Canadian Tire Bank is offering a 1% bonus on the interest rates they pay on high-interest savings accounts (HISAs). For the first 90 days for new customers, the regular HISA currently pays 2.5% and the TFSA HISA pays 3.5%. But, how much is this bonus interest really worth? If you put $5000 into one of these accounts, the extra 1% interest over 90 days will earn you a bonus of a little over $12. After the 90 days are up, the interest rate will return to normal, which is currently 1.5% for HISAs and 2.5% for TFSA HISAs. Getting an extra $12 is better than a kick in the head, but the important thing is to compare the regular interest rates offered on savings accounts by different banks. Unfortunately, the banks tend to trumpet introductory rates and downplay regular rates. If you're thinking about taking Canadian Tire Bank up on their offer, a couple of points in the fine print to consider are that the bonus 1% has a balance cap of $100,000 and that interest rates are subjec...

The Ontario Lottery and Gaming Corporation has more marketing trouble as two Toronto convenience store owners are accused of orchestrating a multi-million dollar insider lottery win. The OPP are holding back details until they give a press conference later today. It’s not clear at this point whether this is simply a case of a store owner telling a winning customer that the ticket wasn’t a winner as in previous cases or whether the scheme is more elaborate. Either way, this is further embarrassment for OLG. I’d like to think that this means that OLG executives won’t be getting bonuses this year, but I’m not holding my breath. If you needed another reason to avoid lottery tickets, you’ve got it. Update:  Further information indicates that this is just a case of a convenience store owner telling a customer who won that the customer didn’t win.

Warren Buffett’s partner, Charlie Munger, is a very smart and well-informed guy with strong opinions on a wide range of topics, financial and otherwise. He recently commented on several subjects including investing in gold. Munger believes we have a “moral obligation to become rational,” that hoarding gold is irrational, and that “even if it works, you’re a jerk.” It sounds like Munger won’t be getting any Christmas cards from gold bugs. On other subjects, Munger believes that our best option for alternative energy is solar and that running cars on corn is crazy. He believes that stocks are a better bet than government bonds at current rates. A good quote was his reference to “the nutcase that runs North Korea.” It must be great to feel comfortable enough to say what you really think.

Warren Buffett says that the U.S. is still in a recession despite the fact that by the usual standard, the recession is over. He claims that his definition better reflects the economic realities of average people. To understand what Buffett is saying, consider the following chart of a hypothetical history of Gross Domestic Product (GDP), a measure of the output of an economy. GDP starts to drop at time A, begins to increase again at time B, and recovers to its previous high at time C. By the usual definition, the recession lasted from A to B, and the recovery started after B. But Buffett says that people are still suffering while GDP levels are depressed. He says that the recession is from A to C and that the period from B to C is just a “technical recovery”. Just because things are improving, we can’t conclude that things are great. At some point in the winter it starts to get warmer, but it is still cold. Winter is over when it warms up, not when it stops getting cold...

Want to read about an accounting trick that will make you shake your head? Some U.S. states are booking savings now for cuts to the pensions of workers who haven’t been hired yet . In a similar vein, I just saved thousands of dollars by deciding not to buy clothes in the decade after I die. Larry Swedroe explains five reasons why an aging society doesn’t mean stock market doom. Preet Banerjee thinks that HXT, the new Canadian ETF covering the S&P/TSX 60, isn’t all that risky and prefers it to XIU. Big Cajun Man is shocked by the prices of recreational vehicles. Tom Bradley thinks that even with the higher capital requirements for the world’s banks, they’re still not high enough. Money Smarts makes the case for not automatically reinvesting dividends.

My wife and I each have a car. My son who recently went away to university was listed on our car insurance as an occasional driver of both vehicles. We pay a hefty premium for this. When he went away to university, I thought this would reduce the premium considerably, but the reduction is less than I thought it would be. Just to be clear, our son did not take one of the cars with him. He attends school about 500 km away. We expect to see him between terms for a week or two, possibly a weekend during each term, and possibly for the summer depending on where he finds a summer job. Our insurance covers him to drive our cars when he is home. For his change in status, our insurance company reduced the part of the premium specific to my son’s coverage by 40%. I suppose that this is better than nothing, but it’s less than I had hoped. He clearly won’t be driving the cars 60% as much as he did when he lived at home. If any readers are in the same type of situation we’re in, I’d b...

I tend to avoid talking about politics because I tend to dislike all of the political parties for one reason or another, but I was struck by one of Jack Layton's remarks in an interview on CBC radio. He said that he wants to limit credit-card interest rates to 5% over prime. This sounds good, but he doesn’t mention the likely consequences. Whether we like it or not, banks are in the business of making money. They offer credit cards because they make money from them. The high interest rates offset the losses from a fraction of credit-card holders who default. If interest rates are capped, banks will only offer credit cards to more credit-worthy people. If this 5% over prime cap came into effect and the banks could find no loopholes for replacing the lost interest charges, they would cancel hundreds of thousands or possibly millions of credit cards in Canada. Even people with steady jobs would have difficulty getting a credit card if their pay level is too low. In princip...

Most of us have a strong desire to have more money, but our reasons vary. I’ve struggled to express my thinking on this subject clearly and concisely, but Jonathan Chevreau managed to say it in three words: “freedom, not stuff”. I don’t have much to add to Chevreau’s remarks – I encourage my readers to see what he had to say. Stuff always seems great when you’re buying it, but it loses its appeal quickly. It makes no sense to go to work and trade your time in return for more stuff.

It's not hard to find people who criticize the idea of investing a portfolio entirely in stocks. They often make some very strong points in favour of including some fixed-income investments in a portfolio. My purpose here is to defend the all-stock portfolio for the right investors. Let me start by saying that an all-stock portfolio is not for everyone. In fact, it probably only makes sense for a small minority of investors. The arguments commentators make against an all-stock portfolio effectively identify people who shouldn't own 100% stocks. Let’s look at some of the pros and cons of an unleveraged diversified portfolio of all stocks. Pro: Over the long run, stocks have outperformed bonds. This is the only important advantage of stocks over bonds. Over long periods of time, stocks have consistently outperformed bonds. The hope is that this will continue. There are good reasons to believe that it will continue. People tend to be risk-averse and will demand a h...

Larry Swedroe exposes the misleading techniques used by FundQuest to make it seem that active mutual funds perform well. Larry gives a couple of simple examples that make it clear how biased the numbers become. Bloomberg reports that three-quarters of Americans think that financial advisors have a fiduciary duty. This means they think that financial advisors have to put their clients’ interests ahead of their own. Of course, this isn’t true and the industry would fight hard against any such requirement. 170,000 Canadians were targeted by CRA for bogus charitable donations. I find it amazing that people think a scheme where you deduct more than you contribute could be legitimate. Big Cajun Man wonders why more people don’t take advantage of vendor point-based reward systems. I suspect the answer is a combination of “couldn’t be bothered” and “I just figured there would be some catch.” Million Dollar Journey reviews a new Canadian low-cost brokerage, Virtual Brokers. Mo...

It’s fairly easy to figure out what a restaurant lunch and a fancy coffee a day are costing you, but other things are a little harder, such as the cost of bumping your house thermostat up a degree in winter. I have a hot tub attached to my pool that I use in late spring and early fall, but it isn’t obvious what it costs to use. Most of the time, water circulates through the hot tub and pool, so that both are at the same temperature. To use the hot tub, I have to divert all water flow to the hot tub and heat the water. I’ve always had the vague feeling that this may be more costly than it is worth, but hadn’t really worked it out. Since I use the hot tub during cooler weather when I’m no longer heating the rest of the pool, the amount of heating required varies with the pool’s temperature. The amount of heating required ranges from about 30 to 60 degrees Fahrenheit. So the question now is how much it costs to warm the hot tub by a degree Fahrenheit. After some experimentation...

According to a recent poll by the Canadian Payroll Association, 59% of 2766 people polled say they would be in financial trouble if their pay were delayed by just one week. It seems that most of us just aren't wired for saving. It's hard to interpret exactly what this poll reveals. It all comes down to what the respondents interpret “financial trouble” to mean. For some it may mean bankruptcy, but for others it may mean a relatively minor inconvenience. In my case I wouldn’t say that delaying my pay by a week would cause me real trouble, but if it happened at the right time, it might force me to write a cheque against a different account than I normally would. This is hardly trouble, but it could be a minor inconvenience. Setting aside the question of how many people really are living hand-to-mouth, I’m not too surprised that many Canadians’ finances are in poor shape. I don't think that our hunter-gatherer history did much to prepare us for dealing with more tha...

Larry MacDonald reported on interesting research into using “robot traders” to prevent market bubbles . Unfortunately, this research ( paper available here ) by Suhadolnik, Galimberti, and Da Silva fails to address some serious real-world constraints. The idea is that based on the researchers’ model of trading patterns, adding some contrarian robot traders that trade against the herd tends to stabilize stock markets and prevent bubbles. This sounds plausible, but it brings up serious questions about how this idea could be implemented. To their credit, the researchers mentioned one of the practical problems (although it is buried on the third to last page): Where will the money for robot trading come from? “Financial resources involved in stabilizing the stock market is not addressed.” I don’t know if contrarian robots would make or lose money over the long run, but contrarian strategies can definitely lose money for very long periods of time. I definitely don’t trust the go...

It can be frustrating to buy something and see it on sale for a lower price a few days later. Some businesses will rebate the difference to you if you complain. This was our experience with Dell. I bought a computer for my son before he headed off to university. We were running out of time, and even though he wanted to buy his own components and put it together himself, we opted for convenience and bought from Dell. We also bought a printer/scanner at the same time. My wife happened to take a look at the Dell web site the day after placing the order, and the printer's price was $40 lower. Even though we waited for a couple of weeks after the computer and printer arrived to complain, Dell cheerfully agreed to give us the $40. On the down side, the printer didn't come with a USB cable needed to connect it to the computer. Given that people buy from Dell for convenience, it's hard to understand why the Dell web site didn't at least warn us that we'd need a ...

Ellen Roseman takes Equifax and TransUnion to task for charging for credit reports when they are supposed to provide them for free. Larry MacDonald explains that you need to be careful how you designate a beneficiary for your TFSA in the event of your death. Million Dollar Journey explains that some life insurance policies are set to implode due to poor returns on the investment portion. Big Cajun Man has some fun observing that interest rates have risen 300%! Money Smarts has learnt his lesson on buying labour-sponsored funds for the extra tax breaks.

Tom Bradley at Steadyhand reports that the Alpha Group (owned largely by Canada's big banks) is being investigated for conflicts of interest by the Investment Industry Regulatory Organization of Canada (IIROC). The concern is that your trades may not be executed at the best possible price. The Alpha Group seek to divert trades from the TMX to the Alpha exchange. Their initiative aims at "establishing a market place driven by profit and the best interest of the industry." Of course, profits come out of traders' pockets. I try to be wary any time I make trades, which isn’t very often. I check the bid-ask spread to make sure it isn't too wide, and I check that my trade is executed close to the appropriate price.  Most of the time I get the advertised bid or ask price, but occasionally I get a slightly better or worse price. However, I don't trade often enough to judge whether anything unusual is going on. I would think that any extra profit by an exch...

The basis of many businesses is exploiting people’s weaknesses: think of cigarettes or donuts. Stingy Investor drew attention to an article about the successful industry of self-storage . This is yet another business that owes its success to our weaknesses. Many of us are pack-rats by nature. We save things that make no sense to save. I’m sure that there are those who use self-storage for reasons that make sense, but there are a great many who waste time and money storing useless junk they can’t bring themselves to throw away. I frequently re-examine the contents of my home to decide whether I’m storing things pointlessly. If I didn’t do this I probably would already have joined the ranks of people who have overflowing homes and a self-storage unit or two. Let me try to anticipate some objections. No, I don’t think that self-storage businesses should be prevented from operating. Yes, on some level, every business exploits our weaknesses – like the need for food and shelt...

When I was a student at university the meal plan was very simple; I paid an amount up front and for four months I got to eat my fill in the cafeteria three times a day. However, things have changed for my son who just started university. I think the new system gives him too much flexibility to overspend my money. The food plan my son has is just an account that he can draw on with his student card. Food items have individual prices and the amounts get deducted from his account. We get to guess in advance how much to fill the account with, and he gets to spend it as he wishes. If he makes expensive choices, then I will have the thrilling choice of filling up the account again or letting him go hungry (not likely). Kids have to grow up eventually, but I was hoping to delay letting him control significant amounts of money until at least his second year. My son is quite sensible, but why let him buy sweatshirts with his food money? I can see how this can become quite expensive f...

Big Cajun Man will eat half-price food, but won’t use half-price condoms. You have to draw a line somewhere. Ellen Roseman reports that Canadians have the world’s longest mobile phone contracts. These contracts where you agree to high monthly fees for a couple of years in return for a “free” phone remind me of the story of my parents buying their first house. The price was $10,500, but if they had paid $15,000, they would have got a free car with the house. Financial Highway lists 7 fees that credit card companies are getting sneaky with now that they have to live within some new government-imposed restrictions. Ever wondered how mortgage rates are determined? Larry MacDonald interviews an expert to find out. Money Smarts answers questions about who in the family can access an RESP against the wishes of the person who set it up. Where Does All My Money Go reports on a new tool for checking the background of financial advisors. Larry Swedroe takes a look at an art...

With the change to the CPP penalty for taking your pension early, the calculation of what age is best to start collecting CPP changes as well. Most of these analyses to figure out the best age to start collecting CPP do not take into account possible investment returns. The old rules used to penalize you 0.5% per month for each month before age 65 you start taking CPP. Now it is 0.6%. In addition, you can grow your CPP payments by 0.7% per month for each month you delay the start of payments past age 65. So, if we call the CPP payments at age 65 a 100% pension, then if you start at age 60, your pension will be 64%, and if you start at age 70, your pension will be 142%. Note that these percentages stay fixed for the rest of your life. You'll get cost of living increases, but that's it. For most people, the most logical method of determining when to start taking CPP is by the sophisticated when-you-need-the-money method. If you can't stand the thought of working p...

The idea of correlation can be confusing. Most of us have an idea of what seems correlated when we look at a stock chart, but this everyday idea of correlation can be very different from mathematical correlation. Consider the following hypothetical chart of two stock indexes. What would you guess is the correlation is between stocks indexes in this chart? Maybe 70% or 80%? They seem to move together quite a bit. When we focus on 1-year periods, the answer is a correlation of -0.2%! That's right – essentially no correlation. However, if we look at rolling 5-year periods, the correlation is 88%. So, we get a completely different picture if we look at 1-year returns versus 5-year returns. This discussion of 1-year and 5-year correlations can be confusing. After all, aren't we talking about 30 years here? Mathematical correlation in this context is about comparing two strings of numbers. We can make these two strings of numbers be 30 numbers long and consist of 1-...