A recent story at Market Watch discussed the fact that rich people often diversify their investments poorly. Not mentioned is the fact that many people get rich through concentrated bets. But that’s a bad reason to do the same. There are good reasons to look to successful people to see what they do well. However, using successful people as role models isn’t always a good idea. A common way for investors to get rich is to make an extremely risky concentrated bet and get very lucky. However, for each person who takes a wild chance and gets rich, there have to be many more who take wild chances and lose almost everything. It’s hardly surprising that people who get rich taking big chances would have a tendency to continue to take big chances. Others who try to copy this behaviour are likely to lose badly. If the rich role model was simply lucky, the next person probably won’t be lucky. If the rich role model succeeded through genuine skill, the next person probably doesn’t ha...

Larry MacDonald did a great job of capturing my investment philosophy in his “Me and My Money” column in the Globe and Mail . Check it out if you want to see details about my portfolio and why I invest that way. You’ll also find out that “James” is actually my middle name. Here are my posts for the past two weeks: What will happen to the Canadian Dollar? Credit Card Q&A Here are some short takes and some weekend reading: Financial Mentor has a comprehensive and interesting list of financial frauds to avoid. Preet Banerjee discusses socially responsible investing and robo-advice with ModernAdvisor CEO Navid Boostani. Insureye has an interesting infographic showing who owns whom among car and house insurance companies. Big Cajun Man lays out what you need to do to get Apple Pay. Personally, I’m not looking for ways to make paying for stuff easier. Cash and credit cards work fine for me for now. No doubt I’ll eventually move to newer technologies, but I’m def...

One of the most common questions I get is “what will happen to the Canadian dollar?” Canadians are particularly concerned with the exchange rate between Canadian and U.S. dollars. Many planned sunny vacations this past winter were canceled or shortened due to our low dollar. So, what will happen with future exchange rates? Currency exchange rates are determined in the largest market in the world, called the foreign exchange market. Here large international banks exchange trillions of dollars worth of various currencies every day . The tiniest mispricings or inefficiencies could be exploited by savvy participants for billions of dollars per year. Suppose a talking head on television predicts a rise in the Canadian dollar. Let’s dig into what this prediction means. To begin with, if everyone else agreed with the talking head, then they would seek to profit by buying Canadian dollars immediately. This would cause the dollar to rise immediately. So, a huge number of banks and...

I recently answered credit card questions for a couple of young people. This reminded me that nothing is obvious until someone explains it to you. Financially savvy readers can take these questions as a reminder to start with the basics whenever helping people with their finances. Here is my recollection of the questions and my answers. Q: If I’ve built up a balance on my credit card over time, how much am I allowed to pay each month above the minimum payment? A: You can pay off your entire balance any time you want. In fact, this is a very good idea if you have the money available. While you have a balance owing, the credit card company charges you interest on each item from the moment you make the purchase. Once you break this cycle and pay off your entire bill on time each month, you stop paying any interest, even though there is a delay from purchase until your monthly payment is due. It can take a few months of paying off your bill in full to get off the interest tread...

Here are my posts for the past two weeks: A Financial Product I’d Like to See Safe Stocks Reader Question: Changing Asset Allocation Here are some short takes and some weekend reading: Potato explains in detail the problems with Air Miles and how they’ve effectively expired already. This post captures the problems generally with almost all forms of loyalty points and miles. Barry Ritholtz cracked me up with his take on McKinsey’s predictions for global investment returns. Canadian Couch Potato answers a tricky reader question about when and how to switch from an index portfolio of TD e-Series funds to an ETF-based portfolio. The Fraser Institute issued a report explaining how the rates of return people get on their CPP contributions is lower the younger you are because contribution rates have risen over the years. The media release I received said “Canadians born after 1971 will receive meager 2.1 per cent rate of return.” However, this is misleading. That is a ...

Reader R.V. wants to change his asset allocation but is unsure how to proceed. Here are his portfolio details and questions (lightly edited): My current asset allocation is as follows: 25% each for Canadian stocks, US stocks, International stocks, and Bonds in TD e-series funds for my TFSA, and for my RRSP I have exchange-traded funds VXC/VAB in a 70/30 mix. Now that my portfolio is getting larger, I'm thinking about moving to TD Direct Investing using ETFs VXC, VAB, and VCN. For the past 12 months, I've read hundreds of articles and now I believe that I can handle a 90% equity portfolio. Thus I’m wondering what would be the best way to make that change. Part of me wants to just do it next time I'm putting money in, but another part of me is quite afraid that I'm timing the market. What do you own in your portfolio? I was thinking of going 80% VXC, 10% VCN, and 10% Bonds. As always, I don’t give specific advice, but I can discuss how I think about my own po...