More Yield Or More Money? Choose One.

Accumulating money is paradoxical.  Some people work at yield  exclusively.  They should do well, but often not.  Yield may be a false indicator.

The question can become, “Do you want more yield or do you want more money?”

On the surface a dumb question but upon study, not so much.  The reason is that yield is a function of skill in selecting securities, while the accumulation of money includes yield as a factor but recognizes several others.  Tax, time, discipline, risk, and alternate packaging at least.

It is an established fact that people who use advisors end up with more money. It is also an established fact that people who use advisors pay for that advice and thus end up with lower net yields.

More yield or more money?  The paradox.

Advisor values are subtle.  One of the important ones is that people who use them automatically have an external conscience.  That conscience nags them to start earlier, to invest consistently, to avoid high risk situations like their cousin’s new restaurant, to diversify their holdings and to be patient.  Not to mention persistence.  “I know you want a new boat, but you saved this money to pay down your mortgage.  Are you sure you need the boat?”

Advisors help their clients be less affected by emotional static.  Education is a big factor.  People are less traumatized by things that are within their knowledge. Markets fluctuate but the trend line up is pretty strong.  If the short term result is troubling how do you gain emotional control and avoid hasty decisions?

People outside their comfort zone need help.  People are troubled by losses and they are also troubled by gains that are too big.  That zone is worth talking about because it is a clear analog for risk tolerance.

If we decide that a client has a comfort zone of between 0% annually and 12% annually, we can keep in touch when the zone is exceeded on either end.  You will be talking to clients fairly regularly.  Historically, the stock market is in that zone only about three years in eight.

Advisors can provide opportunities that people cannot acquire directly.  Minimum investment is a factor in yield.  A triplex costs more per unit than does a 200 unit building .  Most people cannot buy large, efficiently priced deals.  Real estate investment funds do and their cost to manage the property is not more than yours. Likely less.

Similarly, participating life insurance is a very effective way to own bonds.  Low MER, very large units and very diversified.

You cannot diversify effectively without a lot of capital.  You can buy a slice of someone else’s diversity, though.

Never overlook taxes.  Funds that allocate fees properly do not cost as much as they appear to cost.  Capital gains stay untaxed longer.  Some kinds of funds allow you to move around the various sectors while triggering less tax than an individual would.

Taxes will materially harm you over long periods.  Taxes compound just like interest compounds.

Always ask.  Money or Yield?  Selecting the wrong unit of measure can lead to trouble.


Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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