Here are my posts for this week: How to Persuade People They’re Wrong about Monty Hall Are Wealthy Canadians Double-Taxed? TurboTax Giveaway Here are some short takes and some weekend reading: Tom Bradley at Steadyhand makes the interesting observation that most of their clients only get intensely interested in their portfolios and retirement planning in their 50s. He thinks people should turn their clocks ahead and get interested earlier. The Blunt Bean Counter explains two ways you can get yourself into financial trouble with RRSP withdrawals. Canadian Couch Potato explains the tax consequences of using Norbert’s Gambit to exchange currencies in a taxable account. To minimize this I use RRSPs and TFSAs as much as possible for U.S. dollar-denominated investments, and I keep my Canadian investments in taxable accounts. I’ve still had to perform a Norbert’s Gambit in the taxable accounts, but it doesn’t come up often. Big Cajun Man says that once you dig yourself ...

For many years now I’ve been using the downloaded Standard version of TurboTax to file my income taxes. I have three codes for online versions of TurboTax to give away to my readers. These codes are good for any one of Standard, Home and Business, or Premier versions. I had intended to prepare my 2014 taxes and write a review, but I’m still waiting for so many tax slips that this is not feasible. I can say that TurboTax has worked very well for me in the past, although I prefer the downloaded version over the online version. To enter the TurboTax online code giveaway: Just send an email with the following things: – Subject: TurboTax Giveaway – Answer to the following skill-testing question: (4 x 7) + 3 – 1 – Use the email address listed at the “Contact” link (For those who are reading my feed, you’ll have to click through to my web site to get the email address.) Another benefit of going to my site when reading a post is to see the comments other readers leave on that po...

Jonathan Chevreau waded into the current debate on TFSAs and made a case in favour of Tax-Free Savings Accounts . While others debate whether TFSAs allow the wealthy to shelter too much income from taxes, Chevreau’s main argument is that “TFSAs merely eliminate double and triple taxation.” This just isn’t true. Chevreau goes on to explain “When you invest in non-registered or taxable accounts, not only does the capital you invest come after being subject to income tax, but all dividends, interest and capital gains generated from that capital will be further taxed each and every year.” This so-called double and triple taxation is actually the first-time taxation of new income in taxable accounts. Your original capital is not taxed again. When your already-taxed money earns interest or dividends, only the new income gets taxed, not the original capital. When you sell an investment, you only pay capital gains taxes on the growth in value, not the original principal. Once again,...

The famous Monty Hall problem has been analyzed in great detail, but those new to it still get the answer wrong, even some professional mathematicians. I’ve had several arguments about it, but I’ve found only one way to convince people of the correct answer: offer to bet. Here’s a version of the Monty Hall problem: You’re on a game show. There are three doors. You’re told there is a car behind one door and a goat behind each of the other two doors. You’re asked to pick the door you think has the car. After you choose, the game show host, Monty Hall, opens one of the other doors to reveal a goat. Monty then asks you if you want to stick with your door or whether you want to switch to the other unopened door. Should you switch? To make things more precise, here’s some additional information: before the game began, Monty intended to open a door you didn’t pick to show a goat (no matter what door you chose), and he intended to offer you a chance to switch. It’s well known tha...

Here are my posts for this week: Currency Exchange with Norbert’s Gambit at BMO InvestorLine An Indexer Answers Investing Questions Here are some short takes and some weekend reading: Big Cajun Man isn’t happy about the barrage of different types of bill notifications he faces now that most of his bills don’t arrive on paper. My wife and I deal with this by paying bills early and setting our own notifications. We find we can pay bills just twice a month on our own schedule. Many bills get paid well before the due date, but that’s fine with me. Findependence Hub has some sensible thoughts on a “core and explore” approach to investing. Preet Banerjee ’s latest video explains how RRSP contributions reduce your income taxes. Canadian Couch Potato reports that iShares is introducing some new ETFs for U.S. and foreign stocks with attractively low costs that may be of interest to Canadians. My Own Advisor doesn’t buy the assertion that high taxes on RRSP income in retir...

The world of investing simplifies tremendously once you make the decision not to try to beat the markets. Complications melt away when you just try to take what the market offers at very low cost. A Wealth of Common Sense gave a long list of “underrated questions that most investors don’t bother asking themselves.” Here I answer them from my point of view of a DIY index investor. The list of questions is long, but my answers are short. What if I’m wrong? I don’t make bets based on hunches, so it’s hard to go too far wrong. What are this person’s incentives for giving me advice? I ignore forecasters. I listen to people with advice, but I don’t deviate from my current strategy of low-cost indexing, which is incompatible with most advice. What are the all-in costs for my portfolio? Expressed as percentages of my entire portfolio, MERs are 0.08%, my ETF trading commissions and spreads cost 0.02%, and foreign withholding taxes cost 0.10%. My U.S. ETFs don’t report their t...

There is now a more recent update of the method I use for exchanging currency at BMO OnvestorLine .  Hidden costs in currency exchange are bigger than most people realize. To exchange large amounts of Canadian and U.S. dollars, I use a version of the “Norbert Gambit” by buying and selling Royal Bank stock in different currencies. The exact procedure is different at every discount broker. I use BMO InvestorLine and recently had to change my procedure slightly. You may ask why I don’t just use my broker’s currency exchange system. The answer is cost. The last I checked , if I started with C$10,000, converted to U.S. dollars, and then converted back again, I’d have been left with about C$9700 or about C$300 less. For C$100,000, the round trip cost was about C$1150. By doing the currency exchange myself using Royal Bank stock, I can bring these costs down to an average of about C$50 on C$10,000 and about C$100 on C$100,000. These are average costs because Royal Bank stock p...

My article debating what income level is safe in retirement got a mention in the Findependence Hub’s Weekly Wrap . It’s important to be realistic about both portfolio returns and the effect of costs. Here are my posts for this week: Understanding Diversification Where are the Customers’ Yachts? Here are some short takes and some weekend reading: Helaine Olen at Slate.com explains why financial literacy can’t work and we need better consumer protection in financial services. The way I see it, we should focus on consumer protection at the macro scale of governments and laws. It still makes sense for parents to try to teach their children financial skills, and it makes sense for adults to try to educate themselves. But financial literacy programs can never be an effective substitute for consumer protection laws. Few of us can defend ourselves against predatory practices disclosed in deliberately confusing contracts. Million Dollar Journey suggests two ETF-based index p...

Fred Schwed, Jr.’s classic book Where Are the Customers’ Yachts? had me laughing from beginning to end. Written in 1940, you’d think that his “Good Hard Look at Wall Street” would paint a very different picture from what we see today, but most of his insights are still very relevant. Rather than demonizing the people on Wall Street, Schwed paints a hilarious picture of fallible people who are at least as effective at fooling themselves as fooling others. In characterizing his book, the author writes, “‘Wall Street,’ reads the sinister old gag, ‘is a street with a river at one end and a graveyard at the other.’ This is striking, but incomplete. It omits the kindergarten in the middle, and that’s what this book is about.” On the subject of financial footnotes in the search for a sound investment, Schwed writes “if we could be sure we had all the figures, plus all the pertinent footnotes which to a greater or lesser extent invalidate most of the figures, then we would certainly h...

In my quest to find different ways of explaining investing concepts, I have a new idea for explaining the value of diversification based on a hypothetical game show. It shows the trade-offs between concentrating your bets and spreading them out. You’ve beaten the other contestants to make it to the prize round of the TV game show “No Guts—No Glory” to take a shot at winning up to a million dollars! There are five briefcases, each containing a different amount of money: $100, $1000, $10,000, $100,000, and $1,000,000. But they are in a randomly-selected order. You can choose any number of briefcases from one to five, but none are opened until you’ve finished making your selections. The catch is that you get the average amount in the briefcases you pick, not the total. So, if you choose 3 briefcases that happen to contain $1000, $10,000, and $100,000, your prize is not the total of $111,000 but the average amount of $37,000. (Fun fact: no matter what the briefcase selection, th...

Here are my posts for this week: After the Music Stopped More Replies to Email  Here are some short takes and some weekend reading: Canadian Couch Potato warns not to overreact to foreign withholding taxes. Small portfolio improvements are possible by locating assets in the best accounts, but it makes no sense to avoid RRSPs and TFSAs just so you can recapture some foreign withholding taxes in a non-registered account. Million Dollar Journey shows how to construct simple and fairly low-cost portfolios at each of Canada’s big banks. He’s right that many people don’t want to leave their current bank. Big Cajun Man doesn’t like the idea of insurance companies tracking information about how we drive. I’m definitely with him on this one. The idea that insurance companies would seek to collect this information for any reason other than increasing profits is laughable. The Blunt Bean Counter discusses the tax issues that come up at your death if you own shares of a C...

I get a lot of great feedback from my readers. I get other email as well. Here is another installment of replies to emails that I usually ignore (see previous installments here and here ). Dear Melanie, Thank you for your offer to pay me so you can spam my readers with forex trading ads. It turns out that I don’t keep a list of my readers’ email addresses. Also, I don’t hate them. But if both of these things change, I’ll let you know. Sincerely, Michael -------------------- Dear Vijay, Thank you for your email offering to sell me your penny-stock domain name as well as all three of your follow-up queries. In the careful study of my web site that you mention, you no doubt saw the synergy between my writing and pushing penny stocks. It’s baffling that I made no offer for your domain. I have no explanation. Sincerely, Michael -------------------- Dear Julia, Thank you for yet another chance to join your forex affiliate program. I know that retail investor...

There are many books about the 2007-2009 financial crisis, but what sets Alan S. Blinder’s After the Music Stopped apart is that it is “less of a whodunit and more of a why-did-they-do-it? ” Where other books focus on the spectacle of Wall Street CEOs madly rushing around to emergency meetings, Blinder gives the reader a better understanding of what went wrong. One striking chart early in the book is U.S. house prices adjusted for inflation. It is very flat for nearly a century and suddenly doubles in less than a decade. Then prices drop back down to previous levels even faster. On 2007 July 8, then CEO of Citigroup, Chuck Prince, said “When the music stops ... things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” While the music played, house prices rose fast, and when the music stopped, house prices dropped like a stone. In a 2005 survey of San Francisco home buyers, on average they expected house price in...