wealthsimple lunch & learn - pivotal labs
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November 19, 2014 Wealthsimple's 5 Simple Rules of Smart InvestingTRANSCRIPT
5 SIMPLE RULES OF SMART INVESTING
@getwealthsimple @mkatchen
Wealthsimple is Canada’s fastest growing online investment manager. We make smart investing
easy, low-cost, and transparent.
- Burton Malkiel, author
“Focus on what you can control and think long term.”
Rule #1: Start early
Albert Einstein called compounding "mankind's greatest discovery”
3 friends (ages 30, 35, 40) start investing $5,000 per year until they are 65. By that time, they will have invested:
$125,000
$150,000
$175,000
40 35 30
$399,772
$935,511
30
Age
6535
Impact of start date on wealth*
40
$616,729
*Assumes $5,000 annual contribution, 8% annual returns.
10 years can add $0.5MM+ to your long term savings
Rule #2: Don’t pick stocks
Over 80% of professional stock pickers fail to beat the market
Source: Vanguard calculations using data from Morningstar. Fund classifications and benchmarks provided by Morningstar.
CN Equity
Int’l Equity
US Equity
CN Bonds
Percent of funds that under perform
0 10050
72
81
86
98
Personal anecdote: winning a stock picking contest at age 12…
… my winning pick lost 95% of its value between 1999 - 2001
Contest close 12/06/1999
MGI Software closing stock price
Acquisition 12/04/2001
$24.40
$1.18
Source: CBC acquisition announcement, Canada Trust Investment Challenge contest details
Rule #3: Keep costs low
Canadians pay the highest investment fees of any developed country in the world
Average equity mutual fund fees by country (%)
2.42
0.82
Can
ada
US
A
Chi
na
Ind
ia
Italy
Be
lgiu
m
Sp
ain
No
rway
Ko
rea
Fra
nce
Tha
iland
Taiw
an
Sin
gap
ore UK
Ne
w Z
eal
and
Jap
an
Ge
rman
y
De
nmar
k
So
uth
Afr
ica
Sw
ed
en
Ne
the
rland
s
Sw
itze
rland
Aus
tral
ia
*Morningstar Global Fund Investor Experience Report, 2013
Would you pay $300K for financial advice?
$509,858
$800,594
0
Years
3015
1.6% in additional fees can destroy 36% of your long-term wealth
Growth at 2.42% fees Growth at 0.8% fees
* Average Canadian equity mutual fund charges 2.42% vs USA average fee of 0.8% ** Assumes $100,000 initial deposit, 8% annual returns
Rule #4: Diversify
Harry Markowitz won a Nobel Prize for discovering that diversification reduces risk without hurting returns
Asset classes don’t always move in the same direction
Source: Morningstar, annual performance by asset class
2 assets 6 assets 10 assets
2.26% returns 5.49% returns 9.72% returns
13.3% risk 8.49% risk 10.17% risk
Source: Bloomberg as of 3/31/14, 10 years from January 2004 - February 2014
0.17 return/risk 0.65 return/risk 0.96 return/risk
Here’s how it works
Impact of diversification on risk and return
Rule #5: Drown out the noise
Know your risk profile
Risk survey Risk discussion
• Online survey • Ability & willingness
to take risk
• Meet with an investment advisor
• Investment goals
Have the discipline to stick to your plan
Market returnsEquity fund flows
2002 2008 2013
In 2009, $150B flowed out of equity funds even as markets came roaring back
Notes: Cash flows represent net cash moving in or out of stock funds. Market returns are based on the S&P/TSX Composite Index. Sources: Morningstar for cash-flow data; Thomson Reuters Datastream for market returns.
Recap
Rule #1: Start early
Rule #5: Drown out the noise
Rule #2: Don’t pick stocks Rule #3: Keep costs low
Rule #4: Diversify
HOW WE DO IT
We assess your risk profile and investment goals to help you create and stick to a long-term investment plan
Risk survey Suitability call
• Online survey • Ability & willingness
to take risk
• Phone call with your Wealth Concierge
• Investment goals
We build you a fully-diversified portfolio across 8-10 asset classes, customized for your risk tolerance
We monitor your portfolio every day and automatically rebalance it to keep you on track
Exp
ect
ed
re
turn
Risk
Your asset allocation will drift from its target as markets move
We optimize your portfolio for tax efficiency on a daily basis
$25 “harvestable” tax-loss benefit per share.
$75
Aug Sept Oct
$100
Tax-loss harvesting example*
* Illustrative example
Transparent and intuitive reporting via web and mobile
We charge a lot less than everyone else
Our advisors
• Former Dean, Rotman Business School • Former co-head of Monitor Company
Roger Martin
• CEO, Ceridian HCM • Founder of Dayforce and Workbrain
David Ossip
• SVP at Salesforce.com • Co-Founder, Rypple
• Managing Partner, Impression Ventures • Managing Director, Next36 Ventures
Christian Lassonde
• President, Bionym • Former COO, Top Hat, Top Prospect
Andrew D’Souza
Dan Debow
• Chair in Value Investing at the Rotman • Founder of the Easy Chair Portfolio
Prof. Eric Kirzner
• Former CEO, Assante Wealth Management • “Person of Influence of the Decade”
Joseph Canavan
• Managing Partner, Impression Ventures • Former Managing Partner, Bryker Capital
Bryan Kerdman, Advisor
Our team
• Head of Ancestry.ca, VP at 1000memories • McKinsey & Co, financial services practice
Michael Katchen, Founder & CEO
• Co-founder, 1000memories • Director of Product, Ancestry.com and Stripe • Rhodes Scholar
Brett Huneycutt, COO
• Engineer, 1000memories and Ancestry.com • Computer Science at Colby College
Peter Graham, Engineer
• Co-founder, 1000memories • Wieden+Kennedy creative
Rudy Adler, Product Design
• Hacker School and HackLab.TO • Ladies Learning Code
Kate Murphy, Engineer
• Investment Advisor, RBC • Canadian Investment Manager (CIM)
Dave Nugent, PM & CCO
• Director, Conversion, Powered by Search • Founder, Marketers without Borders
Alex Rascanu, Marketing
• Sales assistant at Raymond James • Business Marketing at George Brown
Kayla Wilson, Associate Wealth Concierge
Get your first $5,000 managed for free: wealthsimple.com
Disclosures
Wealthsimple Financial Inc. is registered as a Portfolio Manager in Ontario and British Columbia. Securities in your account are protected up to $1,000,000 CDN. See www.cipf.ca for more details. !Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in loss. We do not provide financial planning services to individual investors. Read our Full Disclosure at wealthsimple.com/legal/.disclosure. !Copyright 2014 Wealthsimple Financial Inc.