Tom Bradley at Steadyhand is carefully planning to unleash his inner investing greed. With the current pessimism in the markets it may be a great time to make a bet on stocks, but I’ll stick to my regular rebalancing plans. Canadian Mortgage Trends analyzes recent changes to mortgage rules. The Blunt Bean Counter reports on the announced IRS tax amnesty for U.S. citizens living in Canada, but he makes it clear that there are still many unanswered questions. Big Cajun Man has an instructive tale of exercise bikes. One useful takeaway is that the enthusiasm for starting an exercise regimen should be channeled into exercising rather than buying expensive clothing or equipment. Another is that so few pieces of exercise equipment in people’s homes get regular use that the used market for equipment heavily favours buyers. My Own Advisor updates his progress on his personal finance goals. His quantitative approach is a good model for others. Some people feel good about hittin...

Suppose that you’re wandering through a casino with a friend who suddenly takes $2000 (all his vacation cash), and plops it down on red at a roulette game. Fortunately, he happens to win, doubling his money! Which of the following best describes your opinion of his actions: 1. Because he won, he did the right thing. 2. He made a foolish move because the odds of winning were less than 50%. Reaction number 1 is called ex-post reasoning. This means judging actions by how they work out. Reaction number 2 is called ex-ante reasoning. This means judging actions by the information that was available at the time the choice was made. I tend to fall solidly into camp number 2, but many people tend to use ex-post reasoning. For example, a basketball player whose coach tells him not to shoot a 3-pointer, but shoots one anyway and makes it might expect praise from the coach. But if the coach leans toward ex-ante reasoning, he or she may still bench the confused player. The differen...

Writing this blog has taught me a lot about personal finance and investing. This is one of a series of articles where I argue with my former self by disagreeing with one of my previous articles. Unlike politicians, I’m allowed to change my mind as I learn more from my readers and my own research. In a post about human capital , which is the present value of your future earnings, I said “Human capital is definitely a worthwhile concept in personal financial decisions.” Back then my only real criticism was that human capital should take into account the cost of your basic needs for food, clothing, and shelter. With this caveat, I believed that taking human capital into account when making financial decisions was sensible. I’m much less positive about this idea now. I think that for most people, there is great uncertainty in the total of future income. It’s easy to look back at your life and decide that your career was inevitable, but I doubt you thought this when you were young...

Rob Carrick says that the age of free banking for seniors may be ending. It’s possible for people of any age to pay minimal fees by cleverly combining online banking with traditional banks. Canadian Couch Potato says that for passive investors, there is no such thing as over-diversification within an asset class. Big Cajun Man tries to get a handle on the crazy pricing of anti-virus software. My Own Advisor finds that with the ever-expanding list of available ETFs, the ETF world is looking more and more like the mutual fund world. The Blunt Bean Counter explains the pros and cons of holding shares of a new corporation directly, through a family trust, or a holding company. Retire Happy Blog describes some of the common investing behaviours that hamper our returns.

In case you’re having trouble deciding whether to support the Conservatives, Liberals, or the NDP, here is a very short financial quiz to help you. Just pick the answer that feels right to you. 1. Unemployment is a) criminal b) not your fault c) a lifestyle choice 2. Government spending is a) wasted on the poor b) always too low c) unlimited 3. Corporate taxes should be a) negative b) higher c) unnecessary after all nationalization is complete If readers have ideas for other questions whose answers mock all three political parties, I’d be happy to read them in the comments section.

For a math guy like me, Moshe Milevsky’s The 7 Most Important Equations for Your Retirement was a must-read. Milevsky devotes a chapter to each of the equations most important to retirement planning and does his best to explain the equation to non-specialists as well as tell the interesting history of the people behind the development of these equations. This book is ideal for readers interested in what lies behind retirement planning software. The equations Milevsky includes answer questions like how long will my money last, how long will I live in retirement, what is a pension annuity worth, and is my current plan sustainable? There are no precise answers to these questions, but the equations take into account this uncertainty. For very mathematical readers, the book tends to gloss over fine details. For example, the first equation that computes how long a pot of money will last with a fixed interest rate and fixed withdrawals is a continuous approximation whose interest rat...

Freakonomics summarizes some experimental results showing that people are willing to pay for future predictions even when it is obvious that the predictions are useless. Canadian Financial DIY tears a strip off Labour-Sponsored Investment Funds. Million Dollar Journey did an interesting comparison of the costs of top universities in the U.S. and Canada. Big Cajun Man sits at his daughter’s graduation ceremony and reflects on how much money her degree cost him. Retire Happy Blog explains what you’re giving up if you have no will. My Own Advisor is planning for low interest rates for more than another year. I’m sure that I don’t know where interest rates are going, but Mark’s plan to avoid adding new debt sounds pretty safe even if rates rise. Rob Carrick commiserates with one of his readers who is unhappy about the difficulty of making a positive real (above inflation) return safely.

Some of the spots at a $1 million buy-in poker tournament called the Big One were won by players playing and winning satellite events. These players are then faced with a difficult choice: play the Big One for a shot at many millions, or sell the spot for as much as they can get. The dollar amounts are definitely life-changing, and it can be difficult to make a rational choice. How much is a spot in this tournament worth? If there are 45 players, the payouts for this tournament go to the top 9 players: $17,200,002.15 $9,480,001.19 $4,080,000.51 $2,480,000.31 $1,720,000.22 $1,520,000.19 $1,320,000.17 $1,160,000.15 $1,040,000.13 The bottom 36 players get nothing which makes the average payout $888,889 (the rest of the buy-in, $111,111, goes to the charity One Drop). So, one answer to the question is that a spot in the tournament is worth $888,889. But this ignores two important factors: 1. Not all players have equal skill. 2. Looking at the arithmetic average payo...

For couples with the happy problem of having used up all their RRSP and TFSA room, excess savings in taxable accounts generate income that gets taxed. Usually, it’s better if the lower-earning spouse with a lower marginal tax rate declares this investment income, but attribution rules get in the way. Here we look at a way to build assets in the name of the lower-earning spouse. Let’s use an example to avoid using the awkward term “lower-earning spouse” any further. Jim has a soul-destroying corporate position paying $200,000 per year. His wife Sandy makes $35,000 per year selling flowers in a small shop. They have used all their RRSP and TFSA room. They have additional savings that build up in a taxable account. If Jim and Sandy do nothing special, the taxable account would likely be full of money from Jim’s income and Jim has to declare the returns generated by this account on his taxes (even if the account is in Sandy’s name). If Sandy could declare this income, the couple...

Robert Laura is convinced that “buy and hold” doesn’t work, which is news to me. I do a lot of reading and make a point of seeking out different points of view. After all, how can you learn something new if you only listen to people who agree with you? As proof that buy and hold doesn’t work, Mr. Laura observes that “going back to 1990 when the Dow traded around 2,750, you'll find is that the Dow reverts back to within 1% of it's [sic] opening value at least once.” That’s a shocking piece of news: stock markets go up and down. The last time I checked, stock markets had volatility before 1990 as well. “No one can pick a perfect top or bottom but that doesn't mean you shouldn't take gains and cut losses on a regular basis.” That sounds smart, but what does it really mean? How do you know when is the right time to take gains or cut losses? All evidence says that when the typical investor tries to time the market, he or she makes less money than a buy-and-hold in...

Canadian Mortgage Trends gave an update on the latest OSFI guidelines for HELOCs. It looks like they’re backing down from the idea of making borrowers re-qualify when they renew with the same lender. Preet Banerjee says that whether you’re a DIY investor or have an advisor, you need to educate yourself about investing, either to do it yourself or to choose a good advisor. The Blunt Bean Counter explains the business and income tax issues in selling a corporation. Big Cajun Man’s list of sure-fire father’s day gifts seems suspiciously like they are aimed at his own children.

A reader, A.N., is in the throes of working out his family’s financial plan and is seeking comments. Here is a lightly edited version of A.N.’s thoughts along with my comments. I need to have a liquid reserve to support my family for 6 months; money market, savings account, short term real return bonds; with time I’ll keep increasing the amount through regular contributions of 10% of income. It’s smart to have an emergency fund. The exact amount for the fund depends on how likely you are to lose your job and how long it would take to get a new job. I would say that 6 months of living expenses is toward the high end but may be quite sensible for your situation. A money market fund or a savings account makes sense. I’m not sure that real-return bonds have enough choices of maturities to allow you to limit yourself to just short-term bonds. Keep in mind that this fund is intended to deal with unexpected events and should not be invested in anything volatile. RRSPs make sense, b...

The dividend tax credit (DTC) has been doing a progressively worse job of compensating for the dividend gross-up in recent years. This has given rise to “phantom income” for dividend investors. The first time I filed my taxes in a year where I received a dividend in a taxable account, I was surprised to find that I had to declare more income than I actually received. This is called the dividend “gross-up”. Fortunately, I also got a deduction from the taxes I owed, called the dividend tax credit (DTC). The idea behind this tax treatment is to coordinate the taxes you pay and the taxes the company distributing the dividends pays. Initially, the company earns some profits, but must pay taxes on these profits. Then the company can pay dividends out of the lower after-tax profit amount. Tax laws for individuals are designed to give you credit for the taxes the company paid. The idea is that you declare the larger amount (which is more than you actually received in dividends) as i...

A recent request to advertise on this blog came from a company I won’t name, but their web site’s home page contains a prominent risk warning about their leveraged spread products. Part of the warning says “losses can quickly exceed your initial deposit” and “not suitable for all customers.” This should scare people away, but I wonder if it draws some people in. Repeated warnings of adult content in television shows seem to be more a form of bragging than warning. I’m sure there are parents who use these warnings to find tame content for their children, but more often these warnings draw viewers in. On a certain level the risk warning on the web site was saying that the investment products are only for sophisticated investors who know what they are doing. That can be like telling a teenager not to try smoking if he’s chicken. I’m willing to bet that most of this company’s clients are men.

The title of Rob Carrick’s latest book, How Not to Move Back in with Your Parents , makes it very clear that he is aiming at young adult readers. He delivers sound and understandable financial advice about school, debt, banks, investing, cars, homes, weddings, and insurance without being preachy. I suspect that many people a little older than his target market would benefit from reading this book as well. One of the main strengths of this book is Carrick’s ability to give practical advice to people in a range of different circumstances. He acknowledges that contributing to RRSPs, TFSAs, and RESPs is a difficult to achieve ideal and explains how to choose just one if you must. And failing that, at least don’t run up your credit cards. Another of this book’s strengths is the focus on the important issues rather than details. Before launching into the ins and outs of car ownership, Carrick offers some very sensible advice on buying a car: “put it off for as long as possible.” On...

Retire Happy Blog takes a look at the difficulty of replacing consumer items under an extended warranty. I found it interesting to read that only a little over 10% of warranty premiums gets paid out in claims. Million Dollar Journey’s net worth edges closer to the million mark, but still no word on what will happen to the blog when he gets there. :-) Big Cajun Man wrote a parent’s lament about youth unemployment. My Own Advisor gives “square-foot gardening” a try.