Here are my posts for the past two weeks: Skin in the Game Asset Location Errors Here are some short takes and some weekend reading: Salman Ahmed at Steadyhand explains a proposed class action lawsuit against TD’s asset management division over trailing commissions. These fees are supposed to be for advice, but discount brokers aren’t allowed to offer advice. John Bogle responds to critics. Jason Heath explains the potential problems with taking “dad’s money now to avoid probate.” Big Cajun Man ’s daughter ran into the same problems he’s had with investing in TD e-Series funds. She thought she opened a TD Direct Investing account, but it was actually a TD Mutual Fund account. The Blunt Bean Counter explains rules for capital gains and losses on a terminal tax return. I wasn’t aware of some of the choices an executor can make. Robb Engen at Boomer and Echo says he’s still on track to reach financial freedom at age 45. For most people, I tend to be skeptical th...

Deciding how to split your stocks, bonds, and REITs across your RRSPs, TFSAs, and taxable accounts can be confusing. Even well-known authors and web sites such as Gordon Pape, Robert Brown, and 5iResearch make basic mistakes. The best way I know to prevent some fundamental mistakes is to think of your RRSP as partially belonging to the government. Recently, Canadian Couch Potato portrayed this way of thinking as not worth the complexity for a small additional return ( see the sixth question here ). I disagree. I think it prevents some larger mistakes. Mistakes 5iResearch claims that you shouldn’t hold “High Growth Equity” in your RRSP, and that TFSAs are the best place for such assets . Their reasoning is that RRSP “gains withdrawn from the account are treated as ordinary income,” and that in TFSAs “Profits on the stock will not incur capital gains tax when realized, nor will there be tax on the appreciated capital when withdrawn from the account.” So, if you compare investi...

We’ve heard that free advice is worth what you pay for it. In his latest book, Skin in the Game , Nassim Taleb takes this much further saying “do not pay attention to what people say, only to what they do, and how much of their necks they are putting on the line.” Most of his book is devoted to explaining the many contexts where the idea of skin in the game applies. Like Taleb’s other books, this one is filled with many ideas worth thinking about along with many hurled insults at those he calls Intellectuals Yet Idiots (IYIs). There is even name-calling: “Hillary Monsanto-Malmaison, sometimes known as Hillary Clinton.” If Taleb’s accusations are accurate, then some of these people (but not all) deserve his insults and more, but they are tedious nonetheless. Despite all this, I’d rather read a book with a few good ideas and some unpleasant parts than read a pleasant book with nothing important to say. I was unable to follow the logic of parts of the book, and some topics didn’t...

Here are my posts for the past two weeks: Money = Human Work Does Loss Aversion Exist? Here are some short takes and some weekend reading: Tom Bradley explains where investment returns really come from. The answer is different from what most people think. John Robertson tackles the complexity of optimizing how you spread your bonds, Canadian stocks, and foreign stocks across your RRSPs, TFSAs, and non-registered accounts. In my experience, trying to come up with a set of rules to cover all possible situations is very difficult, but most individual cases are easy enough to sort out. For example, I know what tax rate I’ll likely be paying on RRSP/RRIF withdrawals, I own no bonds (I have a cash/GIC allocation instead), and I understand that my RRSP contents partially belong to the government (which eliminates certain behavioural errors). These facts greatly simplify the analysis to determine which accounts should hold each of the asset classes I own. Canadian Couch Potat...

We’ve long been told that we feel losses more than we feel gains; that losing $1000 will make us more unhappy than winning $1000 will make us happy. Many experiments point to the existence of loss aversion, although recent experimental results have caused skeptical researchers to question its existence or at least claim that loss aversion is more complex than we first thought. Nassim Taleb criticizes the ideas of risk aversion and loss aversion differently from the sceptical researchers. In his book, Skin in the Game , Taleb says “I believe that risk aversion does not exist: what we observe is, simply, a residual of ergodicity. People are, simply, trying to avoid financial suicide and take a certain attitude to tail risks.” Taleb also says “Rationality is the avoidance of systemic ruin.” He rejects the idea that we are loss averse; we are simply avoiding things that could lead to financial ruin, death, or other permanent loss. “In a strategy that entails [a possibility of] rui...

We often hear people say “money isn’t everything” or “it’s just money.” There are times when this is a healthy attitude to have, but more often it’s not the right way to think about money. Money represents human work. With money you can get other people to do work for you, such as making houses, food, clothing, cars, and computers. If we change the familiar sayings to “human work isn’t everything” or “it’s just human work,” they don’t ring nearly as true. Few of us would want to get by entirely on our own, living in the wild, finding our own food, and making our own clothes. We buy the work of others in just about every aspect of our existence. There are those who make their lives worse by spending less than they should. But more often the person who says “money isn’t everything” works to get an income and gives too much of it away in foolish ways. We shouldn’t focus on money to the point of worship. But we shouldn’t think that money is somehow separate from real life eit...