With the exception of Questrade, most brokerages in Canada don’t permit investors to hold U.S. dollars in their RRSP accounts. This may not seem like a big deal until you check out the currency conversion costs when trading U.S. securities. A solution to this problem is called “washing” the trades. I recently did this and thought it might be useful to describe exactly how it is done at my discount brokerage. Before going any further, it’s important to know that “washing trades” means something completely different from “wash trading”. Wash trading is an illegal activity where someone simultaneously buys and sells a stock to drive up trading volume and give the appearance of something big about to happen. Washing trades is a brokerage service that means eliminating currency conversion costs. I got my trades washed recently as I continued my transition from owning individual stocks to owning index ETFs. I wanted to sell several U.S. stocks and buy a U.S. index ETF in my RRSP. ...

My wife observed that our most recent natural gas charge was $48.11 compared to $255.94 a year ago. That’s huge difference. I started thinking about the causes of this drop, but it wasn’t until I investigated further that I discovered the dominant reasons. The cause I was hoping for was the new furnace I had put in . No doubt this high-efficiency furnace helped, but not that much. The other obvious cause was the mild weather we’ve been having. Again, this helped, but isn’t enough to account for the big drop. The first thing I noticed when comparing the details in the bills was that the charges are based on “estimated readings”. Over the years I’ve often found these estimates to be wildly inaccurate. I almost stopped comparing the most recent bill to the year-old bill at this point when I saw the per-cubic-meter charge on the most recent bill was 12.9 cents. This seemed low compared to the last time I noted this figure. Sure enough, a year ago natural gas cost me 29.2 cent...

I recently started a new job with a smallish company. After taking the job, one of the questions I asked the human resources person who showed me around on the first day was whether I could split my pay between two different banks accounts. I thought that maybe a small company might not be set up to handle this, but they can. I noticed I felt relieved. Such a small thing makes a difference in my marriage. My wife and I have had various periods of time when both of us earned an income, only one of us did, and times when neither of us earned income. One constant we maintained through all this is that all money belongs to both of us. Just because at a given time only one of us had an income didn’t mean that spouse controlled the money. We prefer to maintain separate bank accounts. Neither one of us wants misunderstandings or mistakes to lead to bounced cheques and other headaches. This means that I need to send some of my pay over to my wife’s bank account. One solution to t...

1. Preet lists some reasons you may not have thought of why your index fund may not exactly track its index . 2. Frugal Trader lays out his RESP asset allocation strategy . The interesting thing to me is the transition points. When the date comes to shift money from stocks to bonds, will he do it mechanically on the exact date specified, or will he try to time the trades? These choices are always more complicated in real life than on a chart. 3. Big Cajun Man has found a sign of a very bad day for an investor . 4. Tom Bradley wonders who is buying Kevin O’Leary’s new mutual funds? This is one case where it doesn’t pay to get in early.

I saw an interview on the Daily Show recently where the guest claimed that leading up to the recent credit crisis, people on Wall Street “fooled themselves”. While this may be true, I think the dominant driver was the self-interest of people at the expense of their companies. To illustrate what I mean, imagine that you play a game each day on your company’s behalf where you toss 4 dice and your company collects a million dollars if they don’t come up all 1s. If they do come up all 1s, your company must pay $5 billion. The expected payoff of each roll is a $2.86 million loss, a terrible deal for the company. But, what happens if you play anyway? For a few years you make a million dollars for your company each day. All this apparent profit seems wonderful. The company pays you, your colleagues, and management big fat bonuses for generating so much “profit”. This continues until the fateful day when the worst happens and the company goes bust having to come up with $5 billion...

A reader I’ll call Jim is looking for feedback on his portfolio. Jim is 50 years old and has no company pension plan. Here is the breakdown Jim sent: RRSPs $10,000 S&P/TSX 60 (purchased this year, due 2015) at BMO $7000 term deposit 1.75% at BMO $81,000 mutual funds at National Bank Financial, including – Fidelity Northstar Class B (FID210) – Vengrowth Investment D (VEN662) – BMOG Asian Growth and Income M FL (GGF620) – Sentry Select Canadian Income Class FL (NCE517) – Vengrowth II Investment D (VEN679) – MacKenzie Cundill Recovery FL (MFC742) – Manulife Growth Opportunities FL (EPL588) – Vengrowth I Investment D (VEN669) – Sprott Canadian Equity Fund SR A FL (SPR001) – Synergy Canadian CC FL (CIG6103) $2000 GIC at 4.5% due 2011 at Bank of N.S. $13,000 Bonds averaging 4.9% at Great West Life (60% company match) $18,000 stocks at National Bank Financial $28,000 term deposits (mutual funds) due 2013 (4000) and 2024 (24000) bonds at National Bank Financial TFSA...

According to economist Arun Motianey, author of SuperCycles , a SuperCycle is a wave of boom and bust spread over an extended period of time. He argues that the attempts by government policy-makers to stabilize prices are actually the cause of these boom and bust cycles. Although this book may be intended for a general audience, it was a difficult read for a non-economist like me. It is always hard to tell in these situations if the problem is with the reader or writer, but many parts were lost on me. However, I did come away with some understanding. Motianey looks through financial history and finds repeated patterns of a cycle. They begin with governments achieving price stability through policies such as the Gold Exchange Standard. This is followed by a collapse in commodity prices which causes a mismatch between prices of inputs (commodities) and outputs (finished goods). This leads to excess investment chasing the available profits, excess credit satisfying the demand fr...

This essay is decidedly less concrete than my usual output. It was sparked by an interesting discussion with some friends including the Big Cajun Man . We tend to think that our lives have infinite value to us. However, I’m going to argue that your life has a finite value to you and that this value can be quantified is various unsettling ways. I’m not just talking about the value others put on your life, but the value you place on it yourself. We can see this finite valuation from our choice to engage in risky behaviour such as driving a car. According to the Wall Street Journal, the odds of dying in a motor vehicle accident sometime in your life (presumably at the end) are about 1 in 84. This would be some sort of average U.S. figure, and the real figure for you would depend on where you live, how much you drive, how you drive, etc. The main point is that your figure is some probability larger than zero. Unless you have an unusual home or hobbies, driving a car is more dang...

1. Larry MacDonald reports that the Disability Tax Credit is often overlooked . In one case, a woman with inner-ear problems got a $48,000 income tax refund by re-filing past years’ income tax returns using the Disability Tax Credit. 2. Big Cajun Man proposes a new property tax model . I’d like to pay less tax too, but I’m not holding my breath. 3. Million Dollar Journey has CFP Brian Poncelet explaining how annuities work . 4. Preet looks at the option of having a higher car insurance deductible to lower the premiums . 5. Potato sees the trend toward younger people buying homes as a sign of the end of Canada’s housing bubble .

Without enthusiasm, we wouldn’t start anything new. It’s very easy to plod along doing the same thing every day, and it takes some enthusiasm to make a change. On the other hand, too much enthusiasm can cause problems as well. We can see this in personal finances and other areas of our lives. Take exercise as an example. It takes enthusiasm to get over the hurdle to get started. But too much excitement has its own problems. Those who start a new workout regimen talk as though they invented it, they spend money needlessly on the latest workout clothes, and they overdo things at the start and hurt themselves. Too much enthusiasm often leads to disillusionment and quitting. Dieting is another good example. Getting excited enough to eat better is a good thing, but too often I hear people decide to make big changes they can’t sustain: “I’m going to skip breakfast and have only salad for lunch.” Big changes like this often lead to extreme hunger and overeating and guilt later on...

A while back, Canadian Financial DIY reported on a new model for voluntary payments for online content called Flattr . The basic idea of Flattr is that users take a monthly fixed amount of money and spread it around in equal shares to the various web sites they choose to “flattr”. A question I have is whether this is really any better than directly soliciting contributions. I decided to put my money where my mouth is, or is that your money where my mouth is? In any case, I’ve added a button at the top right of the blog page for direct voluntary payments.  (Since the time of writing, I've removed this button.) I’ve decided to keep the content part of my blog entries free of paid content, affiliate programs, etc., and just make direct voluntary payments possible. I prefer to maintain a clear boundary between content and advertising on my blog. It turns out that Paypal makes it easy to set up a payment button like this, but the simplest approach uses a button labeled “Donate...

Two Saturdays ago, I got up to find that hot water was shooting out the top of my hot water heater. This forced my hand on the decision of whether to replace my 20-year old hot water heater with another rental from Direct Energy or buy one. In the face of water gushing onto my basement floor, I took the following steps: 1. Panic. This is best limited to a few seconds during which you don’t move. 2. Shut off main water supply to the house. Every adult and teenager in the house should know where this is, and it should be kept clear. 3. Clean up the water. A plastic dustpan worked great for scooping up the water off the cement floor that pooled away from the drain. 4. Call a friend who knows how to do just about any kind of work around a house and is often available on short notice. This step could be tricky if you don’t have the right friends. I do my best to be helpful to my friends, and they tend to reciprocate when I’m in need. 5. Buy and install a new water heater. ...

Investors have a tendency to abandon their financial plans in extreme market conditions. In the midst of a stock price bubble, investors tend to overweight in stocks at high prices, and after a stock market crash, investors tend to underweight stocks at low prices. A common argument in favour of financial advice is that since people make emotional decisions to buy high and sell low, they need financial advisors. The first part of this argument makes sense; people do make these mistakes. However, who says that financial advisors steer investors away from these mistakes? CNN Money Fortune reported on research showing that financial planners tend to be yes-men who reinforce the bad investment behaviours of their clients . This suggests that using an advisor is no guarantee that you’ll make better choices. So, investors who wish to avoid making emotional investing mistakes seem to have two choices: 1. Learn to control your emotions enough to make rational investing choices, eve...

Congratulations, Richard and Rajesh on winning QuickTax online codes in our random draw. The winners have been contacted by email. Thanks once again to QuickTax for providing the prizes. Thank you to everyone who entered the draw.

1. CIBC predicted that the Canadian dollar will rise in value. It seems that we rarely see predictions that the Canadian dollar will go down. However, the Canadian dollar has gone down as much as it has gone up relative to the US dollar over the decades. The disproportionate number of predictions of a rising Canadian dollar are just a form of cheerleading with little predictive value. But, it feels good to believe that our dollar is rising. 2. Where Does All My Money Go? features a series on bankruptcy written by someone actually going through bankruptcy . 3. Larry MacDonald reports that ETF providers are eyeing the segregated fund market . Reducing segregated fund MERs to reasonable levels would be a welcome change. 4. Larry Swedroe explains that emerging markets with high GDP growth tend not to give high investments gains .

Google's Blogger system has a handy feature where posts spontaneously revert to draft status preventing them from being posted.  This is what happened today.  This bug has existed for several months, and after much experimenting I'm convinced that user error is not a factor. In place of today's original topic (which I'll save for another time), I'll tell you about my recent experience traveling with my son's high school basketball team to the provincial championships. Hotel room: $484 Meals: $280 Gasoline: $141 Water bottles for players during games: $12 Gold medal: Priceless!

William J. Bernstein doesn’t mince words in his book The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and everything in Between . The style is very direct which makes it easy to read and understand. Bernstein has strong opinions about investing and he makes sense. The main focus of the book is how to save and invest in preparation for retirement. Bernstein has tough love for the majority of individual investors who make serious mistakes that cost money, and has harsh words for the financial industry that takes advantage of people. The main advice is to find the right balance of low-cost index funds, and he gives a number of example portfolios. He also has some detailed advice on how to teach children to manage money well. Here are a few parts of the book that caught my eye: The Masses “I have come to the sad conclusion that only a tiny minority [of investors] will ever succeed in managing their money even tolerably well.” I would add that this is true even ...

The makers of QuickTax were kind enough to offer two access codes for any online version of QuickTax as a giveaway for my readers. To enter the draw, send an email with the subject “QuickTax” to the address in the top right corner of this blog. Entries must be received before Saturday at noon, eastern. The winner will be chosen at random among the entries and contacted by email. I won’t use the email addresses for any other purpose. To regular users of QuickTax Standard, the most visible change is in the EasyStep interview process where the software asks an extensive set of questions to determine exactly what information you’ll need to enter. These questions were all asked up front for 2009, and it felt a little like an inquisition. But overall I liked answering these questions all together at the beginning of the process. My wife said that it gave her more confidence that we would remember to enter everything we needed. I’ve used QuickTax for several years now and find it u...

You’re getting this edition of short takes on a Monday because the big news in the budget about stock option trap relief that appeared on Friday. 1. Larry MacDonald highlighted the parts of the budget Canadians care about most in a MoneySense article . 2. The Tax Guy focused on the tax-related elements of the new budget . 3. Preet interviewed Michael Moore! 4. Canadian Financial DIY brings us researchers who believe that we could have predicted Bernie Madoff’s fraud before the fact . Great! Let’s use their methods to find the currently ongoing financial frauds. 5. Wow! Big Cajun Man seems to put a lot of effort into doing his income taxes . 6. Million Dollar Journey explores the dangers of co-signing for your child . 7. If you’re like me, you wonder what impact the new mortgage rules will have. Here is CIBC economist, Ben Tal’s answer at Canadian Mortgage Trends .

The usual Friday feature of short takes will have to wait until Monday because the 2010 budget appears to have a provision to finally help people caught in a stock option trap. I’m in this situation along with people I used to work with at both Entrust and Nortel. Canadians generally think of stock options as financial lottery tickets given to CEOs and other company bigwigs to make them rich. There is a lot of truth to this. But during the technology boom in the late 1990s, even working level employees often received a few stock options not realizing their potential for financial harm. When stocks rise and employee stock options become valuable, we usually say that so-and-so “cashed in his options” and now the jerk is rich. However, this glosses over the fact that it is really a two-step process. For example, a Nortel employee first had to exercise the stock option by paying its strike price. Then the employee received Nortel shares and could sell them in the stock market for...

Bank of Montreal’s (ticker: BMO) first quarter results exceeded analyst expectations. Starting from the depths of the market crash about a year ago, its stock has roughly doubled. In one way, my investment in BMO says good things about my investing temperament, but in another way, I was just plain lucky. I owned BMO before the market crash, and bought more a few times while the stock price was low. The ability to ignore doomsday predictions and invest in an asset whose price is low is an important skill for investors. However, the fact that I happened to lock in on BMO for a big bet and ride its ascent is mostly just luck. Fortunately for me, the recent good news about BMO business performance means that my bet isn’t likely to go south too soon. As much as I’d like to believe that I have some great stock-picking skill, I don’t believe I do. BMO could just as easily have continued drifting down in price for all I knew at the time I invested. For this reason, I plan to conti...

I recently received a request from a reader to sit down to look at his financial situation. I get these from time to time, but I’m not comfortable acting as an untrained financial advisor, and I’m not even sure whether it is legal. But, it got me thinking about what model makes sense for financial advisors. The dominant model that exists right now is based on hidden commissions from the products sold to clients. This works well for many financial advisors, but few clients would be happy about it if they understood how much they were paying and how much better their investments could perform with less expensive products. If I felt the need to get advice, the model that would make most sense to me is something close to what is often called “fee-only”. However, I would only be looking to pay an advisor for the time he spends talking to me. I wouldn’t be interested in paying for several extra hours of the advisor’s time to produce a written plan for me. I could envision bringing...

Many employers provide free life insurance to employees as part of their benefits package. Unfortunately for the employee, the premium paid by the company is a taxable benefit. In some cases the taxes owing can actually be more than what it would cost to buy the life insurance. I encountered this situation years ago when the tax rules changed making company-paid life insurance a taxable benefit. My company paid $1.68 per year for each $1000 of life insurance coverage. This amount had to be added to my income. At the prevailing marginal income tax rates, I paid taxes of $0.83 per $1000 of coverage. Perversely, I could buy life insurance cheaper than this. Although the cost wasn’t huge, I tried to decline the company life insurance on principle. A confused human resources person checked into it for me and came back saying that I couldn’t decline the insurance. At the time I tried to explain the situation to some colleagues, but it became obvious that few believed that what I ...

Warren Buffett’s eagerly anticipated 2009 letter to shareholders of Berkshire Hathaway arrived on the weekend. For long-time fans, this letter doesn’t disappoint. It contains more of his priceless wisdom expressed clearly and wrapped in humour. Here are some examples. Not relying on being too-big-to-fail In a jab at reckless banks, Buffett says “We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity.” Berkshire maintains cash reserves similar to the emergency funds we’re all supposed to have for ourselves. The main difference is the size of the emergency fund: “The $20 billion-plus of cash equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.” Housing recovery Buffett seems optimistic about the future of the U.S. housing market say...