Here are my posts for the past two weeks: Reader Question: Market Participation Rate What Happens to My CPP if I Die Early? Here are some short takes and some weekend reading: Jason Zweig suggests a “pre-mortem” to assess your investments before the next panic. A Wealth of Common Sense gives us some excellent Charlie Munger quotes. In one he says that only the top 3% or 4% of the investment management industry will have good records because the market is mostly efficient. Big Cajun Man explains how auto-loading your loyalty card can work out badly if someone manages to clone your card. Canadian Couch Potato explains how planning to ease into the stock market can lead to paralysis if you start thinking about whether now is a good time. Boomer and Echo takes a Louis C.K.-inspired poke at the excuses we use for not doing the right things with our finances. My Own Advisor is among the few honest investors in individual stocks when he says “I actually don’t review f...

Many complain that they pay into the Canada Pension Plan (CPP) most of their lives but get little or nothing if they die early. They think their estates should get a lump sum as compensation. This thinking is misguided. Here’s a recent example of this complaint about CPP and the new ORPP by Gail Vaz-Oxlade: If you die early ORPP gives yr estate nothing regardless of how much you put in. This is the big flaw with CPP too! #ShoutNowShoutLoud — Gail Vaz-Oxlade (@GailVazOxlade) August 18, 2015 If you imagine an account in the CPP system with your name on it holding all the money you paid in, then it seems logical that your estate should get what’s left of that money when you die. But what happens if you live unusually long? Your account will be empty. But CPP keeps paying. CPP is taking part of your longevity risk. CPP makes money if you die early and loses money if you live long. This is a fair trade, and you get the security of knowing that the CPP payments will continue ...

A reader, Colin, asked a question about market-linked guaranteed investment products. These investment products go by different names: market-linked GICs, market-tracking term deposits, and other similar names. The basic idea is that your principal and a small amount of interest is guaranteed, and you may get some extra interest if certain stocks perform well. I prefer not to name the particular product Colin is considering, so I’ve edited his question somewhat: I am looking at a term deposit product. In the description they state ‘Market Participation: 100% or higher depending on the issue.’ Can you describe what they might mean by Market Participation in this context and, in addition, how it could be greater than 100%? The product Colin is considering is linked to the S&P/TSX 60, which is an index of 60 of the biggest companies in Canada. It guarantees a minimum of 4% interest after 5 years (about 0.79% per year), and may pay more based on a calculation related to the S...

I haven’t written much during the past two weeks because I’ve been volunteering to help run the Canadian Little League Baseball Championships. It’s amazing how well some 12-year olds play baseball. But I did manage one post: Your Retirement Spending Plan is Critical Here are some short takes and some weekend reading: Canadian Mortgage Trends reports that the Conservative government is proposing to increase the amount you can withdraw from your RRSP for the Home-Buyer’s Plan from $25,000 to $35,000. Frugal Trader at Million Dollar Journey gives his financial update a year after reaching his goal of being a millionaire. My Own Advisor says we don’t need the Home-Buyer’s Plan (HBP) for using RRSP money for a house down payment any more. I think the HBP can be part of a sensible plan to reduce CMHC fees and reduce overall portfolio risk, but only if the mortgage payments plus HBP repayments are sensible relative to total income. Using the HBP to afford a more expensive hom...

From a financial point of view, an adult life has two phases: pre- and post-retirement, or saving and spending. During the saving phase it’s possible to make some course corrections. However, mistakes in the spending phase can do permanent damage to your finances. If you’ve got a decade or more of work left, it’s possible to make up for low savings by saving more and reducing your investing costs. But if you spend too much in your first decade of retirement, you’re likely to end up with a much lower standard of living permanently. While working, if you don’t like the plan your financial advisor has for you, you can find a new advisor and make up for past mistakes. But if your advisor puts you on a bad retirement spending plan, by the time you figure out there is a problem, there’s little you can do other than cut spending. Imagine your 70-year old self finding the advisor you starting working with when you were 35. You say “the retirement spending plan you put me on is no go...