My short takes are a little late because I’m just back from a vacation. Apparently, I’m now on “island time.” Here are my posts for the past two weeks: How Beneficial is the Dividend Tax Credit Bad Arguments Against CPP Expansion When Does Permanent Life Insurance Make Sense? Deep Risk Here are some short takes and some weekend reading: Dividend Ninja interviews Dan Bortolotti to discuss index and dividend investing. From my point of view, Dan did a great job of explaining misconceptions many dividend investors have. Some of the dividend investors who commented saw it differently. Preet Banerjee interviews John Robertson who explains how to keep investing simple. Big Cajun Man has some trouble with a CRA request for documentation on expenses for his autistic son. This is a case where CRA shows it has a heart. Canadian Couch Potato interviews Larry Swedroe to discuss challenges new retirees face with their portfolios. Boomer and Echo looks at the various wa...

When it comes to finances, the definition of “risk” is tough to pin down. We sometimes refer to portfolio volatility as risk, but this doesn’t line up well with what people mean when they talk about stocks or other assets being risky. William J. Bernstein brings us some clear thinking about risk in his 55-page book Deep Risk: How History Informs Portfolio Design , the third of four books in his Investing for Adults series. Bernstein thinks of risk “in two flavors: ‘shallow risk,’ a loss of real capital that recovers relatively quickly, say within several years; and ‘deep risk,’ a permanent loss of real capital.” “Capital managed for near-term liabilities should be guided by shallow risk, while capital managed for very long-term liabilities should be guided by deep risk.” This book “provides a framework for thinking about deep and shallow risk as essentially an insurance problem involving probabilities, consequences, and insurance costs.” “The conventional ‘shallow’ risk of st...

The vast majority of people who need life insurance are best off with term life insurance. Salespeople have tried to sell me permanent life insurance (universal life and whole life), but I never got a good feel for when this type of insurance might make sense. Recently, the Rational Reminder podcast interviewed Glenn Cooke , an expert in insurance who communicates very clearly. Glenn’s explanations allowed me to understand when permanent life insurance may make sense. Before launching into my take on Glenn’s explanations, let me be clear that Glenn may not fully agree with me. In particular, he might find that the conditions I set out below are too narrow. Permanent life insurance only makes sense to me when all of the following conditions are met: You have maxed out both your RRSP room and your TFSA room. You definitely have more money than you’ll ever need, and you want to leave a legacy (which might include cash to pay off capital gains taxes on a property, such as a co...

The Canada Pension Plan (CPP) is set to start expanding in January 2019. Workers will begin contributing more of their pay to CPP, and those who contribute more will ultimately receive increased CPP benefits. There are sensible arguments for and against this change, but the most common argument I hear against it makes no sense at all. I saw a version of this bad argument in an article by Charles Lammam at the Fraser Institute calling on Doug Ford to opt Ontario out of CPP expansion . Lammam calls CPP expansion “unnecessary” because “most Canadians adequately prepare for retirement.” He then goes on to quote statistics on the total dollar amounts Canadians have saved in different asset classes. All this proves is that, on average, Canadians have enough savings for retirement. But averages are irrelevant in this discussion. Consider two sisters heading into retirement. One sister has twice as much money as she needs and the other has nothing. On average, they’re fine, but ind...

Many investors love Canadian dividends because they come with a tax break called the Dividend Tax Credit (DTC). Others look a little deeper and say that the DTC just prevents double taxation because the companies paying dividends already had to pay tax on their profits. They conclude that dividend income is no better than interest income, at least from a tax perspective. However, comparing the DTC to capital gains taxes gets more complex. Dividend Taxation in Canada The DTC is intended to prevent Canadian company profits paid to Canadian shareholders from getting taxed twice. Here’s an example to illustrate the idea: Suppose a company earns one dollar in profit per share, pays 27 cents in income taxes, and pays the remaining 73 cents in dividends to each shareholder. Canadian shareholders actually declare the full dollar as income (called the dividend gross-up), but they get to deduct the 27 cents from the taxes they owe. The idea is that the total tax paid by the company ...

I managed only one post in the last two weeks: Smart Couples Finish Rich Here are some short takes and some weekend reading: Dan Bortolotti has a very sensible take on dividend ETFs. Squawkfox tells us how to beat dynamic pricing where retailers change online prices based on what they know about you. Ron Lieber attends a steak dinner annuity pitch and makes the salesman unhappy. A lot of complex financial products look good if you compare them to stocks without their dividends. The Blunt Bean Counter explains the tax implications of renting out your property Airbnb-style. His explanation is more than enough to scare me away from becoming a casual landlord. Jason Heath explains the details of how to defer RRIF income taxes when a spouse passes away. There are a number of different cases to consider. Robb Engen lays out his financial goals for 2019. As usual, my favourite goal is “Don’t take on any new debt.” Without this goal, he could meet all the other goals...