Friday, February 26, 2021

Short Takes: Zweig on Financial Advice, Benefits of Annuities, and more

After getting a rare haircut that was bad enough for me to notice, I was reflecting on the transition from barbers many years ago to hair salons today.  It used to be that barbers cut hair in about 5 minutes, it was inexpensive, and they did it mostly their way. You got to say how short you wanted it but not much more.  This state of affairs suited me.  Now that gender-based price discrimination in haircuts is gone, hair cutters feel the need to take 20 minutes clipping my hair a millimeter at a time to justify the high price.  Maybe we could go to a “fast cut” and “slow cut” pricing system so that I could get a simple cut quickly.  There are some women this would work for as well.  It used to be that women who wanted a simple cut were unfairly discriminated against when they had to pay the higher “women’s price.”  I would even pay today’s high price if I could just sit in the 5-minute cut chair with no waiting.

Here are my posts for the past two weeks:

Which Accounts Should I Spend from First in Retirement?

Calculating the Amount of a CPP Survivor’s Pension

Retirement Income for Life (Second Edition)

The Richest Man in Babylon

The Great Thing About Managing Other People’s Money

Here are some short takes and some weekend reading:

Michael Kitces interviews Jason Zweig, financial journalist for The Wall Street Journal, to discuss the current state of financial advice.  As a financial advisor, “you train the public to believe that portfolio management, which is such a commodity product that you can get it from a robo-advisor for a few basis points, is somehow worth 100 basis points a year when it’s not only a commodity product, but it’s not very valuable.”  “Meanwhile, the financial advice, which really is valuable, which ought to be customized and individualized and time-intensive, you’re giving it to me for free, and you’re signaling to me that you’re giving it to me for free.”  “[T]he public has been trained for decades to think that financial advice is the giveaway product and that portfolio management is like the secret sauce.”  Zweig sees this as a barrier to charging more for individualized financial advice and to letting computers do portfolio management at low cost.

The Rational Reminder Podcast interviews David M. Blanchett, head of retirement research for Morningstar Investment Management LLC, whose energy and clarity of expression made for a quality podcast.  Among other topics, he discussed the benefits of annuities.  Unfortunately, most annuity payments are very vulnerable to inflation risk.  But the analyses I see to demonstrate the value of annuities assume inflation is some low fixed value.  We can’t know future inflation with any certainty.  What if we eventually have higher inflation?  Doesn’t this uncertainty eliminate the benefits annuities bring to a retirement portfolio?

Canadian Couch Potato takes a peek under the hood of TD’s new One-Click ETF Portfolios.  He finds they have a lot more active components than he’d want.  Their management fees are a little higher than Vanguard’s Asset Allocation ETFs (0.25% vs. 0.22%).  I wonder if the activity within TD’s ETFs will generate extra trading costs or income taxes as well.

Andrew Hallam explains why he doesn’t include “play money” in his portfolio.

Tom Bradley at Steadyhand collects some Warren Buffett quotes that apply well to today’s markets.

Robb Engen gives an update on his family’s financial progress over the years.

Big Cajun Man
was one of the many Canadians whose logins for their CRA accounts were wiped out.  I had a similar experience with my Service Canada account.


  1. Hi Michael
    Annuities are being promoted as replacement to bonds in a portfolio. I share your concern of the vulnerability of annuities to inflation risk, but is this not also true of all fixed income products?

    1. Hi Garth,

      It depends on duration. The duration of an annuity is the average of zero to the rest of your life. For someone like me in my 50s, this average duration is very long, so an annuity would be very vulnerable to inflation risk.

      Similarly, long-term government bonds are very vulnerable as well. However, short-term bonds or savings accounts would not be affected much or at all by a change in expected future inflation. If inflation expectations increase, you always have the option to take money out of a savings account and invest it differently. With long-term bonds or annuities, the expectation of future inflation increases does its damage immediately so that you have no chance to react.

    2. Another thing to consider is that with a short-term bond, higher inflation hurts for a while, but when the bond matures and you roll it over, you'll get a new higher interest rate. Similarly, as inflation takes hold, you'd expect savings account interest rates to rise. With long-term bonds and annuities, you'll be paid a too-low interest rate for a long time (or you'll suffer the full damage all at once if you sell a long-term bond).

    3. You're right. We will have to wait for tontines I guess.

  2. Bought a 90$ clipper back in 2014 because I just hated having to book an apointment every so often and work my schedule around a damn haircut. At first I had my girlfriend cut my hair, but then I grew impatient of even having to "book" an apointment with her. I cut my own hair these days and I love it. I won't lie, the quality is closer to the barber than the salon, but hey at least I had haircuts during the pandemic! The 90$ investment definitely paid off both in time and money.

    1. Hi Ferd,

      I have friends and family members who went this route and seem very happy about it. I've never had my hair (on top) short enough for a clipper (the sides are short enough). So, either I continue to put up with salons or I start wearing a shorter haircut. My wife already thinks my hair is too short.

  3. And for those lucky folks still trying to get through to the CRA, good luck. I was lucky to get through, and no one ever called me back. The data they are basing their lock out on, is dated (I think), but better safe than sorry, I suppose.