Short Takes: Defined Benefit Pensions as Bonds, How Parents Direct Inheritances, and more

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 parents willing to bail you out.

Canadian Dream Free at 45 makes the case that good financial habits are more important than far-away goals of huge retirement savings.

The Blunt Bean Counter takes a look at how Canadians use RRSPs and whether they raid them too soon. The answer seems to be that some leave RRSPs alone until retirement, some raid them too early, and some have well-laid out plans for using them prior to full retirement. This one generated quite a few comments.

Big Cajun Man has some fun creating some sayings in Mad Lib style. My favourite is “Hoarding is valuing the invaluable”.

Preet Banerjee wants your financial questions for The Bottom Line Panel on CBC’s The National.

 Young and Thrifty explains how to reduce your payroll taxes using a T1213 form.

Retire Happy Blog says there is value in simplifying your personal finances and suggests ways to do this.

Comments

  1. Big Cajun ManDecember 7, 2012 at 7:26 AM

    Thanks for the inclusion, the hoarding one has a special place (in the back of the basement under 10 years of newspapers I think). Have a great weekend.

    ReplyDelete
  2. My Own AdvisorDecember 8, 2012 at 9:33 AM

    Thanks for including the post Michael.

    Fair point, only if I stay with the DB plan for about 25-30 years (or as long as they will have me), then my equity risk makes sense based on my risk profile. If I include my DB as part of my portfolio, I should have a healthy fixed income component.

    Regardless, I still invest in XBB registered but not very much. Not a big fan of bond ETFs because of low yield-to-maturity even though they provide stability.

    On that note, have you written about why you don't invest in bonds yourself? Is that because BRK is somewhat bond-like? :)

    ReplyDelete
  3. Michael JamesDecember 8, 2012 at 9:49 AM

    @Mark: My suggestion would be to figure out roughly what your pension is worth right now if you quit your job and include that value (in bonds) into you portfolio.

    I don't invest in bonds because I'm content with the volatility (and expected return) of an all-stock portfolio. So, you might say it fits my risk profile. Another thing to consider is that I get a lot of job offers, and so I tend to think of my current employ-ability as having some bond-like qualities. This will likely change as I age, though.

    ReplyDelete

Post a Comment

Popular posts from this blog

Short Takes: InvestorLine’s HISAs, 24-Hour Trading, and more

I recently moved some cash into BMO InvestorLine’s high-interest savings accounts (HISAs) that are structured as mutual funds.  Their designations are BMT104, BMT109, and BMT114, and they purportedly pay 4.35% annual interest (which they can change whenever they like).  However, the way they report the monthly interest payments is so baffling that I wasn’t able to sort it out in my first 15 minutes of trying.  A further complication is the following text in the HISA description: “The Bank may pay, monthly or quarterly, compensation to your Dealer at an annual rate of up to 0.25% of the daily closing balance in the BMO HISA.”  I couldn’t find any evidence of such a charge, but I haven’t been invested for a full quarter, and I can’t yet say that such a charge isn’t buried somehow in the confusing reporting.  I have more digging to do before I can recommend these HISAs. Here are some short takes and some weekend reading: Preet Banerjee explains the dangers of Robi...
Read more

My Asset Allocation

I’ve resisted discussing my asset allocation for some time, but now is finally the time to describe it and the reasons behind it. I’m not holding it out as a model portfolio; I believe it’s suitable for me and not necessarily anyone else. With that warning, enjoy the discussion and feel free to ask questions or take some pot-shots. The main reason why I haven’t discussed my asset allocation in detail before now is that I don’t want readers to treat it like a model portfolio and follow it blindly. Everyone’s situation is different. The need for variation in asset allocation from one investor to the next usually isn’t huge, but there is no one-size-fits-all portfolio. A secondary reason for keeping my asset allocation to myself is that I can’t be sure I’ll never change it. For example, I recently made the minor change of switching from an ETF of small-cap stocks to an ETF of small-cap value stocks . I don’t have any plans to change my current allocation, but I may think differe...
Read more

Updated Currency Exchange Method at BMO InvestorLine

There is now a more recent update of the method I use for exchanging currency at BMO OnvestorLine . I recently changed the procedure I use to convert large sums between Canadian and U.S. dollars at BMO InvestorLine. The method I use saves a lot of money compared to using the InvestorLine foreign exchange system. The latest change I made eliminated an annoying interest charge that I had to ask to be reversed. Most people don’t realize how expensive it can be to exchange currency. The extra charge banks and brokerages add gets hidden in the exchange rate. To see this extra charge, start by taking a sum in Canadian dollars, say C$10,000, and finding out how many U.S. dollars you can get. Then see what this U.S. amount would get going back to Canadian dollars. Many people might guess they’d get their original C$10,000 back, but they’d be wrong. In a recent test I did at BMO InvestorLine, I’d get back C$9754, for a loss of C$246 in two currency exchanges. That’s $123 per excha...
Read more

Archive

Show more