For many people it’s almost impossible not to have opinions about stocks. Even those who use a low-cost indexing approach to investing like me find themselves with a strong opinion about a company’s prospects from time to time. For those who commit real money to their opinions, I have a suggested mindset for trading. Imagine an office building with 1000 people working away on clusters of the latest powerful computers. The workers are former physicists. String theory wasn’t challenging enough for them and they went looking for greater mathematical challenges. Now they are all working together developing advanced trading strategies. The next time you trade an equity imagine these former physicists being on the other side of the trade selling whatever you’re buying or buying whatever you’re selling. I’m not saying this just to scare readers; this is a fairly accurate depiction of the trading universe. I’m a believer in owning equities and taking some investment risks, but tra...

Readers of investing blogs tend to be those who enjoy spending time thinking and talking about investing. However, most people would rather talk about foot fungus than investing. These people see investing as a necessary evil and want to handle it in the easiest possible way. It seems like a no-brainer that the easiest way to invest is to hand your money over to a financial advisor and just do whatever he or she says. Even if we ignore the high cost of paying the typical advisor, I’m not convinced that the answer is this obvious. The term “DIY investor” conjures up images of a group of people boring their spouses at a party with endless talk of whether Apple or Google stock will go up or down. But it doesn’t have to be this way. An investment portfolio can be just about as simple as a bank account. For example, an investor could just divide investment funds into thirds: one-third for a Canadian stock index, another for a U.S. stock index, and the last for a bond index. New ...

Financial Highway gives the top three places to live and practice geo-arbitrage, which means living someone warm and inexpensive and making money from a western country while working remotely. Frugal Trader at Million Dollar Journey managed to pay off his mortgage in under 3 years. Big Cajun Man is contemplating re-gifting within the family, which means some hand-me-downs for his young son.

The National Post reports that a politician in Glooscap First Nation in Nova Scotia is paid $978,468 per year. This is very high, but sounds much worse when considering that the reserve has only 300 members. It gets worse, though. Apparently only 87 members actually live in the community. With a little math these numbers lead to a suggestion that would probably help these 87 people greatly. Perhaps we could get rid of the politician and divide the pay equally among the residents. This works out to $11,246 per person per year. I’m guessing that these people would be better off with the money than whatever service the politician provides.

Many people are unhappy with the size of their cell phone bills but imagine the shock a Quebec woman got when she was charged $47,000! Her story had a happy ending, but many others whose stories don’t make the news aren’t so lucky. From an informal poll of a few friends it seems that getting hit with an unexpectedly high cell phone bill is quite common. Maybe they’re not as high as $47,000, but they are higher than anticipated. This happens often enough that it seems to be part of the business plan of cell phone providers. A useful feature to protect cell phone users would be a monthly cap. If I expect my usual cell phone bill to be $100, I might volunteer for a feature where my service gets shut off if my monthly bill hits say $500. The idea is that this would be an immediate cut-off so that my bill could never exceed $500. This would only happen if I were being hit with some expensive charge that I didn’t understand in advance. Some people wouldn’t want such a feature, bu...

Preferred shares are tempting for fixed income investors mainly because they pay higher returns than many other fixed-income investments. These higher returns come with the inevitable higher risks. BlackRock has helped to spread the risk by coming out with a new exchange-traded fund called XPF that tracks the S&P/TSX North American Preferred Stock Index. The downside is the cost. The management fee is 0.45%, which is fairly high for an index ETF. The HST adds a little more: 0.03%. Then there is the currency hedging. Half the fund is invested in U.S. preferred shares and the currency exposure is hedged back to Canadian dollars. Such hedging usually seems to cause tracking errors in fund returns. Another thing to consider is that while XPF has 120 underlying holdings, they are from a relatively small number of companies. For example, I counted 18 holdings of various Royal Bank preferred shares. Presumably, if there is risk of default on one Royal Bank preferred share, th...

With much fanfare, the new GM Company had an initial public offering (IPO) last week. Sadly, some shareholders of the old General Motors Corporation think that their old shares will be converted into the new GM shares that closed Friday at US$34.26 per share. This will not happen. The old GM Corporation was renamed to the Motors Liquidation Company as part of its bankruptcy process. All the old GM stock was renamed MTLQQ. These shares closed on Friday at 18.46 U.S. cents per share. The Motors Liquidation Company sold its assets to the new GM Company. The ultimate value of the MTLQQ will be decided after the bickering among old GM’s creditors is done. This value is likely to be very low and will have nothing to do with the shares in the new GM Company. So, in a couple of steps, General Motors Corporation has restored its name to the same initials. However, the old one was “Corporation” and the new one is “Company”. In the shuffle, the old shareholders are left with very li...

New research suggests a strong correlation between math skills and wealth . Other skills such as a good memory had far weaker correlation with wealth. Money Smarts reviews CIBC Investor’s Edge Discount Brokerage. Big Cajun Man runs the numbers on taking the bus versus driving to work. Despite the fact that the numbers strongly favour the bus, he explains why he continues to drive.

Bill Mann reports that No-PIN debit cards will be coming to Canada this summer . You’ll be able to wave these cards in front of a reader without having to insert them or enter a PIN or sign a slip of paper. My personal take on this is that I don’t want any part of it. I only use my debit card for accessing bank machines or to identify myself within a branch of my bank. I think of it as a bank card rather than a debit card and prefer not to give retailers access to my bank accounts. If my debit card were stolen, I certainly wouldn’t want the thief to be able to drain my bank accounts by making purchases. If I ever need to use my bank card as a debit card, I would prefer to have to enter a PIN. I realize that others think differently on this issue and that’s fine: to each his own. However, I would want the option of having a card that cannot be used as a PINless debit card. Some may say, “just don’t use it to buy anything,” but this doesn’t address my objection. I don’t want...

A friend I’ll call Jake was analyzing his investments and posed the following question (lightly edited): I’ve got a standard mix of ETFs, including XIC, XIN, XSP, XBB, and XRB, each with a target percentage of my portfolio and a plan to rebalance when things get out of whack. I plotted the value of my portfolio against the TSX. Guess what? All three lines are almost identical. The correlation isn’t perfect, but close enough over any time period. So what has my “diversification” and “balancing” bought me (aside from extra transaction fees)? Are markets so tightly interconnected as to make “diversification” impossible/meaningless? When was the last time you saw the S&P go one way but the DOW and/or NASDAQ go the other? Is there any advantage to carving off a chunk of cash and investing in a sector or part of the world? Logic says yes, but the results say no. I won’t give up on my diversification just yet, but if I was giving advice to a newbie it might be “buy XIC and s...

Commentators frequently recommend that people negotiate the interest rate on their mortgages, lines of credit, GICs, and other loans and investments. But not much is usually said about how to go about such negotiations. I don’t have all the answers, but I did recently negotiate for a better interest rate on a line of credit. The process surprised me in a few ways. I have an unsecured line of credit that has been mostly dormant for 17 years. A recent temporary need for money led me to use it and find out that the interest rate I’m being charged is prime+4.5%. After a quick poll of friends, it seemed that I could certainly do better. I decided to do what I could to reduce this interest rate as quickly and easily as I could. I figured the easiest way to proceed would be to simply call the bank’s general phone number and provide an update on the 17-year old information they have about me. Surely it would be obvious that my financial circumstances warrant a lower interest rate. ...

Too often I hear people talking about disaster scenarios where they protect their savings with gold or some other supposedly safe investment in case stocks go to zero. Do these people understand what it would take for stocks to be wiped out completely? For a stock to go to zero, the business must be wiped out. For a broad stock index to go to zero, all the businesses making up this index must be wiped out. Just imagine it: no internet service providers, no telephone company, no cell phone network operators, no cable companies, and no grocery stores. Without internet connectivity, telephone, cell phones, or food, exactly what would we buy with our chunks of gold? I certainly wouldn’t trade a can of beans for a bar of gold in such a desperate situation. No doubt the remedies governments are using to deal with recent financial crises will have negative financial effects down the road, but I have a hard time seeing how the average person can protect himself from a widespread disa...

Globe and Mail’s online broker rankings are out with Qtrade taking top spot again. Tom Bradley says that the big banks are crying wolf with their customers as the banks transition into sales organizations. Million Dollar Journey looks at whether people with defined-benefit pensions should save in TFSAs or RRSPs. Big Cajun Man reports that Canadians now have over a trillion dollars in mortgages. MoneyNing shows that telecommuting won’t save you quite as much money as some claim.

Poppies and “Support Our Troops” bumper stickers are common symbolic gestures of support for our armed forces and veterans, but many veterans could benefit from more tangible support. Recently, Canadian veterans demonstrated on Parliament Hill over the belief that their disability compensation and pension benefits aren’t adequate. In particular, they say that soldiers wounded in Afghanistan get less money than older veterans got. I haven’t investigated these claims enough to decide if I think they are true. But anyone who feels strongly enough about supporting our troops should consider checking into these claims. If you decide they have merit, call or write your MP and tell him or her what you think. You will be doing more for veterans than any bumper sticker can do.

A Wall Street Journal article New Ways Banks Are Spying on You lists the many new types of information that banks collect about their customers to make lending decisions. Banks look at rent, utility payments, estimated house value, and other information. One of the things they do with this information is estimate people’s income to check the income they claim on credit card and loan applications. Setting aside the privacy concerns, what if you live a lifestyle that doesn’t match the banks’ models? Maybe you have an average income, but their analysis leads them to think you have a low income. A bank that trusts their software more than they trust their customers may reject your application because they think you lied. As more of the intelligence in the business of banking gets coded into software, the people working in banking will become less likely to understand the limitations of this software. Despite the fact that I work in high-tech, I fear the day when the best answer y...

House shoppers get a lot of comfort from having a pre-approved mortgage. Knowing how much a bank will lend you removes one big worry from the process of finding the right home. In this context, “pre-approved” means that the bank took your relevant personal details and determined how much they would lend you. However, when it comes to credit card offers from the very same banks, “pre-approved” seems to mean something completely different. According to [a resource no longer available online], when it comes to credit card offers, “pre-approved” means “not yet approved” as opposed to “approved in advance”. When yet another pre-approved credit card offer from RBC arrived in the mail, I decided to check just how pre-approved I really was. A footnote from the heading on RBC’s offer pointed me to some fine print on the back that explained what they mean by “pre-approved”: “This pre-approved offer is based on the credit and financially related information the Royal Bank of Canada has ...

Bell has an offer for its customers: a $100 credit toward a new Bell TV subscription or a new cell phone. This sounds like a generous promotion until you read the body of the letter and fine print on the back. As a long-time monopoly, Bell was regulated by the CRTC and one of the things Bell was directed to do was to set aside some of the money it collected from its customers for “future use”. CRTC has now decided that this money should be returned to customers. Bell’s letter states that the rebate amount “could be up to $67 per home phone line”. However, “as an alternative” Bell is offering the $100 coupon. While it may not be obvious, the phrase “as an alternative” means that if you take the $100 offer you give up your right to the $67 rebate. The last line of the fine print on the back of the page is much more direct: “By taking advantage of this offer, you will not be eligible for any other offers specific to this program, or the rebate cheque mandated by the CRTC.” Le...

Scott Ronalds reported some results from the latest DALBAR study of the statements that mutual fund companies send to their clients. Apparently, 68% of reports don’t even include the client’s overall rate of return and few show the fees clients pay. The few “statements that do show fees present them in an unclear way.” Canadian Tax Resource explains the differences among setting up your business as a sole proprietorship, a partnership, and a corporation. Preet Banerjee takes a look at the conditions under which fundamental indexing will outperform capitalization-weighted indexing. Money Smarts explains the different ways that financial advisors get paid. If you don’t know how your advisor is being paid, there is a good chance that you’re paying too much. Big Cajun Man explains that when it comes to banking, everything is negotiable. Million Dollar Journey explains preferred stocks. See part 2 as well. Financial Highway has some useful information about credit car...

Most times in life we seek to spend time with people we like and who agree with our views on major topics. However, this may not be a good strategy when it comes to financial advisors as Jason Zweig explains . Here is a rough transcript of a common exchange I have with people about their financial advisors: Me: “Are you happy with your financial advisor?” Reply: “Yes, he’s a really great guy.” Me: “Is he handling your money well?” Reply: “Uh, I don’t really understand that stuff very well. But he’s really a good guy.” A sign of a good salesperson is being likeable. Things aren’t much different with financial advisors. The advisors who are hungry for business do well by agreeing with whatever the client says, even if the client thinks he want to manage his money in a way that isn’t likely to perform well. This brings me to a potential strategy for choosing a financial advisor. Seek out an advisor who disagrees with you. The theory is that such an advisor is more like...

Over the past decade, the price of gold has risen from about US$270 to US$1358 per ounce. This is a staggering average compound gain of 17.5% per year. Human nature compels us to imagine this trend continuing, but such high prices should make us wary, not bullish. If we cast our view back to before the most recent decade, gold actually lost value. For the 20 years ending 10 years ago, gold lost an average of 4% per year! This isn’t an after-inflation figure. If we take into account inflation, gold lost much more value than this. The tough thing about valuing gold is that it has almost no inherent value. Stocks correspond to businesses that have profits, losses, and dividends. We can at least measure the price of stocks relative to the earnings of these businesses. In the case of gold, how do we measure value? Of course, currencies have a similar problem. Why do we value dollars? The short answer is that governments act in a manner designed to stabilize the value of curr...

The tax advantages of balancing assets between spouses aren’t as great as they used to be, but there is still some advantage to shifting assets (legally) from one spouse to another. For example, a couple can reduce their income taxes if taxable dividends are attributed to the lower income spouse. To this end, my wife and I have been trying to increase her financial assets at the expense of mine. The main tool for doing this has been for all family expenses to be paid out of my income. She saves all money that comes into her hands. Under the TFSA rules, one spouse can contribute to the other’s TFSA without the resulting income being attributed back to the contributor. This is explained clearly a few paragraphs into this CRA page on TFSAs . So, I can fill up my wife’s TFSA from my non-registered account and she can leave her money in her non-registered account. This reduces the amount of taxable passive income I receive and increases hers. Fortunately, new rules on income s...

With the Lotto Max jackpot reaching $50 million for Friday’s draw, tongues were wagging. Most of my co-workers claim they don’t buy tickets even when the jackpot becomes huge. In a few cases the stated reason is not wanting to have to manage all that money. It’s certainly true that most lottery winners seem to manage their money poorly. There is no shortage of rags to riches and back to rags stories. So, what would be a good way to handle the money from a $50 million win? I may not have the best answer, but here is one answer. I would open two discount brokerage accounts and designate one of them the “tax” account. Both the tax and non-tax accounts would get $25 million. Each would hold the same mix of ETFs. One possible mix is equal dollar amounts of each of the following: XIU, ZCN – Canadian stocks XBB, ZAG – Canadian bonds XSP, ZDM – U.S. and international stocks The idea here is to have the following types of diversity in case of problems: – 2 separate brokerage...