I wrote one post this Christmas week laying out my somewhat fuzzy financial goals: My 2015 Financial Goals Here are some short takes and some weekend reading: Canadian money manager AGF Investments Inc. is sticking with U.S. fund manager F-Squared Investments even after F-Squared settled with the SEC for $35 million for false performance advertising. “According to the SEC, F-Squared falsely advertised a successful seven-year track record for the AlphaSector strategy which it claimed was based on real investments held for real clients. In fact, the data used in F-Squared's advertising was derived from backtesting. Furthermore, the hypothetical data contained a substantial calculation error that inflated the results of the backtesting, the SEC said.” Based on this standard, I’m proud to announce that my new strategy of owning Apple stock since April 2003 has given my hypothetical investors a stunning 60-fold increase on their money. Big Cajun Man reports inflation figures ...

I haven’t listed my personal financial goals before mainly because the more interesting ones tend to be fuzzy. But I’ll take a stab at it here. 1. Zero debt I have no debt right now and I’d like to keep it that way. There can be good reasons to take on debt, but they don’t apply to me at my current stage of life. 2. Keep our 2015 total family spending to the same level as 2014 We don’t really use a budget, but we do look back at how much we’ve spent on everything. We add a monthly charge for very infrequent costs such as a new car, new roof, new windows, new furnace, and new flooring. This charge applies every year whether we buy any of these items or not. With these costs charged every month, I don’t count the cost of a new car in the year we buy it (unless we pay more than planned for the car or we buy new cars more frequently than planned). The same applies to the other infrequently-purchased items. 3. Max out my RRSP I have no RRSP room left now, and I intend to u...

Here are my posts for this week: Money Rules Seeking a Reason to Own Bonds for the Long Run Wealthing Like Rabbits Here are some short takes and some weekend reading: The story about some teenager making $72 million day-trading is now confirmed to have been made up . It would be interesting to know how many people believed this story when they first read it. I didn’t. I know it’s easy to use 20/20 hindsight to convince yourself you knew it all along, but I made a point of saying I didn’t believe this story when it first hit. Balancing the likelihood of a publication making such a big fact-checking mistake against the likelihood of some teenager crushing the markets in such an extreme way, I went with the publication screwing up as much more likely. Michael Lewis has some entertaining ideas for reforming Wall Street. Canadian Couch Potato explains that the real value of limit orders is protection from wild markets rather than price haggling. He also did a good job o...

Few people believe they’re digging themselves a financial hole and making their lives worse while they’re in the middle of doing just that. Robert R. Brown’s book Wealthing Like Rabbits uses an engaging story-telling style to persuade readers to avoid the most common ways that they can set back their personal finances. The main areas Brown covers are homes, credit cards, lines of credit, vehicles, weddings, home renovations, vacations, and Christmas. The approach he takes is to paint a picture of two families in similar circumstances except that one made more expensive choices. An extended analogy between credit cards and smoking was particularly amusing. In the end, the more modest family’s disadvantages are minor but their advantages in greater freedom to make life choices are huge. This style is persuasive. Brown manages to slip in the usual information about RRSPs, TFSAs, etc., but this is all just secondary to the stories designed to persuade readers that a modest home a...

We tend to look at investment returns one year at a time. Most investment models treat each year’s returns as independent of previous years. But this isn’t actually true. A decade of returns in the real world doesn’t look the same as 10 independent single years strung together. Here I look at 10- and 20-year returns of different stock/bond mixes based on historical data. As usual, it is easiest to get U.S. returns data. I found S&P 500 returns and 10-year Treasury bond returns from 1928 to 2013 at NYU Stern . I got historical CPI figures from Robert Shiller . This gave me 86 years of U.S. stock and bond real (inflation-adjusted) returns. From these returns I created 5 portfolios with different stock/bond mixes: 0/100, 25/75, 50/50, 75/25, and 100/0. With the mixed portfolios, I rebalanced to the target percentages once per year. Then I calculated rolling 10- and 20-year returns. For each period, I calculated the compounded average annual real return. Everything I’ve...

In her book, Money Rules , Gail Vaz-Oxlade shows her very effective and unique style for helping people get out of debt and handle their money properly. We all know we should spend less than we make, but Vaz-Oxlade uses her keen insights into people’s thinking and habits to offer helpful strategies. This book is useful for those who need help with money and those looking to help others with their finances. I’ve already reviewed parts of the book related to life insurance and investing . These parts weren’t as good as the rest of the book that I review here. Amusing Quotes Vaz-Oxlade goes back and forth between tough love and gentle understanding in a way that makes a compelling read. Here are a few amusing quotes: “If you are under the impression that the folks you deal with at the bank are there to ‘help’ you, you’re a sap.” “The credit scoring system is a racket designed by lenders for self-serving purposes.” “Overdraft protection should really be called ‘Too Lazy to...

Here are my posts for this week: Which Group RRSP Costs are Worth Paying? Life Insurance: Permanent vs. Term Money Rules for Investing Here are some short takes and some weekend reading: Barry Ritholtz says the “All-weather portfolio” from Anthony Robbins is based on the peculiarities of investment returns over the last few decades. Ritholtz believes his portfolio would be better over the next 20 years and offers Robbins a $100,000 bet based on whose portfolio gets higher returns. I have to agree with Ritholtz. The all-weather portfolio is very heavy in bonds, gold, and other commodities. It’s a very backward looking portfolio. Ralph Nader explains why he doesn’t have a credit card. This thoughtful piece takes a 1000-foot view and puts the problems with credit cards into perspective. Canadian Couch Potato explains why three funds following the MSCI EAFE index show very different returns. Justin Bender says that the benefits of Dividend Re-Investment Plans (DRIP...

Gail Vaz-Oxlade’s book Money Rules covers so many financial topics that I decided to start by reviewing just the parts related to investing here. The bulk of the book offers excellent advice to those who need help controlling their spending, but the advice about investing is weak. MERs The most puzzling section is a tirade against those who seek lower Management Expense Ratios (MERs). She correctly observes that MER is just “financeeze for ‘fee,’” and goes on to say “Why the hell we have to use three words instead of one and then shorten those three words to an acronym is beyond me.” Mutual funds aren’t exactly known for clearly explaining their fees. MER has a precise definition about what costs are included and how it is disclosed. Without these rules, mutual funds could just classify all sorts of costs with names other than “fees” and then claim that their “fees” are very low. At least the few investors who’ve heard of MERs have a chance of understanding what fees they ...

The internet is littered with debates over the merits of permanent life insurance and term life insurance. They both pay your beneficiary if you die. The main differences are that permanent life insurance costs more but has an investment component. Most debates are full of words, but the real answer to which is better is in the numbers. I looked at some numbers in an example from Gail Vaz-Oxlade and found her analysis to be seriously flawed. Brief description of term and permanent life insurance Term life insurance is fairly simple. You pay a monthly or yearly premium for 10 or 20 years, and if you die, your beneficiary gets the coverage amount. The size of the premium is based on the amount of coverage and how likely you are to die during the 10- or 20-year term. The younger and healthier you are, the less you pay. If you don’t die during the term, you have nothing to show for your premium payments. But, the premiums are lower than they are for permanent insurance. Perman...

Many companies offer their employees a group RRSP rather than a defined-benefit pension plan. The main attraction of a group RRSP is that the employer often matches employee contributions with an additional 50 cents to a dollar on each employee dollar. Such plans have embedded costs as well. Here I look at my own plan’s costs to examine which are providing value and which are not. There are actually more parties involved in our group RRSP than I initially guessed: Employees : Those who save money and invest it in their personal accounts within the group RRSP. Employer : Main functions are to hire a benefit services expert and match employee contributions (with an extra 50 cents on the dollar in my case). Benefit Services Expert : Hired by the employer to help choose a group RRSP provider and set up the plan to suit the employer’s needs. Also performs ongoing negotiations with the group RRSP provider to make changes such as lowering fees or changing the available investments...

Here are my posts for this week: Book Giveaway Winners: The Value of Simple Dead Cat Bounce High-Frequency Trading Simplified Here are some short takes and some weekend reading: Jason Zweig puts the brutal 2014 performance of active fund managers into perspective. The Blunt Bean Counter describes ways of avoiding OAS clawback ranging from simple income-splitting to complex strategies involving holding companies and trusts. Big Cajun Man has some suggestions for ways to put pay raises to good use. Some friends of mine get regular pay raises, but others haven’t seen a raise in years. My Own Advisor reviews and gives away copies of John Robertson’s new financial book The Value of Simple .

Imagine you’re in a grocery store looking at apples. You like the look of them, note the price, and decide to grab 5 apples. But something strange happens. Right after you pick up the first apple, the price goes up. You get the first apple for the original price but have to pay more for the other 4. This is an analogy for the complaints against High-Frequency Traders (HFTs). In stock market trading there has always been an advantage for those who can react fastest to new information. It may seem that the criticisms of HFTs by Michael Lewis and others is just the usual moaning by losers about their inability to compete with winners. But there is more to it than this. Let’s get back to the grocery store and the apples. Remembering your first experience with the price of apples rising while you picked them up, you decide to just watch the price. You stand there for a long time and the price doesn’t move. The next day you watch the price of apples for a long time and again i...

Back near the end of the high-tech boom, Gail Vaz-Oxlade wrote an investing book called Dead Cat Bounce . Following Gail’s advice in this book would certainly have helped many of the people I worked with who made terrible investing decisions, but not by much. This book is a product of its time when everyone and his dog thought they were stock-picking geniuses. After completing the bulk of this book review I realized that it is mostly critical, and this makes me uneasy because I’m a fan of Gail’s. I handle money well myself, but she has taught me a great deal about how to help friends and family who don’t handle money well. That said, I still think I need to warn people about many parts of this book. The main focus of this book is on stock picking. To her credit, Vaz-Oxlade recommends studying a company’s financials prior to buying its stock. Back during the tech boom I remember hearing things like “Do your own DD [due diligence], but Pets.com is going to the moon.” For most ...

After a draw that gave all entries an equal chance, the winners of copies of John Robertson’s new investing book The Value of Simple are TW (paper copy) Del (ebook) I have contacted both winners. Thanks to everyone who entered the draw! I appreciated that many of you took the time to add a note explaining what you like about my blog. It seems that the Friday “Short Takes” articles are more popular than I realized.

Don’t forget to enter the draw for a copy of John Robertson’s new book The Value of Simple . Here are my posts for this week: The Point of Diversification Book Giveaway: The Value of Simple Future Shop Looks Out for Its Customers Here are some short takes and some weekend reading: Tony Robbins does a great job explaining the 9 most common investing myths. The first few are particularly well-written. These are some things I wish I had known in my youth. Rob Carrick has published his 16th annual ranking of online brokers. I’m glad to see that my choice of BMO InvestorLine is still high in the rankings. The Blunt Bean Counter gives some detailed instructions on how to properly do some tax-loss selling. He also discusses flow-through shares. This interests me because I’m having a good year financially, and looking at the total tax listed on my pay stub is painful. However, I’m not sure if it is too late for the 2014 tax year, and I’m not sure if I want more risk an...

I don’t shop much. I like to say that there is only one shopping day left until Christmas because I’ll only shop one day. But my wife and I wandered into Future Shop recently, and I'm pleased to say that they saved me from an impulse purchase. As we entered, a young employee was hurrying by, but he took the time to pause and say “Hi guys! Welcome.” Despite the fact that I still find it sounds strange to hear a woman included among “guys,” the friendly gesture improved my already good mood. I then made an impulse decision to buy a piece of electronics whose price is about $100. Stepping quickly to find a cash, I found none had any cashiers. No problem, though, because there were a couple of desks on the other side with employees behind them. The first desk was the “customer service desk” where one customer with multiple receipts laid out was waiting for an employee seated on a chair facing the other way. The prospects didn’t look good. The second had a young guy tappin...

Many good investing books advocate simple, index-based investing strategies. No doubt some readers are lulled into thinking that these strategies are just too simple. However, real-world complications find their way into even the simplest of strategies. John Robertson makes a strong case for investing simplicity in his new book, The Value of Simple . (The giveaway for this book is now over.) The main thing that separates this book from other investing books is that Robertson goes into detail for how to invest using each of three different financial institutions and types of funds: Tangerine funds, e-Series funds at TD Direct Investing, and Exchange-Traded Funds (ETFs) through Questrade. He judges these to be good trade-offs between cost and simplicity. He goes through the important practical steps of using each type of account using a few screen-shots. Most investing books back away from the details Robertson takes on. This is mainly because these details are untidy and make ...

The most common explanation of the value of diversification is avoiding big losses. Investing everything you owned in Nortel stock before the bankruptcy would have been a disaster. However, there is another side to the value of diversification. Josh Brown reported that many are blaming active fund managers’ failure to keep up with markets in 2014 on Apple’s success . Apparently, many fund managers owned proportionally less Apple stock than its percentage in the index. This failure to own high-flying shares is the other side of the benefits of diversification. In any given year, there are relatively few stocks that give huge gains. If you only own a few stocks and choose them essentially randomly, there is a good chance you’ll miss all the big winners. The advantage of an index is that it always gets its share of all stocks, including winners and losers. Keep in mind that a “winner” is a stock that performs better than the index, and a “loser” earns less than the index. The...

Here are my posts for this week: Evaluating Reasons to Avoid Index Funds Dividends vs. Capital Gains in Retirement Core and Explore Here are some short takes and some weekend reading: John Oliver (video) has a very funny and hard-hitting take on lotteries and the supposed good things they fund. NBC News reports that more than $10 billion of losses from Bernie Madoff’s Ponzi scheme have been recovered to be given back to victims who will get back nearly 60 cents of each invested dollar. This is somewhat misleading, though. Victims will get back a percentage of what they put in, not including returns. So, a long-time investor whose investments had tripled on paper would only be getting 20% of the amount on his phony statements. But this is certainly better than nothing. Jason Zweig reports on a study that found that individual forex traders lose an average of 3% per week . Remember this the next time you see a come-on for entering the supposedly profitable world of ...

The idea of “core and explore” investing is that you commit the bulk of your portfolio to a sensible “core” strategy, and use a small percentage to “explore” some of your own stock picks. Much has been written about the merits of this investing approach, but my thinking differs from what I’ve read before. As a starting point, it’s important to admit that for the vast majority of investors, the explore part of the portfolio will underperform a core index strategy over the long term. I won’t defend this assertion here, but if you reject it, then you won’t agree with much else I say. However, it’s not automatically true that core and explore is a bad idea just because the explore part of the portfolio is likely to underperform. One possible benefit of core and explore is that it allows an investor to scratch the itch to make stock picks with a small amount of money in the explore pot instead of making much bigger bets with the entire portfolio. In effect, allowing some exploring m...

Trying to maximize your after-tax retirement income is a complicated business. Cheerleaders for dividend investing are convinced that the dividend tax credit makes it a no-brainer that a dividend strategy is best to minimize taxes. However, as we’ll see, there are good strategies that use the 50% capital gains exemption as well. Let’s look at two investors in the same situation but using different investment strategies. Dean, the dividend investor, and Carla, the capital gain investor, are both 58 years old, single, and living in Ontario. (No, there will be no romance in this story.) They both have a $500,000 RRSP and $1,232,000 in a non-registered account. (I’ll explain this cooked-up number.) Dean owns dividend stocks that we’ll assume earn a 2% capital gain and 4% dividend each year. Dean’s dividend income is 4% of $1,232,000, or $49,280. This just happens to be the maximum he can earn and pay no taxes other than the $600 health premium. Carla earns the same total retu...