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...

It’s important to read books and articles that make arguments that are at odds with your current thinking once in a while. Understanding counter-arguments is a good way to make sure your reasoning is sound. After all, I would never have stopped stock-picking if I hadn’t read about indexing with an open mind. With that in mind, I read an Investopedia article entitled “ 5 Reasons to Avoid Index Funds .” Here I go through the arguments made in this article. 1. Lack of Downside Protection It’s true that index portfolios do not prevent short-term losses. Just think of how much more money you could make if you could always trade out of stocks that were about to drop. The Investopedia article points to several strategies for making money when you know the market will drop. The problem is that you don’t know when the market will drop. As a matter of fact, most of the time that investors try to time the market, they end up making less than if they had just stayed invested in the ind...

I wrote one post this week answering a reader question about why index portfolios don’t all use dividend ETFs: Why don’t couch potato portfolios use dividend ETFs? Here are some short takes and some weekend reading: A Wealth of Common Sense explains a cognitive bias we have that prevents us from admitting we don’t know something. This bias can be very costly for investors. Another good article demonstrates that envy is a bigger driver than greed . The second minute of the monkey experiment video is funny. Jason Zweig explains why you should be concerned if you receive a “happiness letter” from your brokerage. In another good article, he looks back at his 1999 advice to avoid internet stocks . His was nearly a lone voice at the time. I was very fortunate that I decided to mostly avoid internet stocks through that period because I worked for an internet company and didn’t want to put too many eggs in one basket. Big Cajun Man reports that unemployment in Canada has bee...

A reader, L.P., asks the following question (edited for length and clarity): “Why don’t sample couch potato portfolios in books and blogs use dividend ETFs for the equity portion? Wouldn't an ETF like VDY outperform XIU over the long haul? Long-term dividend investing has good historical returns. Higher dividends can accumulate over the long run. I'd imagine that a dividend ETF full of solid dividend payers would correlate closely with the general market performance if not slightly better in downturns? Is my thinking off?” Thanks for the thoughtful question. First off, let me say that dividend investing can be a reasonable approach as long as investors are well diversified. Certainly, an ETF like Vanguard’s VDY is reasonably well diversified within Canada. However, some dividend investors go off the rails when they convince themselves that dividend-paying companies are much better than other companies. Dividend stocks tend to be value stocks. An ETF like VDY will ...

Here are my posts for this week: Flash Boys A Deeper Look at My Portfolio Here are some short takes and some weekend reading: Dan Hallett looks at the options for how a surviving spouse should manage a portfolio after a DIY-investor dies. My strategy has been to have my wife do all the trading in her own accounts. Slowly but surely she is learning the details of our fairly straightforward portfolio strategy. Preet Banerjee reports on a study showing that professional fund managers in Sweden don’t manage their personal portfolios any better than non-experts in the same socio-economic class. I hope the study’s authors split people into classes by their wealth before the time period of study and not after. Otherwise, the results are biased. Wealthier classes always have some people who were in a lower class but got lucky taking big investment risks. Tom Bradley at Steadyhand takes some shots at index-linked GICs offered by Canada’s big banks. I’ve never seen one of t...

I recently revealed my portfolio’s asset allocation and the reasoning behind it . It consists of just 4 Exchange Traded Funds (ETFs). This might make some think that I’m not sufficiently diversified. To explain why this isn’t true, I’ll take a deeper look at these ETFs. I’ll also go over many of portfolio costs that investors face. The following chart gives some basic information about the ETFs in my portfolio: ETF Allocation Asset Class # Stocks MER Purchase Currency VCN 30% Canadian 248 0.05% C$ VTI 25% U.S. 3772 0.05% US$ VBR 20% U.S. Small Cap Value 812 0.09% US$ VXUS 25% World ex. U.S. 5783 0.14% US$ Diversification If we focus initially on the “# Stocks” column, we see that each ETF contains within it a large number of individual stocks....

You wouldn’t think that a book about high-frequency stock trading could be a compelling read, but Michael Lewis’s story-telling skills make his book Flash Boys a page-turner even for readers with a modest knowledge of stock trading. I’ve read several articles explaining high-frequency trading (HFT), but Lewis weaves much clearer explanations in with the stories of the people who set out to stop high-frequency traders from exploiting the rest of us. The book describes many ways that high-frequency traders get an unfair advantage, but the biggest problem was a form of front-running. Stock trades often get split up among different exchanges because no one exchange is offering enough shares to fill the order. High-frequency traders would place “very small bids and offers, typically for 100 shares, for every listed stock. Having gleaned that there was a buyer or seller of Company X’s shares, they would race ahead to the other exchanges and buy or sell accordingly.” So, whichever exc...