Yesterday, regulators went about 10% of the way to eliminating investment industry practices that silently drain money from Canadians’ retirement savings. Maybe in a few years they’ll put a stop to another 10%. Here are my posts for the past two weeks: The Power of Passive Investing Blockchain and Cryptocurrency News Exploiting Innumeracy Here are some short takes and some weekend reading: Justin Bender explains that “it’s your post-tax asset allocation that determines your ending portfolio value.” As I explained in a post on Asset Location Errors , there are many people who get asset location decisions wrong because they mix up pre-tax asset allocation and post-tax asset allocation. Justin does an excellent job of explaining these issues in detail with clear examples. Scott Alexander reports on a research finding that the placebo effect seems to be just mean reversion. There seem to be a great many “results” that owe their existence to poor use of statistics. Cana...

It’s not news that governments and businesses take advantage of those who can’t or won’t do basic math. A good example is lotteries. Another recent example comes from a regulator of massage therapists, called the College of Massage Therapists of Ontario (CMTO). To justify a large increase in fees, CMTO is counting on its massage therapists being innumerate. Annual fees for massage therapists will be going from $598 to $785, a 31% increase. In their announcement of the rising fees , the first part of CMTO’s justification is as follows. “CMTO has not raised fees much beyond inflation in almost a decade (since 2009), while the size of our registrant base has increased by more than 40 percent.” Most people’s eyes glaze over at the sight of numbers, but it pays to think a little. Let’s pull this statement apart. If “CMTO has not raised fees much beyond inflation in almost a decade (since 2009),” you can guess what happened in 2009. CMTO increased registration fees by 29%, whic...

I’ve received 10 blockchain and cryptocurrency announcements in just the past week. To save you time, I’ve summarized them here. I’m guessing the PR firms sending the announcements might quibble with my summaries. A market for investments you should never own now plans to use blockchain to track share ownership. You can buy a service that mines cryptocurrencies for you. Try to guess whether they price the service above or below the value of the mined coins. Another cryptocurrency exchange is opening. Hopefully, it won’t get hacked like the others. Another cryptocurrency is available. Cryptocurrencies are getting hacked. There’s another cryptocurrency app. And another app. Cryptocurrency “experts” are eager to get their messages published. Bitcoin could go to $30,000 soon. Of course, it probably won’t. “Experts” predict huge increases in cryptocurrency values. Of course, they might go down instead.

“Passive investing is power investing.” This line from Richard Ferri’s book The Power of Passive Investing: More Wealth with Less Work is proof that he’s far better at persuading people to use index investing than I am. Who wouldn’t want to be a power investor? Ferri goes through the academic evidence and makes the case for passive investing to individual investors, charities and personal trusts, pension funds, and advisors. The typical individual investor will get the central ideas of this book, but it’s mainly aimed at much more knowledgeable investors. Ferri takes dead aim at the “utter failure of active managers to deliver on their promises of market beating results while enriching themselves with fees extracted from investors who entrust money to them.” “A fund that tracks an index may charge only 0.2 percent in annual fees compared to an active fund with the same investment objective, which may charge 1.2 percent per year.” Over 25 years, these costs grow to 4.9% and 2...

I wrote only one post in the past two weeks, but I think it’s worth reading for anyone who understands that investing is important but would rather think about almost anything else: How My Sons Invest Here are some short takes and some weekend reading: The C.D. Howe Institute explains how public service pensions are much more expensive than the federal government claims. A side effect of this fact is that government employees contribute much less than half the cost of their pensions, even though the split is supposed to be 50/50. The full report in pdf form is written to be understood by non-specialists. Frederick Vettese points out some serious problems with the Public Service Pension Plan and how it should be fixed. Morgan Housel “describes 20 flaws, biases, and causes of bad behavior I’ve seen pop up often when people deal with money.” The ninth one is “Attachment to social proof in a field that demands contrarian thinking to achieve above-average results.” It’s tr...

Rather than tell people how to invest and try to cover every need and circumstance, I’m going to describe my sons’ simple but powerful investment approach. Readers can decide for themselves how suitable this approach is for them. My sons are young adults just a few years into investing some of their savings. Working on their investments isn’t in their top 100 favourite things to do.  They have a simple plan based on do-it-yourself low-cost index investing that will beat the vast majority of other investors over time. They may modify their plan as their lives change and their assets grow, but for now they’re following the ideas described here. Time horizon It seems obvious to say that they have very long investing time horizon, but that’s only true for part of their money. Not all of their plans are long-term. One of them is considering buying a car. The other earns less income in the winter and needs a cash buffer. Both need a buffer in their chequing accounts and emer...