We can all think of times when we wasted money on things that didn’t matter that much to us and were left without enough money to do things that truly bring us joy. The question then is how do we fix this problem? David Bach offers a step-by-step guide in his book Smart Couples Finish Rich . This book is getting dated, but it offers surprisingly concrete steps to the hard to pin down task of aligning your spending with your values and dreams. This book is mainly aimed at people still in their working careers, so it’s tough for me to test out its ideas. However, I could imagine myself a decade or two ago being able to follow Bach’s nine steps. How much it would have helped me is hard to guess, but at least the steps are clear enough to go through the exercise. Parts of this book won’t be too useful to Canadians with the talk of 401(k)s, IRAs, and health insurance. It wouldn’t be too hard for Canadian readers to skip these parts. Some of the examples are becoming quite dated w...

Here are my posts for the past two weeks: The Value of Delaying CPP and OAS Is it Worth it to Hold U.S.-Listed ETFs? Rising Dividends in ETFs Here are some short takes and some weekend reading: James Cordier lost all his clients’ money and made this weepy apology video (that. He blames the failure of his option trading strategy on a “rogue” market. The problem is that markets go rogue in many different ways frequently. If you take on too much risk, a potential blow-up is just around the corner. Doug Hoyes interviews the Big Cajun Man to talk about what it was like to get laid off from Nortel and the lessons he learned. Canadian Couch Potato uses his latest podcast to take a swipe at investing courses that focus on price-to-earnings ratios, segregated funds, and stock options instead of the things DIY investors really need to know. Teaching beginning investors how to analyze stocks is like teaching a 5-year old to operate a chainsaw. For the purposes of this analog...

Reader ML asks the following good question (edited for length): I am relatively new to investing for dividends. Currently my strategy is to invest in high quality stocks and hold them for a long time. You are one of the bloggers who switched from buying individual stocks to buying ETFs. I get the strategy of ETFs in that it’s hard to beat the market with individual stocks. My question: Over years the dividend you receive from an individual stock continues to grow. If ETFs switch over their portfolio would they not miss out on this increase in dividends, year over year? It seems to me that the dividends stay pretty steady in the ETFs. Is that not a big chunk of money to miss out on? The short answer is that ETF dividends do grow. The dividends that low-cost index ETFs pay are mainly the dividends collected from all the individual stocks held within the ETF. There is a small deduction for the costs of operating the ETF and possibly a small increase from securities lending,...

Index investors in Canada who own Exchange-Traded Funds (ETFs) have a choice to make with their U.S. and international stock holdings. They can either buy an ETF that holds U.S. and international stocks but trades in Canadian dollars (such as Vanguard Canada’s VXC), or they can buy U.S.-listed ETFs that trade in U.S. dollars. This choice is a trade-off between cost and complexity. It’s certainly a lot simpler to own VXC. With U.S.-listed ETFs, you need to find an inexpensive way to exchange Canadian for U.S. dollars, such as Norbert’s Gambit . But, as Justin Bender explained, the cost of VXC is higher than the cost of owning U.S.-listed ETFs . This higher cost comes from a higher Management Expense Ratio (MER) and U.S. dividend withholding taxes. For the mix of U.S.-listed ETFs that I own (VTI, VBR, and VXUS), the blended MER is 0.09%, which is 0.18% lower than VXC’s MER. Less obvious, as Justin calculated, is the fact that U.S. withholding taxes of 0.35% cannot be recovered ...

Few people realize that you can delay receiving CPP and OAS until age 70 in return for permanently higher payments. Among those who know this is an option, very few choose to wait. I went through the exercise of calculating my safe level of annual spending when taking CPP and OAS at different ages and found that I can start spending more today if my wife and I wait until age 70 for our pensions. You can start CPP anywhere from age 60 to 70, and OAS can start anywhere from 65 to 70. I created a spreadsheet that calculates our CPP and OAS payments for chosen starting ages of these pensions. Then the spreadsheet calculates our estimated safe annual spending level throughout retirement. Consider two scenarios: Scenario 1: We both take CPP at 60 and OAS at 65 Scenario 2: We both take CPP and OAS at age 70 In both scenarios, we’re both retired now with no expectations of earning income in the future. The results were that Scenario 2 allows us to spend $3920 more per year (start...

Here are my posts for the past two weeks: Retirement Income for Life Bonds can Outperform Stocks for Very Long Periods The Problem with Bootstrapping Here are some short takes and some weekend reading: Dan Bortolotti answers a question from 60-year old Jerry W. about how he and his wife can generate $35,000 per year from their savings (combined $400,000 in RRSPs and $180,000 in TFSAs). Dan makes a number of excellent points, and concludes with “it would be worth considering whether it makes sense for you to take your CPP benefits before age 65.” We don’t know enough details about Jerry’s situation to make specific recommendations, but most people in this situation would actually be better off delaying CPP and OAS until age 70. It seems counterintuitive, but by shifting some longevity risk to the government, retirees who decide to take larger pensions at age 70 can safely spend more money when they’re 60. SquawkFox explains why you should stay away from credit card bala...

If you’ve ever had someone run simulations of your financial plan, the whole process looks wonderfully scientific. Some software takes your financial plan and simulates possible future returns to see how your plans work out. But what assumptions are baked into this software? Here I use pictures to show the shortcomings of a technique called bootstrapping. With monthly bootstrapping, simulation software chooses several months at random from the history of actual market returns to create a possible future. The simulator repeats this process many times to create many possible futures. Instead of monthly bootstrapping, some simulators choose annual returns at random. Other simulators collect blocks of consecutive years. All these methods have their problems. Here we show the problem with monthly bootstrapping, but this problem applies equally well to annual bootstrapping. I started with Robert Shiller’s online return data for total monthly returns of U.S. stock from July 1926...

It’s widely believed that over 30-year periods, stocks have always outperformed bonds. However, recent research says this isn’t true. U.S. bonds beat stocks over the 30 years ending in 2011, and it happened many times in the 1800s according to retired professor Edward McQuarrie at Santa Clara University. However, the important question is what should we do with this information? Jason Zweig at the Wall Street Journal reported on this research in his 2018 Nov. 2 article Sometimes, It’s Bonds For the Long Run , a play on the title of Jeremy Siegel’s excellent book Stock for the Long Run . It’s doubtful that Zweig is recommending that investors consider whether bonds are the best source of long-term returns, but his readers could be forgiven for thinking this. The next chart shows McQuarrie’s data on 30-year rolling periods. This means that the return shown in a given year is actually the average returns over the previous 30 years. So, near the end of the chart where it shows t...