Stock indexes in Canada have risen so steadily for the past year that the part of my brain that is no good for investing is convinced that everything is different now and stock markets only go up. Let’s let that part of my brain think some more. Now that my stocks will beat inflation by 25% or so every year, I can throw the 4% rule out the window and go with a 20% rule. My current savings can produce way more than enough income to cover my lifestyle. So, I can declare myself financially independent and ramp up my spending by a factor of four or so. Believe it or not, many people really talked this way during the tech bubble of the late 1990s: “as long as I can make 15% or 20% a year on my stocks, I can retire soon …”. That’s a nice daydream, but my more rational side needs to take over. A stock market correction is coming. It may come soon or it may come after markets rise another 50%, but it is coming. The future holds many small corrections and the occasional larger one. ...

Here are my posts for this week: A Saver’s View of RRSP and TFSA Room Stuff Tax Here are some short takes and some weekend reading: Daniel Solin has some clear explanations of what drives people to make poor investing decisions. I can definitely see my younger self in many of the bad choices driven by psychology that he describes. Canadian Couch Potato takes a look at iShares’ core ETFs and gives an interesting explanation of why two seemingly very similar ETFs have different MERs. Million Dollar Journey lays out his plans to build a portfolio to fully cover his living expenses. I’m in this process as well. Big Cajun Man explains the difference between disability insurance and critical illness insurance. He doesn’t see why you would need both. My goal has been to build up enough savings that I don’t need either type of insurance because I’ve become self-insured.

No, I’m suggesting that the world should stuff taxes. I’m thinking about the many costs of owning great piles of stuff. We’ve heard of lotteries as a tax on those who can’t or won’t do math. Those who own too many possessions pay a stuff tax. I’m not focusing here on things you truly need and use, like a bed. I’m thinking of the things you own but don’t use at all or at least often enough to justify owning them. Some good examples of large items are under-used boats and camping trailers. In the medium size category is furniture we don’t need. Among smaller items are a thousand books that will never be read again and a hundred pairs of shoes. Here are some different types of stuff taxes: 1. Initial purchase price. The financial drag begins with buying an item in the first place. 2. A larger, more expensive home. If you have enough excess stuff, you need a bigger house to hold it all. 3. Higher house insurance premiums. If the replacement cost of your stuff exceeds th...

We hear many stories of people who seem completely unconcerned about building up great piles of debt. However, there are savers at the other end of the spectrum who handle money far differently. My own tendency toward saving shows up in how I feel about RRSP and TFSA room. Looming in just over 5 months (at the start of 2015) is more contribution room in my retirement accounts. This is a good thing. Contributions reduce my taxes over the long run. However, to me it doesn’t feel entirely good. It feels like a debt. It feels like I owe money to my retirement savings accounts. It should be satisfying to max out my contribution room, but what I usually feel is just relief that only lasts until the start of the next calendar year. It’s not that I gnaw my fingernails with worry. I’m generally happy, and there isn’t much that keeps me awake at night. But RRSP and TFSA room feels like an obligation. When I had mortgage debt, the feeling of obligation was much stronger, but the fee...

Here are my posts for this week: Does the Value Premium Exist? The Glass Ceiling Here are some short takes and some weekend reading: Preet Banerjee explains new disclosure rules for financial advisors that will come into force in 2016 including dollar amounts of fees. He predicts that Canadians will be “shocked” at how much their investment advice costs. I hope so. Tom Bradley at Steadyhand answers a list of questions about investment fees. Investors would do well to get their own advisors to answer this list of questions. Big Cajun Man reviews William Bernstein’s short but very good book If You Can . Million Dollar Journey says you should think twice before getting a mortgage with one of the big banks. My Own Advisor is a fan of staycations. I like to spend some vacation time around home in the summer, but once it gets cold, I like to travel somewhere warm.

“Glass ceiling” refers to the invisible barrier that holds women back from rising in management. I’ve read many opinions on this subject, some sensible and some less so. Recent remarks by Sherry Cooper, outgoing Bank of Montreal chief economist, paint a picture of a corporate environment that differs sharply with my own experience. Cooper ’ s remarks are from an article based on her CBC interview . Here is part of what she had to say: “No one ever considered I could be in training for a C-suite job in the bank.” “It’s not that I aspired to be a CEO. It’s just that I was never even considered in that role.” To me, these remarks paint a picture of many high-level bank employees working hard, doing their best for the bank, and waiting to get noticed. Maybe Cooper didn’t mean them this way, but I know many people who think corporate environments work this way. My experience has been much different. I’ve spent most of my career in high-tech reporting to high-level management. ...

Many investors take it as fact that small-cap stocks earn higher long-term returns than large-cap stocks, and that value stocks earn higher long-term returns than growth stocks. This belief originates with work by Fama and French on their 3-factor model of stock returns . The evidence that a small-cap premium exists is compelling, but not so for the value premium. Whether or not these premiums exist affects the choice of ETFs for an indexed portfolio. John Bogle discussed growth vs. value stocks in the final third of an excellent speech in 2001. In it he observes that the Fama and French conclusions are based on stock market data from 1963 to 1990. It turns out that the size and even the existence of a value premium is period dependent. Bogle extended the period of study to 1937-2000 and found the average annual compound returns to be 11.8% for growth stocks and 11.9% for value stocks, hardly a significant edge. You may ask what happened from 2001 to 2013. According to Stand...

Here is my only post for this week: Target-Benefit Pension Plans: Pros and Cons Here are some short takes and some weekend reading: Dan Hallett names monthly income funds that have unsustainable payouts. Many such funds have already cut their payouts. Some retirees want high monthly income so badly that they look past obvious signs that not only will their income not rise with inflation but will get cut even in nominal terms. Tom Bradley at Steadyhand compares bonds from Ontario and Italy. Unfortunately, Ontario doesn’t come out too well. Sandy Martin takes Advocis to task for implausible claims about what will happen if advisor compensation is banned. “You know what banning embedded commissions will do? It’ll end the illusion that advisors on the commission system are anything more than salespeople. ” Rob Carrick explains the necessary evil of repeatedly negotiating package costs for television, internet, home phone, and wireless. Canadian Couch Potato profiles ...

The C.D. Howe Institute issued a report on Target-Benefit Pension Plans that explains how they differ from traditional Defined-Benefit (DB) and Defined-Contribution (DC) plans. Target-benefit plans solve a number of the problems with DB and DC plans, but they have some serious challenges as well. Defined-Benefit (DB) pension plans push all of the risk onto employers who have to provide predictable benefits. Employers must shoulder the risk that investments may perform poorly, forcing them to make large contributions. One problem with some DB plans is that they use unrealistic assumptions about future returns to reduce today’s contributions. This can lead to chronic under-funding. Another problem with some DB plans is they use unrealistic actuarial information. Effectively, they assume people will die younger than they actually will. This leads more under-funding problems. Defined-Contribution (DC) pension plans push the risk from employers to employees. The employers know...

Here are my posts for this week: Norbert’s Gambit Catch at BMO InvestorLine The Pension Debate People seem to be writing less during the summer months, but here are a few short takes and some weekend reading: Andrew Coyne explains that the CPP switched from passive investing to active investing in 2007. Investment costs are approaching 1% of assets per year. This is disturbing. Whether CPP returns beat benchmarks or not, those who collect their share of the hundreds of millions in fees are strongly motivated to continue this active approach. Big Cajun Man has three financial rules of thumb to help keep you out of debt. The Blunt Bean Counter explains RRIFs.

I’ve read many articles on the debate over whether we need an improved pension system, and I’ve noticed some patterns. The two sides rarely address each other’s issues. Arguments for Change Supporters of change usually point to the alarming number of Canadians who save little and are headed to a dismal retirement where their standard of living will drop significantly. They rightly point out that the only remedy is forced savings. They call for an expansion of CPP or support Ontario’s plans to create a new pension system. Either option leads to higher payroll taxes as a form of forced savings. Status Quo Side Supporters of the status quo say that Canadians are doing just fine with their retirement savings. They say that the average level of retirement savings among Canadians is quite healthy. They observe that few retired Canadians live in poverty. They say that forced saving would just reduce voluntary saving. Who is right? These two arguments seem to contradict each...

My most recent currency exchange using the Norbert Gambit seemed to go off without a hitch. I bought Royal Bank shares in Canada with Canadian dollars and then sold Royal Bank shares in the U.S. to get U.S. dollars. Two weeks later, all looked fine. But I was eventually hit with an interest charge. Here is the sequence of events. I made the trades one day, and the trades settled three business days later. But it wasn’t until one business day (3 calendar days) after settling that InvestorLine’s systems wiped out the positive number of shares on the Canadian side of my account and the negative number of shares on the U.S. side. So far, so good. However, InvestorLine’s system decided that I was short the U.S. shares for the three calendar days it took to flatten the positive and negative numbers of shares. At 21% interest, shorting for three days produced a charge of over US$90. The worst part, though, is that interest charges don’t show up in my account until about the 21st ...