Friday, July 4, 2014

Short Takes: Costly CPP Active Investing, Forecasts, and more

Here are my posts for this week:

Norbert’s Gambit Catch at BMO InvestorLine

The Pension Debate

People seem to be writing less during the summer months, but here are a few short takes and some weekend reading:

Andrew Coyne explains that the CPP switched from passive investing to active investing in 2007. Investment costs are approaching 1% of assets per year. This is disturbing. Whether CPP returns beat benchmarks or not, those who collect their share of the hundreds of millions in fees are strongly motivated to continue this active approach.

Dave Liggat takes a poke at those who try to forecast the unforecastable.

Big Cajun Man has three financial rules of thumb to help keep you out of debt.

The Blunt Bean Counter explains RRIFs.

3 comments:

  1. I thought I'd write less over the summer, but I guess a rested mind is an active financial writing mind? Who knows, gotta work on my backlog of "ideas" soon. Thanks for the inclusion, and enjoy the weekend.

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  2. That CPP article is a great illustration of the unbalanced risks of active management. From what I can tell, the CPP's "good outcome" is a net gain of about $10.5B of which $7.5B went to the managers and other costs. So in the good times most of the rewards go to the managers, but if things go wrong they have much less risk than the investor.

    It's a far cry from the rule in consulting that any service is an easy sell if the client will earn 10 times what they're paying for it. By that standard I believe active managers should be cheaper than index funds :)

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    1. @Richard: Good points. Another aspect of this that concerns me is the trend toward shared-risk pensions. They makes sense on a certain level, but they also make it easier to bury bad active-management outcomes. "Unfortunately, we can't index your payments this year because market disappointed." There would be more unhappiness if people knew the real reason for reduced benefits is a combination of poor investment choices by managers and big fees paid to managers.

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