1. MoneyNing warns of a currency-conversion catch while shopping in a foreign country . 2. Big Cajun Man politely asks for a break on his Roger’s bill and gets it . 3. Jason Zweig reports on a research finding that people often can’t make good decisions even with full and clear disclosure . 4. Have you ever bought the wrong stock or bought the wrong amount? Preet explains the phrase “fat-finger trade” . Another good post from Preet is some advice he and his girlfriend are learning the hard way: don’t sign contracts at your door . 5. Larry MacDonald generated quite a stream of comments with his discussion of the sustainability of the retirement system and flat taxes . 6. Patrick makes a case for renting rather than buying a home . 7. Scott Ronalds outlines the problems with Canada’s mutual fund industry and describes the UK’s solution .

In these days of low fixed-income returns, preferred shares of Canadian banks are offering impressively high rates. In some case the dividend yield is above 6% per year. What gives? Let’s take Bank of Nova Scotia series 12 preferred shares (ticker: BNS.PR.J) as an example. As I write, these preferred shares are trading for $21.65 and pay a dividend of $1.52 per year (actually a half-cent more than this). This is a dividend yield of 6.08%. According to the prospectus , Bank of Nova Scotia can redeem these shares any time after 2013 October 29 for $25 each. So, you either get to keep collecting your 6.08% each year or they take the shares off your hands for a capital gain of $3.35 per share. This sounds like heads I win and tails I win. Lenders are still offering rates on 3-year closed mortgages below 4%. So, there is a spread of over 2% between what you could pay for a mortgage and what you could collect on these preferred shares. There is always the possibility that Ban...

Nearly 8 months ago, I bought a new furnace and took advantage of the ecoENERGY program to reduce my total cost. After only 34 weeks (!) the last cheque from the provincial government arrived. The process definitely hasn’t been speedy, but I did actually get all the money I was promised. I must admit that the whole thing felt a little like a scam in the beginning. The salesman wanted me to buy a furnace and pay for an ecoENERGY audit up front with the promise that I’d get lots of money back down the road. This doesn’t sound much different from being asked to send in a fee so that some supposed huge lottery win can be released. Counting sales taxes, I paid $4209 for the furnace and another $420 for the energy audits. Then very slowly over time I got the following rebates: $790 federal furnace grant $790 provincial furnace grant $150 provincial energy audit grant $125 provincial power authority grant $150 gas supplier grant $145 furnace seller rebate $481 home improvement...

Hedge funds are a murky area of investing for me. They are often characterized as only being suitable for sophisticated investors with large portfolios. This gives the impression that hedge fund investors are having a party making lots of money while the rest of us are going to work every day and making little on our savings. However, I don’t see why it takes much sophistication to hand over a fat cheque to a hedge fund manager. Combine that with the fact that hedge funds as a whole don’t seem to outperform the market generally, I don’t think that hedge funds deserve their reputation. From what I learned about a few different hedge funds, here is my own (possibly flawed) view of the typical hedge fund: 1. Some very clever guy develops a trading strategy with a good chance of outperforming the market and a small chance of going bust. 2. This clever guy doesn’t want to risk his own money because of the possibility of going bust. 3. He has the bright idea to start a hedge fun...

Last week we analyzed the mutual fund holdings of an investor named Tim . Now we’ll look at ways to replace his mutual funds with alternatives that don’t cost as much. The goal will be to construct a portfolio with the same asset allocation but lower costs. The two approaches I’ll look at are TD e-series index funds and exchange-traded funds. Tim’s asset allocation is as follows: 56% Canadian stocks 16% foreign stocks (including U.S.) 28% bonds The blended MER of his holdings is 2.45% per year. I won’t address the question of whether this is an appropriate allocation for Tim. I believe that it is within a reasonable range, but this discussion is a distraction for the question of whether Tim’s advisor is worth the extra costs. The starting point is to see how cheaply Tim can get essentially the same portfolio as he has now. TD e-series approach To match this allocation with TD e-series funds, Tim could get the following: 56% TD Canadian Index Fund (MER 0.31%) 8% T...

1. Buying a house is an emotionally-charged decision. Seth has some advice on how to think about buying a house . I recommend this article as a good way to put your choices in perspective. Thanks to frequent commenter Gene who pointed me to this piece. 2. Rachelle at Million Dollar Journey gives a clear and detailed account of the issues in the battle between CREA and the Competition Commissioner over the Multiple Listing Service . 3. The world of ETFs isn’t so simple any more as Tom Bradley explains. Instead of “ETFs are a great low-cost method of index investing,” we now have to say “some ETFs are a great low-cost method of index investing”. 4. See Larry MacDonald’s latest thoughts on the cost of currency conversions between the Canadian and U.S. dollar in an RRSP . 5. The Big Cajun Man gets the nod for best headline related to the Icelandic volcano . 6. Preet warns that travel insurance will no longer cover interruptions due to the Icelandic volcano now that it is a k...

Most people are insecure about their investments. Others seem so confident, and we’re afraid of being ridiculed for our pathetic investment choices. An acquaintance I’ll call Tim was brave enough to show me his holdings for some analysis. Tim has been working full time for about 5 years and has managed to build up some savings in mutual funds. Tim’s holdings are concentrated enough that I’ll try taking a more detailed look than usual. Keep in mind that I don't do this professionally. I like to give people information so that they can make their own choices. To keep Tim's personal information mostly private, he has scaled his holdings so that the total is $100,000. His real portfolio may be larger or smaller than this. Here are his mutual fund holdings: $5000: AGF Global Value - FE $38,000: AIC Canadian Balanced - DSC $27,000: AIC Diversified Canada - DSC $11,000: AIC Global Premium Dividend Income - DSC $19,000: Fidelity Canadian Balanced - ISC $100,000 T...

Andrew Dunn of Deloitte Canada has some ideas quoted at the Wealthy Boomer on changing the way RRIF withdrawals are taxed. On the surface these ideas seem to make a lot of sense, but on analysis, the reasoning breaks down. As things stand now, when you pull money out of an RRSP or RRIF, the amount gets included in your income for the year. Over the years this tax-sheltered money grows through capital gains, dividends, and interest, but none of that matters when filing your taxes; all withdrawals become regular income that is taxed at your top rate. Dunn suggests that the type of returns should be tracked so that when you withdraw the money, it gets taxed as capital gains, dividends, and interest so that some of it will be taxed at lower rates. This seems reasonable at first, but it ignores the real nature of RRSPs. An RRSP is a vehicle for deferring taxes. Your contributions are untaxed in the year you make them and get taxed when you withdraw them. Let's consider an ex...

I don’t normally do much with the many marketing emails I receive, but UFile sent a good list of common myths about income taxes. Enjoy. If I make a mistake on my tax return, the CRA will correct it for me. FALSE. The Canada Revenue Agency will correct mathematical errors and add income that you may have missed on your return. However, if you miss credits or deductions, or if you do not transfer amounts to your best advantage, the CRA is not obliged to correct the return. I should get a tax refund every year. FALSE. Getting a tax refund means that you have been effectively lending the government your money. This is especially true when your refund is a result of year-long RRSP contributions or childcare expenses. These are items that can be taken into consideration by your employer when calculating deductions at source. Some of us prefer this kind of "forced savings" with a payoff in the spring, but it is important to understand the source of these funds. Once...

One of the many benefits of the internet is the availability of information on how to fix appliances. Over the years I’ve managed to save money by fixing a washing machine, a vacuum cleaner, a heater, and most recently, a dishwasher with the help of online information. Some repairs are simple enough that I am able to figure them out myself, but I was out of my league with the dishwasher. The water was just dribbling around inside instead of firing around, and the dishes were staying dirty. After staring at the dishwasher’s innards for a while, I would certainly have given up without some online help. It didn’t help that this dishwasher didn’t come with a user’s manual. It only had an installation manual. Past experience with calling repair people tells me that the minimum charge is about $100 plus the obligatory replaced part. Add in taxes and it’s hard to see how the total could be less than $200. Not only did I not want to spend $200, but I wasn’t sure whether I would be ...

1. Big Cajun Man outlines the rules for rolling registered accounts over to disabled children . 2. Larry MacDonald doesn’t like tax thresholds that don’t automatically rise with inflation . I don’t blame him. Hidden tax increases don’t sit well with me either. 3. Preet reviews the Apple iPad with action pictures . A good quote: “It’s definitely a winner. But you don’t NEED it.” 4. Million Dollar Journey has some advice for those interested in buying a car at an auction .

On a recent golfing trip in the Orlando area, I was in line waiting to pay for groceries. Finally, the young family ahead of me reached the point where they were paying for their food, but there seemed to be some sort of credit card problem. The problem turned out to be of a different sort than I first thought. I wasn't paying much attention initially, but they seemed to be swiping credit cards multiple times. As I watched more closely, the process of swiping multiple cards and punching in codes continued. I thought that maybe the machine wasn't working. Then I thought that maybe their cards were being refused. But they were successfully charging some money to each card. I think the true explanation was that they were spreading the cost of the groceries across multiple cards, charging less than $100 to each one. I can't say for certain how many cards they swiped, but it seemed to be at least four. The best theory some of my friends came up with was that the cou...

We often hear the investing advice “have a plan and stick to it.” Unfortunately, these words don’t seem to convey the intended meaning to the investors who most need to hear it. When I first started DIY investing, if someone gave me this advice, I would have thought “my plan is to invest in things I think will go up and sell the things I think will go down, and I’ll stick to that.” Unfortunately, this has little to do with what people mean by the sticking-to-a-plan advice. A big problem for many investors is following the herd. They buy the hot stocks at sky-high prices because everyone seems to like those stocks. Later they sell holdings at low prices because everyone seems to think selling is a good idea. Following the herd can cost you a lot of money if you act after the herd has acted. An example of a plan is to have a particular asset allocation with fixed percentages of your assets in stocks, bonds, etc. Sticking to a plan means not abandoning these percentages when t...

The book Findependence Day is a work of fiction that teaches financial lessons in the style of The Wealthy Barber. The author, Jonathan Chevreau, is a personal finance columnist for the Financial Post and National Post. Trying to marry compelling fiction with financial lessons isn’t easy. I was curious to see how Chevreau would try to do this. It was obvious from the beginning of the story that the finance parts were going to be central. The first page contains financial lessons. You might think that this means the fiction part took a back seat, but this didn’t turn out to be the case. By the time I got about a third of the way through the book, I was hooked on the story. It’s not exactly a Stephen King thriller, but I was hooked enough read the latter two-thirds of the book in a single sitting on a lazy Sunday morning. I won’t give away the story other than to say that it is about a couple who make plenty of typical financial mistakes, but manage to succeed with the help ...

When I was young, I remember hearing debates among adults about whether high school students should take more “practical” courses instead of so many academic courses. The reasoning was that these practical courses would do a better job of preparing students to make a living. I came across some old papers from high school that contained course descriptions. One thing that struck me is that the academic courses such as algebra and literature haven’t changed much over the years. But, many of the practical courses are now completely obsolete. Here are abbreviated versions of a couple of funny ones: Business Machines II 511: Students will learn to operate mechanical and electronic adding machines and calculators, and spirit and ink duplicators. Steno IV 531: Students will increase their stenographic skill to take dictation at 100 words per minute and to transcribe it accurately using a typewriter. This doesn’t prove one way or another whether students should take more pract...

The idea of dedicating a portion of your retirement savings to an annuity can be appealing. Imagine that at retirement you buy an annuity guaranteeing payments of $3000 per month for the rest of your life. This would bring some peace of mind. You could then use what is left of your retirement savings for extras. The big problem that could upset this tranquil scene is inflation. If the first ten years of your retirement are like the period from 1973 to 1983 in Canada, the purchasing power of your $3000 per month will drop to only $1220 per month! Suddenly, the annuity is bringing much less peace of mind. By not taking into account inflation, retirees with fixed-payment annuities are effectively overspending in the early part of their retirements, possibly without realizing it. It is possible to get an annuity whose payments rise by some fixed percentage each year (at the cost of much lower starting payments), but this requires guessing at the rate of inflation. If inflation ...

One of the benefits of maintaining a constant asset allocation is that it forces the investor to buy low and sell high. However, this only works if investors actually do the rebalancing when the asset mix is off. In a few places now I’ve seen comments from an investor who failed to rebalance during the lowest stock prices a year ago, but that “this is okay because my allocation percentages have almost come back in line.” Unfortunately, this investor has missed the opportunity to profit from rebalancing during the period when stocks went on sale. To illustrate what I mean, let’s consider an example. As of the first trading day in July 2008, two investors, Adam and Beth each had $100,000 in bonds and $100,000 in the Canadian large-cap index exchange-traded fund XIU. Their intent was to maintain this 50/50 split. However, Adam didn’t do any rebalancing, preferring to think about anything else other than falling stock values. On the other hand, Beth checked prices on the first t...

It’s not unusual for someone to buy a starter home and fall in love with the neighbourhood enough to want to stay when it comes time to get a bigger home. Moving just down the street is a lot easier when it comes to carting your stuff to the bigger house, but it can present other problems. Whenever you buy a house it always has a few issues. Maybe the garage door gets stuck halfway down or the pipes rattle when you turn on the shower. More major problems are possible as well, but the minor annoyances are much more common. The sellers should have told you about these problems, but didn’t. Maybe they deliberately kept them from you, but maybe they had just lived with the problems so long that they didn’t think about them any more. Either way, you’re likely to just fix the small problems yourself without trying to contact the seller. After all, hiring lawyers for small issues is likely to work out badly for everyone (except maybe the lawyers). But what if the people who sold y...

1. Larry MacDonald quotes a paragraph from Karl Marx’s writing showing that he did some short-term speculative trading similar to modern day-trading . 2. Preet asks whether your broker’s bond desk is making undue profits on your bond trades . The best protection I know of is to get both the buy and sell price to check on the spread. Unfortunately, many brokers don’t make this easy. 3. Big Cajun Man runs down his top 5 investing regrets . 4. Tom Bradley makes an amusing open application for employment at Google .

Here is a translation of today's April Fool post : Sometime in April, it may get cold enough for it to snow. Snow clearing will cost cities money. Thanks to all the commenters who played along. I had fun reading your contributions. With the holiday tomorrow, I'll delay the Short Takes post to Monday. Enjoy the long weekend.

The fact that our atmosphere contains the chemical dihydrogen monoxide is of little concern to people most of the time. However, there is a good chance that it will become an expensive problem for many municipalities sometime in the next month. Under the right conditions, atmospheric dihydrogen monoxide solidifies slightly causing it to descend. Scientists believe that the conditions will be right sometime in the next month over much of Canada. Although this phenomenon has only minimal effect on people’s breathing, it can affect the proper operation of motor vehicles. Municipalities are likely to be forced to spend considerable amounts of money trying to deal with this contamination. Fortunately, it isn’t necessary to eliminate all traces of the chemical entirely. The cost of a complete clean-up would be prohibitive. Nevertheless, costs are expected to be high. See this update.