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...