Here are my posts for this week: The Empowered Investor Changing RRIF Withdrawal Rates Here are some short takes and some weekend reading: Mr. Money Mustache tells an inspiring story of embracing challenges in living a frugal life instead of complaining and living an expensive lifestyle. Financial Crooks gives a detailed account of what to expect if you sign up for an Equifax Premier Account provided by Home Depot for their customers who made credit card purchases during the “hacking period.” Daniel Solin debunks 8 common investing myths. This is a rare list-type article that is truly worth reading. Million Dollar Journey has some advice for people making investment choices within their group RRSPs at work. The Blunt Bean Counter explains the complex rules surrounding whether you are eligible for the $800,000 capital gains exemption when you sell shares in your small business. Big Cajun Man reports that TD now has the capability for their credit card customers ...

In a recent report Rethinking RRIF Withdrawals , York University Professor Moshe Milevsky makes a strong case for reducing the forced RRIF withdrawal percentages. But what should individual retirees do in the face of a government that won’t reduce the size of these forced withdrawals? People are living longer and guaranteed returns after inflation are lower than they were years ago when the RRIF withdrawal percentages were set. By leaving the withdrawal percentages too high, the government is encouraging people to overspend in retirement and risk being left with too little to live on in their old age. Milevsky looked at the other side of this debate as well: “Of course, defenders of the status quo (and certainly those interested in maximizing tax revenue) might argue that [Required Minimum Distributions] are “red herrings” since retirees are not required to consume the withdrawn funds (but merely to withdraw them from the tax-protected shelter of the registered account).” It’s...

If you look back at your investing efforts to date and wonder where you went wrong, portfolio manager Keith Matthews’s book The Empowered Investor will explain it to you in such clear terms that you’ll wonder why you couldn’t figure it out on your own. I wish I’d read this book before I made my share of investing mistakes. Matthews begins with the common investing pitfalls that trip up so many of us, and then explains the conflicts of interest in financial services before moving onto describing the “empowered” way to invest that involves diversification and indexing. This may seem like familiar territory, but Matthews make his case convincingly in an easy-to-read style. The final sections of the book cover the approach to indexing used by Dimensional Fund Advisors. You can’t buy these funds directly but have to work through a financial advisor to invest in them. For those who wish to work with an advisor, this can be a cheaper option that usually gives you better advice than y...

I wrote one post this week taking another look at whether the value premium exists: Does the Value Premium Exist? Redux Here are some short takes and some weekend reading: Scott Ronalds at Steadyhand has declared September 19th to be National Portfolio Simplification Day. I come out quite well on his list of questions. “Do you own a long list of investments?” Nope – four ETFs and one stock. “Do you have a Strategic Asset Mix?” Yup – I’ve chosen fixed percentages for the ETFs and use threshold rebalancing when new contributions aren’t enough to keep percentages in line. I’m not adding to the shares in the one stock. “Take a close look at your costs.” My MERs, TERs, foreign withholding taxes, commissions, and spreads add up to less than 0.2% per year. Preet Banerjee says that the traditional gap between the prices of new and used cars has been narrowing. The games that car manufacturers play with interest rates and incentives can make comparisons difficult. The importa...

A couple of months ago I wrote about John Bogle’s doubts that stocks have a persistent value premium . I’ve since persuaded myself that Bogle defines value stocks differently from other researchers. It seems that a value premium has persisted for some time. I’m not certain that it will exist into the future in a form that can be captured in returns after costs, but I’ve decided to modify my portfolio on the premise that I might be able to capture a value premium. I had owned the Vanguard exchange-traded fund VB, which holds U.S. small cap stocks. Vanguard also offers two ETFs that split small cap stocks into value stocks (VBR) and growth stocks (VBK). I’ve sold my VB and bought VBR. This isn’t exactly a huge change in my portfolio, but it is the biggest change I’ve made in some time apart from adding new money. I was adding a block of new money and did a currency exchange using the Norbert Gambit . By making the change from VB to VBR at the same time, I saved a few transacti...

I wrote one post this week tackling a clever argument in favour of the current model of mutual funds paying embedded commissions to financial advisors: Embedded Commissions: Mutual Funds vs. Cars Here are some short takes and some weekend reading: Andrew Coyne explains that the cost of running the Canada Pension Plan has ballooned to over $2 billion per year. Much of the higher cost is going to bloated administration and external management fees. It seems that CPP is heading towards the same high-cost structure that most Canadian mutual funds use. Almost all mutual funds fail to recoup their costs in the form of higher returns, and there is little reason to believe CPP will be any different. Rick Ferri explained why Peter Lynch gave bad advice in his classic book One Up Wall Street . I really enjoyed this book many years ago, and it played a part in propelling me into life as a stock-picker. I’d be wealthier now if I had never read it. James Osborne is a CFP with an in...

A very clever argument used by those who want to maintain the current embedded commission model for financial advisors goes as follows: When you buy a car, you don’t demand to know the size of the salesperson’s commission. So, why would you demand to know the commission your financial advisor gets? Most other arguments the mutual fund industry uses are easily refuted (see Tom Bradley’s excellent article on this subject ). However, this car analogy rings true at first. I don’t worry about how much commission the car salesperson gets. It’s the total price of the car that matters to me. The problem here is that the analogy isn’t an exact fit. For example, almost everyone is aware that car salesperson commissions come out of the car price. Many investors don’t know how their financial advisor gets paid. But the differences run deeper. Let’s imagine a fictitious world where car ownership more closely matches mutual fund ownership. Suppose that instead of paying car salespeopl...

My only post this week described some less well-known RRSP strategies: RRSP Strategies Here are some short takes and some weekend reading: Tom Bradley at Steadyhand explains the arguments against eliminating embedded commissions for financial advisors and then demolishes these arguments. Big Cajun Man is having trouble getting money out of an RESP for his daughter’s schooling, but that hasn’t stopped the bank representative from trying to upsell him on high-margin bank services. My Own Advisor offers a primer on opening a brokerage account.

I liked Preet Banerjee’s recent book Stop Over-Thinking Your Money so much that I decided to read his older book RRSPs: 41 Strategies Canadians Need to Know about our Country’s Greatest Tax-Planning Tool . I thought I knew a fair bit about RRSPs, but Banerjee managed to teach me a few things. If you decide to read this one, keep in mind that it is 6 years old and that some RRSP rules have changed. As far as strategies go, the biggest change in that time has been the introduction of the TFSA. The 41 strategies are aimed at a wide range of investors. The earlier ones tend to be for beginners, and the later ones are more advanced. Banerjee’s command of RRSP rules and strategies make it worthwhile to read this book with the caveat that you should confirm that anything you plan to use hasn’t changed since 2008. The following are some points that were interesting or new to me. Be sure to check that the rules haven’t changed. If you hold your mortgage in your RRSP and fail to m...