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Police Officer: How to Protect Your Wealth from Thieves

This comes straight from the writing of a police officer on Reddit, who was answering the following question on how to protect your wealth from thieves:

“Former burglars of reddit, where is one place people should never hide valuables?”

Here is his answer:

Hiding your valuables is fine, but ideally you don’t want to get even to the point where someone is in your house. Most people worried about where to hide their valuables would be better off spending time considering their house’s security from the outside.

My advice:

  1. Front perimeter. Unless you have a gated mansion then your front door is going to be accessible from the street. That means there is no benefit security-wise in high fences, prickly hedges, etc. All these do is screen your house from view, making it far easier for someone to break into without being seen. If you’re looking at two houses and only one can be seen from the road then you’re 100% going to be breaking into the other. That’s why picket fences, low hedges/walls, etc. are ideal. A gravel driveway is a nice touch too – nice and noisy so anyone approaching your house makes their presence known.
  2. Rear perimeter. Completely the opposite advice is true here. At least here in the UK, the rear of most houses is shielded from view, so anyone getting into your back garden will have undisturbed access to your house. So you want to shield your house from view and make access difficult. Tall hedges, solid fences, prickly bushes, etc. are your friends.
  3. Flat rooves. Here in the UK it’s common to have a single story garage with a flat roof attached to your house. Often the house will have a window that opens over it. That window needs to be closed.
  4. Exterior lighting, cameras and alarms. Both make a house much less attractive to a burglar. Lights (both motion-sensing and just a simple porch light) make someone scoping out the house or trying to force entry much more visible. Cameras and alarms are pretty obvious deterrents. Again, it’s about making your house a less tempting target than others as opposed to creating an impenetrable fortress.
  5. Sheds. Sheds are a soft touch for burglary. Garden tools, bikes, DIY tools, etc. are expensive and very easy to sell second hand. Go on Ebay and look at the price of a decent second hand petrol mower or leaf blower – that’s easy money and low risk when you consider that it takes about 2 seconds to cut off a padlock and no-one will be sleeping in the shed. Don’t leave expensive kit in sheds, cover the windows so that the contents can’t be readily seen, and install motion-sensing lighting to cover them. If you’re keen as mustard, there are even cheap wireless alarms that link to basically a doorbell in the house. But the best advice is just be sensible what you’re storing there.
  6. Breaking and entering tools. Don’t leave your ladders and other tools that can be used to break into your house readily accessible outside it. I’ve seen houses with open upstairs windows and a set of ladders stored visibly down one side of the house. If you’re leaving out tools that a burglar can use to break into your house then you’re doing it wrong.
  7. Tradesmen. When you park your van outside your house you are saying “I’ve got expensive tools here”. Don’t leave them in your van.
  8. Letterboxes. This probably isn’t an issue for the states, but here in the UK we have letterboxes through our front doors. Most people also keep their house and car keys by the front door. If you can look through your letterbox and see your keys then you need to move them – they can easily be hooked through the letterbox using e.g. the top segment of a fishing rod. Then someone will be driving around in your car with a set of keys to your house.
  9. Spare keys. Don’t hide a key outside your house. Certainly don’t hide it in a fake rock etc. If you absolutely must, then at least bury it in a flower bed or something. You’re better off leaving a key with a friend (or burying it in their flower bed, if you must) – but don’t give it to them with a keyring identifying your house! Also, don’t leave a spare key in your car – someone breaking into your car won’t need to look up your address – there’ll always be some paperwork or other in there that identifies it.
  10. Perhaps most importantly, get to know your neighbours and share your plans with them. If you’re going away for a week then tell them. Neighbours who generally know each others’ habits will notice when there is a strange van parked in your drive, or lights are mysteriously turning on whilst you’re out of town. And they’ll be more likely to act rather than minding their own business.
  11. Be conscious of what you can see through your windows. For example, as you approach my front door you walk past the window to a room full of various computing kit that look expensive. When I’m not using the room, I normally close the blind simply to conceal what’s inside – otherwise I’m suggesting to anyone calling at the house for any reason that there is expensive gear lying around the place.

Finally, break into your house. Or at least, figure out how you would. That will show you the weaknesses. When I was a student I was really bad at locking myself out of the house and would regularly need to break in. I’ve climbed the back fence to access a backdoor I suspected was left unlocked, used a piece of card to flick open the locks on sash windows, managed to wriggle down an old coal chute into the cellar, etc. Each time I’d fix the problem but next time I was faced with the need to get inside I’d find another way in. It’s a very helpful exercise to test your security.

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Time to Stop Loving That “Hot” Portfolio Manager

…and by “hot” I’m not referring to looks.

Rather, I’m referring to a portfolio manager who is having a hot streak of outperformance.

The fact is, manager outperformance is not persistent and it is not a predictor of future outperformance. Indeed, most portfolio managers see their hot streak come to an abrupt end within a year. Almost all meet their demise within two years.

The lack of outperformance persistence suggests any hot streak is the result of luck and not skill. Therefore, the active management fees charged by portfolio managers are not worth paying. Investors would be better off using low cost index funds.

This is all based on research performed by Standard and Poors:

For funds categorized as top performers in September 2017, 47% maintained their top-quartile performance the subsequent year. However, there was a dramatic fall in persistence afterward—just 8% of domestic equity funds remained in the top quartile in the three-year period ending September 2019. This result (8%) is consistent with the notion that historical performance is only randomly associated with future performance.

They continue…

An inverse relationship exists between the time horizon length and the ability of top performing funds to maintain their success. Less than 3% of equity funds in all categories maintained their top-quartile status at the end of the five-year measurement period. In fact, no large-cap fund was able to consistently deliver top-quartile performance by the end of the fifth year.

What about poorly performing fourth quartile funds? Could they experience a swing into outperformance territory in subsequent periods? Unfortunately not.

Fourth-quartile funds were most likely to be merged or liquidated across categories over the five-year horizon. This supports the view that underperformance typically precedes a fund’s closure.

Yet another nail in the coffin for active managers and the exorbitant fees they charge. You’re clearly better off ditching that hot portfolio manager for a portfolio of low cost index funds.

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Investing Fees Will Leave You Broke During Retirement

If you’ve been paying attention you probably know that investment fees will reduce the value of your retirement portfolio over time.

For example, Questrade argues that by switching to a lower cost investing platform you could retire 30% richer.

All this is true. Essentially, whatever you pay in fees is foregone wealth. I.e. if your annual fees are 2% and your gross return is 8%, your net return is reduced to 6% after fees.

Remember: fees can be layered (often covertly) into your portfolio in multiple ways – advice fees, investment management fees, tax, operating expenses, and so on. Sometimes the fees are bundled, sometimes they’re charged separately. Buyer beware.

Unfortunately, high fees will do much more damage than leave you ‘less well off’ at retirement. High fees could mean the difference between going broke or not.

Check out the following example for Joe Smith retiring at age 65 with a $1,000,000 portfolio. Sounds like plenty of money for retirement, right? Well, the level of fees mean the difference between Joe eating ham sandwiches and cat food for lunch.

Start with the following assumptions for Joe:

  • Requires a frugal annual income of $40,000, adjusted for inflation
  • Will live until age 95
  • Builds a balanced growth portfolio consisting of 80% stocks and 20% bonds
  • Has a 10% average tax rate

What are the odds Joe goes broke before he dies?

Calculation methodology for the data geeks: Using data made available by https://engaging-data.com/ , the probabilities are calculated by using stock and bond returns between 1871 and 2016. For example, if an investor expects to be live for 50 years in retirement, all historical 50 year periods are analyzed. One historical cycle would be from 1871 to 1922, another one from 1872 to 1923, and so on until 1965 to 2016. Thus 95 different historical cycles are considered (in this example).

The chart below shows the portfolio failure rate, based on historical precedent, for Joe Smith at various fee levels. “Portfolio failure rate” essentially shows how often during the historical periods the portfolio ran out of money before the end of the period (in Joe’s case 30 years).

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Investment fees have a significant impact on the portfolio failure rate. In Joe Smith’s case, the portfolio failure rate rises from 18% when the investment management fee is 0.30% to a whopping 42% when the investment management fee is 2.50%.

Hold up…think about what this really means. Imagine what it would be like to run out of money as a senior citizen.

This is a deadly serious issue and a catastrophic failure of the wealth management industry. The average retiree is getting screwed out of their money leaving them completely broke during retirement. This creates massive hardship, as a broke retiree often has no way of recovering and has to rely on the state, charity or family for food and shelter. Dignity and independence, however, are lost forever.

While the difference between 0.30% to 2.50% sounds very wide, this is the realistic range for investors in Canada.

For example, Cambridge Canadian Equity Fund charges an MER of 2.48%. AGF Global Strategic Balanced Fund charges 2.63%. Mackenzie Canadian Growth Balanced Fund charges 2.29%.

Meanwhile, at the other end of the spectrum, Questrade provides all-in portfolio services for 0.38%. Finally, a DIY investor can combine Vanguard’s FTSE Canada All Cap Index ETF, which has a 0.06% fee and Canadian Aggregate Bond Index ETF, which has a 0.09% fee.

Investors who do a little investigating will better understand their costs and be able to shift from one end of the spectrum to the other.

Bottom line: Pay close attention to fees, as this is one of the few parts of investing that is totally within your control. Over the long run it will have a huge impact to your standard of living and independence.