Have a happy Canada Day! Here are this week’s short takes a day early. Bell Canada will pay $10 million for using misleading advertising . The Competition Bureau found that Bell advertised prices not available to consumers without additional mandatory fees disclosed only in fine print. Bell’s defense is that their advertising is “comparable with common advertising practice past and present in the communications marketplace and other industries in Canada.” Sadly, this is largely true; many other companies advertise misleading prices. Big Cajun Man witnessed an injury that derailed the future plans of a young athlete which prompted him to look at whether we have a “plan B” for financial disasters. Money Smarts goes through the basics of how to buy an ETF using a Canadian discount brokerage. This is useful for novices who may feel intimidated by the process. Retire Happy Blog explains why a “free” consultation from a financial advisor may not be in your best interests.

A reader sent some thoughtful criticism on my article on gasoline taxes . This criticism forced me to organize my thoughts. Her lightly edited remarks follow. “Everyone gets hurt by gas taxes because they drive up the cost of doing business and the price we all pay for everything. And they’re regressive, because the people who can least afford the increased prices are the poor. Mixing social engineering with tax policy may make the environmentalist and cycling lobbies feel good, but if green energy isn’t competitive (and frankly it never seems to be), manipulating the market with taxes to disadvantage other energies really isn’t the right solution.” There are several arguments here. Let me take them one-by-one. Gasoline taxes drive up all costs This is largely true. However, all taxes drive up costs. They drive up costs by exactly the amount of tax money collected. It’s true that gasoline taxes drive up the costs of almost all goods and services, but so does the HST. In...

For years I freely bought and sold U.S. stocks without giving too much thought to the cost of converting between U.S. and Canadian dollars. I tended to worry much more about the visible trading commissions. After combing through some old trading information, I’ve found that my currency conversion costs were much higher than the commissions I paid. I looked over all my trades since I began investing on my own about 13 or so years ago. I identified all the trades of U.S. stocks where I settled the trade in Canadian dollars. My discount broker, BMO Investorline, conveniently handled the currency conversion as part of the trade. I eliminated cases where the trade value was less than US$2500 and where I used wash trading. (Wash trading is a way to eliminate currency exchange costs on round-trip currency conversions). This left 49 trades. For each trade I looked up the fair U.S./Canadian dollar exchange rate on the day in question to calculate how much extra I paid above this fair ...

Okay, the Ontario NDP actually announced plans to reduce gasoline taxes . To me this is an SUV subsidy. Oh, and it’s an oil company subsidy too. I get that people are unhappy about the high cost of gasoline, but if we reduce gasoline taxes, we’ll have to increase some other form of tax. This would punish the responsible people who have efficient vehicles and reward people who have gas-guzzlers. Another unpleasant side effect of lowering gasoline taxes is that it indirectly makes it more difficult for green energies to compete. It would also increase the number of cars on the road. The only positive I can see is that it might buy some votes.

Money Smarts isn’t as optimistic that these new disclosure rules would help investors much. I’m more optimistic, but I would be happy with this change even if it only makes a small difference. Scott Ronalds at the Steadyhand Blog bemoans the fact that (mutual) “fund” has become a dirty word and predicts that the same fate awaits other 4-letter words like bond, debt, and gold. The Blunt Bean Counter explains how CRA applies penalties for failing to report income: two strikes and you’re out. Retire Happy Blog answers the question of how much debt is too much by explaining debt servicing ratios as well as signs of debt problems. Big Cajun Man has an amusing list of the top 5 reasons why you are in debt. You’ll notice a pattern.

This blog gets a flood of announcements every day that we mostly ignore, but a quirky web site called Credit Card Navigator that seeks to educate consumers about the insurance coverage they get from using credit cards caught my eye. (Disclaimer: We have no connection to this web site and receive no money from them.) In the “about” section of the site, they tell a story about getting caught without insurance on a car rental and how this drove them to help others avoid the problems they faced. The insurance toolkit section has a “compare cards” section that lets you choose your credit card to see what kind of coverage it offers in many different categories. In the “find the card you need” section you can pick various coverages and you’ll be shown which cards give you what you want. I found it interesting to see what insurance features various credit cards have. I also found it interesting that it wasn’t obvious how the web site will be monetised. Could they be true believers? ...

A recent Canadian Capitalist article on Burton Malkiel's Contradictory Advice generated comments discussing what constitutes proper asset allocation for passive investors. I think these worries can lead investors to make bigger mistakes than just having an imperfect asset allocation. Malkiel advocates an increased allocation to Chinese equities. Some argue that this makes sense because the Chinese stock market is small relative to its GDP. Others observe that Malkiel's advice is self-serving because he is associated with Chinese ETFs. I think the debate about the perfect asset allocation is less important than the benefit of sticking to a plan. It is true that improving your asset allocation to the best percentages of various assets classes (bonds/stocks, domestic/foreign, large-cap/small-cap, etc.) may give a small boost to returns for a given level of risk. However, any reasonable allocation that matches your risk tolerance is likely to be close enough. The real con...

I had the pleasure of listening to Larry Swedroe speak last night about the benefits of passive investing. Swedroe is the Director of Research for the Buckingham Family of Financial Services, is the author of several solid books on investing, and writes the Wise Investing blog. Many arguments about the merits of passive and active investing boil down to ideology, but Swedroe doesn’t bother with ideology; he looks at data. He is driven by the science of investing and answers his critics with data. If someone comes along with data showing that some active strategy can beat the market, then he can be convinced. But he has seen precious little such evidence. An interesting statistic Swedroe gave was that while passive investing among institutional investors has gone from 15% to 60% over the last 25 years, among individual investors the number using passive methods has only gone from 1% to 15% over those 25 years. Perhaps institutional investors know something that most of the rest...

When selling your home it’s quite common for a buyer to make an offer that is conditional on the buyer selling his or her own home. Your buyer might then receive a conditional offer on his or her own home. This can lead to a chain of homes that will all be sold like dominos if someone makes an unconditional offer on the first home in the chain. An interesting situation arises when a chain of conditional offers forms a loop. It’s not uncommon for two people to buy each other’s homes. But what if we a have a loop of three people? Suppose that A makes a conditional offer on B’s home, B makes a conditional offer on C’s home, and C makes a conditional offer on A’s home? If everyone is aware of this loop then all the deals can close. But if nobody becomes aware of the loop then it’s possible for all of the deals to expire and no homes get sold. Longer loops are possible as well. I’d be interested to know whether real estate brokers share enough information to try to detect such l...

The Blunt Bean Counter explains enough about IPOs (Initial Public Offerings) to understand why they are best avoided by most investors. I’ve been on the friends and family side of an IPO and I can say that it was nice to know that I had a nice profit built in to the price I paid for shares. But I wouldn’t have wanted to buy those shares on the open market. Tom Bradley has a short story explaining clearly why we should support banking regulations. Gail Vaz-Oxlade makes the case for spouses to maintain independent finances (in a post no longer online). I agree, but perhaps for different reasons. I like to know exactly what is going on in my various accounts. Another person making transactions could lead to bounced cheques and other misunderstandings. My wife and I freely give each other money when necessary because we consider all money to belong to both of us. We don’t spend large sums without discussing it first regardless of whose account holds the money. But this sharin...

The Vancouver Canucks were outscored by the Boston Bruins 23-8 in the Stanley Cup finals, and yet the Canucks managed to win 3 games and stretch the series to a deciding seventh game. A lesson here is that the margin of victory in each game isn’t important. However, this sports lesson does not carry over to personal finance. When it comes to your money, the margin of victory (or loss) matters a great deal. A single poor choice when buying a car can cost you more than the total savings in years of carefully finding the cheapest gas prices. It’s dangerous to scrimp on small things and use this as a justification for splurging on something expensive. Psychology plays a role here. Sometimes when we know that we’re spending money we shouldn’t spend, we think “if I’m going to break the rules, I might as well go all the way.” This way of thinking is just as wrong with finances as it is with diet. Having one cookie or ten cookies may both violate the rules for a particular diet, but...

Many of us work hard to keep our expenses to a minimum. The problem comes when we focus too closely on one type of cost, such as taxes, without considering the big picture. The Blunt Bean Counter has some great examples of people making big mistakes when trying to reduce their taxes . In one case, an investor managed to avoid probate costs only to get hit with capital gains taxes which were 15 times bigger. Another example comes from our obsession with gasoline prices. It’s a good idea to look for lower gas prices, but some people take this too far. Saving 4 cents per litre on a 50-litre fill-up saves only $2. If you have to drive across town for the lower price and burn 2 litres of gas, you’re actually behind even before valuing your time and wear and tear on your car. Saving money often becomes an emotional goal rather than a rational goal. If you’re satisfying your emotional need for certain types of savings but are actually losing money in the big-picture view, your fin...

Ontario New Democratic Leader Andrea Horwath is promising to address the high cost of gasoline with weekly price caps. This is likely to play well with voters because it sounds like gas prices would be lower. But Ontario cannot really do much about the price of gasoline because it is set in the international marketplace. Looking at the details of Horwath’s statements, the NDP isn’t really promising lower gas prices. What they are promising is reduced short-term volatility. Horwath says “the point is not to keep prices artificially low” but rather “to stop the oil industry from price gouging.” But most voters will surely see a promised end to “price gouging” as lower prices. The truth is that forcing prices lower will result in shortages unless the government subsidizes our consumption of gasoline through reduced gasoline taxes or direct subsidy. The classic price-quantity curve of economics applies: if the price is lower than the equilibrium point, then demand will exceed sup...

David Chilton, author of The Wealthy Barber , says that “The worst thing that’s happening to Canadians in the last 20 years has been lines of credit.” I think the reason for this is more than just the temptation of available credit. Chilton popularized the idea of paying yourself first by saving 10% off the top each time you get paid. A big problem with lines of credit is that it undermines your ability to know whether you’re truly saving any money. Moving $500 into your RRSP may not help much if you also borrow another $1000 on your line of credit. Back when Chilton wrote The Wealthy Barber , the world was a different place. People who saved 10% of their pay and managed to pay their mortgage and any other fixed-payment debts could have some confidence that they were making progress in their personal finances. But today, with a varying debt in a line of credit, it isn’t obvious whether we’re making progress. Over time we can see if we’re falling behind, but we don’t have the...

The Canadian Conservative government is considering user fees as a way to cut the deficit. The claim that this is not a tax hike is annoying because it is a tax hike. There may be important differences between user fees and higher general tax revenues, but both are still tax increases. If I used to get a service paid for by part of my tax payment and later I have to pay a user fee in addition to paying that part of my taxes, then I have experienced a tax increase. Jason Zweig explores the epidemic of stock pickers who compare their performance with dividends to the index without dividends. My softball team would be doing better if half of our opponent’s runs didn’t count. Money Smarts explains how to get a guaranteed 20% return with new RESP contributions after your child has started school. Retire Happy rounds up various opinions on Vanguard’s launch into Canada. Hopefully Vanguard’s investor-friendly practices in the U.S. will carry over to their Canadian operations. ...

This is a book review by Mrs. James who I thought might better understand the emotional side of money and whether this book might actually help people with money troubles, not that she's necessarily nice to people who handle money poorly. The book Financial Recovery by Karen McCall makes a link between our relationship with money and how that relationship affects how we make money, how we spend money and how we save money. This book does a good job explaining some of the behaviours I have seen in friends and colleagues concerning how they handle their money and what decisions they make that seem to an outsider to be completely self destructive with respect to their finances but are an undeniable pattern. The wife who buys herself something expensive just because her husband went out with the boys is likely substituting an object for the attention she feels she is not getting from her husband. The person who knows that they don’t have enough to pay the bills so they simply s...

A post over at Boomer & Echo made me realize that the terms “active” and “passive” have multiple definitions when it comes to investing. This can lead to confusion. The most technical definition of active/passive relates to investor goals for returns: Defintion 1. Active Investor: One who seeks to outperform the market averages. This is usually done by either attempting to make better short-term trades or by trying to choose better stocks for the long term. Most active investors fail to beat the market, but each year some succeed. Passive Investor: One who chooses to own one or more indexes of stocks, bonds, or other assets. This type of investor usually seeks to minimize costs to get returns as close as possible to market averages. Another definition relates to how frequently an investor makes trades. Definition 2. Active Investor: One who makes frequent equity trades. Passive Investor: One who trades equities infrequently. A third definition relat...

Vanguard has made a formal announcement that they will be entering the Canadian investment market, but here are few details yet on what ETF or mutual fund products will be available. This announcement is initially disappointing because “Vanguard’s initial focus in Canada will be to offer investment products to Canadian investors through investment advisors.” While some investors prefer to get advice from an investment advisor, many of us prefer to save the added cost and make our own choices. Vanguard’s offerings are unlikely to be of much interest to me until I can purchase ETFs directly on a stock exchange. On the other hand, Vanguard’s U.S. products have been so beneficial to American investors that the prospect of having them do the same for Canada is very exciting. If I were an American, I would likely have all my long-term savings invested in a small number of Vanguard broad index ETFs. Canadians can buy the American version of these ETFs, but this creates two potential ...

A quote I saw in a recent covered call article got me thinking. Rob Carrick quoted Eden Rahim, who was speaking about a particular Horizons covered call ETF product: “If you’re a super bull and think the market is going to advance vertically, this product is not for you ... If you think the market is going to do something other than advance vertically, as it has in the past couple of years, then this is something to consider.” This way of thinking about investing feeds two types of magical thinking. (And to be clear, I’m not accusing either Carrick or Rahim of magical thinking.) The first is more obviously silly when exposed: the market can only have one outcome at a time. It can’t “advance vertically” for me but do something else for other people. If two people have opposite market guesses, at least one will be wrong. The second type of magical thinking is that we can somehow know what the market will do with certainty. The market will rise, drop, or stay the same with s...

Rob Carrick is drumming up support for the Ombudsman for Banking Services and Investments (OBSI). The big banks are gearing up to do away with the OBSI which may be reason enough for consumers to oppose such a change. OBSI provides a no-cost place to resolve disputes with the financial industry and even if it isn ’ t perfect, it may be worth saving. Money Smarts answers a reader question about how to make sure that RESP money not used by one child will be available for younger children. Preet Banerjee explains that almost anyone can call themselves a financial planner in Canada. Big Cajun Man takes an interesting romp through his life to explain why he ’ s not rich. Retire Happy Blog explains the “ retirement sweet spot ” when it comes to income taxes. Million Dollar Journey marches ever closer to the end of the journey. I look forward to the name change: “ Ten Million Dollar Journey ” .

Despite the fact that we are in a world of electronic payments, I find I still write some paper cheques. Occasionally I've had to stop payment on a cheque or someone sending me a cheque has stopped payment. However, these stops don’t always work. My wife did a little research and found that stopping a cheque isn’t cheap: $25 at TD, $10 online at RBC, $15 in a branch at RBC, and $10 at ING (with one free stop per year). These costs won’t break the bank, but for this money you’d think that the service would work. Over the years my wife and I have been involved in several cases where either we tried to stop payment on a cheque or someone else stopped payment on a cheque sent to us. In 3 of these cases an attempt was made to cash the cheque and the stop worked for only one of the 3 cheques. This is a very small sample, but 1 out of 3 isn’t a good success rate. I’d be interested to know whether readers have had experience with stopping cheques and whether the stops actually w...

Most people cannot handle irregular pay and expenses very well. They have a strong need for smooth, predictable incoming and outgoing cash flow and they pay a high price for this predictability. This need is apparent with car purchases, once per year expenses, employer supplemental health insurance, and other areas. Cars The best way to buy a car in most cases is for cash, but few people do this. Even car loans don’t smooth out the costs enough for many car buyers because the monthly payments last for only the first 3-6 years of the car’s life. Car leases offer a way to reduce periodic payments now and defer part of the car’s cost until years later. Car leases are sufficiently complicated that few people really know how much they pay for a leased car. When the customer doesn’t understand the numbers, this gives dealerships a big negotiating edge. We pay a high price for low lease payments. Yearly Expenses For many types of yearly expenses like property taxes and car and...