0.98^40 = 0.45
0.97^40 = 0.30


What this means is that if you start saving at age 27 and want to retire at age 67, a 2% annual fee will shave 55% off your retirement account. A 3% annual fee will take out more than 70% of your savings.

This model is too simplistic, since most people will save a certain amount each year and add to their retirement savings. These subsequent amounts are not subject to the fee as many times as the amount you put down in the first year, e.g the amount you save the 2nd year is only subject to the fee 39 times, the 3rd year 38 times etc.

The annual returns you get is another complicating factor. Given higher annual returns, these annual fees should matter less, right? Not so, it actually doesn’t matter at all what the underlying annual return on the investment is - the fees will cut the same percentage of your total life savings, since


(1+p)^n / ((1+p)*(1-q))^n = 1 / (1-q)^n
where
p := annual base return on investment
q := annual fee


I even created a more advanced model which takes into account inflation, increases in salary, various return rates on the investment etc. You can copy it and play with it from here: Google Spreadsheets

The spreadsheet model shows that the 3% annual fee is not as bad as the initial calculations show, but still ends up eating half your savings under reasonable assumptions (income = 100000, tax rate = 33%, inflation = 2%, pay increase = 3%/year, spend = 50000 first year, then increasing 3%/year, return on savings = 7%)

Do managed mutual funds offer higher returns than passive index funds, which have much lower fees (typically 0.1% - 1%)? Various studies have tried to answer this. A survey of the existing literature is given in Performance Persistence for Mutual Funds: Academic Evidence. The various papers quoted in this article show different results. At best, there is very weak evidence of some skill among the top fund managers, but no study found that the funds generated excess returns after fees were subtracted. It also shows that past performance is a very weak predictor of future performance - after two years, the is virtually no correlation at all. So if a fund performed great until now, there’s no reason to believe it will continue much longer into the future.

Let’s end with a few quotes:

“A respect for evidence compels me to the hypothesis that most portfolio managers should go out of business. Even if this advice to drop dead is good advice, it obviously will not be eagerly followed. Few people will commit suicide without a push.”
Paul Samuelson, Economist, Nobel Laureate

“If “active” and “passive” management styles are defined in sensible ways, it must be the case that, (1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and, (2) after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar. These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required. ”
William F. Sharpe, Professor of Finance, Nobel Laureate

Will you continue to let banks, traders and fund managers fleece you, to the tune of half your retirement savings, for a service which can be fulfilled just as well by a monkey throwing darts? Or will you change to passive index funds, and give these leeches what they deserve?

Here is an alternative, if you want some market exposure: In the US, the ticker SPY tracks the S&P 500 index at an annual cost of 0.1%. In Norway, Handelsbanken offers its XACT OBX fund which tracks the main index at Oslo Børs for a fee of 0.3% a year. These trade like normal stocks.

I’m not saying this is a good time to get involved in the markets, but there’s never a good time to pay too much in fees!

My personal experience with banks was increased somewhat over the last month, as I tried to wire transfer several thousand dollars from a bank account in Canada to one in Norway. The accounts are both owned by me. They are with large, respected entities in both countries. I have several receipts (thank God) that show that the account number (IBAN), SWIFT code, address, name etc. provided by me are correct.

The money did leave my bank account in Canada a few days after I requested the transfer. So far, so good. The problem is that that was in December 2009. After waiting for a week, I first contacted the sending bank in Canada. They gave me a nice looking “Payment Transmission Confirmation” showing the information I had entered and some other numbers. The transmission showed that the money had left my bank, then gone to an intermediary associated with my bank and had been sent on to Bank X (I know the name, but won’t post it here yet) in Great Britain, with instructions to send it on to my bank.

I gave my receipt to my bank in Norway, but they could not find any funds, not in my name, not to my account, not of that amount, not on that date, etc. Their intermediary is another Norwegian bank, so I tried calling them - no luck. They pointed me to DnB NOR, who is the intermediary they use. DnB NOR was also unable to find the money.

I requested more information from Canada. Another week went by, and all I got was this very detailed spreadsheet-looking SWIFT request from my contact in Canada. The first receipt had some numbers. This one had lots of numbers! I sent it on to my Norwegian bank, who didn’t quite understand it. While it certainly had numbers, it didn’t have the number they wanted (transaction reference number).

At this point, I directed a request for a formal investigation to the originating bank. It’s been a week since then. They are no doubt calling banks down a long chain of intermediaries now. What I know about the trace of my money is this: My Bank in Canada -> Intermediary in Canada -> Intermediary in Great Britain 1 -> Intermediary in Great Britain 2 -> unknown. After the unknown, the final part of the route should be: DnB NOR -> Intermediary in Norway -> My Bank in Norway.

If you think this looks a bit like how the internet (tried traceroute?) works, you’re absolutely right. The only difference is that this process is manual. Yes, you heard it right. What happens at each of these links, is that some peon in the sending bank faxes a document with instructions and numbers on it to the next bank in the path. This is done over a “secure” (physically separate from the normal telecommunications network) wire. (Thus the term wire transfer). Then some peon in the receiving bank will look at the instructions, type the info into their system, and if the destination is not yet reached, fax it on to some other bank. The woman I talked to at DnB NOR even suggested that at some point in the chain, they had failed to find a “path” (translated from Norwegian “sti”) towards the destination! The routing in SWIFT is completely ad-hoc you see.

Whenever you visit a major city (at least in Canada), you can bet that the tallest five buildings are banks (not counting the CN Tower of course). If you’ve ever wondered what the people in those 100-story glass palaces do, now you know: They are full of peons who form the human equivalent of CISCO routers in a giant human version of the internet. In 2010, I believe this meets the definition of Epic Fail. And yes, the banks have ways of making us pay for this largesse!

View the certificate

Looking forward to go back to Norway! I’m sufficiently alienated here in Canada that it’s good to return to a sane (relatively speaking) place once in a while. Hope to see some of you there!

And here is the Google Gadgets version of the Commodities Widget. It supports exactly the same chains of commodities as the mac version:

• Energy: Crude oil, natural gas, heating oil and gasoline
• Softs: Sugar, coffee, cocoa and cotton
• Grains: Corn, soybeans and wheat
• Metals: Gold, silver and copper
• Currencies: US dollar index, Euro, British Pound, Swiss Franc, Yen and Canadian dollars.
• Stock indices: Dow Jones Industrial futures, S&P 500 futures and NASDAQ.

Use the ‘+Google’ button under the embedded gadget above to add it to your iGoogle page. From your iGoogle page, you can click the down triangle in the upper right corner of the gadget and then ‘edit settings’ to select what to chart. You can also click the chart to go to the corresponding page at INO.com with a bigger chart, more options and info.

I know it’s been a while, but the sequel to the broken Oil Price Widget is now here. The new widget not only shows the oil price, it shows a set of other futures, currencies and indices as well. I named it the Commodities Widget, even though some of the things it shows are not strictly commodities.

The new data source is INO.com. They are probably the web’s best free source for futures contracts. Clicking on any chart in the widget will bring you to the corresponding INO.com page with more details and longer-term charts.

Download: Commodities Widget.

Instructions: Mac OS X 10.4 Tiger or higher is required. If you’re using Safari, click the download link. When the widget download is complete, Show Dashboard, click the Plus sign to display the Widget Bar and click the widget’s icon in the Widget Bar to open it. If you’re using a browser other than Safari, click the download link. When the widget download is complete, unarchive it and place it in /Library/Widgets/ in your home folder. Show Dashboard, click the Plus sign to display the Widget Bar and click the widget’s icon in the Widget Bar to open it.

These are numbers for Ontario, Canada based on CAA’s annual driving costs model and actual marginal tax rates for 2009.

Assuming a cheap-ass car (the Cobalt LT) and a high annual salary of $100K, you need to drive more than 15 900 km a year for a car to make sense. With my own transportation needs of ~10 000 km (a little less, actually), the cheap car will have an effective speed of a meager 23 km/h, while the bike runs at 31 km / h. Clearly I’m getting around at much higher speeds than those sluggish cars.

But if you make $40K / year and drive a Dodge Grand Caravan (the more expensive vehicle in the CAA example) the same distance, you’re humping along at an abysmal 12.3 km / h.

Feel free to copy my spreadsheet and play with your own numbers. And yeah, ditch the car and take an extra day off every week!

Oppdatering: Om du er interessert i norske forhold, kan du se disse i dette regnearket. En norsk lønnstaker med årlig inntekt på 450000 kr jobber ca. 500 timer årlig for å dekke de årlige utgiftene til en medium bensinbil med nypris 349000 kr. Om den årlige reiselengden er 10000 km, er den effektive hastigheten til bilisten 15,6 km/t. Sykkelen er ca. dobbelt så rask, med effektiv hastighet 30,4 km/t.

I expect two or three more of these infusions before they run out of heroin for the drug addict. This should get us to the beginning of October. Then what?

Photo by Mick Mason www.mickmasonphotography.com / ParkourGenerations

To make a long story short. My brother and I participated in a 6-day intensive training parkour camp in the French Alps from June 21 - 28. Each day started with a short run and plenty of push-ups at 5:50 am. Then breakfast, exercise, lunch, exercise and dinner (and one day we also did a night session). I was tired at the end of that camp. I mean really tired. Imagine all your muscles aching, even muscles you did not know existed…

Parkour Generations recently published a gallery showing the Morzine experience. By the way, we also did white-water rafting, the food was excellent, the instructors were extremely skilled and the spirit of the 24 participants was incredible! Highly recommended for anyone who wants to train hard and have a vacation they will not soon forget!

• Arbeiderpartiet (64 siders pdf)
• Fremskrittspartiet (html)
• Høyre (65 siders pdf)
• Kristelig Folkeparti (105 siders pdf)
• Miljøpartiet De Grønne (27 siders pdf)
• Rødt (73 siders pdf)
• Senterpartiet (140 siders pdf)
• Sosialistisk Venstreparti (36 siders pdf)
• Venstre (104 siders pdf)

Til sammen er dette mer enn 600 siders herlig sommerlektyre. Merk også at der partiene har både prinsipp- og handlingsprogrammer, har jeg valgt handlingsprogrammene. Action speaks louder than words.

Forrige stortingsvalg stemte jeg på SV, som endte opp i regjering. Hvilken nedtur! Jeg oppdaget at ikke alt som står i programmet er partiets hjertesaker. For meg var miljø og rettferdig fordeling viktigst. SV skrev riktignok at dette lå deres hjerte nær, men etter fire år med “shop så det svir” og mer eller mindre åpenbar plyndring av vår felles formue til fordel for finansfolk og bankmenn, vet jeg bedre.

I år er min tese at man i beste fall kan håpe at et parti har én hovedssak, som de er villige til å sloss for. De resterende 100 sider av partiprogrammet er flesk som er lagt til for at alle skal finne noe de liker. Etter å ha skummet igjennom programmene over, kan jeg si at jeg finner mye jeg liker. Samtlige partier har en miljøpolitikk, til og med FrP. Og hvem er ikke enig i at vi skal “kombinere økonomisk vekst med reduserte utslipp av klimagasser” (Ap)? Eller at “det enorme forbruket av energi- og naturressurser kan reduseres dersom vi klarer å utnytte avfallet bedre” (KrF)? “Norge må gjennom teknologioverføring til fattige land bidra til mer klimavennlig økonomisk vekst” (SV). Så og si alle partiene har formuleringer som dette, der de sier ja takk til både økonomisk vekst og reduserte utslipp.

Hva om økonomisk vekst hovedsaklig er i konflikt med miljøet? Selv fornybare energiprosjekter har negative konsekvenser i form av materialutvinning, transport og inngrep i naturen. Og, vil ny fornybar kapasitet hovedsaklig erstatte mer miljøfiendtlig kraftproduksjon, eller bidra til enda høyere forbruk? Jevons paradoks tilsier det siste. Hvis vi må velge mellom økonomisk vekst og et relativt stabilt klimasystem, der forbruk og ressurstilvekst er i balanse, vil jeg velge det siste.

Lavere materielt forbruke betyr ikke nød. F.eks kan materielt forbruk byttes mot mer fritid. En bil er en luksusvare dersom du har normal bevegelighet og ikke bor i grisgrendte strøk. Uten utgifter til bil kan du unne deg en ekstra fridag - hver uke! Da blir det god tid til å sykle til butikken, og du kommer i god form. Kutt ut impulskjøp, og du slipper at livet ditt fylles av ting istedenfor opplevelser. Dermed kan du bo mindre, bruke mindre på bolig, oppvarming osv. Enda en fridag der, og plutselig er antall fridager i uka doblet! Bruk ekstra tid på frivillig arbeid, trening, tur i skogen, spill eller hva du måtte ønske.

Riktignok nevner både Ap, SV og Rødt reduksjoner i arbeidstiden (mulig flere nevner dette, jeg kan ha oversett, i så fall er det ikke særlig prominent), men gir ikke inntrykk av at dette er et miljøtiltak eller at det er noe de faktisk vil prøve å få til. Kun Miljøpartiet De Grønne vier dette god plass i sitt program, med overskriften “Redusert arbeidstid framfor økt kjøpekraft”. Det at programmet kun har 27 sider, det desidert minste partiprogrammet, gir også håp om at miljø ikke også her må vike for økonomisk vekst.

Miljøpartiet er et småparti som fikk kun 0,6% av stemmene i 2007. Stemmer du for dette partiet stemmer du i beste fall for å få inn én representant på Stortinget, eller for å øke troverdigheten deres i neste valg. Med de andre partiene stemmer du uansett på halvhjertet miljøpolitikk, som aldri vil vinne frem når den kommer i konflikt med andre deler av programmet.