I’m not strongly for or against the TFSA limit increase announced in the latest federal budget ( pdf here ). However, the attempted spin in the budget document makes me laugh. As Larry MacDonald observed , the budget writers tried to counter the idea that a TSFA increase mainly benefits the rich by saying “about 60 per cent of the individuals contributing the maximum amount to their TFSAs had incomes of less than $60,000.” The first thing to observe here is that being rich is only indirectly about income. It’s really about how much money you have. I’d rather have a million dollars and an income of $50,000 than be in the hole a million dollars and have an income of $100,000. The truth is that the people who will benefit the most from a TFSA increase are those who already have significant non-registered assets, regardless of their incomes. Even if we look at wealth in terms of income, I expect that my wife and I will likely each have incomes under $60,000 in retirement. But we...

Tony Robbins is well-known as a motivator and it shows in his personal finance book Money: Master the Game . Readers who just want financial facts and advice will be frustrated that the vast majority of the over 600 pages are devoted to motivation of many types. Given the sad state of most people’s personal finances, maybe what they really need is a master motivator to get them to save more and spend less. The chapter I found most interesting was devoted to expert opinions on the amazing technologies we can expect to improve our lives in the coming decades. This later blended into an appeal to contribute to some of Robbins’ charities. Robbins defends his motivational writing style saying “ knowing information is not the same as owning it and following through.” However, I’ll confine the bulk of this book review to the personal finance aspects. The centerpiece of this book is an asset allocation called the “All Seasons” portfolio devised by Ray Dalio. Here are the asset cl...

Here are my posts for the past two weeks: Pay Down Your Mortgage or Invest? Do Dividend Haters Exist? Here are some short takes and some weekend reading: Preet Banerjee does an excellent job of simplifying the explanation of the cost of breaking a mortgage in his latest Drawing Conclusions video. Scott Ronalds at Steadyhand makes an interesting case for buying into Steadyhand’s weakest recent performer as a way to buy low and sell high. Justin Bender does a thorough analysis of the all-in costs of ETFs of international stocks. Larry MacDonald summarizes the federal budget. The Blunt Bean Counter explains the importance of both spouses using the same accountant for income taxes. Robb Engen at Boomer and Echo explains why he now focuses on total returns rather than just dividends for his future retirement income. I think this is a good idea, but one example cited is risky. If you could guarantee a 5% real return every year for 30 years and you knew you’d live fo...

I’ve encountered the phrase “dividend hater” a few times now, and it got me wondering whether dividend haters actually exist. I’d have to say I’ve never met any but, like beauty, it’s all in the eye of the beholder. My investing philosophy is simple enough. I value each after-tax dollar equally, whether it comes from dividends, capital gains, or interest. I know a great many people who think the same way. To be a dividend hater, I’d say that an investor would have to value after-tax dividend dollars below dollars from other sources. I’ve never heard of people like this, but I suppose they might exist. However, I have heard of several people who value after-tax dividend dollars more than after-tax dollars from capital gains or interest. Perhaps these people should be called capital gains haters or interest haters. I encountered the phrase “dividend hater” most recently in some tortured logic saying that it is a myth that stock prices drop by the amount of a paid dividend . ...

The many arguments you can find online about whether it’s best to pay down your mortgage or invest tend to gloss over the most important considerations. The answer isn’t in detailed calculations of returns based on assumptions that are just guesses. The truth is that if your income remains stable, you’ll do fine with either approach. The real answer comes when considering problem scenarios. All investment choices should balance two needs: (1) capturing wonderful returns through good times, and (2) surviving bad times. If you just average out the good and bad times and project future returns based on some middle-of-the-road assumptions, you might be taking on too much risk. One possible future for you is that you will always have a job when you want one and enjoy ever-increasing pay until you choose to retire. Here is another possible scenario: – The stock market crashes and stays low for 5 years. – Shortly after the crash, you lose your job. – It takes you 6 months to fin...

Here are my posts for this week: Making Momentum Work for Your Savings Business Success is not the same as Investor Success Here are some short takes and some weekend reading: Jason Zweig explains that despite the claims of some value investors, Benjamin Graham believed in index funds. Canadian Couch Potato gives us some clear thinking about bond returns over the past couple of decades. Tom Bradley at Steadyhand explains why soft landings for overheated markets are not likely. Hard landings are more the norm. Preet Banerjee has another of his popular videos, this time explaining the recent increase in CMHC premiums. The Blunt Bean Counter explains the 2014 changes to the T1135 foreign reporting form. Justin Bender explains how to report your U.S.-listed ETFs on the T1135 tax form. Big Cajun Man warns that if you buy lottery tickets with a credit card, it may be treated as a cash advance and have associated extra costs. My Own Advisor updates his progress ...

My recent post about stock-picking drew a thoughtful anonymous comment explaining the reader’s trouble with indexing. Here is the (lightly edited) comment: “Indexing is counter-intuitive. Doesn't it seem reasonable that if you bought the companies in the S&P 500, then sold off high flying market darlings and poorly-managed businesses, and used the proceeds to double up on the best run companies that you would beat the market? The evidence is no; professional managers who spend 40+ hours a week doing just this cannot consistently beat the index. What gives?” Let’s start with the high-flying stocks. Nothing is flying as high as Apple right now. I have no idea if Apple is currently a good buy, but no doubt some people think it’s destined to drop. Let’s go back to 2000 when Apple was also on a good run. Anyone who excluded Apple from their portfolio then would have missed out on a 25 times increase in its stock price. The truth is we can’t be sure if a high flyer will ...

Most of us have heard the advice to pay yourself first. Having your savings come off your pay before you see it is a painless way to save consistently. I have an idea to take this a step further to automate the saving of pay increases and bonuses. Consider the example of a single 30-year old, Jen, who earns $65,000 per year. Every two weeks, Jen’s take-home pay is $1830 until October when CPP and EI contributions end, and then she takes home $2000. She hasn’t been saving any money and wants to start. Jen could get her employer to split her paycheque so that a fixed percentage of her take-home pay goes to savings. Another possibility would be for Jen to have $1700 directed to her chequing account, and the balance directed to savings. This has the advantage that her spending is constant all year and the savings level changes when CPP and EI deductions end for her in October. Another effect of this approach is that her raise next year will get diverted entirely into savings; s...

Here are my posts for this week: Getting Fired Vanguard Shifts to Alternative Strategies April Fools? Not Really Here are some short takes and some weekend reading: Larry Swedroe gives brief and clear description of 10 common investor mistakes along with some realistic estimates of future investment returns. The Blunt Bean Counter explains CRA’s position on how to handle exchange rates for capital gains, dividends, and income. I was pleased to find that the way I do my taxes is acceptable to CRA. Whenever I make a trade in U.S. dollars in a non-registered account, I enter the amounts in a spreadsheet along with that day’s exchange rate from the Bank of Canada. For dividends and interest income, I just use the average exchange rate for the whole year. Big Cajun Man has a cautionary tale about a bank’s mistakes when setting up a student line of credit. My Own Advisor has a guest post with interesting takes on some of the crazy things people say about money. Boom...

My previous post about Vanguard’s seeming departure from index funds was written to seem like an April Fools’ joke, but it wasn’t. All this information came from their SEC filing for the Vanguard Alternative Strategies Fund . Vanguard will still have their familiar index funds, but their lineup will also include this much more “exciting” fund.

The long-time pillar of index investing, Vanguard, has decided to embrace alternative strategies with a new Vanguard Alternative Strategies Fund. In this departure from the mission of founder and retired CEO, John C. Bogle, Vanguard plans to short equities, trade currencies, and trade in commodity-linked investments. While Vanguard is known for rock-bottom fees like 0.05% per year, the new fund is expected to cost a whopping 1.10% every year. This is cheaper than some competing alternative strategies funds, but is very pricey for Vanguard. Over 25 years, this amounts to a total cost of 24%. Some of the other strategies Vanguard intends to use include trading in options, foreign currency exchange forward contracts, commodity futures, Treasury futures, and swaps. This new direction will no doubt come as a shock to some long-term Vanguard investors.