Canada Pension Plan overstaffed and inefficient

[cybercoma]

You dont understand the biology of Bureaucrats. They replicate exponentially like bacteria or cockroaches, and once in place it is impossible to reduce their numbers or get them to justify their ongoing employment..

He said, to a retired bureaucrat.

[hitops]

You mean for an individual? Stay away from those clowns. They'll steer you towards high-fee mutual funds if they get half a chance. They're not working for you, they're working for the money they're given every time they put someone into one of those things. It might seem like 1.5% or 2% isn't a lot, but it sure adds up over the years. Get your own investment account and buy some ETFs. Or, if you have the time to do some research (most people don't or are too scared), and a larger amount to invest, buy boring, dividend paying blue chip stocks.

Right now I am going through Nesbitt Burns. Would you include them in the clown category? I would really like to invest on my own a little. Have been reading Garth Turner blog for a few years now, I would probably fall into the 'too scared' category. But I do have time and motivation to learn.

Yes. Open an account at a discount online brokerage, and purchase shares of low cost broad index tracking ETFs.

At the risk of sounding dumb, you can invest in ETF's outside of your home country correct? How do you recognize what are broad, relatively safe ETF's?

Edited February 5, 2016 by hitops

[Bonam]

At the risk of sounding dumb, you can invest in ETF's outside of your home country correct? How do you recognize what are broad, relatively safe ETF's?

Canadian brokerages will generally let you buy both Canadian and US equities, yes. Investing directly in stocks and ETFs traded on markets outside of the US and Canada is harder, but there are many ETFs listed on the US market that track indices from around the world so you don't really need to.

As for recognizing broad and relatively safe ETFs, you just have to do a bit of research. Some of the key things to look for are:

1) cost: the expense ratio. This isn't a cost you pay directly but one that is built into the returns of the fund - it's typically very very low these days in competitive sectors. Vanguard ETFs are generally known for being some of the lowest cost for any given sector.

2) Market cap - look for ETFs that have tens of billions in assets or more. This means lots of people invest in them and they aren't some new niche product. It also means they will be actively traded so you won't lose much to bid/ask spread.

3) Which index it tracks - the safest bets are usually ones that track broad country-wide indexes. For example, the S&P500 in the US or S&P/TSX in Canada. For the US, you might look at VTI and SPY as potential candidates. For Canada, XIU is a good one.

There's tons of info online about simple investment strategies for the typical investor. Pick a selection of a few ETFs matching your level of risk tolerance, pick a brokerage that allows dividends to automatically be reinvested into additional (and fractional) shares and just put money in on a regular monthly basis.

[msj]

At the risk of sounding dumb, you can invest in ETF's outside of your home country correct? How do you recognize what are broad, relatively safe ETF's?

Look to volume and AUM (assets under management) to get a sense for liquidity of an ETF.

Look to the bigger companies: Vanguard, iShares/Blackrock, SPDR.

Avoid ETF's that are leveraged - 2X and 3X funds are only for trading and most people should avoid.

Probably avoid narrow funds - yes, you can buy uranium, fertilizer, coffee, wheat, corn, cocoa, type funds but most of us don't need to.

[msj]

Here is a link to some model portfolios: http://canadiancouchpotato.com/model-portfolios-2/

Option 3 uses 3 Vanguard ETF's: Vanguard Canadian Bond, Vanguard Canada All Caps, Vanguard All-World ex-Canada.

Looks like a nice simple way to do it.

[Argus]

Here is a link to some model portfolios: http://canadiancouchpotato.com/model-portfolios-2/

Option 3 uses 3 Vanguard ETF's: Vanguard Canadian Bond, Vanguard Canada All Caps, Vanguard All-World ex-Canada.

Looks like a nice simple way to do it.

I don't think anyone should start investing on his own based on some internet advice. Read up a little. Benjamin Graham is a good start.

I would also strongly advise people to go to somewhere like the Globe and mail. Click on 'watchlist", which is free, and then build yourself a portfolio of stocks/ETFs. Watch how they perform for a while. See how you chosen stocks/ETFs have performed in the past months and years. Check out how expensive they are compared to others. See what the ratings and reviews are. You can find all this on the Globe for free. If you want ideas, read the globe, watch BNN. Market call and Market Call Tonight are good places to start.

I have a half dozen trial portfolios there, in addition to my real one. You know what's working now? The portfolio I named "Boring". Boring stocks are good. Boring ETFs like BMO's minimum volatility ETFs are good.

[msj]

I have a half dozen trial portfolios there, in addition to my real one. You know what's working now? The portfolio I named "Boring". Boring stocks are good. Boring ETFs like BMO's minimum volatility ETFs are good.

I largely agree.

However, I don't think one is going to go too wrong with 30% in a bond fund, 30% in Canada equity, and 40% in the rest of the world.

All at expense ratios of around 10 ish basis points.

Doesn't get much boring-er than that!

[August1991]

Far be it for me to defend Chretien, but the original CPP investment board was one which only had 5 employees and invested in a broad range of bonds and some blue chips. It was changed at some point, or at least, their investment process and policies were changed, sometime after 2000. Now there are way more employees and they make a lot more money, but the fund doesn't.

And, Argus, you are surprised that the CPPIB has become political? Welcome to Quebec Inc.

Look to volume and AUM (assets under management) to get a sense for liquidity of an ETF.

Look to the bigger companies: Vanguard, iShares/Blackrock, SPDR.

Avoid ETF's that are leveraged - 2X and 3X funds are only for trading and most people should avoid.

Probably avoid narrow funds - yes, you can buy uranium, fertilizer, coffee, wheat, corn, cocoa, type funds but most of us don't need to.

True msj, you hate Conservatives/Harper.

But what do I do when the federal Liberals want to take my money? Heck, what will you do when Trudeau Jnr wants to take your money?

====

Argus and msj seem to believe that if the other guy is in power, everything will be correct.

Edited February 15, 2016 by August1991

[msj]

True msj, you hate Conservatives/Harper.

But what do I do when the federal Liberals want to take my money? Heck, what will you do when Trudeau Jnr wants to take your money?

====

Argus and msj seem to believe that if the other guy is in power, everything will be correct.

Oh, did I say I hate conservatives? I didn't see that in this thread....

What you have quoted of me has nothing to do with politics so your questions are nonsensical.

If you want any government to keep its hands off your money then you ought to use RRSP's, TFSA's, small business corporation for self employment, and proper asset allocation for non-registered investments (eg. earn capital gains) to minimize taxes.

Not rocket science.

[Argus]

Argus and msj seem to believe that if the other guy is in power, everything will be correct.

That is a pretty silly assumption given I defended Chretien. My issue is not with political ideology but efficiency. The changes made by the CPP board have led to vastly increased costs but no improvement in performance. There is no politics in that other than in the failure of politicians to monitor and correct poor policy initiatives. The CPP should return to its previous policy and fire all its vastly overpaid employees.

[msj]

I agree with Argus on this.

We have seen some come into this thread to try and politicize this issue.

But it's not partisan: the CPP should be hands off and a passive method used to invest the fund in a diversified portfolio around the world. This can be done very cheaply with no more than a handful of employees.