For solid financial advice backed up with academic evidence, investors can look to Wealthier: The Field Investing Guide for Canadian Millennials by Mark McGrath, adapted from Daniel R. Solin’s U.S. version of this book.  Although it is aimed at millennial-aged Canadian DIY investors, there are discussions about financial advisors as well. Outline The book begins with excellent advice on how to invest well, followed by how you can fall off the good path into bad investing due to a “rigged system.”  By understanding the possible investing pitfalls and the ways the system is rigged, investors can stay on a good path. I found the most interesting section to be the discussion of stoicism.  The authors discuss several elements of the stoic mindset that are useful for avoiding investing mistakes such as selling out of fear. The book continues with DIY financial planning and how to save enough to get to “the number.”  This part of the book had an interesting discussion of t...

I recently wrote that “this is my 8th year of drawing down my RRSP.”  To explain why I do this, even though I’m not even close to 71 yet, I wrote “to reduce lifetime taxes.”  A commenter observed that this isn’t the right objective, which is true enough.  What I wrote is conveniently short, but not accurate.  My real reason for melting down my RRSP early is surprisingly challenging to define. Reducing lifetime taxes Some people claim that minimizing taxes really is their true objective, but I doubt this is true.  Going all in on this goal would mean quitting your job and giving away all your savings.  There might be some taxes in the short term, but after that, you’d never pay any income taxes again. This is clearly not what people mean when they say they want to minimize taxes.  So, the real objective is something else. Maximizing after-tax consumption This goal is a little better, but still not quite right.  To go all in on this goal, you would ...

People seek universal answers to personal finance questions, but the correct answer almost always starts with “it depends.”  What is good advice for one person may be terrible for another person.  This fact is often overstated, though.  For each question there tends to be a small number of important factors that determine the correct answer.  One such factor is your current wealth level.  In his book The Wealth Ladder , Nick Maggiulli explores how your current wealth level affects the financial choices you should make. Maggiulli refers to his book as “a grand unifying framework that will fundamentally change how you think about wealth and how to build it.”  On one level, this sounds a little grandiose.  However, it can be challenging to get through to people who seek universal answers that don’t exist.  These people need to be hit over the head with the idea that your best choices going forward depend on your current stage of wealth accumulation. ...

I get a lot of friends and family asking for help figuring out their retirement finances when they’re just a few years from retiring.  These discussions follow a common pattern: people say they want to spend more in their 60s while they’re still able to enjoy new experiences, but they make plans that involve spending less in their 60s than they will have available in their 70s and beyond.  They resist a simple idea even after I show them how much more they could be spending early on. I’ll illustrate what’s going on with an example that borrows from some of the real cases I’ve helped with. Meet Dan Dan is a single guy about to retire at 60.  Here are his relevant financial details: TFSA: $200,000 RRSP: $300,000 Pension: $4000/month indexed to inflation + $800/month bridge until he is 65 CPP: entitled to 90% of the maximum amount ($826 at 60, $1290 at 65, $1832 at 70) OAS: entitled to the full amount ($740 at 65, $1006 at 70, 10% increase at 75) Dan tried to work out what t...

A : I’ve got a guy who’s getting me into private equity.       A : This ad for a used car looks like a good deal. B : Are you sure that’s a good idea? Valuations in private equity are just made up.       B : The ad says it’s being sold as is, and you can’t go see the car. Do you know what you're getting into? A : That’s one down side, but the low volatility of private equity makes it less risky, and that’s what I’m looking for.       A : That’s a down side, but this is the brand I’ve been looking for. This model is highly rated. B : But the low volatility of returns is just a consequence of the made-up valuations. All the risk is hidden until a knowledgeable buyer evaluates the assets.       B : A good rating applies to the average car of this model. That won’t mea...

It’s a good idea to start saving when you’re young, but not for the reasons that personal finance experts give.  They offer tidy examples that have little connection to the real world.  Here’s a typical version: If you save $1000 per month from age 25 to 35 and then save no more, at a 7% annual return, your savings will grow to $1.3 million by the time you’re 65.  If instead you wait until you’re 35 to start saving $1000 per month, and you save for the full three decades until you’re 65, you’ll only have $1.17 million.  That first decade of saving is more valuable than the last three decades combined.  So get started early. This seems reasonable until we test it on someone who is 65 years old today.  Meet Jim.  Back in 1985, he was 25 years old working full time.  The minimum wage at the time was about $700 per month, but Jim was doing well making $1200 per month.  Now let’s ask young Jim to start saving $1000 per month.  Hmm.  That...