe-trotting gastronomes are unanimous: the most affordable way to sample the delights on offer at the world’s greatest kitchens is to book for lunch, rather than dinner. “Lunch is typically less than half, maybe one-third of the price of dinner at a Michelin three-star, for the simple reason that people aren’t willing to pay the same high prices for lunch as they are for dinner,” says Andy Hayler, who runs the well-regarded London-based website Andy Hayler’s Restaurant Guide, and has dined at virtually every Michelin three-star restaurant on the planet. The only caveat is that lunch menus might not include as many really expensive ingredients, substituting, say, rabbit and duck for lobster and Kobe beef. “But you’re still getting a three-star experience.”

Beating the rush
Restaurants that have just been upgraded from two- to three-star status in the Michelin guide will usually be priced lower than long-standing, iconic three-star eateries. “Better yet, if you are particularly prescient and can book into two-star restaurants before they’re upgraded, you can get what is essentially a three-star experience at substantially reduced rates,” says Hayler. “The day after they receive their third star, restaurants invariably jack up their prices, which they can well afford to do because of the dramatic increase in business.”

The path less travelled
Restaurants in large, affluent cities such as London, Paris and New York, are invariably more expensive than similar-quality restaurants in, say, the Italian countryside. There are two reasons for this, says Hayler: first, because the cost of rent and staffing are higher in urban centres, and second, because there’s a larger customer base willing to pay vast sums of money to dine out—especially in financial and business districts, were meals are often expensed.

Similarly, when it comes to food, some countries are trendier than others and hence have relatively higher-priced restaurants. “Spain got hot about three years ago, when the number of Michelin three-star restaurants jumped from one to six, almost overnight,” says Hayler. “Prices at Spanish restaurants, not coincidentally, also jumped overnight.”

By contrast, un-trendy Germany offers perhaps the best value in three-star dining. “It comes down to the brand,” says Hayler. “People think ‘German food, ugh.’ But in all likelihood you’re not going to be eating bratwurst at a Michelin three-star in Germany, you’re going to be eating French.”

Grapes of wrath
Another way to whittle down the cost is to focus less on the wine. “I rarely order an expensive bottle of wine at a three-star restaurant,” says Hayler. “I kind of resent paying the very large mark-up, sometimes hundreds of dollars.”

Since mark-ups vary from restaurant to restaurant, and from bottle to bottle, one solution is to research wine lists in advance—many restaurants post their lists online—and identify labels with the lowest mark-up compared to their retail price. “A decade ago you’d have to be a wine expert, carrying hundreds of prices in your head, to identify bargains,” says Hayler. “Today, with the Internet, all you need is time.”

Jim McElhiney, a retired Canadian tech millionaire who now makes his home in Monte Carlo, has another trick. “I ask the wine steward if the restaurant has anything local. Requesting local wines to pair with local cuisine is a perfectly acceptable, classy thing to do, and you’ll often get a superior bottle at a very reasonable price.”

Noted foodie Jo Ann Hennigar, whose adventures in fine dining have included stops at Emeril Lagasse’s New Orleans eatery and Bobby Flay’s restaurants in New York and Las Vegas, says she usually buys wine by the glass, rather than the bottle. “I save a lot that way, which is great, because while I don’t mind paying top dollar for a chef’s creativity and skill, I’m less interested in paying inflated prices for wine, which I can purchase anywhere,” says Hennigar, owner of Ottawa-based catering company A Sense of Taste.

There’s another reason for buying by the glass, says Canadian food television producer Chris Knight, whose programs include Cook Like a Chef, Licence to Grill, and This Food That Wine. “Not only is it cheaper, but you can pair different wines with different courses for a better overall experience. And if you’re dining with other people, a single bottle often won’t do. If I’m ordering lamb and you’re ordering fish, what bottle do we get?” A word of caution, though: “At many three-star restaurants, the first thing that happens is they wheel a champagne cart up to your table and ask if you’d like a glass,” says McElhiney. “You and your date each take one, and discover later they’re 35 Euros each. For house champagne!”

Hurry up and wait
“Especially in New York, where restaurants tend to be run like hard-core businesses, they’ll often show you to the holding bar while you wait, even though your table may actually be ready,” says McElhiney. “They want you to spend an extra $40 at the bar before even being seated. And after you get boozed up, you might end up spending more on the meal than you would otherwise.”

The price is right… or is it?
Another restaurant gambit is to include one item on a menu that’s over-priced relative to the rest of the dishes on offer. The purpose, says McElhiney, isn’t to realize higher profit on the over-priced dish, but to make the second highest-priced item look like a bargain by comparison: that’s the dish the restaurant is really hoping to sell in quantity. “You don’t get value by ordering based on price,” says McElhiney. “You get value by ordering what you really feel like eating, regardless of price.”

Don’t worry, be happy
It’s easy to be intimidated, even stressed, at the prospect of spending a king’s ransom on a single meal at a three-star restaurant. It’s also the best way to ruin what should be a sublime evening out. “Relax and enjoy the entire dining experience,” says Chris Knight. “A top-notch restaurant isn’t only about fantastic food, it’s about a room with amazing buzz, great service, fine wine, people watching. You’ll feel better about the high prices if you can relax and soak up everything the restaurant has to offer.”

Traditional defined-benefit pensions in which an employer promises and guarantees an employee’s retirement income are becoming scarcer these days. As very few Canadians outside of the public sector being covered by DB plans, the vast majority of us now bear the risk of saving enough for retirement and investing those savings wisely. Unfortunately, the challenge doesn’t end there. Canadians in, or nearing retirement then face risks that their hard-earned nest egg will not last their lifetime.

In Pensionize Your Nest Egg, authors Moshe Milvesky and Alexandra Macqueen demonstrate that retirees face three main risks: (1) Longevity risk — the length of time in retirement, (2) Sequence of Returns Risk — the risk of a negative sequence of returns in the years immediately preceding and following retirement and (3) Inflation Risk — the relentless loss of purchasing power of nominal dollars. But how does one protect against these risks? The authors have coined (and trademarked) a term for the solution: pensionize, which simply refers to converting some fraction of a nest egg into a guaranteed income that lasts a lifetime.

The book is divided into three parts. The first deals with the three aforementioned risks that retirees face. The meat of the book is contained in the second part. It shows why retirees should allocate their retirement accounts across three product silos: annuities, traditional stocks and bonds and guaranteed lifetime withdrawal benefit (GLWB) products (such as Manulife’s IncomePlus). This section also important concepts that retirees need to ponder such as their Retirement Sustainability Quotient and Financial Legacy Value and the trade-offs between them. The last part of the book provides a seven step roadmap for pensionizing a nest egg.

The book is extremely well-written and despite some warnings in the Preface, easy to understand. The discussions are rigorous as you would expect of a book that was co-authored by an academic. Retired Canadians and soon-to-be retirees owe it to themselves to read this book. Pensionize Your Nest Egg is published by John Wiley for a cover price of $26.95. In the spirit of full disclosure, I should mention that a review copy was furnished by Ms. Macqueen and that I know Ms. Macqueen through the Canadian Money Forum where she posts as MoneyGal. You can find  more information on the QWeMA Group website.

Here are some other reactions to the book: Larry MacDonald enjoyed the book and thought it was more accessible and focused than materials presented in other books. Jon Chevreau said the book offers a cure for pension envy in his column in the Financial Post.

Related Reading:

• Do Retirees Require GMWB Products?
• Book Review: Why Swim with the Sharks?
• Early Retirement Number
• Smoke and Mirrors Myths, Part 1
• Book Review: Worry-Free Investing

Book Review: Pensionize Your Nest Egg is brought to you by Canadian Capitalist — Helping you to invest & prosper.

The quarterly housing affordability report, showed that stubbornly high prices and modestly increasing mortgage rates means an increasing number of Canadians are unable to comfortably afford homes, said the bank’s economists.

The report also said that most Canadian cities don’t appear to be at risk of a U.S.-style crash, but “current levels of affordability suggest some greater than usual stress weighing on Canadian home buyers.”

To read more go to the Globe and Mail article.

So far, the Walmart Canada Bank is focusing on the MasterCard, but other products may follow in the future. “We’ll continue to look at other areas where we can help our customers save money,” says Walmart Canada Bank CEO and president Trudy Fahie. “At this point I’m not going to speculate on what those products will be.”

Laurence Booth, a finance professor at Rotman School of Management, doesn’t see Walmart driving down fees at the Big Five overnight. He says that even Walmart will be a fringe player, much like Canadian Tire Financial Services and President’s Choice Financial. “We have a wide range of credit card and financial services available to us, and adding Walmart to the list doesn’t do that much.”

Still, as more and more financial services options flood into Canada, the downward pressure on fees could mount. ING Direct, for instance, has just announced plans to launch a no-fee online chequing account called Thrive in early 2011. The account has no minimums, pays a small amount of interest, and even includes overdraft protection. The online bank says Canadians need a cheaper option as we are currently struggling under banking fees that add up to $185 per year on average.

Most of us will cling to the safety of bricks-and-mortar banks, but even a few defectors could help. After all, many credit the online high-interest savings accounts for nudging the big boys to raise their rates a little in response.
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