I wrote three posts this week: Hertz in the Currency Exchange Business Dan Solin on Investing Return Expectations Here are my picks for some weekend reading along with some of my short takes: Tom Bradley at Steadyhand sees too many investors with a misguided sense of loyalty to their financial advisors. I suspect this is partially a case of investors not really understanding how much they pay their advisors. Many of us would buy an unwanted $5 box of Girl Guide cookies from a niece to avoid the awkwardness of saying no, but few of us would pay thousands just to avoid a mildly unpleasant situation. But investors do pay thousands per year for their financial advice whether they realize it or not. The Blunt Bean Counter explains some of the problems you can run into when transferring property among family members. Canadian Couch Potato brings some clear thinking about timing your entry into the market. Money Smarts reviews the discount brokerage Qtrade. Big Cajun ...

Steadyhand recently released a report on the Five Essential Elements to Being a Better Investor . It’s an excellent report that focuses on mindset and qualitative factors. I highly recommend giving it a read. However, the part on return expectations irked my quantitative side. The report’s basic message about having realistic return expectations is sensible. You shouldn’t be too optimistic expecting 20% returns every year. You shouldn’t be too pessimistic either; you’re unlikely to actually lose money over a long period of time. Wild swings can happen in any one year, but average returns over a long period of time tend to settle down. However, the report includes the following figure: I had one of those moments where Daniel Kahneman would say that my System 1 kicked in and I knew that something wasn’t right even though I wasn’t sure what was wrong at first. The left side of this figure is some sort of equity price chart or portfolio size chart. Such charts give overal...

I had the pleasure of hearing Dan Solin speak recently about investing. He is the author of the Smartest series of books and is an outspoken critic of the investing industry. Solin’s main message is that if you pay attention to the science of investing, there is no conclusion to draw other than investors should invest in low-cost broadly-diversified indexes rather than chase the dream of beating the market. Almost everyone who tries to beat the market over a decade or more fails. Some small-time investors think that rich people have some sort of secret access to better investments, but Solin says that the only difference between rich people and poor people is that rich people have more money to lose if they trust their brokers. He says that the entire active investing industry is a “giant scam” and “there is a huge amount of money invested in keeping you ignorant.” The wealth management industry exists to “transfer your wealth to themselves.” On the subject of alternative i...

I’m used to being charged at least 2.5% extra by MasterCard when I buy something in a currency other than Canadian dollars. However, I recently had my first experience with a retailer doing the conversion for me at a higher price than MasterCard charges. I rented a car in Europe and the total cost for 4 days came to a hefty 425.70 Euros. According to the Bank of Canada, converting this to Canadian dollars at a fair rate on the day I paid would give C$560.31. Based on credit card charges on the same day, MasterCard would have charged me $575.90 or 2.8% more. This differs slightly from their advertised 2.5% fee possibly by random variation and possibly due to choosing a favourable rate during the day. However, MasterCard never got the chance to make an extra C$15.59 from me because Hertz did a conversion to Canadian dollars. They charged me C$586.37 or 4.7% more than a fair exchange. Hertz made an extra C$26.06 from me, which is C$10.47 more than MasterCard would have charged ...

Here are my posts for this week: Canadian Snowbird Guide Disagreement over investing in bonds Here are my short takes for some weekend reading: Freakonomics has an interesting list of old ads. If you don’t think societal attitudes about women (and other subjects) have changed much over the years, check out these ads. Mr. Money Mustache asks whether we need to fire the entire financial advice industry. In this interesting essay, he makes the case that “that most of our modern assumptions about money are bullshit,” particularly when it comes to necessary spending. Million Dollar Journey looks at how new mortgage rules for HELOCs affect investors interested in using the Smith Manoeuvre. The Blunt Bean Counter explains the importance of finding a compatible business partner. Big Cajun Man objected to being told by Rogers’ customer service that they didn’t want to talk to him. My Own Advisor explains his low-cost approach to a healthy lawn. My approach is a combin...

According to CNBC, Warren Buffet “said that bonds are a ‘terrible’ investment right now because they are ‘priced artificially’ high ... and could lose people a lot of money when inevitably interest rates start to rise.” Chartered Financial Analyst Steve Lowrie says he disagrees with Buffett, but I think the two are actually talking about different things. Buffett says he believes that interest rates are set to rise at some point and this will hurt bond prices. This is a statement about expected bond returns over the next few years. Buffett makes no claims about the volatility of bonds, just that their expected returns are poor. Lowrie objects that investors have a limited capacity for risk and cannot handle an all-stock portfolio. This is true of most investors. However, Lowrie is talking about the volatility of bonds (specifically that it is lower than the volatility of stocks); he is not talking about bonds’ expected returns as Buffett was. Consider investors who believe b...

Having spent some time in the southern U.S. during Canadian winters, I understand the appeal of being a snowbird who lives in Canada during the warm months and travels south for the cold months. I respect those who choose to embrace Canadian winters with outdoor activities, but many of us, particularly as we age, prefer to avoid winter. With this in mind, I read the fourth edition of Douglas Gray’s Canadian Snowbird Guide , revised in 2008. This book covers a wide range of topics including deciding whether you’re well-suited to snowbirding, home exchanges, financial planning, immigration, renting and buying real estate, insurance, taxes, estate planning, and permanent retirement outside Canada. Expecting to cover all these topics in full detail is far too ambitious for a single book. For my money, the main value of this book is that it made me aware of a number of issues that had never occurred to me before. For example, supplemental health insurance won’t do you much good in a...

Being busy on a business trip, I only wrote one post this week: Business Travel Personality Here are my short takes for some weekend reading: Tom Bradley at Steadyhand paints an accurate picture of the challenges involved in trying to get in and out of the market at the right times. The Blunt Bean Counter answers the interesting question, “Should You Discuss Your Salary with Friends, Co-Workers or Family?” Canadian Financial DIY reveals a simple test to see if you’re likely to manage your finances well into your retirement. Spoiler alert: it’s math-related. Big Cajun Man has an interesting theory on how to avoid having his barbecue run out of propane in the middle of cooking dinner.

In the middle of another business trip, I’m once again struck by how the expenses are so much different from what they are in my personal life. My personality begins to change too: “The marble in the lobby isn’t shiny enough.” I’m part-way though a trip with only 3 full days of meetings that will cost over $5000. Yet, I manage to play golf down south for 8 days for less than one-quarter of this amount. I’m not thrilled about the strange blue light in my current hotel bathroom, but I happily endure far worse during a vacation. I think this is more than just a case of having a different attitude when someone else is paying. I actually tried to keep the costs of this trip down, but now that the money is spent, I find myself demanding that my treatment reflect the costs. An amusing side note: there is a big sign at the entrance to to hotel stairway that reads “Stairway Trap”. A little googling revealed that “Trap” translates from Dutch more or less as “step”, but I found it funn...

Here are my posts for this week: Is a 15% Return High or Low? Choosing the Right Index for Comparison Real Estate Agent Contracts Here are my short takes on some weekend reading: Canadian Couch Potato asks whether investors surveyed by Franklin Templeton are as clueless as they seem. I agree that the majority who believe they can reach their financial goals without equities are mostly delusional. However, I wonder about the 52% who believe the market declined or stayed flat in 2012. It’s true that S&P/TSX Composite was up 7.2%, but perhaps these investors’ answers were influenced by expensive Canadian balanced funds in their portfolios. Many of these funds were close to flat for 2012. Larry MacDonald reports a bear’s take on Warren Buffett’s Berkshire Hathaway. Million Dollar Journey explains how to file your rental income taxes. Claiming all your expenses properly is a critical part of succeeding as a landlord. Big Cajun Man saved hundreds on his car insur...

Stingy Investor pointed to a set of slides from Fairfax Financial Holdings that began with the quote “We expect to compound our book value per share over the long term by 15% annually.” Averaging a 15% per year return on a stock sounds great right now, but not too long ago it would have seemed very low. Back in the late 1990s as tech stocks boomed, expectation for stock returns were well above 15% per year. These expectations turned out to be hopelessly unrealistic, but back then many investors wouldn’t have given Fairfax a second look if the company was only shooting for 15% per year. I find this a useful reminder of how the world and people’s expectations can change drastically. It’s hard to even imagine a world with double-digit interest rates, but they could easily come back again. It’s dangerous to make your plans expecting today’s conditions to persist indefinitely into the future. Every time I’m tempted to mortgage my house for half a million dollars and invest the pr...

Rob Carrick points to the RBC Canadian Dividend Fund as an example that “shows why we need to reform the way investors pay for funds and advice.” He makes a number of excellent points about the problem of hiding the cost of advice in mutual fund MERs in the form of trailing commissions. However, I take issue with his claim that because this fund has beaten the S&P/TSX composite index over the past 5 years it “has been such a consistently good money maker.” The Canadian S&P composite index is not the right index for judging the RBC Canadian Dividend Fund. A more appropriate index would be the Dow Jones Canada Select Dividend Index. The iShares ETF based on this index, XDV, beat the RBC Canadian Dividend Fund by 1.1% per year for the past 5 years, which is very close to the difference in their MERs. Another possible index for comparison is the S&P/TSX Canadian Dividend Aristocrats Index. The iShares ETF based on this index, CDZ, beat the RBC Canadian Dividend Fund ...

I’m no real estate expert, but I’ve noticed a pattern play out a few times, once when I sold my first house and a few other times watching friends and family members sell their houses. In these cases, the real estate agent did almost nothing until the listing was getting close to running out. There were no reasonable offers until shortly before the listing contract ended when the house suddenly sold. From a busy real estate agent’s point of view, this makes some sense. If you’ve got more houses listed than you can work on at one time, it makes sense to work hard on the listings you’re about to lose. If other listings happen to sell in the meantime, it’s a nice bonus. If this phenomenon is as widespread as my limited experience suggests, then homeowner’s need to develop countermeasures. Homeowners should prefer shorter contracts to longer ones. I’m used to 3-month contracts, but I’ve heard of 6-month contracts. Even 3 months is a long time to wait if the real estate agent isn...

Here are my posts for this week: When Should You Start Collecting CPP? Getting a Handle on the Cost of Cars Car Costs Spreadsheet It’s a bit of a thin week for my short takes on some weekend reading. But I did find some very good articles. John Heinzl explains the ‘tyranny’ of fees and how costs kill investment returns. My Own Advisor gives us the benefit of his research into the Smith Manoeuvre (tax-efficient borrowing against your house to invest). Big Cajun Man doesn’t think much of a U.S. effort to eliminate the collection of data used for economic indicators. I guess the idea is that as long as we don’t know how many people are unemployed we can all sleep well. Preet Banerjee says it can be okay to indulge yourself financially, but not when it comes to big-ticket items like cars and houses. Financial Crooks explains some quirks in the transaction history in Investorline online accounts.

Reader AnatoliN asked me to share the spreadsheet I used to work out the fixed and variable costs on my car . So, I cleaned it up, and with great fanfare, here is the car costs spreadsheet . Remember that garbage in leads to garbage out. Unless you have an accurate list of your car expenses, this spreadsheet cannot magically give accurate answers. In my experience, most people know they paid too much for their cars and have a hard time admitting the real costs to others and to themselves. If you want to protect your ego from the brutal truth of how ridiculously expensive cars are, I suggest using the advertised price of $23,999 that got you into the dealership showroom rather than the actual $33,000 you paid after various add-ons and taxes. You can also just estimate your gas costs instead of looking up your credit card bill to see that you actually pay much more. Leaving out the cost of new tires or brakes might help as well. OK, enough sarcasm. You get the point. If you ...