Any time now, you’ll be receiving the most important document of the year from your investment firm. It has a boring title, and the format won’t entice you to read it, but it’s a must read. I’m talking about a report with a name like Annual Report of Investment Returns and Fees (the words “compensation” and “charges” may also be in there).
The report is as close as the investment industry gets to being transparent. It contains an accounting of the fees you’ve paid your dealer (although not all your fees, more on that later) and shows your returns stretching back at least five years.
Some Canadian investors already get this information in their monthly or quarterly statements, but a vast majority only see these figures in this report.
How have you done?
The good news is, with each additional year, the returns in the Annual Report become more meaningful. Firms must show returns going back to Jan. 1, 2016, which means you’ll see a 5-year number for the first time (some firms go back further, but most do the minimum in this regard). One five-year period is still not long-term, but it’s getting there.
The number you see will be after fees and is a money-weighted rate of return, which means it’s impacted by two things: how your holdings did in the period and the timing of your contributions, withdrawals, and asset mix shifts. This can be confusing, but ultimately is a very good measure of your actual performance. It’s your advisor’s job to help you understand it.
Exciting but less important
As I wrote in my last column, the one-year return will be interesting given how wild the markets were in 2020, but your focus should be on the longest period. The last five years were characterized mostly by good markets, with two big, brief interruptions — the fourth quarter of 2018 and last year’s March meltdown.
For comparison purposes, the bond market averaged four per cent over the last five years, the Canadian stock market came in at nine per cent (including dividends), and the World Index led the way at 10 per cent. A typical balanced portfolio (60 per cent stocks; 40 per cent fixed income) was in the range of five to seven per cent per year.
Lost return
Years ago, Vanguard began referring to investment fees as “lost return” to reinforce their importance. It’s an area where the investment industry gets away with murder. Until laws were enacted to require it, most Canadian investment firms didn’t show their clients what they were paying, or at least made it exceedingly hard to find.
Unfortunately, the fees shown in your annual report are still incomplete. You’ll learn what you paid your investment dealer for administration, transactions and advice, but you won’t see the fees that are embedded in the ETFs, mutual funds and other managed products you hold. These can be significant but are not shown in the Annual Report.
I hear it often — “My guy charges me one per cent.” Or 1.25 per cent. This statement is technically correct. The guy’s firm is charging you one per cent annually, but your total cost could be as much as double that if you’re invested in products that charge an additional one per cent or more.
I also hear it said that fees don’t matter, it’s returns that count. Certainly, the latter is true, but fees have a significant impact on returns. If you’re paying more, make sure of two things. First, that you’re getting additional service and expertise. And second, that it’s actually leading to higher returns over time.
Questions to ask
If you have an advisor, let him know that you’re bringing your Annual Report to the next meeting. You want him to walk you through it and explain the numbers, as well as provide an accounting of the other fees and charges not listed in the report. If he tells you the Annual Report isn’t important, then redouble your efforts.
I say that because you need to be your own advocate in the areas of returns and fees. The wealth management industry is pathetic when it comes to transparency. Any client-friendly initiatives in the last few decades have been driven by securities regulators, not firms’ desire to improve client service.
The Annual Report is a good place to start your advocacy work. Ask lots of questions. Don’t be bashful. Remember, your advisor or portfolio manager reports to you. You’re the CEO of your portfolio.
Tom Bradley is chair and chief investment officer at Steadyhand Investment Funds, a company that offers individual investors low-fee investment funds and clear-cut advice. He can be reached at [email protected]
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
