More than once I've heard the advice that there is no longer any point in having a spousal RRSP because of the new pension income splitting rules. However, this is only partially true. Spousals RRSPs still make sense in some circumstances. The origin of spousal RRSPs was a way to allow a higher income spouse to contribute to the lower income spouse's retirement savings. Basically, the lower income spouse opens a spousal RRSP, and the higher income spouse puts money in it. The amount contributed counts against the higher income spouse's RRSP contribution room and gives the higher income spouse the tax deduction. The advantage of doing all this is to balance the incomes of the two spouses in retirement to reduce the amount of income taxes paid. However, recent tax changes allow spouses new opportunities to split pension income. In particular, anyone over the age of 65 can allocate up to 50% of a RRIF withdrawal as income for his or her spouse. Note the restriction...

1. Preet describes detailed procedures for doing a background check on your financial advisor . 2. Jason Zwieg thinks the idea of making investment advisors bear a fiduciary duty to their clients is worth considering . 3. Canadian Mortgage Trends gives some insight into the incentives lenders offer to mortgage brokers to stick customers with above-market interest rates . 4. Canadian Financial DIY makes the case that the standard discount broker comparison charts should take into account currency-conversion spreads and whether the brokerage allows US dollars in RRSPs . 5. Potato has some fun with the assertion that immigration will prevent housing prices from dropping with his argument that immigrants are not stupid . 6. Larry MacDonald has 8 tips for reducing rebalancing costs . This is an excellent list, but I’m not a fan of point number 5. As I’ve argued before, I think that rebalancing should be driven by prices rather than the calendar . 7. Big Cajun Man reviews the ...

Politicians will once again debate the elimination of the penny. As I’ve argued before, pennies are a waste of time . We’ve managed to delay killing off the penny so long that it’s time to get rid of nickels and dimes as well. Let’s look at the numbers. Suppose that Joe still primarily uses cash and makes 500 cash transactions for “random” amounts per year. This does not include any cash transactions that are designed to be for an already rounded amount. If these random-amount transactions are paid for without any pennies, they will get between 0 and 4 pennies in change. If Joe just throws the pennies away (as I do), he loses about two pennies per transaction on average, or about $10 per year. (I actually lose much less than this because I have fewer cash transaction in a year.) Many people may not be willing to give up $10 per year even if it means not having to deal with pennies. However, let’s see how things change if the final amounts are rounded to the nearest nickel....

Stock options have a very poor reputation. They are thought to be either the magical lottery tickets that make CEOs even wealthier or as financial dynamite that can wipe out the savings of the little-guy investor in no time. Blogger Mark Wolfinger believes that stock options are misunderstood. He points to the many ways that options can be used to reduce the riskiness of investments. Wolfinger has devoted much effort to educating people about the smart ways to use options. Perhaps a different approach would have a better chance of success because stock options are likely to continue to be viewed as the toys of reckless traders. The problem is that there is a steady stream of people who do manage to lose their savings by trading options. They do this by taking wild chances that Wolfinger counsels against, but that is a subtle point in the battle over the reputation of stock options. The fact is that these bad experiences lead directly to the fear of stock options. I haven...

Despite the efforts of a growing number of people who advocate a passive approach to investing, the bulk of investing commentary is focused on active trading. Will the problems in Greece cause North American stocks to rise or fall? Will the rising U.S. debt start to drive up interest rates? I don’t know the answers to these questions, and based on the track record of various commentators, it seems that they don’t know either. So why do they persist in making short-term predictions? The answer is that this is much easier than coming up with something fresh to say about passive investing. We can always come up with something to say about the effect of some recent event on financial markets, even if the commentary is useless gibberish. Does this mean that we should ignore all commentary about the immediate future of financial markets? Well, ignoring all of it isn’t a bad approach. I do listen sometimes, but I tend to be very critical. I won’t believe anything just because it so...

1. Big Cajun Man has learned that it’s not all smooth sailing trying to set up and use a Registered Disability Savings Plan . 2. Anyone want a free iPad? Preet is giving one away in a promotion at Where Does All My Money Go? 3. Canadian Financial DIY reviewed the book The Fundamental Index . It will be interesting to see over the long run whether this approach is able to generate enough excess return to cover its costs.

There is a particular type of advertising that tricks me almost every time. The general idea is as follows: Buy 1 at the regular price and get a second one at 50% OFF! I’m getting better at spotting this but invariably I see the “50% off” part and don’t notice the fine print right away. An equivalent way of saying this is that you’re getting 25% off but you have to buy two items. This doesn’t sounds as good, though. The few times that I didn’t figure out that I wasn’t really getting 50% off before attempting to pay, I was left with a bad feeling about the whole transaction. Do businesses really get much benefit from this trickery if it leaves customers annoyed and feeling a little foolish?

Globe Investor is running a poll of the top Canadian blogs in two categories: – Personal Finance – Investing I’m pleased to note that Michael James on Money is included in the personal finance category. There are some great blogs in this list. A noticeable omission is Canadian Capitalist, but that’s because he is one of the panelists who chose the lists. I won’t ask my readers to head over to the poll and vote for this blog because they may have more important things to do such as running out of a burning building. However, I do encourage readers to choose their favourites from the list. Good writers need some encouragement to keep writing.

After a recent job change, I get new pay slips that contain cryptic entries about pay deductions. One of these entries is related to life insurance even though my employer gives me this insurance for free. Unfortunately, life insurance is considered a taxable benefit and I pay almost as much in income taxes as it would cost to buy the insurance on my own. For younger employees (like I was the last time I looked at this issue ), free life insurance can be more expensive than buying it on your own. In most group plans, life insurance premiums are based on the amount of insurance, but not the insured’s age. The plan assumes some average premium reflecting the age distribution of employees. This means that young people have an artificially high value assigned to their taxable life insurance benefit. Employees end up paying tax on this benefit at their marginal tax rates. For young employees, this can mean paying more for the insurance than it would cost them to purchase it privat...

I missed all of the excitement of the sudden stock market drop on May 6th. After digesting the events that evening, my thoughts were that it shouldn’t have hurt long-term investors who missed the whole thing. Prices went down, and if there was no good reason for it then prices should rebound. However, some investors were hurt even though they took no explicit action. Stock market prices are an estimate of the actual value of real business assets. Many people see the stock market as some kind of casino, but over the long run stock prices reflect business value and not just the roll of the dice. This means that if the big price drop May 6th was just some trading glitch without any connection to business value, prices should rise back up again. As a long-term investor, the whole thing was a big yawn. However, this is only because I avoid things that can cause automatic trading of my holdings. Investors need to make their own choices, but they should understand the risks they ta...

1. A big fear with the federal government’s task force on financial literacy is that it will cater to the interests of the financial industry rather than helping Canadians. Rob Carrick caught up with David Hague who teaches an advanced financial literacy course at Sheridan College and has addressed the task force. Hague thinks that disclosure is the answer to financial literacy. For example, if investors were told how much they pay (in dollars) to own a mutual fund they might make better decisions. This sounds sensible to me. 2. Rachelle at Million Dollar Journey gave some useful advice on the art of tenant selection . This sparked some debates including whether potential tenants should give their social insurance numbers to landlords. 3. Larry MacDonald sees the beginning of the end for unreasonable currency conversion fees . 4. Preet explains that there is no such thing as a stock picker’s market . Stock pickers as a whole fair poorly in all markets. 5. Big Cajun Man ta...

For investors who maintain constant portfolio allocations to different asset classes, such as stocks and bonds, there is a debate about when to rebalance. Most advice is to rebalance periodically, such as quarterly or yearly. Others suggest a threshold approach where rebalancing is based on when the allocation gets sufficiently far from the target allocation. I am in this latter camp. The idea behind periodic rebalancing is to have a defined time to look at your portfolio, sell some of the assets that have grown beyond their target percentage, and buy the ones that are below. With the threshold approach, we wait for assets to get a certain percentage away from the target percentage and then rebalance. This could take just hours or it could take years. Here is a simple example. Sally has her retirement savings equally split between a stock ETF and a bond ETF. (In my case it would be two different stock ETFs because I prefer not to own bonds for the long term.) Over time, the...

The subject of funerals isn’t much fun, but it can be a big expense. I’ve only had to be one of the primary people arranging a funeral once, and I definitely didn’t make smart choices. I was so overwhelmed by the whole process that I just agreed to pay whatever amount was asked for. However, cheaper alternatives exist. A piece on CBC radio a week or so ago about funerals explained that the typical funeral costs between $5000 and $7000 before paying for the casket, organist, and various other extras. The total cost can easily approach $10,000. I definitely don’t want my family to waste this much money on my funeral. An interesting alternative to a funeral home for Ontario residents is a business called Basic Cremations. (I have no connection to this business, financial or otherwise.) They will pick up the body, cremate it, and handle some basic paperwork for about $1600. They offer various other more expensive options, but this is the price of the basic cremation service. ...

The prospect of doing battle with the Canada Revenue Agency (CRA) over a tax dispute is daunting. Often the taxpayer is under financial pressure, and trying to pay for lawyers in a fight with an organization with near limitless resources is a definite case of David vs. Goliath. A potential ally in a battle with CRA is the Taxpayer’s Ombudsman who upholds the taxpayer’s eight service rights: – the right to be treated professionally, courteously, and fairly; – the right to complete, accurate, clear, and timely information from the CRA; – the right to lodge a service complaint and to be provided with an explanation of the CRA findings; – the right to have the costs of compliance taken into account when tax legislation is administered; – the right to expect the CRA to be accountable; – the right to expect the CRA to publish service standards and report annually; – the right to expect the CRA to warn you about questionable tax schemes in a timely manner; and – the right to be re...

A while back I replaced a hot water heater that had sprung a leak . In my financial analysis of whether to rent or buy a new hot water heater I didn’t take into account the fact that Direct Energy would just keep charging me for the old hot water heater I returned. I have a nice receipt showing that I returned the old water heater on March 15, but the latest gas bill from Enbridge still has a rental charge of $15.21 (with GST) from Direct Energy. I’d like to refuse to pay, but Enbridge is the enforcer here. They can cut off my gas if I don’t pay whatever amount Direct Energy asks for. We haven’t been sitting on our hands just hoping that the billing works out. When the previous gas bill had a full rental charge, my wife called Direct Energy. Their records indicated that the heater had been returned March 17 (off by two days but close enough). Everything seemed to be in order. We had to pay in full for the partial month, but there would be no further charges. She called aga...

1. Preet has yet another reason why credit card balance insurance is a bad idea . 2. Larry MacDonald found a plausible explanation for the high yield offered by some preferred shares of Canadian banks . 3. Big Cajun Man reported on the mortgage scam that Bank of Montreal claims cost them $30 million . 4. Frugal Trader explains the age amount tax credit and pension income tax credit . 5. Rob Carrick asks whose interest does your financial advisor have at heart?

The MER on many of the popular iShares exchange-traded funds (ETFs) will be going up due to a 5% increase in management fees. This change will affect 29 ETFs. A notable ETF not affected by this change is the S&P/TSX 60 Index Fund (XIU). The Notice to unitholders goes to a lot of trouble to explain that this is just a change in the way that the GST is handled. BlackRock used to pay the GST out of the management fees collected, but now they won’t. The claim is that “There will be no change to the amount of management fees paid by any iShares Fund.” Notwithstanding language games, the amount of management fee kept by BlackRock for the affected funds will be going up by 5%. The amount that investors will pay for the combination of management fees and GST will be going up by 5%. There is no getting around the fact that this is a 5% fee increase.

I am a long-time user of QuickTax, but I’ve always used the desktop version. From a recent entry on Ellen Roseman’s blog , I learned that the online version of QuickTax does not give direct access to the tax forms; you must use the interview method. The desktop version gives access to both forms and the interview process. I find the “easy step” interview process quite convenient to use, but I’ve never been able to use it exclusively. I’ve always had to go directly to the tax forms to enter data the interview process missed or to check that I did things correctly or optimally. It may be that I don’t quite use the interview process correctly, but the reason why certain things get missed doesn’t matter. The end result is that I need access to the forms. I’m interested in the experience of other users now that we’re through tax season. Are you able to use the interview process exclusively or do you need to access the forms? Not having the forms accessible is a show-stopper for m...

For the past 10 or 11 weeks it seems like Canadian and U.S. stocks have gone up every day. There have been a few down days, but the rise has been quite steady. Even though I know better, I expect to see another increase when checking each day. If this trend continues long enough, many investors scared off by the market lows from a little over a year ago will be lured back in. Even higher stock prices would lure in people who have never invested in stocks before. Few of us are immune to the perverse tendency to be wary when stock prices are low and confident when they are high. Perhaps we can expect the deluge of reports about reducing risk by reducing stock ownership to reverse and we’ll see more commentators talking about the merits of long-term stock ownership. I find I can never remind myself too often about Warren Buffett’s advice to “be fearful when others are greedy and greedy when others are fearful.” So, instead of going out and spending as though you expect stocks t...

A while back I explained an unusual stock option-related situation where it is possible to buy and sell stock and end up owing more in taxes than the proceeds from the sale. The latest federal budget has remedied this situation by limiting the tax owed to the proceeds of the sale . However, this budget is not yet law. This brings me to the question of how reasonable CRA plans to be about this. I’m in a situation where I owe a very large sum under the current tax rules, but once the budget becomes law, I can refile my 2009 taxes to owe a much smaller sum. As the transition of the budget into law is largely a formality, it makes little sense to send CRA a lot of money only to get it back soon. After penetrating many levels into CRA’s help system, I was told that in fact I could just pay the lesser amount and my return would be held until the budget passes (as long as I file the return along with some special forms to ask for special treatment). This sounds very reasonable, but I...