I received a thoughtful question from reader A.J. concerning how to index: “Hello. I love your website. I've read dozens of books on investing: Paul Merriman, Malkiel, Ferri, Ellis, Bogle, Swedroe, etc. All of these guys disagree on how to index! It is confusing. Some of them wholeheartedly believe in value and small stocks. I've seen their research, it seems very solid. On the other hand, how can anyone predict the future? In Bogle's book, He says that ‘if someone wants to tilt, it would be reasonable to do 85% total stock market fund, 10% value stocks, 5% small stocks.’ So that is what I've done with my US and International holdings. Can I get your thoughts on this? Thanks.” Thanks for the kind words. Without knowing more about your financial life, I can’t advise you directly, but I can tell you how I view my own portfolio. The truth is that we just don’t have enough historical stock information to make confident judgements about fine differences in st...

Having read several reviews touting the great importance of Thomas Piketty’s Capital in the Twenty-First Century , I decided to read it myself. While it does deal with important financial issues, it’s not a page-turner. What surprised me most was Piketty’s embrace of huge government. Much of the book consists of dry discussions of historical data on income and wealth inequality around the world. Given a choice between a picture and 1000 words, Piketty consistently chooses both. In one memorable discussion, the reader learned that there are 10 times as many people in the top 1% as there are in the top 0.1%. All the historical information is oddly disconnected from Piketty’s central argument. He says that because the rate of return on capital (r) is greater than the rate of economic growth (g), wealth is destined to become ever more concentrated in the hands of a small number of ultra-wealthy people. However, it’s not quite this simple. For one thing, the wealthy spend some o...

Here are my posts for the past two weeks: Excuses to Shop Reader Question about Non-Registered Accounts Pension Ponzi ETF Fear, Uncertainty, and Doubt ETF Tips I Don’t Follow Here are some short takes and some weekend reading: Maclean’s explains that TFSAs are being used primarily by older Canadians. This sensible article is a breath of fresh air compared to the nonsense I keep reading about how the $10,000 TFSA limit is needed to help the middle class. As far as I can tell, proponents of the higher TFSA limit want it because it will benefit them (or their clients) personally. Promoting self-interest isn’t so bad, but making up nonsense arguments is annoying. Higher TFSA limits help those with either high incomes or substantial existing savings. That’s the truth. I would benefit from higher TFSA limits; it would allow me to put even more of my savings into TFSAs belonging to me, my wife, and adult kids. But I don’t think more TFSA room would be good for our countr...

I came across an article promising 101 ETF investment tips from 57 ETF experts (but it appears to not be online any more). While debating whether I thought I could slog through such a long article, I decided to focus on just those tips that I don’t follow. If I have a good reason not to follow them, I should be able to explain it. And maybe I’ll find a gem among the tips that changes my mind about the way I invest. Talking about the tips I do follow is like having a meal with like-minded friends. It’s an enjoyable way to spend time, but that’s not my purpose here. So here are just those tips I don’t follow. 4. Allocate your age as your percentage in fixed income. I don’t have any bonds at all in my long-term savings. I only use safe fixed income investments for money I’ll need in less than 5 years. I plan to carry this approach into retirement by holding 5 years of my spending in guaranteed investments and holding the rest in stocks. I expect my allocation to fixed income...

There have been a number of prominent articles about the dangers of trading Exchange-Traded Funds (ETFs) over the past year. The latest ETF story is from the Wall Street Journal . I read each of these articles looking for some new concern, but they tend to be the same recycled fears along with a scary title. Here I’ll list the categories of concerns and what I do to try to avoid trouble. 1. Some ETFs stink. Yup, that’s right, not all ETFs are great. Some have high built-in fees and others are too narrowly-focused to be safely owned by the unwary. I stick to very low cost index ETFs. 2. Investors can lose money trying to actively trade ETFs. True. That’s why I don’t trade them actively. Apart from a rare need to rebalance my portfolio to my target asset allocation, I don’t plan to sell any ETFs until I need the money in retirement. I buy more ETFs when I have more savings to invest. 3. Sometimes ETFs trade for prices far from their Net Asset Values (NAVs). The NAV of...

Canadian baby boomers don’t have to look very far in their circle of friends to find people retiring in their 50s on very generous life-long public service pensions. In their book Pension Ponzi , Bill Tufts and Lee Fairbanks try to persuade readers that “public sector unions are bankrupting Canada’s health care, education and your retirement.” Of course, unions argue differently. As with most debates between sides with polarized views, there is lots of room for both sides to be wrong. While the authors make a number of excellent points, they hardly give a balanced view. This book is written to outrage you more than it is written to inform you. I’ll go through some of the book’s good and bad points before offering my own thoughts on public service pensions. The Good Parts Mounting public debt is a sign that governments at all levels in Canada have been overspending for decades. “There is really only one place that meaningful cutbacks can occur, and that is the size and cost ...

A reader, R.V., asked the following thoughtful question about investing in a non-registered account: “As I approach maxing my registered accounts, I need to start thinking about perhaps opening up a non-registered account. At present, I do the following: TFSA: TD e-series funds (25% each of Bonds, CAD Index, US Index, & Int'l Index) RRSP: 70% VXC and 30% VAB via a brokerage account For Non-reg, I was thinking of HXT. Benefits of a swap-based ETF is no dividend to worry about and only need to be capital gains tax upon selling. Do you have any comments and/or recommendation on some non-reg ETFs? What do you normally buy for your non-reg account?” To start with, R.V. is obviously handling his finances very well given that he has maxed out his RRSP and TFSA. He has also chosen good diversified low-cost index mutual funds and ETFs. If he can stay invested and not tinker too much with his asset allocation, I’m optimistic about his future. I don’t give financial advi...

My wife received some credit card spam that started as follows: “The year is almost over, but you can still build your January rebate! Use your [brand of credit card] to earn cash back on special gifts, last-minute holiday purchases and everything in between.” She laughed and showed it to me. My first thought was who would spend an extra $1000 now just to get $20 more back in January? Most people aren’t great at math but they’re not this bad. This message seems like it shouldn’t work on anyone. But credit card marketers can’t be this dumb. There has to be more to this than I saw at first. One possibility is they are aiming this message at people with multiple credit cards in an attempt to get them to use this particular card more often for things they were going to buy anyway. But I think there is a better explanation. I think this message is mainly aimed at shopaholics. Addicts will latch onto any excuse to scratch their itch. Compulsive shoppers need an excuse to shop ...

Here are my posts for the past two weeks: How Much Do You Need to Save to Retire? The Overconfidence Gap Value of a Public Service Pension Here are some short takes and some weekend reading: Ellen Roseman explains the trouble you can get into if you sell a car privately but the buyer doesn’t transfer ownership. A Wealth of Common Sense brings us an excellent list of faulty assumptions about investing. Dan Hallett gets riled up about income funds that trick investors with unsustainable monthly payments. It’s sad when people count on regular income that is certain to drop eventually. Big Cajun Man got an answer from CRA about whether his son continues to be eligible for the Disability Tax Credit. Kerry Taylor meets Sean Cooper, the millennial with a paid-off house, to find out if his critics are right about whether he received financial help from family and whether he lives an intolerably cheap life. Preet Banerjee explains how the new Canada Child Care Benefit...