Tuesday, June 28, 2011

Worst Acting Ever

bring on the hate mail
Please forgive the wooden acting, there is obviously a good reason why these folks are in the insurance biz and not Hollywood.

Sun Life has started putting up some little videos on Group Benefits. There are two up so far, the first is mostly just an introduction to the video series, don't bother watching it. The second video actually has some substance to it.

Link to Video 2's Page - Plan sustainability – Series 2

Sun Life is surveying their plan members and seeing how they would react to changes aimed to reduce costs on their plan.

The main result were as follows.
  1. Young people 18-34 just don't care.
  2. Everyone else is in favor of managed plans (drug pre-authorization, generic substitution, maximum drug cost limits) but very unfavorable to reductions in co-insurance, lower dispensing fee maximums and raising premiums.
Makes sense, the only question it raises for me is the level of understanding on the behalf of plan members. Especially with drug pre-approval, as I have found any time this is used it drives employees crazy. I think they simply stated they prefer pre-approval, because they don't grasp how it works as well as something simple like a lower co-insurance. Prior pre-approval has led to some of the ugliest situations I have run into with drug plans. Green Shield has a program called a Conditional Formulary, where expensive drugs need to be pre-approved. The Dr. would write a prescription, the employee goes to the pharmacy to fill it, and the computer tells the pharmacist that the drug needs pre-approval, or the plan won't pay for it. I then get angry phone calls from the employee, HR and owners. 
    Overall I have noticed similar reactions with my own clients, and have been recommending similar changes to help curb rate increases while keeping employees happy. My observations weren't scientific or by survey but it is nice to see them validated.

    --
    Robert Reynolds, GBA
    Certified Group Benefits Advisor
    Hendry McKenzie Reynolds Employee Benefits Ltd.

    Toll Free: 1-888-592-4614
    rob@hmrinsurance.ca
    www.hmrinsurance.ca

    E.O. E.

    Tuesday, June 14, 2011

    Dollar Cost Averaging

    I highly recommend when talking to clients about investments, that they Dollar Cost Average. This is a simple strategy that can help increase your return, and lower your risk. Most people frantically try and dump a big pot of money into their RRSP right before the deadline. They buy all of their investments for the year on one day at one price. If the price is high, they buy high, if the price is low, they buy low. We all know we want to buy low and sell high.

    I prefer to drip money in on a regular basis, firstly becuase you barely notice a small amount from each paycheque, and secondly to take advantage of Dollar Cost Averaging.

    Because I am buying units every month, I buy a small amount based on the price that day. Some days it goes up, some days it goes down. What happens over a year is that the highs and lows average out. This average unit price is what my return is calculated on.

    click to enlarge


    Take this example, If someone invests $500 per month for a year, and the market falls, they are buying more units for the same $500. If the starting unit price is $10, but over a year the market drops as shown,their average price works out to around $8.75. If the market comes back up to the exact same starting value of $10 per unit, you are actually up 13%, as your average price is $8.75 and the new unit price is $10. you made a profit but the market is at exactly the same point as it was a year prior.

    Gains are also multiplied, if the market increases by 10%, you are actually up 21% as your average price is low. Dollar Cost Averaging works wonders for investing in a down market. Rather than a lost year, you are up double digits.

    The power of Dollar Cost Averaging can be reduced if you already have a large nest egg, and you are dripping in a comparatively small amount each month. The small drip just can't adjust the average much. It often makes sense to pull the nest egg, and redeposit it in chunks over a period of months or years. This works well when you expect a prolonged down market. I did this for several clients in the fall of 2008, when the market was in a prolonged down trend. We were able to reduce the average cost per unit, so when the market came back up to its starting point we were ahead of the game, rather than just back to square one.

    TL;DR - drip money into your investments regularly, and you don't need to worry about timing the market.
    --
    Robert Reynolds, GBA
    Certified Group Benefits Advisor
    Hendry McKenzie Reynolds Employee Benefits Ltd.

    Toll Free: 1-888-592-4614
    rob@hmrinsurance.ca
    www.hmrinsurance.ca

    E.O. E.