Thursday, May 18, 2017

Financial Literacy Courses – A Bad Idea?

In an interview on CBC The 180,  Daniel Munro, Associate Director, Public Policy at The Conference Board of Canada, and an ethics lecturer at the University of Ottawa, asks the question: Do mandated high school financial literacy courses do more harm than good? I urge you to listen to the podcast of the entire episode, and read the piece he wrote for Macleans on the same topic, but essentially he bases his argument on three points.
  1. As usually structured, such courses give an incorrect view that making good financial choices is all that is important (neglecting circumstances). 
  2. The evidence suggests that the positive impact of mandatory financial literacy courses is short lived.
  3. There may be misplaced over-confidence from taking a single financial literacy course, actually contributing to bad financial choices made later in life.
In March I argued that we need more financial literacy, and I stand by that assertion. I am glad to see that in various parts of Canada there are new initiatives to support enhanced financial literacy.

However, I think that Daniel Munro's interview is a wake up call to make sure that we have the right sort of financial literacy education. Also, we must do the research to make sure that financial literacy courses are actually contributing to improved long term outcomes.  Let us look at the three points from the Daniel Munro interview.

(1)  He argues that courses, at least as currently formulated in the grade 10 course about to become mandatory in Ontario, place too much emphasis on just one element of financial decisions, making good choices.  While clearly good choices matter, he argues that this emphasis in the absence of a consideration of circumstances, is at best incomplete.  Circumstances of many types, including family circumstances and obligations, costs of living in your region, educational opportunities, natural abilities, and much more, all contribute to the right financial decision in a situation. In his Macleans piece Daniel Munro states the case clearly and powerfully as follows:
"...fairness and responsibility argue that while people ought to be responsible for what results from their choices, they should not be responsible for what results from circumstances that are beyond their control..."

(2)   With respect to the long term impact of mandated financial literacy courses, he points out in the Macleans piece that research evidence supports the idea that financial literacy course impact is limited.  He mentions a meta analysis of 168 research papers covering more than 200 studies on effectiveness of financial literacy courses.   While I have not read that analysis in detail, I am familiar with this report by Shawn Cole, Anna Paulson, and Gauri Kartini Shastry that looked at the effectiveness of mandated financial literacy courses in the US, where in some states there is a history of sufficient length to study such effects. The report is a white paper of the Harvard Business School, and is entitled High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses. I quote from part of the abstract of the paper that gives a clear indication of the results:
"Financial literacy and cognitive capabilities are convincingly linked to the quality of financial decision-making. Yet, there is little evidence that education intended to improve financial decision-making is successful...this paper answers the question 'Can good financial behavior be taught in high school?' It can, though not via traditional personal finance courses, which we find have no effect on financial outcomes."
Interestingly, the paper goes on to show that more mathematics education can lead to enhanced long term improvements in financial decision making and investment participation.

(3)   We all know that over-confidence can be dangerous, and this certainly applies to financial decision making.  Daniel Munro cites a 2014 study by Marc Kramer that found that
"...confidence in ones‘ own (financial) literacy is negatively associated with asking for help, while actual expertise does not relate to advice-seeking"
While I firmly believe that finance and investment education is a positive, his remarks remind us that part of that education must be a clear understanding of the limitations of understanding, and the value of seeking advice.  As mentioned in my previous post,  I prefer a spiral approach to financial education, starting in elementary school and extending throughout life.

I believe that mathematics education has a longer impact than financial literacy courses due to two factors.  Mathematics education tends to be taught in a very active learning mode: most mathematics educators realize that you learn math by doing math (including discovering some relationships on your own), not by having it explained to you.  There is an important lesson here for financial literacy teachers.

The second reason is that mathematics education emphasizes concepts and techniques with broad application, and through those applications it keeps getting used regularly. I think that a similar approach is necessary for successful financial literacy courses, and "one of" financial literacy efforts will be doomed to failure.

I have been working for some time on a future post that will present my ideas for a different kind of university based financial education course.  That will stress active learning, quantitative reasoning, and the link between financial decisions and positive public policy. Sign up to follow this blog and you will receive each new post directly to your email, complete with all hyperlinks (and no advertisements!).

I would love to hear your opinions, either through the comment section or through an exchange on Twitter.

 The writer is not a financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice.  While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Added note: I have added material to the original posting based on his Macleans article, and the linked studies therein, that I did not know about at the time of the original posting.

Sunday, May 14, 2017

International Equity ETFs

Your diversified ETF portfolio should include at least Canadian, US and International equities and a mix of corporate and government bonds (I also argue that it should be further diversified, with some exposure to REITs and perhaps other investment classes - read details here). As part of the series on how to build up a basic well diversified portfolio, we now look at international ETFs available on the TSX.

Global vs International

When I started out investing, I was confused by some funds calling themselves global and others international, since in everyday use those words mean the same thing.  Investopedia differentiate global and international as investing terms. Essentially global includes all countries, while international funds exclude your own country. However, the situation is confused when the perspective is from Canada, and international funds generally mean funds outside North America.  Confused?  We agree it is confusing!  We are going to lump both global and international funds in this posting.

Narrow the Choices

As we have done in the other categories (see Canadian equities, US equities, broad Canadian bonds), we have narrowed the choices, showing some broadly held good international or global ETFs available on the Canadian market below. In narrowing our choices we looked for widely held, low cost, broadly international products.
While costs in this category are reasonable, and going lower, they are certainly not as low as in the Canadian or US equity ETFs. If you hold $10,000 in funds in one of these ETFs your annual ETF fees, not counting any purchase or sale commissions, will be about $22. Considering the number of different markets these products operate in, this seems like a good deal to me. If you went to a similar international mutual fund your costs would typically be 5 to 10 times higher.

It is important to consider the assets in the fund, since funds with relatively small investments usually involve more in trading costs and the difference between bid and ask price will be more significant. Under the assets column we show in millions of dollars the amount invested in each ETF. All of these ETFs are relatively large and heavily traded, so trading margins are not major issues in this category.

It used to be true that ETFs of this type represented only large and mid capacity stocks, but now the four listed here all have broad exposure across different cap sizes.

There are two approaches to building up internationally diversified ETFs, one can either invest directly in a large basket of securities, or one can assemble a 'fund of funds' that holds different ETFs that in total represent a broad international index. The FoF column shows that for each ETF. If costs are comparable, there is perhaps an argument in favour of the fund of fund approach, since it makes the relative weights more obvious. With a 'fund of funds' I have showed the number of underlying holdings in brackets.

It is also important to realize that iShares and Vanguard follow different international indexes – I explain this here.

The main other differentiators between ETFs in the table are whether the fund includes Canadian, US and emerging markets. More on this below.

What is In?

Key questions to ask yourself is whether you want emerging markets within your global/international ETF, and whether you want US  and Canadian equities within the fund, or prefer to hold those within separate ETFs.  In the table the columns c US and c CAN show whether US or Canadian equities are included.  I personally prefer holding US equities outside the world ETF, because the MER ratio on Canadian or US only equities are less than these global ETFs, but work out the costs of each approach for your own situation.

Another differentiator is whether the fund includes emerging market equity exposure, and that is indicated in the c Em column.

The most similar of the ETFs shown are iShares XAW and Vanguard Canada's VXC.  Both include equities from companies of different sizes, emerging and developed markets, and US (but not Canadian) equities.  Either of these, when coupled with a Canadian equity ETF such as XIC or HXT, provides world wide equity exposure.

Some might argue not to include XEF in the table, since it is confined to developed markets outside North America, without emerging market, Canadian or US content. Nevertheless, holding XEF, one US equity fund, one Canadian equity fund and one emerging market fund would allow you to adjust your holdings in each category.

Other Choices

Because of their somewhat higher MER, I have not included in the table so-called 'fundamental index' international ETFs such as iShares CIE. There are definite advantages to these funds, that follow the so called RAFI Index, that takes into account sales, book value, cash flow and dividends, and the MER is still low compared to what you will pay for any international mutual fund. I will look at these funds in a later posting. CBN, which holds a mix of these fundamental funds, is in particular an attractive choice, although at higher cost.

We have not included US stock exchange listed global and international ETFs, although for some that is a good way to go. For example, VEF is essentially VEA, and the MER is lower if you buy it on the US market (0.07% vs 0.22%).  Look into how your discount brokerage handles foreign fund conversions, and whether you can hold cash in US funds within your account, before deciding to go this route.

There are sound arguments for considering low volatility offerings in this category (XMW is one of my favourites), and we will consider those in a future posting.

Final Thoughts

 Rob Carrick's excellent guide to international and global ETFs is available here.  As always, his commentary is clear, direct and valuable.

The Moneysense 2017 guide to international ETFs is out and available here.  They recommend XAW, XEF and VEE (we will cover VEE in a later post dealing with emerging markets ETFs).  I would agree with their choices of XAW and XEF, and add VEF to the list, particularly if you are a Scotia iTRADE customer, since it is on their list of commission free ETFs.  VEE is emerging markets, so not suitable as a sole international/global ETF.

If you want to combine your US and international in a single ETF, Vanguard VXC and XAW are both excellent choices.  VXC is more widely held, while XAW has marginally lower costs.

It should be kept in mind that both VXC and XAW under-represent emerging markets, and therefore you might want to add XEC, VEE to truly represent the global equity markets.

We  have a posting in progress that will look in general at 'funds of funds', a single ETF which holds a number of other ETFs.  In that we will consider other international choices, such as iShares CBN.

The table just provides a snapshot (at time of writing) of some of the characteristics.  You should consult the documents on companies you are considering purchasing.  They are available here: XAW, XEF, VEF, VXC.

As with any major investment decision, you should consult trusted advice before making your choice. Consider risk and reward, costs and tax implications in your ETF choice.

Here are links to ETFs mentioned in this posting:
Have comments? As always, don't hesitate to leave them, or to connect with us on Twitter.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  The author of this column holds the following ETFs mentioned in this article in one or more account: XAW, VEF and VXC.  I use Scotia iTRADE discount brokerage. No compensation by any company has been offered, requested or received for writing this column.

Wednesday, May 10, 2017

US Equity ETFs for Canadians

A while ago we covered ETF options for Canadian equities and Canadian bonds.  In this post we look at choices in Canadian listed US stock index ETFs.  A well diversified portfolio will have Canadian, US and International equities, along with bond and perhaps other offerings.

Why US Equities?

There are several reasons why every Canadian portfolio should hold at least one US equity ETF.
The US stock markets represent by far the biggest single country component in global equity assets, a bit over 36% currently according to a 2016 paper. The US equity markets are much better diversified than the Canadian equity market. If you believe in the school of  holding stocks that dominate their markets, many of the world's dominant companies are listed on US equity exchanges.

To Hedge or Not To Hedge

Many TSX listed US equity ETFs use currency hedging.  Canadian Couch Potato have provided a nice analysis of the issue of whether currency hedging is a good idea or not. Based on analysts' research. they conclude that in the case of US equities hedged to Canadian dollars that hedging "magnifies volatility rather than reducing it." We urge you to read the white papers linked in their posting, and examine commentary from experts in the last year or two, but overall it seems to us that there is no compelling case for hedging US equity ETFs to Canadian dollars. The market seems to support that view, with most twin products having somewhat larger holdings in the unhedged version.

Go Big or Go Mostly Big

Another choice to make when selecting a passive US equity ETF is whether to select a fund based on the S&P 500 index of the largest companies, or a broader index that includes medium sized companies as well. Wondering which companies are listed on the S&P 500? There is a handy S&P 500 list of companies here. I think there are arguments in both approaches - on the one hand the larger index might be argued to offer more complete diversification, while on the other hand a tiny percentage mainly of the largest companies have produced the vast majority of wealth generation over the long term. A really nice analysis by Michael Batnick shows that over the long term (last 15 years) only 8% of large cap US equities beat the index, only 5% of mid cap, and 7% of small cap.  This, and other analysis, suggests that it is not so much the size of the equity, but other factors, that cause most equities to produce zero or negative returns. While within Canada I think the larger index makes sense since the TSX 60 is so concentrated on banks, in the US the S&P 500 is well diversified across industries.

Good Choices

As was the case for Canadian bond and equity ETFs, we are in the fortunate position that there are multiple excellent choices in the US equity category, all with very modest costs. We suggest that you consider first the choices shown in the following table, but certainly other good choices exist.

As can be seen, all have large asset bases and reasonable MER, so any would be a good choice. If already invested in one, the slight differences probably do not justify the margin and commission costs of moving to another offering from the table. If making a first time purchase, I would probably consider VFV, which ties for the lowest MER, is not currency hedged, and has a large asset base.

HXS has one difference from the others that make it a good choice in certain situations.  It is swap based, which means that it does not hold the actual equities, but rather a bank based promise note that is based on those equities.  Dividends and distributions are built into the base price, but not paid directly.  Therefore income is taxed as a capital gain, and is only triggered when the units are sold. Also, there is not foreign withholding tax on income.  This makes HXS a good choice for some in unregistered accounts for those with variable incomes, and also in RESP and TFSA accounts.  HXS is also included in the Scotia iTRADE commission free list, which makes it a good choice for those purchasing in smaller amounts.

Closing Thoughts

We covered only ETFs listed on the TSX in this post.  Of course it is possible to hold US$ ETFs from the American markets within your discount brokerage.  Generally the MER is slightly less on this option, and the trading volume is much larger so liquidity is excellent. Of course you need to take into account the currency exchange costs, and you will need to do an analysis to see which is a better choice for you.

Rob Carrick annually, as part of his ETF series, has a guide to US equity ETFs, with the 2017 guide available to Globe readers here.  Also, star ratings can be helpful as you make your choice. Moneysense have their 2017 review of US equity ETFs here. They continue to see VUN as an excellent choice for most passive investors, and I would agree. While there is no doubt that the ETFs that concentrate on just the large companies will outperform in some market conditions, overall I see the broader VUN as a better choice, and one that should, in the long run, offer more consistent performance.

As mentioned earlier, I would make a choice centred on the S&P 500 and one which does not use currency hedging.

If your discount brokerage account is with Scotia iTRADE, and you are starting with modest amounts to invest, HXS is a good low cost choice with tax advantages when held outside a registered account. It is also a good choice held within a TFSA, since the foreign agreements that shelter income from foreign tax withholding in RRSP or RIF accounts do not apply to TFSA or RESP accounts.

I have not in this posting considered low volatility US equity ETFs, or international choices that include US equities.  Both of those topics will be considered in future posts.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  The author of this column holds the following ETFs mentioned in this article in one or more account: HXS, VUN.  No compensation by any company has been offered, requested or received for writing this column.

Tuesday, May 9, 2017

Diversified Income XTR

Income generation becomes a primary goal for your investment portfolio as you enter retirement. Most see bonds and dividend bearing stocks as the primary investment vehicles vehicles for income, although REITs, preferred shares and infrastructure can also play a role in a diversified income portfolio.

While you can purchase a number of individual ETF products to assemble a diversified income portfolio, there can be advantages in  a single fund.  XTR from iShares is one such product, and we review it in this post.

What Does XTR Hold?

iShares XTR is a 'fund of funds' meaning that it holds other iShares ETFs, in this case 11 funds.  I list below in order of weighting the XTR portfolio (including my brief descriptor for each) as of May 2017:
  • XHB (Canadian corporate bond) 20.5%
  • XHY (US corporate bond) 13.7%
  • CBO (Canadian 1-5 y corporate bond ladder) 12.0%
  • XEI (Canadian dividend equity) 11.7%
  • XRE (Canadian REIT) 8.7%
  • XDV (Canadian dividend) 8.0%
  • CUD (US dividend equity) 7.4%
  • CPD (Canadian preferred share) 5.3%
  • XUT (Canadian utilities) 5.2%
  • XST (Canadian staples equity) 4.5%
  • CLF (Canadian 1-5 y laddered government bond) 3.0%
You can get the details, including current portfolio weightings, of XTR directly from iShares here. To make the chart below I've lumped the funds into corporate bond, government bond, dividend equity, preferred share and REIT categories. While I have included XST with dividend equity, it is probably more properly viewed as a low volatility equity rather than strictly a dividend equity ETF.

The overall holdings in XTR are 76.7% Canadian, 19.7% US, and about 3.7% from all other countries combined. This is good for tax benefits when XTR is held outside registered accounts, but not great in terms of diversification.

As a fund of funds, XTR is diversified over a lot of different underlying holdings, a bit over 2200 at the time of writing.


The overall MER for XTR is now 0.60% (some sources still quote the audited 0.62% value), and that includes the fees inherent in the underlying funds that XTR holds.  The current TER is 0.02%, so trading within the fund does not add significantly to the overall costs. XTR is widely traded (typically 45 thousand units per trading day), so the spread between bid and ask is usually slight. While this MER may seem high compared to pure equity or broad bond ETFs, it is competitive with fees associated with most dividend and blended funds.


The performance of XTR is steady but certainly far from spectacular. In the past year it has had a total return of 10.0%, but over 5 years the return averages 4.6% annually, while over 10 years it averages 5.3% annually. The majority of years show positive returns, with only one of the last 5 having a negative return (-5.98% in 2015).

With XTR you are giving up a little bit in return for regular income at modest variability.


Especially if you have a relatively modest portfolio, the idea of holing a single product that effectively represents the various components of a well diversified income fund makes sense. You save commission costs of adding US and Canadian dividend ETFs, along with several corporate bond ETFs.

XTR should be more stable than any one of these individual ETFs (e.g., the total yearly range of XTR over the past 12 months has just been 6% from minimum to maximum value), so it will help you reign in temptation to trade too often for your own good.

XTR pays out its distributions monthly, so it works well in a LIF or RIF where you are withdrawing funds monthly.

While the performance has been less than a simple equity and bond couch potato portfolio, the mix of investment products may (but see below under concerns) help cushion some market volatility.  As we move into retirement ages it is natural to worry more about the ups and downs of the market, so anything to reduce this variability is a positive.

If you don't immediately need the income, you can use DRIP to purchase additional units without commission costs.

While we have too many ETFs in my opinion, I don't think we have enough ETFs that are single products well tailored to a need (such as retirement income, or couch potato type portfolios). XTR is a well designed income ETF, and that is why many tens of thousands of units trade daily on the TSX.


The bond holdings within the portfolio are not entirely investment grade.  For example XHB (the largest single component of XTR) has essentially none of its portfolio in A, with 80.7% in BBB and the rest in lower investment grades (see the explanation of bond ratings here). That being said, XHB has been remarkably stable - e.g. it has not shown a negative return for any of the past 5 years. While they are not in the high investment ratings of government bonds, the companies XHB holds are mainly household names in Canada. The US corporate bonds held in the XHY ETF within XTR have a similar investment quality range.

Also, the bonds in XTR are mainly corporate, with only a few percent in investment grade government bonds.  It is likely that in a major equity market correction these corporate bonds will not help cushion your portfolio the way that investment grade government bonds would.

Another potential concern is the high Canadian bias.  About 76.7% of the portfolio is held in Canadian products, and only 3.7% are held outside Canada and the US. XTR has essentially no emerging market exposure, in bonds or equities.

A fourth potential concern is that there is little in the way of direct inflation protection in XTR, since it does not hold real return or TIP bonds. Also the REIT component is largely restricted to Canada.

Considering these potential concerns, if seeking the most stability in returns, it makes sense to pair XTR with some holding in products such as CBD or XAL that give you more government bonds, inflation protection, and wider international coverage.  A future posting will consider these groupings quantitatively.

Alternatives to XTR

Perhaps the closest alternative to XTR is BMO's ZMI, which is also a 'fund of funds'. ZMI holds 17 other BMO funds, with the majority being a mix of Canadian and US dividend equity ETFs and corporate bond ETFs, with a little dose of REITs and other income ETFs. Compared to XTR, ZMI has slightly higher equity holdings and slightly lower bond exposure, but the differences are so small they hardly matter.  The BMO ZMI includes some of the option linked products that BMO has made popular, including

I slightly prefer XTR for the following reasons:
  1. Longer track record (XTR started in 2005 and ZMI in 2011), with good stability since the end of 2009 (the price did decline in 2015, but has recovered nicely).
  2. More widely traded (on a typical trading day ZMI trades a few thousand units, while XTR several tens of thousands of units).
  3. Better transparency (the 11 ETFs included in XTR are all easy to understand offerings, while  ZMI include the covered call and put write holdings that many individual investors may not fully understand.
  4. Although be careful comparing yields, I do like that XTR has given a very consistent approximately 6% yield (at current price) versus currently just over 4% for ZMI.
That being said, I would point out that if we compare 5 year annualized performances, ZMI has the edge at 5.70% vs 4.54% for XTR. There is also slightly more exposure outside North America in ZMI, an advantage in my opinion. The volatility of the two are very similar - according to the standard deviation for XTR is 4.8 while that of ZMI is 4.7.  

If I was grading the two products my overall grade would be very nearly a tie. currently also gives the edge to XTR, with *** vs  a ** rating for ZMI.  Either ETF is a good choice. There are of course many other income generating mutual funds and ETFs, although most of them have at least somewhat higher MER than these products.

Those seeking a mutual fund alternative should consider Steadyhand Income Fund.  The MER is slightly higher, but there are no commission charges. It is more conservatively invested than XTR, but returns have in the long run been marginally better (6.0% return per year averaged over the past 10 yr, although only 1.9% per year over the last 2 yr.)  If you are ready to invest at least $10,000, you can open a Steadyhand account directly, or you can buy Steadyhand Income Fund through most Canadian discount brokerages (SIF120).

Another good income alternative would be Tangerine Balanced Income investment fund. Over 5 years it has offered a similar return 5.5% over 5 years, and has been pretty consistent from year to year.  The portfolio is weighted to Canadian bonds, with about 10% in each of US and international equities. Its easy to set up an account with Tangerine,  It does only pay out its distributions once accually (in December), so not as well suited as XTR to directly providing monthly income.

Final Thoughts

XTR plays a major role in my personal retirement LIF, and I think XTR or ZMI make sense for many retirement accounts.  I like that it combines in a single product the components that I want to play a major role in my income funds (bond and dividend funds in US and Canada, REITs), and that it pays a stable monthly distribution.

In investing we should look forward not backward (a central message of the book The 3 Simple Rules of Investing).  If I look backward at returns, I would probably concentrate in an equity and bond portfolio, but if looking forward I see more stability in a broader set of income generating holdings, and XTR fits very nicely into what I want to hold.

That being said, I would not make it the only income product, although it may be the major one. I would consider an additional ETF that helps provide balance outside North America, as well as ideally more government bond exposure and some inflation protection  (such as CBD or possibly XAL that I will cover in a future posts).

Both XTR and ZMI provide a reliable income stream (currently about 5.7% for XTR and 4.0% for ZMI ) that is sufficient for many RIF retirement ratios, and that is paid monthly.  You do give up potential return with these products compared to simple stock plus bond portfolios but in return you obtain slightly more stability across more asset classes.

If considering holding these products outside a registered account, discuss tax implications with your financial advisor.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for his or her own financial decisions.  The writer is not a financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  The author of this column holds XTR (and has held ZMI, although not currently) and CBD. I also hold some SIF120. No compensation by any company has been offered, requested or received for writing this column.

Tuesday, April 11, 2017

Review: The Four Pillars of Investing

I would strongly recommend anyone serious about investments start their education with this book.  I first read The Four Pillars of Investing (McGraw Hill, 2010) by Dr. William J. Bernstein a few years ago. I reread it recently in preparation for this review. Like any good book, new insights and appreciation emerged on rereading.

The Structure of the Book

The author uses an architecture metaphor, asking what pillars should underpin your investment portfolio. His four pillars are:
  1. Theory of Investing
  2. History of Investing
  3. Psychology of Investing
  4. Business of Investing
I was hesitant to even list these pillars in the review, as they make the book sound heavy and boring.  But it is not that at all! Rather, it is one of the most interesting investing books I have read!

Each of the themes is covered in a number of chapters.  For example, Chapter 3 "The Market is Smarter Than You Are", is his take on the efficient market hypothesis.  As well as providing the statistics to show that most funds will be, on average, well, approximately average, he makes the strong case that you can't pick stocks and you can't time the market successfully in the long term.

I particularly liked the historical depth of the book, not just in the second section but throughout.  He starts off the history section with the statement: "About once every generation, the markets go barking mad." I loved the many historical tidbits I learned, such as that Isaac Newton had big investment losses in the South Sea Bubble, or about the early 'stock exchange' in the coffeehouses of Change Ally. While these examples may be considered trivia, the historical aspects of the book help us place boom and bust, risk and reward, within a long equity history.

The above is not the only clever opening statement.  The psychology section starts "The biggest obstacle to your investment success is staring out at you from your mirror." In chapters 7 and 8 he offers insight on investment emotions, and practical advice on how to reign in investor behaviour issues. It is full of gems like
"...asset classes with the highest future returns tend to be the ones that are currently the most unpopular."
In answer to the question "To whom do I listen?", Dr. Bernstein offers the same advice of many others to tune out the investment noise. He then goes on to summarize with remarkable simplicity and clarity the two aspects  that you may well need guidance with.
  • Your appropriate asset allocation
  • Being self-disciplined in your investments
While the majority of the book is concerned with establishing the four pillars, closing chapters deal with putting it all together (his so-called investment "assembly instruction booklet'). While the specific advice must be placed within the context of the time that the book was revised, now almost 8 years ago, the general theme of using low cost passive index investments, appropriately diversified across different asset classes, remains as true today as when the book was written.

Why I Liked It

I find that too much investment writing tries to jump to just the answers - without first establishing a base to critically evaluate any proposals. This book fills that void.

The book will help you see investments within a long term historical trend, quantitatively establishes the importance of asset allocation, and helps you avoid paying too much for financial services and reign in your own worst tendencies.

The writing style is clear, engaging and, dare I say fun?  The historical tidbits, and statements of principles through analogy and metaphor, make the book feel light, while teaching you some critical investment truths. He wrote the book with that aim – to appeal to an audience that did not embrace mathematics.

In an earlier review of a different book, I mentioned that after reading a book I ask myself the following four questions.
  1. Was my time invested in the book, time well spent?
  2.  Do I have confidence in the validity and balance in the presentation? 
  3. Was I engaged in the book? 
  4. What were the author's motives in writing the book? 
I enthusiastically answer YES to the first three questions.  While any author hopes to have some financial success with a book, I feel that Dr. Bernstein, first and foremost, wants to help individual investors have success and avoid blunders.

The Author's Other Books

The author has been prolific in his investment writing, and you may well be interested in some of his other books. Prior to this book, William Bernstein wrote The Intelligent Asset Allocator, a more mathematically based book than this one.  I have not yet read it personally, but plan to.  It has received high praise from readers.

More recently (published in 2012) his The Investor's Manifesto covers some of the same theoretical underpinnings as The Four Pillars of Investing.  It is richer in mathematical basis, and of course more up to date in the current index investing landscape.  I hope to give it a full review in the not too distant future.

You can get a full list of his investing books on his website,, including his Investing for Adults series which I have not read.

In case you were wondering about his background, William Bernstein followed work in science into a career as a medical neurologist.  He lives in Portland, Oregon, and for a number of years his efforts are invested in financial theory and history, and investment writing. The Globe and Mail did a nice interview with him that is available here.

Concluding Thoughts

If you are just getting started in investing, this book is the perfect place to start.  It will help you think about the big picture before you start considering advice for specific investment instruments. The book is interesting to read, and provides a solid grounding.  It's not surprising that it has a large number  of positive reviews on Amazon and similar sites.

Especially for Canadian investors, this is not a DIY manual though. After reading the book you will need to go to other information sources (dare we say including our website?)  for help in putting together a specific intelligent portfolio for your investment situation.

If picking up the book used, make sure you get the 2010 edition, and not the 2002 edition.  Both are still available on Amazon.  The 2010 version has a red bar across the top of the cover.

 If you use an eReader, the book is available in both Kindle and printed form. The ebook is also available on CloudLibrary, should you have an account through your local public library.

I have no hesitation in placing this book in the top few investment books you should read! Enjoy! As one of the reviews on Amazon commented:
"What sets this book apart from other investing books is the breadth of areas covered, and also the writing style which is both "understandable and entertaining". A highly recommended read for any investor regardless of level."
I agree.  Whether starting out in investing, or if you have been an involved investor for many years, or even if you are a professional financial advisor, you will find real value in this book.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  No compensation by any company, organization or individual has been offered, requested or received for writing this column. We do however belong to affiliate programs for some of the links that you find in our articles, details available upon request.

Books for Review: I will not promise a positive, or even any, review, but if you wish to submit your investment book for me to consider, contact me rhawkes (at) I am particularly interested in Canadian books.

Sunday, April 9, 2017

Do XAW, VXC Represent Global Stock Market ?

Do you know what proportion of the global stock assets are represented by US markets? those in Canada? Europe? China? A surprising number of investors have either vague or out of date answers. This post will provide some data on the global equity space, along with reflections on how that might inform your investing choices.

While most investors exercise some degree of home country bias,  for a variety of good reasons, it makes sense to invest globally. In this posting I propose a simple idea: why not invest in different markets according to the size of those markets?

Some Data

The size of economies is somewhat different from the size of equity markets in those countries, and it is a good question whether we should use stock market or economy size. I will work with stock market valuations in this post.

There are about 60 stock markets globally, and their valuations are shown in a really nice data visualization here. You can get the raw data with the most recent statistics here from the World Federation of Exchanges.

Kim Iskyan wrote an article for Asia Wealth Investing Daily in November, 2016 that provides statistics (taken from Bloomberg) on the sizes and growths of different national stock markets, with a look at the top ten. You can read his report here courtesy of Stansberry Churchouse Research.

Not surprisingly the US stock market is the largest by a significant factor, at 36.3% of the total.   China was second, at 10.1%, followed by Japan at 7.9%, Hong Kong at 6.3% and UK at 4.6%. Canada, followed by France, Germany,  India and Switzerland complete the top ten.

 If we accept the premise of investing globally in proportion to equity assets, about 36% of your equity investments should be in the US, 10% in China (with another 6.5% in Hong Kong),  8% in Japan, about 3% in Canada.

The World It Is A Changing

The article cited earlier points out that a fairly dramatic change in the relative capitalizations of different markets is taking place.  For example, from October 2003 to 2016, the US stock market while increasing in an absolute sense, dropped as a fraction of global stock assets  from 45.2% to 36.3%. The big increases were all in Asia, with China going from 1.5% in 2003 to 10.1% in 2016, Hong Kong from 3.0% to 6.3%,  and India from 0.8% to 2.6%. Stock markets in Europe and Japan all fell as a global percentage. Interestingly the Canadian market, with a slight rise from 2.6% to 2.9%, was the only top 10 'developed' market to show an increase.

 Do XAW and VXC Represent World?

So how would you build an ETF portfolio consisting only of TSX listed ETFs that faithfully represented the entire global equity market. While specialized ETFs representing almost any market now exist, and you could build an ETF portfolio to almost exactly represent the world's equity markets, the MER would be high for so the many specialized products.

Most use ETF products like XAW from iShares or VXC from Vanguard Canada to represent most of the world.  These track different indices, with XAW tracking the MSCI while VXC tracks the FTSE global index.

Both XAW and VXC have excess weight on the US equity market, with XAW at about 54% and VXC at almost 56%, whereas the actual size of the equity markets suggest that only about 36% should be in US equities. Both under represent  emerging markets, with a total emerging market share of 11.5% in XAW and 7.8% in VXC currently. Note that VXC does not include any Canadian equity at all, so you should include at least 3% of your investments in a broad Canadian ETF such as VCN or XIC.

A simple way to make your global equity ETFs more representative of the entire world is to include about 20% of your holdings in XEC or VEE emerging market ETF (even though there are emerging holdings already in the XAW and VXC).  This would reduce the US holdings to about 44%, neareer to the 36.1% of the global equity assets, and similarly for other developed markets.

Another option would be to make up your global holdings using VEF (developed markets except the US, but including Canada), VUN (or some other widely represented US holdings) and XEC (or VEE) for the emerging markets component.  In this way you can adjust your US, other developed and emerging market holdings to the exact amounts you desire. If  Scotia iTRADE is your discount broker, VEF and XEC are both commission free to buy and sell, making this option even more attractive.  If you want to include China as a separate component, ZCH could be used, although remember you do have China represented in XEC or VEE. Also, the number of individual stocks within ZCH is limited.  If you want to add some Canadian home market bias (see below), XIC or VCN (or many others) could be added.

But I Want to Minimize Risk!

While it is natural to look backwards, as the excellent book The 3 Simple Rules if Investing reminds us: only look forward. It is true that volatility has in the past been greater in emerging markets. However, with high developed market equity valuations, unusually low interest rates, and political uncertainty in several developed economies, it can legitimately be asked whether the more governmentally controlled 'emerging'  economies such as China may offer lower future volatility.

Just as passive investors are urged to own all (or really a major part) of a domestic market,  it could be argued that the same principle would argue to hold most of the world equity assets proportionately in a global equity portfolio. 

Why Home Bias?

I'm sure they have been written, but I can't recall reading an investment commentary on the virtue, or lack thereof, of home bias.  This is a topic for a future column, but I considered reasons that you would want to show some home bias in your investments.
  • Your income needs are related to the inflation rate in your home economy, so significant Canadian holdings make sense.
  • As we argued in a post about holding individual stocks, it makes sense to invest in what you best understand, and that for most is the Canadian market.
  • While government intervention is only one of many factors, it does influence the rewards and risks of different types of investments. You will understand the political climate of your own country best.
Only you can decide what amount of home bias you want to have in your investments.  It probably makes sense to have less home bias in your accumulation phase than in retirement when you are withdrawing regularly from your funds.

Concluding Thoughts

Of course there are good reasons to not weight investments only according to the relative size of that countries equity assets.  For example, risk will vary in different countries. Also, average valuations, as expressed by P/E or other measures, may be significantly different in different regions.  Also, we know the North American stock market much better, and that familiarity might help us make better choices.

You should expect more than a rule of thumb about what fraction to be held in Canada, US and internationally based on the situation of ten years ago.  Make sure that your financial advisor discusses international holdings, and in particular emerging economies, in a current, evidence based fashion. If you do decide to have extra North American assets, make sure that it is a deliberate choice.

The international ETF space continues to change, so make sure to investigate the holdings of each ETF with current data before you make any decisions. We will be reviewing emerging market ETFs in a future post.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  The author of this column holds the following ETFs mentioned in this article in one or more account I manage: XEC, XIC, VCN, VEF and VXC.  I use Scotia iTRADE discount brokerage services.  No compensation by any company has been offered, requested or received for writing this column.

Friday, April 7, 2017

Developed or Emerging: Classification Systems

Before we can consider in detail the question of how much should be invested in different international markets, and how, it is necessary to be clear on what we mean by terms like emerging and developed. Markets are classified by the major index companies. As an investor it is important to know what index your passive ETF or index mutual fund follows, and which countries are, and are not, included in that index.

MSCI Classification

MSCI (Morgan Stanley Capital International) provides one of the major classification systems used in the index investing world.  They divide equity markets into Developed, Developing and Frontier divisions (there is also a Standalone market index. with national exchanges not included in any of the previous three; this mainly includes very small or very isolated exchanges). You can see the details of which country is in which classification here.

FTSE Classification

The other primary classification system is provided by FTSE (now part of the combined FTSE-Russell). FTSE stands for Financial Times Stock Exchange. They divide markets into Developed, Advanced Emerging, Secondary Emerging and Frontier. You can see current country inclusion in the categories of the FTSE here. Of particular utility is their Matrix of Markets that lists stock markets by country against index segments.  This is a simple way to see if a particular country is in an index based ETF.

Things Change

The indexes are periodically reconsidered - for example FTSE update their list usually in March of each year. The process of deciding if countries should be moved to another category is complex.  Metrics are established for that process, looking at aspects such as transparency, accountability, liquidity and size of the market.  FTSE-Russell explain their process in a white paper available here. In the MSCI classification Pakistan will move from Frontier to Emerging in May 2017.

Should We Be Doing This?

Many have commented that the term emerging economy is obsolete and should be abandoned.  Certainly markets like China and India are rapidly growing and are similar in many ways to the markets in the developed category. While five characteristics are claimed to represent emerging economies and markets, application of these descriptors is difficult.

Also, there is a problem with any category system in that two stock markets with only slight differences might result in inclusion in different indexes. For example, why are Poland and the Czech Republic included in developing, yet those economies are similar in life style, economy and political environment to neighbouring European countries that are in the developed category? There appear to be similar discrepancies in Asia.

But we do need some way to lump together economies and stock markets that share similar characteristics.  One option might be to assign a grade to each stock market on a scale (say 0 to 100) based on how developed it is.  Then we could have indexes that track only markets with a score in a certain range.  While the result might be almost identical to the current system, there would be better transparency of results.

Final Thoughts

The Vanguard ETFs follow the FTSE index, while generally speaking the iShares ETFs follow MSCI. Vanguard have a really nice listing that links ETF products against the index they follow all on one page.

While the country inclusion is pretty similar in the MSCI and the FTSE, there are differences.  For example, FTSE place South Africa in developed, while MSCI do not. The Chinese stock market is divided into A and B categories, historically on the basis of whether foreigners were allowed to invest on that market. How the A Chinese stock markets are handled affects international index funds.

In a future posting I will I discuss the fraction of global equity assets in different markets, and the implications on how we should invest globally.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  No compensation by any company, organization or individual has been offered, requested or received for writing this column.

Monday, April 3, 2017

Review: Portfolio First Aid

I picked up a copy of Portfolio First Aid at my local public library, intrigued by the title and impressed by the author team. Micahael Graham, PhD (Economics) was Chairman of the Board at Toronto investment firm Heathbridge Capital Management Ltd. at the time the book was published (2005), and had worked in investment industry for more than 40 years. He currently runs MGIS.  Co-author Bryan Snelson is a Vice-President and Investment Advisor at RBC Wealth Management.

What I Liked

Any investment book is only as good as the quality of the advice it offers. Given the expertise of the authors, one can have confidence in this book. An investment book also needs to be clear and engaging, and I would give this book high marks in both.

The writing is clear and precise.  I liked the use of boxes to draw attention to important points. The titles of these. In both these boxes and in sections titles effectively draw the reader in. By current standards the 2005 book is somewhat lacking in illustrative material, but the black and white visuals and tables explain key ideas effectively.

Perhaps it will not appeal to all readers, but I like how we come to know the authors through commentary throughout the book.  For example, on pg. 8 Michael relates the experience of flying to Winnipeg on Oct. 19, 1987, Black Monday, for a pre-planned meeting with investors. What do you say the day after markets have lost 23% in one day?

I particularly liked Chapter 7 Show Me The Money: Investing for Income. You will find coverage of dividends, real return and corporate bonds, laddered bonds, income trusts, dividend funds, preferred shares and much more.

After I finish reading a nonfiction book I always ask myself these four questions.  One is, was my time invested in the book, time well spent? Do I have confidence in the validity and balance in the presentation? Was I engaged in the book? What were the author's motives in writing the book? To the first three I could confidently answer YES for this book.

With respect to the last question, I suppose any author team always have mixed motivations for a book, but I do feel that in the case of this book there is an authentic desire to contribute to the well being of investors. The authors write in the preface
"There is nothing worse than having to inform an investor that his or her hard-earned savings has been badly mauled-sometimes irreparably"
They feel that with careful analysis and attention to a portfolio the odds of that can be lowered, while retaining reasonable returns.

Not That Book

One of the online reviews of the 2009 version of this book, a very negative review, complains that the book has little specific advice to offer, and emphasizes use of professional advisors more than it should. While I feel that the reviewer has been unfairly harsh, it's true that Chapter 4 You Need Financial Help! and Chapter 5 It's Always About You: Working With Your Advisor assume that the correct choice for most is to work with a financial advisor, rather than DIY investing. Perhaps because of this assumption, as the negative reviewer noted, little in the book that is detailed enough to guide the DIY investor in specific decisions.

I view this book as contributing to understanding the big picture of investing.  A recipe book for do it yourself investors it is not. Discount brokerage accounts are mentioned on only four different pages in the 2005 book, and not as a recurring theme.  Exchange traded funds (ETFs) find mention on only five different pages in the book.

That is not to say the book does not get involved. Chapter 9 Running With Scissors: Prescriptions for Managing Risk, for example, covers bond ratings, market risk, interest rate risk, default risk, lost-opportunity risk, purchasing power risk, stop-loss orders, options, calls, short-selling, puts, hedge funds and covered calls. They urge individual investors to avoid many of these financial instruments, however.

Concluding Thoughts

I liked this book and recommend it to Canadian investors for inclusion in a list of your first 10 investment books. I should point out that I reviewed the 2005 book, but an updated book on the same theme,  by these authors plus Cindy David, CFP. You can get the 2009 book at in printed or kindle formats. You can pick up the 2005 edition from and independent booksellers and you can probably find it at low cost from used bookstores, or free from a public library.

While no on can predict the future, there are many worrisome signs about the investing landscape these days.  It's a perfect time to consider how you can guard against the catastrophic losses, and this book will help.

Toronto based freelance financial journalist Jade Hemeon wrote the following in his review of the 2005 book on
"A useful and entertaining tour of the investment world that hits all the significant ports of call. Written by two veteran financial advisors in a vividly descriptive fashion, it offers sage advice enhanced by personal anecdotes and humor. This book will help investors avoid costly mistakes and develop a strategy that can withstand the drama of shifting market moods."
I could not say it better! Give this book a read, and you will come away with a deeper understanding of the investment world.  But don't expect the book to be a step by step guide to DIY investing, or you will be disappointed.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  No compensation by any company, organization or individual has been offered, requested or received for writing this column. We do however belong to affiliate programs for some of the links that you find in our articles, details available upon request.

Books for Review: I will not promise a positive, or even any, review, but if you wish to submit your investment book for me to consider, contact me rhawkes (at) I am particularly interested in Canadian books.

Sunday, April 2, 2017

Your Plan Starts With Goals

Financial planning experts agree that having a plan is essential, and that it is important to periodically revisit that plan. As with many things in life, it is never too late to start with a financial plan.  My main point in this short post is that your plan should not start money, but rather with your life goals. It works best if your plan is in writing.

Life Goals

Start with the big picture. Each plan will be unique, since each of us is unique, but the following questions may be helpful.

  • Who are the most important people in your life?
  • What in life is most important to you?
  • Who else are you, or might you be, responsible for, and what are their needs?
  • What organizations and causes do you want to support?
  • What are your career aspirations, and what do you need to get there?
  • What age do you hope to retire, and do you see retirement as a partial or full retirement from paid work?
  • What makes you happy?
  • What special needs to do you have?

Getting There

After you have your life goals established, the next step is to make a reasonable series of financial estimates of what you will need to achieve your goal.  For example, if you want to fully retire at a certain age, make reasonable estimates of how much you anticipate needing. Keep in mind that OAS and CPP will get you part way there.  Then use a calculator such as this one from Financial Post to estimate how much you need to contribute each year to meet your goal. 

Other goals will be easier to estimate.  For example, perhaps you want enough for a down payment on a house of a certain price in five years time, or want to build up an emergency fund to cover 9 months of expenses.

Some may be more complex - for example you want to be able to quit your job and start up a business. You need a reasonable business plan not just for startup funds, and income replacement, but also to anticipate possible business losses in early years and a contingency fund.

Not Just One Plan

I think that having multiple parallel plans works best for many of us.  For example, have one retirement plan, another that is a plan for education savings, a plan to work toward a major housing goal,  a plan for helping causes important to you, etc. Clearly the different plans must make sense when taken together with your resources, but it is often simpler to establish the way forward when we view it as a series of parallel paths. Also, I think it is more encouraging to see that progress has been made in meeting some goals, even when we have fallen short on others.

Some argue that multiple plans add complexity, but I think the opposite is true.  It is simpler to look at our financial goals and progress as a series of parts, and then view the big picture as the sum of those parts.

Rebalance Your Life Plan

Just as we are advised to rebalance investments annually, you should revisit the life goal aspects of your plan periodically.  Evaluate whether your goals or circumstances have changed, and make changes to your plan. One advantage of your plan being in writing, even if as simple as a bullet list of items, is that it makes it easy to see whether you are on track, and where changes are needed.  I have never done this personally, but I know of people who set a date, like New Year's, for a formal reconsideration each year, and I think that makes a lot of sense.

Know When To Hold and When To Fold

While plans are important, they can and should be changed. As the Kenny Rogers The Gambler lyrics suggested
"You've got to know when to hold 'em  
Know when to fold 'em"
I think that some of us don't know when to hold them, when to stay firm to goals, even when things seem difficult. But some of us are also too resistant to change goals, even when, deep down, we know we should.

Maybe something that was important to you, is no longer so important.  Perhaps you have new priorities.  Maybe you have changed your mind and want to retire earlier or later. Sometimes conditions require us to change our plans - for example after the market crashes some had to postpone retirement, or make it a partial retirement.

Resources for Developing a Financial Plan

I don't personally like the financial priority and order in some of these processes, but the following are valuable background for developing your financial plan.
  1. WikiHow have a clear and attractive article on developing a financial plan. I particularly like their emphasis on SMART.  Is it Specific, Measurable, Achievable, Rewarding and Timely
  2. The Moneysense Financial Plan Kit is surely one of the most complete guides out there, and well thought out.  They provide a series of Word of PDF documents to help you create a plan in 11 steps.
  3. Although not as prescriptive as the above, the finiki document on Creating a Financial Plan is Canadian with good information on a number of aspects of your plan.
  4. Want to see what an award winning financial plan looks like? See this great Canadian financial plan here.

Closing Thoughts

Life is not about investments.  Investments are tools, nothing more (or less).  They are tools that allow you to care for others, to provide educational opportunities, to feel secure in your retirement, to allow independence, to support organizations and causes important to you.

Whether you want to engage a professional financial planner to assist you with the plan is a matter of personal preference.  If you are making the plan yourself, make sure that you use valid sources to help you with quantitative aspects of your plan.

For many it makes sense to start the life plan goals on your own, but then get a professional financial planner to help estimate how much you will need, and how to get there financially. You can find a CFP® (Certified Financial Planner) in your area here. I would not count on an advisor who has a stake in your investments to help you with a financial plan.

If you do use the services of a professional planner, always keep in mind that it is your plan and you must take ultimate responsibility for your plan.  She or he may help you develop the plan, but never ask (or let) an advisor to make the plan for you.

This posting has considered developing a life plan, and a little bit about the financial needs for that plan.  After that part of your plan is complete, you also need an investment plan, that will guide how to invest your savings consistent with your life plan.  We will cover investment plans in a future post.

Happy planning!

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice. For major financial decisions it is always wise to consult skilled, impartial professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Saturday, April 1, 2017

You Need a PFA!

A new food store opened in our neighbourhood.  I decided to check it out a number of months ago. As I walked through the doors of the modern palace, sunlight streamed through the windows. It certainly looked nice.

I started toward the first aisle, but was greeted by a very young man in a crisp dark business suit.

"Hello, and welcome to JBFE. Come into my office and we will discuss your food needs" he said, offering me a too firm handshake and a smile.

"I just came to sort of browse the store...." I mumbled.

With self-assured confidence he smoothly declared "I am Mr. Stuart Foodee, PFA, WKWE and I will be your Personal Food Advisor.  Now if you just step into my office, I will help you decide which of our foods are best for you."

I tried a few more objections. but soon I was sitting in his office, the other side of a glass desk, my eyes fixed on a painting of a carrot on the wall, right next to his PFA certificate.  I noted that the date on it was five days ago.

Mr. Foodee smoothly continued... "First, you need to fill out some surveys  before we can design your personal food plan and portfolio."

"My food portfolio? But I just wanted to look around today" I protested.

"Food is very important, literally a matter of life and death. You can't just rush in and buy things. You need a personal food advisor to help you make good choices.  Food is complex, there are literally hundreds of thousands of choices.  We at Elite Foods want to help you navigate those choices, and I am your Personal Food Advisor. Now let's get started, Bobby."

No one had called me Bobby since I was six.

"Now, how many meals a day do you usually eat, Bobby?"

"Uh... 3 I guess" I answered. "Very interesting" he commented.

The list of questions continued....

"Would you rate your food knowledge as novice, intermediate, expert or advanced?" I admitted I was novice.

"Do you prefer environmentally sensitive food choices?" I thought I should say yes.

"What is your monthly salary from all sources?"

I looked at him quizzically and protested "But I just want to maybe buy a few items here."

Mr Foodee did not skip a beat, "We can't help you make good food choices unless you are open with us, Bobby. Look around, you can trust us, we are professionals."

"Now we need to evaluate your food risk." he continued.

"Oh, like how concerned I am about pesticide residues?" I said, for the first time seeing some potential value in this conversation.

"No" my PFA replied "Let me get at your food risk through these questions.  Would you rather have fine delicacies on the first two weeks of the month, if it meant you had to eat less later in the month?"

I mumbled some reply, and he gave me a food risk tolerance score of 71.

Eventually the interview process was over, and Mr. Foodee declared that he was finished. The printer buzzed and he printed out some forms, but I was not allowed to see them.

With relief I turned to finally explore the store, but he firmly blocked the way.  "You don't need to enter the store, in fact we can't let people do that, I mean you need us to decide what your food needs are.  Food is complex."

"If you just sign these three forms, everything will be set up. Oh and we need your credit card and SIN for our records."

"Maybe I will come back, I'm not sure about this." I protested.

"Billy, we are professionals. I am your Personal Food Advisor. We offer hundreds of highly differentiated mutual food services here."

Eventually I signed the forms, and was given some pamphlets on thick glossy card stock. I left, not sure what had just happened.

A week later a courier arrived at my apartment, with a tiny food basket in crisp white lining.  I admit, it did seem exciting.  The custom labels looked nice, although the products really did not seem a good fit for what I liked to eat, at least the ones that I understood.

Also, when I looked at the receipt I was shocked by how expensive everything was. Plus I was charged 3% more for management fees, plus a front end food fee, I guess for the analysis of my needs by my PFA.  There was also a fee because apparently my account was a small one.  And a few other fees.

I went in the next month to cancel the food service, but somehow I got persuaded to instead meet with a Vice President Client Services.  Wow, a VP seeing me on my second visit, they did really care about me!  I admit, it all seemed very professional.

The Vice-President had me do another survey, or maybe it was the same survey over again,and gave me more glossy brochures, and I signed something else. I mean who was I to know about my food needs and all the choices?  I mean food is complex, you know.

Still, a month later, after seeing how much more expensive food was than at my old store, I went in, determined to cancel the service this time. I discovered that I had a DSC.  I had never heard of those before, but I guess they are standard in the food portfolio business. It turns out that if I cancel in less than 7 years I need to pay 6% of my annual food costs to cancel the service.  Food service is complex.

Oh well, those baskets are pretty nice.  And I did get to meet another Vice-President! They seem to have a lot of vice-presidents.

I pretty much just have enough money each month to cover my apartment and the food service, but really that simplifies my life.  No need to choose where to go or what to buy any more.  I can't believe that I used to manage without a Personal Food Advisor. I mean food is complex! It is calming to have  my PFA make all the decisions.

I realize you may have questions, but please ask Mr. Foodee, my PFA.  I lately, have had trouble thinking for myself.  Not sure when that started, a few months ago, I think.

I went to the library the other day to see if I could get a self-help book, but when I asked at the desk for a personal library assistant to select the book that was best for me and sign it out for me, they just sort of looked puzzled and referred me to the reference desk.  I went home without any book, feeling a little sad, but not sure why.

This posting should not be considered professional food advice.