This is a funny one I got from Ken Kivenko who is a tireless advocate for the small investor up against the giant mutual fund industry. You can read his monthly newsletters at Canadian Fund Watch . Ken says he received the following message signed as the branch manager of a member firm of the Mutual Fund Dealers Association: “Mr. Kivenko, please stop sending your Newsletter to my clients Mr. ----- and Ms. -----. Since they have been receiving your rag they constantly pester us about fund fees, returns and how our Seniors Specialists are paid. The more they read the more anxious they become. They are elderly and your stories are scaring them. It is now virtually impossible to even approach them about our new line of proprietary funds because of your rantings. The next thing I know they'll be asking about alternative investment choices. Our sales team is worried this will spread. STOP sending this material NOW! Have a good day.” This is too funny for words, which makes me th...

A reader I’ll call Jeremy has a question about how to handle the HST for his practice that he operates with a partner I’ll call Sandy. Here is the situation: Sandy runs a business offering an HST exempt service out of an office she rents. The service Jeremy offers is not HST-exempt. Because Jeremy offers a different but complementary service to the public, Sandy suggested that Jeremy offer his service out of Sandy’s office space. To keep the arrangement simple, Sandy suggests that Jeremy pay her 40% of his revenues, and Sandy will provide the office space, supplies, computers, etc. without any further charges. The idea is that Jeremy will just keep 60% of his revenues. The complication comes with how to handle the HST. Jeremy must charge his clients the HST, but how should it be split between Jeremy and Sandy? Possibility #1 Sandy only gets 40% of Jeremy’s base rate and gives all of the collected HST money to Jeremy. Jeremy then remits the HST money to the government ba...

I made a change to this blog that should go unnoticed by most readers. I now have my own domain (http://www.michaeljamesonmoney.com/) instead of the blogspot address. Although I’ve set it up to automatically refer from the blogspot address to the new address, I’d be pleased if those who point to my blog from their own web sites could update the addresses. Readers of my feed should see no substantial changes. Thanks to Frugal Trader at Million Dollar Journey for the advice on how to make this change smoothly. Now, on to this week’s short takes. It’s been a quiet week, but I found a couple of interesting articles. Big Cajun Man has a list of things to stay away from in the post-Christmas sales. My Own Advisor reviews the ebook The Dividend Toolkit .

The word “millionaire” is mainly used loosely to mean a person with so much money that he or she can spend far more than the average person with no fear of ever going broke. Increasingly, this loose definition does not match up with the more precise definition of a person with a net worth of at least $1 million. Consider the hypothetical couple, Sam and Christie, both 56 years old. They met working for the same employer and have 3 children, two of whom are still attending university. Their employer is having tough times and they both got forced into early retirement. Unfortunately for them, their skills are mostly useless now that the entire industry they worked in has collapsed. Fortunately, though, they are collecting a defined-benefit pension of $5500 per month. Using a rule of thumb that an indexed pension is worth about 15 years’ worth of payments, their pensions have an actuarial value of $990,000. Sam and Christie live in a house worth $450,000, but their mortgage is $...

With apologies to the blog Give me Back My Five Bucks , I say to Google, give me back you can keep my ten bucks! That’s how much they charged me for a service that I can’t get finally got to work. This all began with the many complaints I get from people who say that their employers block all blogspot links, so they can’t see my blog. I’ve been trying for a while to figure out how to fix this, but the only advice I ever get is that I should move to WordPress. However, I get frustrated enough fixing problems that come up with Blogger. My family would disown me if they had to endure my ranting about having to fix WordPress problems. Besides, I don’t want more features; I just want some simple blogging features to work without constant attention from me. I poked around in Blogger settings and noticed a publishing option to “Add a custom domain”. This seemed too good to be true. Clicking on it led me to an offer to sell me my own domain for only $10 per year. So I pulled out ...

Canadian Mortgage Trends explains how wrong Amanda Lang is about the ability to forecast interest rates and how quickly they can rise or fall. Preet Banerjee interviews Financial Advisor John DeGoey who has some very blunt words to describe the state of the financial advice industry. Canadian Couch Potato explains how the cost of currency conversion has nothing to do with current fair exchange rates. Million Dollar Journey gives a snapshot of where he is with his RESP, which is based on TD e-Series mutual funds. He also lays out his complete RESP strategy for shifting from stocks to safe investments as his children approach the end of high school. Big Cajun Man says that store-fronts for the telecom companies like Bell and Rogers are no-ops in the sense that they offer little of value over visiting the company’s web site. Increasingly, low-level employees of businesses have almost no discretion to make any decisions themselves. Business strategies are created at the cor...

People who play the lottery generally know that their odds of winning are very low. However, some ticket buyers I’ve spoken to believe (or hope!) that they’re bound to win if they keep playing long enough. I decided to do some simulations of the Lotto Max lottery to examine this belief. I ran a million simulations of playing 2 tickets per week for 25 years. At $5 per ticket, that’s a total cost of $13,000 for each of a million lottery players. I included all the gory details about how the prize pools are determined, winning a free ticket when matching 3 numbers, and everything else. A simplifying assumption I made was to treat all chosen number combinations as random instead of having some of them chosen by people. I also had to make assumptions about ticket sales: I chose sales of $25 million per draw when the previous jackpot was won and sales of $15 million more than the previous jackpot when it wasn’t won. This crudely models the hysteria that comes with big jackpots. ...

I recently received what appeared to be a reminder from McAfee to renew my subscription to their antivirus software. On the surface this seems like a useful reminder service for an existing customer who wants to maintain continuous security coverage for my PC, but all is not what it seems. A curious omission from the McAfee email was any mention of when my subscription expires. After some digging for an old password, I was able to log in to my McAfee account to discover that my subscription will last another 20 months! Why would I want to extend my subscription for another year or two now? There’s half a chance that my PC won’t even be working by then. Another annoyance is that McAfee renewed an old subscription on a PC that I had scrapped. I thought I had been careful to check the “never automatically renew” box, but either I missed it or this box got reset somehow. Fortunately, renewal attempts by McAfee don’t work if I have an updated credit card with a new expiry date and...

In an interesting blog post, The Blunt Bean Counter asks whether newspaper paywalls will save newspapers or if they are just a last ditch effort to save an industry that will ultimately fail . I think the answer is some of each. Revenues for newspaper businesses will continue to decline as more people opt not to pay for a physical newspaper each day. It will take some time but people like me who like to flip through the dead-tree version of newspapers will eventually die off. Newspaper business people recognize this and hope they can replace subscription revenue from physical papers with subscription revenue from web site access. For the most part, this won’t work; collectively, people will never pay as much for web site subscriptions as they pay for physical newspapers. The reason is simple: competition. It costs far less to run a newspaper as a web site than it does to deliver physical newspapers. Production and delivery costs are eliminated and there is far less need for a...

Daniel Solin, senior vice president of Index Funds Advisors , bluntly describes the need of fund managers and the financial media to anoint financial gurus as seers of future stock market prices . Scott Adams comes at just about every subject from a unique angle. In discussing whether it makes sense to raise taxes on the rich, he had a great quote: “fairness is a concept invented so dumb people can participate in debates.” The Blunt Bean Counter is giving away copies of Rob Carrick’s book How Not to Move Back in With Your Parents . Big Cajun Man goes into rant mode when he can’t find some tax receipts and can’t seem to follow his own advice about staying organized. It always amazes me how people don’t spend 10 seconds to file away an important receipt to save an hour at tax time looking for it. Occasionally I’m guilty of this myself, but for the most part I’m pretty organized. Where Does All My Money Go? explains how to deal with some common problems that arise in closing ...

So many Canadians like to spend their winters in the U.S. that we have a name for them: snowbirds. If you’re a snowbird or aspire to be one, beware of U.S. tax law. If you’re not careful, the IRS will treat you as a nonresident alien subject to U.S. income taxes. Fortunately, there are ways to avoid this fate. Be careful of taking people’s word on these tax rules. I’ve heard so many contradictory explanations of the rules that I decided to dig through the IRS website to find the truth. The main things you need to understand are the Substantial Presence Test and the exception to this test called the Conditions for a Closer Connection to a Foreign Country . It’s also important to know that if you wish to assert a closer connection to Canada, you have to file Form 8840 . On page 3 of this form it says “If you do not timely file Form 8840, you will not be eligible to claim the closer connection exception and may be treated as a U.S. resident.” I’ll summarize the highlights of t...

I highly recommend having a look at a 54-minute movie called Passive Investing . The discussions are mostly non-technical and fairly easy to follow. They even cover the lifestyle advantages of switching to passive investing. For more details about this movie see Canadian Couch Potato’s description . What prompted me to write a post about this movie is an issue that is more technical than the film itself. Canadian Couch Potato made the following remarks about the movie’s mention of the capital asset pricing model (CAPM) : “CAPM—which predicts the expected return of a security based on its beta —is still widely taught, but it doesn’t do a particularly good job of explaining returns in the real world. (The Fama-French three-factor model is a dramatic improvement.) So I’m surprised the film’s website describes CAPM as ‘the mathematical foundation of passive investing.’” He is right that the three-factor model is better at modeling past investment returns than CAPM. However, wha...

When we buy shares in a company, one of the things we count on is that all shares are treated equally and get an equal slice of the company’s profits. The Financial Post reported on research into changing this equal treatment : “A global research project launched Wednesday by Mercer, Stikeman Elliott LLP and the Generation Foundation will look at the concept of granting ‘loyalty’ dividends or warrants, or additional voting rights, that would ‘reward’ certain corporate shareholders for retaining their shares for a specified number of months or years.” On the surface, this seems like a great idea. You get a bonus for holding your stock for a long time. However, all shareholder claims on company profits come from the same pie. If some shareholders get more, then others must get less. But so what if some high-frequency trading jerks get a smaller slice of company profits? Who is to say that companies will only use their long-term shareholder bonus programs to shaft day traders? ...

My Own Advisor explains how he considers his defined benefit pension to be like a large bond that allows him to take more equity risk with the rest of his portfolio. This makes a lot of sense, but something that many people don’t consider with defined benefit pensions is the risk that you won’t collect as much as you think. If you decide you can’t stand your job or get laid off, you may be left with only a very modest pension (or none at all if you take a commuted value when you leave). Even government jobs aren’t as safe as people used to think, particularly with all levels of government facing huge deficits. When balancing a portfolio, it makes sense to consider only the value already accumulated in the pension rather than the entire future value if you stay until retirement age. Boomer and Echo tells a story of parents financially supporting spendthrift adult children at the expense of their responsible children. Perhaps living only for today pays off if you have wealthy pa...

Having spent much of my working life around type A personalities who pour all their effort into their careers and have little in the way of personal lives, I’ve always respected those who sacrifice some career advancement to get life balance. This doesn’t include just high-powered business executives; I’ve seen it in a mechanic as well. The way we pay for car repairs usually involves book hours instead of real hours. A book lists the number of hours each type of repair is supposed to take. Then you pay for this number of hours no matter how long the repair takes. Mechanics vary greatly in how long they take to complete repairs. A former mechanic friend (I’ll call Dan) used to routinely take less than half the book hours to complete his work, but he says that he worked with some mechanics who would spend all day on a 2-hour job. Dan was well-liked by his employer because he made maximum use of the space he took up in the garage (i.e., he made them lots of money). And he was ...

I get the feeling that enthusiasm for Christmas gift exchanges is mostly limited to children and shopaholics. I think this comes from the fact that most of us already have the small things we want. There was a time when gift-selection was quite easy. When everyone one needed food and clothing it wasn’t too hard to pick a gift to make or buy. But now it’s hard to find the right gift for everyone on your list. Most people have the basic things they need and want. A gift sweater may never be worn again after the obligatory trying it on for the camera. It’s normal for the enthusiasm for Christmas to fade with age, but the age where this begins seems to be getting younger. And it’s hard to blame teenagers of well-to-do parents for losing some interest in Christmas, unless their parents buy extravagant gifts like a new car. How excited do you really need to be about getting an eleventh gaming system? It would be nice to see all the wasted money and energy that goes into wanderin...

There is an uneasy relationship between emotions and rational thinking in investing. I’m a believer in using careful rational thinking when making big life decisions like how to invest your life’s savings, but it isn’t possible to keep emotions out of the equation entirely because most of life’s core goals are fundamentally emotional. To the extent that I have any philosophy in life it would be “sustainable happiness”. Without the sustainable part, drugs would be a good solution to produce a burst of happiness. But this is hardly sustainable. So, I try to eat well, get regular exercise, and treat others well in a bid to be happy for the long term. The pursuit of money is not an end in itself, but a means of achieving freedom, comfort, interesting experiences, and ultimately, happiness. There are those who say that money doesn’t matter. They are partly right and partly wrong. Of course money matters, but what you give up for it matters too. I’ve consistently turned down car...

Years ago I noticed that my wife and I have different payment dates on our credit cards. Until recently, I never really thought about the implications of this difference, but it does present an opportunity to “optimize” cash flow. The following calendars illustrate the differences in our credit card statements. My next statement will cover purchases from roughly Nov. 16 to Dec. 15, and the payment will be due Jan. 5. I indicated a full week for the payment to illustrate that it is sensible to pay somewhat early to avoid interest charges. Note that my wife’s credit card dates are shifted forward 19 days. This creates an opportunity that I hadn’t thought much about before, but I’m sure that many people use. For purchases between Dec. 16 and Jan. 3, my wife will have to pay before Jan. 24, but I won’t have to pay until before Feb. 5. Similarly, for purchases between Dec. 4 and Dec. 15, I’ll have to pay sooner. To optimize cash flow, it’s always better to use one credit car...

The Blunt Bean Counter discusses the unintended consequences when an RRSP/RRIF passes to a spouse but the spouse doesn’t put the proceeds into an RRSP/RRIF. The result could take inheritance money away from others named in the will. Retire Happy Blog makes a lot of sense in a controlled rant about the harsh realities of investing. There is no magic way to invest money safely to get a high return. One minor point I would disagree with the idea that investors got safe high returns back in 1981. People should focus on after-inflation returns. GICs may have been better in 1981 than they are now, but not by as much as it appears after you account for inflation. Big Cajun Man has some house-hunting tips. My Own Advisor was surprised at how expensive it is now to go to a movie. My best suggestion is to cut your costs in half by eating before you go to the movie.

There is no shortage of experts who debate whether you should put your long-term savings in an RRSP or a TFSA. However, they gloss over an important detail: you have to put more money in an RRSP to get the same effective savings as money placed in a TFSA. Taxes make savings in an RRSP worth less than the same dollar amount of savings in a TFSA. The line of thinking of some analyses goes as follows. Suppose you have $6000 to save. If you put it in a TFSA, it will grow tax-free until you take it out. If you put it in an RRSP and you’re in a 40% marginal tax bracket you’ll get a $2400 tax refund, it will grow tax-free, but you’ll have to pay taxes on withdrawals in the future. So, things balance out to some extent. What is missed in this analysis is that in the RRSP case, you’re effectively saving less money. If the investment grows to $60,000 over a number of years but your marginal tax rate stays the same, the TFSA will give you $60,000 you can spend, but the RRSP will only ...

Most of us have some experience with how much the big banks charge us for ATM cash withdrawals and debit transactions. But it’s more difficult to find out what it actually costs the banks to provide these services. The Financial Consumer Agency of Canada says the cost of withdrawing cash at your own bank’s ATM ranges from $0 to $1.50, and at another bank’s ATM it costs between $1 and $6. In my case, I get charged 60 cents for cash withdrawals at my own bank’s ATM, and the last time I had to use another bank’s ATM I was charged an extra $1.50 for a total of $2.10. But what does it cost the banks to provide cash withdrawal at ATMs? A partial answer comes from Intrerac’s fees. They say “A single interchange rate of 75 cents per transaction applies to all Interac Cash transactions.” It’s not clear whether this is just for cash withdrawals between banks or for all ATM cash withdrawals. It’s also not clear to me who maintains ATMs and keeps them stocked with cash. Is this part of...

Preet Banerjee has some more fun with a hot water heater door-knocker in his latest podcast. Watch out for shoe thieves! Andrew Hallam argues convincingly that well-meaning teachers who have their students play typical stock picking games are actually teaching all the wrong lessons. My Own Advisor tackles the tricky subject of foreign income reporting to CRA and when you have to file a T1135 form with your income taxes. He runs through a number of scenarios that help explain the rules. The Blunt Bean Counter lays out the rules for when employment benefits are taxable. Tom Bradley at Steadyhand responds to a BNN host who asks what investors should do amid all the financial turmoil the world is enduring. Bradley’s answer is that if you have a sound plan that you’ve been following, stick to it. A steady hand indeed. Canadian Capitalist examines Malcolm Hamilton’s contention that right now saving in a taxable account is futile in the sense that guaranteed investments mak...

Have you ever had the experience of driving a long distance on a mostly deserted highway with some jerk behind you the whole way? I’m not talking about tailgating, but just staying strangely close when there are no other cars around. Can you believe that this has any connection to personal finance? Read on. I’ve been on the “jerk” side of the deserted highway story several times. But the funny part was that I had my car on cruise control. So, I wasn’t really following. My car has no advanced features where it adjusts speed based on vehicles in front. It’s not plausible that the two cars’ cruise controls were so perfectly synchronized that we were able to stay together for so long. The only reasonable explanation is that the other driver was adjusting his speed to keep me behind. Most likely he was doing this subconsciously. Sometimes in this situation I speed up temporarily to pass the other car just to break the spell. Slowing down temporarily usually doesn’t work becaus...

Recently, Rob Carrick interviewed Rick Lunny from the Melrose Management Group to discuss mortgage defaults. Lunny explained that the main reason people default on their mortgage is not rising interest rates, but people losing their jobs. Lunny said that he had “been involved in studies that go back 30 years, and you see that unemployment is the number one reason for mortgage default.” Let’s take a look at the history of Canadian interest rates for the past 30 years: The trend of dropping interest rates should smack you in the face. How could Lunny’s study say much about whether rising interest rates lead to mortgage defaults? Apart from 1988 to 1990, Canadians haven’t had to face much in the way of rising interest rates in the past 30 years. Keep in mind that it’s not high interest rates that cause your payments to rise. After all, the bank takes into account current interest rates when they decide how much to lend to you. What causes your payments to go up is the inc...

Ellen Roseman has a story of Rogers telling one of its customers to pay a bill for $225 or face a charge of $2 million! My Own Advisor reports that Kia Canada misreported its cars’ fuel efficiency and is planning to pay actual cash to their customers in compensation. Gail Vaz-Oxlade argues that women need to build up their financial lives independent of their husbands (in a post no longer online), taking into account their unique circumstances such as living longer than men and possibly taking time off from work to have children. This is sensible advice. However, she also says “When a woman and a man divorce, his standard of living most often goes up while hers goes down.” Divorce drives up total living costs: an extra rent, extra furniture, possibly an extra car, etc. Most likely both men and women end up with a lower standard of living, on average. Is it really plausible that on average all the extra living costs and more get shifted to women in a divorce, and men end up b...

Today, bloggers across Canada are promoting financial literacy by writing about their best financial tip in a campaign organized by Life Insurance Canada . I’m pleased to contribute this post. I decided to pick a financial tip different from what you’re likely to see elsewhere: TIP: Don’t look for a financial advisor who can steer your savings around stock market drops because these advisors don’t exist! Too many people have the wrong expectations of their financial advisors. They get upset when their portfolios drop in value and blame their advisors for not avoiding this loss of money. If the whole stock market or bond market goes down, then your portfolio will almost certainly go down too. If the whole market doesn’t drop, but you lose money anyway, then maybe you have a legitimate beef with your advisor. If you think you already have an advisor who can see stock market plunges coming, either you misunderstood the promises he made, or he misled you. You may ask, what’s ...

To buck the trend in most articles titled with a question I’ll actually answer it: no, a dollar of dividends is worth the same as a dollar of capital gains. However, that didn’t stop a commenter, Rob, on a Canadian Couch Potato post from arguing differently. Please note that the Canadian Couch Potato himself was on the correct side of the math on this question, although he had the good sense to spend less time arguing with Rob. Rob’s argument ran as follows. If you had invested $100 in the UK stock market in 1945, it would have grown to $7401 by 2011 if you lived the good life and spent all the dividends. However, if you had reinvested the dividends, you would have $131,469 by now! The return in this case is 18 times higher than the returns due to capital gains alone. So, this must mean that the dividends must be worth 17 times more than the capital gains. We could take this a step further and observe that the average compound return in the UK stock market due to capital gai...

A wave of new property tax assessments has hit Ontario homeowners. The form we receive is a blur of numbers, and it’s not easy to figure out what will happen to your property taxes. In fact, we’re still missing one key piece of information to work out our 2013 property taxes. My home’s assessment went up 23% from 2008 to 2012. Does this mean my taxes will go up 23%? Nope. Assessments get phased in over 4 years. My phased in assessment increase for 2013 is 5.7%. Does this mean my taxes will go up 5.7%? Nope. There’s more to it than that. My form tells me that the average phased-in assessment went up 6.4% in my area. So, my assessment actually went up 0.7% less than the average. Does this mean my property taxes will go down 0.7%? Hahahaha! Property taxes don’t go down. The average property tax increase has nothing to do with assessments. Each municipality goes through a drawn out political process to decide on a tax increase. It begins with strong talk of a 0% incre...

The Business News Network ran an interesting debate about whether Canada should expect a fiduciary standard from financial advisors. The combatants were tireless advocate for Canadian investors Ken Kivenko (president of Kenmar Associates) and Greg Pollock (president and CEO of Advocis – the Financial Advisors Association of Canada). A fiduciary standard means making decisions based solely on what’s best for the client. Currently in Canada, most financial advisors must meet a much lower standard that permits them to sell financial products that are suitable for the client from a risk point of view even if the product is very expensive and pays the advisor handsomely. Many investors are surprised to learn that their financial advisors don’t have a fiduciary duty. My favourite part of the debate was when Pollock said “we’ve been the envy of countries around the world in terms of the way our financial services are regulated.” This attempt to take the good feelings about the strengt...

Give Me Back My Five Bucks has some cool pictures of the world’s skinniest house. Jonathan Chevreau interviews Malcolm Hamilton who explains the rule of 40 for mutual fund fees. Hamilton is always worth listening to because he explains his ideas clearly and gets the math right. Canadian Couch Potato explains why market-beating strategies don’t last. The Blunt Bean Counter says that worrying about higher marginal tax rates is a weak reason to avoid earning extra income. A much better reason is “I already have enough income,” but not many of us can say this with a straight face. Big Cajun Man argues that time is an important financial variable. I agree. If you save a little each month, time will turn it into riches. But, if you borrow a little each month, time will bury you. Where Does All My Money Go? explains the U.S. financial cliff coming in January.

We’ve all heard horror stories of Canadians getting massive wireless phone bills because they used a service they thought was covered by their plan, but their provider disagrees. Fear of this sort of problem makes some people shut off their phones whenever they travel, particularly in foreign countries or even just close enough to the U.S. border to get picked up by a U.S. tower. I think I have a partial solution to this problem. No doubt there are situations where a wireless phone user knowingly runs up a multi-thousand dollar bill because he or she is doing something just that important. But most of the time, people running up huge bills would stop whatever they were doing if they knew the costs were so high. What if your phone were to pop up with a message on the screen saying “you have now incurred $50 in extra charges so far this month” and demanded that you type in some password to continue? If you continued to use extra services, you’d get messages at $100, $150, and so ...

I’m of two minds about today’s U.S. election. On the one hand, voting is an important democratic right and Americans should get out and vote. On the other hand, when my son was young and didn’t want to wear a warm top, I used to placate him by letting him to decide if he wanted to wear a red one or a blue one. The conventional wisdom is that electing a Republican will boost stocks, and electing a Democrat will sink stocks. There are many people who try to profit from short-term stock moves caused by election results. These people are already taking into account recent polls. So, everything I know about the likely outcome of today’s election is already factored into stock prices. I don’t think there is any easy short-term money on the table. But what about long-term effects on stock prices? Maybe one of Obama and Romney would be better for business overall. But how can I profit from this? Stocks tend to rise in price faster than bonds. Maybe this gap in expected growth rat...

Too many discussions of whether you should go for a fixed-rate or variable-rate mortgage center on trying to predict future interest rates. This is a waste of time. I don’t believe anyone can guess future rates better than the yield curve . Even if someone out there has a better prediction, I couldn’t distinguish him or her from all the other prophets who claim to see the future, but can’t. We should simply view fixed-rate mortgages as a kind of insurance. To make things a little more concrete, suppose you’re trying to choose between a variable-rate mortgage that starts at 2.75% and a 10-year fixed-rate mortgage at 4%. On a $250,000 mortgage in Canada amortized for 25 years, the monthly payments are $1151 and $1315, respectively. I think of the extra $164 per month (about $20,000 over 10 years) as a premium for insurance against rising interest rates. It’s tempting to try to guess which mortgage will be cheaper. After all, if interest rates rise to the point where your avera...

Tom Bradley at Steadyhand makes his case for why it’s possible to win at stock picking. What makes his argument unusual is that he acknowledges the obvious mathematical fact that stock-picking winners must take money away from stock-picking losers. Too many advocates of active investing pretend that we can all somehow be above average. Bradley explains why he thinks he can beat the index without resorting to magical thinking. Big Cajun Man shows an important difference between how you progress toward debt reduction and weight reduction goals. I found this to be a very interesting insight. Canadian Couch Potato says that teaching your children important lessons about investing shouldn’t begin with stock-picking. Preet Banerjee says it’s time to plan your Christmas spending now, but he doesn’t mean to start buying gifts now. Congratulations to Tim Stobbs at Canadian Dream: Free at 45 who is now mortgage-free at age 34. Not to be competitive, but I paid off my mortgage a...

Andrew Hallam wrote a piece in the Globe and Mail that likened enhancing performance in sports by blood doping to an investing method due to Michael Edelson called “value averaging” . Value averaging is simple enough to understand, and if you use the wrong method of evaluating its results, it seems to boost returns. However, the reality is that it doesn’t boost returns, and it drives up your investing costs. The idea of value averaging is to keep your portfolio increasing at some target rate, regardless of what happens in the market. For example, if you target a 0.5% return each month, if the market goes up more than 0.5%, you sell some of your portfolio; otherwise, you add more cash to buy more assets. No matter what happens in the market, your portfolio rises steadily. An immediate problem arises: where do I get this cash to pour into my investments when the market drops? The answer is that you’re supposed to keep a side pot of cash that you either put money into or take mon...

Dividend investors and indexers often disagree strongly on the relative merits of their investing strategies. Recently, the Dividend Growth Investor argued that homemade dividends produced by selling some stock are not as good as real dividends . However, we can easily show that the core of the disagreement comes down to whether or not dividend stocks have an expectation of higher total returns. For the purposes of this discussion, let’s compare an indexed portfolio of stocks that pay a 2% dividend to a dividend stock portfolio that pays an average of 4% dividends, both in tax-advantaged accounts. For the investor who wishes to live on 4% of his portfolio each year, his choices are to go with the indexed portfolio and sell 2% 1 of his shares each year, or go with the dividend portfolio and live off the 4% dividend. Dividend Growth Investor argues that “when someone sells a portion of their portfolio, they end up with less [sic] shares.” However, if the two portfolios get the s...

Depth Dynamics has an interesting story of a pitch to financial advisors to get them to promote leveraged investing. They also tell the story of a couple in their 70s who lost money after being talked into using leverage. Thanks to Ken Kivenko for pointing me to this one. Rob Carrick says that students handle credit cards better than many people think. I wonder, though, whether the various statistics Carrick quotes include the effect of parental help. Some students’ parents pay their credit card bills for them every month. And some parents pay off credit card bills for students who get themselves into debt trouble. This doesn’t always happen, but it happens often enough to skew the statistics to make it look like students handle credit cards better than they really do. You can be sure that banks know that parents are often willing to bail out students with debt problems. This makes students good candidates for credit cards (in the banks’ eyes). Mr. Money Mustache makes a...

The latest Carrick on Money post declared “my brain is a lame investor” and pointed to a well-written summary of 7 way your brain is making you lose money . Fortunately for me, I feel like I have two brains and only one of them is a lousy investor. I have one brain that tends to be emotional and makes snap decisions. It’s quite good at deciding whether to zig or zag in a touch football game and helps me pick up tells on opposing poker players. Unfortunately, it stinks at investing. My other brain – the rational one that tries to think everything through and makes deliberate decisions – has turned out to be the better investor. My years as a stock-picker began during the late 1990s tech boom. Along with almost everyone else, I was overconfident and took wild chances. I did use my rational brain to pore over company reports and accounting statements looking for useful information. However, when it came time to make a trade, it took my emotional brain to ignore the fact that t...

In Ontario, the Municipal Property Assessment Corporation (MPAC) administers the property assessments used to determine property taxes. I just discovered that MPAC’s estimated area of my property is way off. However, the official Request for Reconsideration process is onerous enough that I probably won’t bother to appeal. My fun began when my latest property assessment arrived in the mail recently. The form contains an “access key” which allows me to look up the data MPAC has about my property at their About My Property web site. This seems quite civilized. It was after poking around on this site for a while that I discovered that MPAC thinks my property is about 24% larger than it really is. My best guess is that this has cost me about $1500 in extra property taxes over the years. The problem is that my property is not rectangular. The way MPAC estimates the width is sensible, but the estimate of depth is way high. In a burst of optimism, I started poking around for t...

What’s a factor of 100 trillion between friends? A woman in France received a phone bill that had an extra 14 zeros added to it ! Larry Swedroe examines the claim that index investing increases correlations between stocks making “it harder for active managers to harvest the winners” and argues that it isn’t true. Even if it were true, why would I abandon indexing to lose money picking my own stocks just so some professional money manager can have a better chance to pick winners? SquawkFox has some thoughts on how to get around the upcoming Globe and Mail paywall. The Blunt Bean Counter put together a collection of punitive income tax provisions. Don’t get caught by any of these. Rob Carrick says that “Asking a senior to co-sign or guarantee a loan is a form of elder abuse.” Preet Banerjee says “I’ve always thought that if you really knew what you needed to know to pick the right financial adviser, you probably wouldn’t need one.” He goes on to explain what we need t...

Do you think a financial advisor would rather take on and keep a client who already has a lot of money or a client with little savings? The answer is obvious, but this fact was missed by University of Montreal researchers who conducted the Cirano study of the value of financial advisors . The researchers collected survey data from 3610 working-age Canadian households. They asked many questions related to income, savings, and financial advisors. Among their conclusions was the following: “Controlling for multiple factors ... Those with 15 years or more [with a financial advisor] will have 173% more assets than if they did not have a financial advisor.” The study’s authors offer the following thoughts on this conclusion: “This amount is too large to be explained simply by better stock picking. One highly plausible explanation of this finding comes from the greater savings that is associated with having a financial advisor and other appropriate advice.” Despite the fact that t...

In the late 1990s, it seemed like everyone was a stock market expert. This was fueled by the fact that it didn’t matter much which tech stock you bought because almost all of them went up. Even mathematician John Allen Paulos got caught up in the hype with WorldCom stock. In his book, A Mathematician Plays the Stock Market , Paulos weaves a humble story of his investing folly along with many understandable mathematical lessons about investing. Like many “investors” at that time, Paulos abandoned good risk management and “invested heavily in WorldCom, as did family and friends at [his] suggestion.” He even “emailed Bernie Ebbers, then the CEO, in early February 2002 suggesting that the company was not effectively stating its case and quixotically offering to help by writing copy.” Of course, the world later found out that the real problem was “creative accounting” rather than poor marketing. On index investing, the author makes an interesting point that despite the fact that it...