I believe I know what you are saying about the tools not being flawed. I will counter that it is safer to anticipate that the tools are not complete, or even erroneous, rather than assert they are infallible. I liken it to scientific theory vs. law - a law can be applied in all circumstances over all time and it will always be true, while a theory can never be proven (or else it would become a law) but it can be disproven.
A simple tool will have fewer constraints - "If you invest $X in your TFSA and achieve Y% CAGR you will have $Z after N years." Such a tool would be mathematically correct and could be used, as Steve pointed out, to provide a range of forecasted answers which could provide a guide as to a strategy for investing.
A complex tool that involves hundreds of parameters, many of which are independent, would be more challenging with which to work. With all of the parameters to be considered, how do the authors know which ones are independent and which ones are not? If they are dependent, do they understand the relationships correctly? How are they certain that they have all of the appropriate parameters? How do they know that the ranges of values are correct? How do they properly assign a weighting value to the likelihood of the values? How can the output or reports be properly interpreted to formulate the appropriate strategy? How flexible can the strategy be yet still allow one to reach the intended goal? What implicit assumptions have not been stated?
And, I'm not a psychologist, but it would seem to me that most people who might be presented an opportunity to work with a financial advisor using such a tool would be swayed by the sheer mountain of inputs and parameters. If they are asked to provide 100 data points over various points in time, as opposed to the 4 in the simple tool example, then would it be reasonable to expect, in the absence of an appropriate disclaimer by the financial advisor, that the people would believe it predicts, rather than estimates, their personal outcome? One could be left with a false sense of security.
If I use Naviplan for an example, it appears that at some point along the development cycle, the company felt that there was no need for a disclaimer in their marketing material (e.g. This application is meant for educational purposes only. Please consult a professional financial advisor before making any final financial decisions.). Am I to infer that a financial advisor is no longer necessary? Am I also to infer that financial advisors should not come with disclaimers?
I'm starting to think along the lines of the argument of passive vs. active investing as it pertains to ETFs vs mutual fund managers. Is there commensurate value when employing an extremely detailed planning exercise, whether using something like Naviplan? Or, is a comprehensive, but higher level, assessment and strategic plan completely sufficient and relevant and, because it is easier with which to work, more useful? Perhaps, the answer will only be known when enough empirical data is collected, analyzed and reported.
Inclusive/comprehensive tools, while they have the ability to encompass a whole range of data entry elements... RESPs, real estate, pensions, loans.... can be used in a very streamlined manner... say 6 elements:
-current size of your rrsp
-horizon or 'diebroke' age
Add a rate and an inflation estimate and you have 8.
Now... the fact that the program is computing CPP, OAS, GIS, tax credits, clawbacks, provincial levies, and passing through the complete T1 in order to arrive at a solution isn't the user's concern. All he wants to know is... does the calculation stand up to scrutiny. Can I take these results to an accountant to verify?
It is probably quicker to source up and compute than a simple spreadsheet equivalent, but many users (especial advisers who don't want to have to explain errors and inconsistencies to their clients) seem to prefer the tax accurate tool, as do the DIY users.
I didn't realise I could upload any new spreadsheet as long as I zipped it. Here is the one that compares the tax advantages of holding Canadian dividend stocks in an RRSP, TFSA or non-registered portfolio.
If you are investing passively in a couch potato portfolio using TD e-Series mutual funds, you'll find this rebalancing spreadsheet pretty handy. Just adjust the current market values of your holdings, the target allocation and how much money you are adding to the portfolio and the spreadsheet spits out how to divide your money between the funds.
Sleepy Portfolio Rebalancing Spreadsheet
Hidden Content -- Helping you invest & prosper
The reason why Office 2007 files look like zipped xml files is because this is exactly what they are. This is why zipping a 2007 file also won't actually compress it.
For clarification: if you have an Office 2007 file that looks like a .zip, just change the file extension back to the correct one for the application (like .xlsx or .docx, etc.).
Last edited by andrewf; 2010-03-26 at 01:04 PM.
Cash Back Mortgage Equivalent Rate Calculator and a Home Purchase Budget Calculator.
Last edited by Shayne; 2010-07-05 at 04:19 PM.
Do your mortgage math correctly!