It’s widely believed that the U.S. government bailed out the bankers who caused the financial crisis just over a decade ago and left the American people to suffer. President Obama’s secretary of the Treasury, Timothy F. Geithner, defends his team’s actions in his book Stress Test: Reflections on Financial Crises . What makes the book so believable are his admissions of mistakes and how uncertain they were about the correct actions to take throughout the crisis. However, he is very clear that protecting banks was a necessary evil to avoid cascading failures that would have led to meltdown in the greater economy. There was a very real possibility of a depression and massive unemployment. “Our only priority was limiting damage to ordinary Americans and people around the world.” We’re familiar with the anger over bailing out the bankers who caused the problems in the first place, but less well known is the anger banks had for the government. “Conventional wisdom holds that we aband...

It’s gift-buying season. Each year, more of my Christmas shopping shifts online. It’s still tough to come up with good ideas for presents, but at least I don’t wander aimlessly in malls much anymore. Here are some short takes and some weekend reading: Tom Bradley at Steadyhand says that the profits Canadian banks earn from their individual customers (all of us) is the highest in the world. This reminds me of a scene from Wolf of Wall Street where Canadians are on the phone and DiCaprio plays the banks. Ryan Krueger explains how we lose huge amounts of money in everyday banking. Robb Engen at Boomer and Echo gives an overview of his financial life for the past decade. He definitely worked harder than I did during the 2010s. After quitting his day job, that’s going to change. Preet Banerjee explains new research showing that people tend to pay down debts by “balance matching,” which has none of the benefits of the debt avalanche method (pay highest interest first) or t...

Here are my posts for the past two weeks: Useless Activity The Most Important Thing Am I Fixing a Mistake or Making an Active Decision? Here are some short takes and some weekend reading: Tom Bradley at Steadyhand gives three potential sources of illusory wealth in the markets today. Along with his thoughtful commentary, he uses the great terms “bezzle” and “psychic wealth.” Justin Bender goes into detail about tax-loss selling strategies. This stuff can get tricky. Fortunately, it’s only relevant in taxable accounts. Even people with million-dollar portfolios often don’t have enough in their taxable accounts to bother with tax-loss selling. Dan Hallett says Bitcoin is for speculating, not investing. I agree (https://www.michaeljamesonmoney.com/2018/04/bitcoin.html). Ellen Roseman says phone scams are on the rise.

I recently discovered a mistake in my spreadsheet related to my fixed-income allocation during retirement. Fixing it will involve selling off a sizable chunk of stocks. But I think this may be more of an active portfolio decision than just fixing a mistake. For years I’ve been striving to come up with mechanical decisions about how to handle my portfolio rather than making active decisions that amount to a form of market timing. One of my rules now that I’m retired is to maintain 5 years of after-tax spending money in fixed-incomes investments, including short-term government bonds, GICs, and savings accounts. Poking through the spreadsheet that holds my mechanical rules, I noticed a problem with the 5 years of fixed income calculation. I didn’t factor in CPP and OAS pensions properly. I treated these pensions as though I’m receiving them spread out over my whole retirement instead of just getting them later in life. So, my 5 years figure is too low now and will be too high o...

It’s a compelling recommendation when Warren Buffett says “This is that rarity, a useful book.” He said this about The Most Important Thing: Uncommon Sense for the Thoughtful Investor , by cofounder of Oaktree Capital Management, Howard Marks. It turns out that “investor” in this book means active investor. The lessons on risk management and other topics are top-notch for those trying to beat the market, but passive investors won’t get much out of it. One lesson for active investors is to seek out inefficient markets and be better than others at assessing value. This makes the S&P 500 a poor place to look for undervalued stocks. Another lesson is that risk is the possibility of losing money, which is different from volatility. Risk comes mainly from high prices. Markets always seem riskier after they decline, but in reality, stocks are riskiest when their prices are highest. To be a successful investor, it’s necessary to be skeptical. This means being skeptical of bot...

A recommendation for a podcast caught my eye recently because it hinted that there was some interesting discussion of Nortel. It turned out that the Nortel discussion wasn’t interesting at all, but I did have a strong reaction to the rest of the podcast. The three speakers went on for about an hour on a wide range of active investing topics, and all I could think was that I can’t believe I wasted a decade of my life on this crap. It’s one thing to have a hobby that contributes to an otherwise balanced life, but it’s another to devote a huge proportion of your waking hours to such a societally useless pursuit. If these three guys had chosen to plant trees instead of pick stocks, the world would be a slightly better place. It would be fantastic if investors woke up and stopped paying huge amounts for portfolio management. This would eliminate the incentive for so many brilliant young minds to waste their lives on useless pursuits.

My only post in the past two weeks is a review of a book dedicated to Charlie Munger’s wisdom: Poor Charlie’s Almanack Here are some short takes and some weekend reading: Mr. Money Mustache explains some of the values of the FIRE movement. The Blunt Bean Counter explains the basics of RRIFs clearly. The most intriguing part of this guest post comes at the end: “RRIFs can be used in a surprising number of ways.” It would be good to learn some of those ways. John Robertson uses the closing of Planswell as a check to see how investor assets are protected from a robo-advisor’s failure.

Most people have heard of the great investor Warren Buffett, but fewer have heard of his long-time business partner Charlie Munger. Charlie’s approach to understanding the world is laid out in Poor Charlie’s Almanack , a long, but interesting, book edited by Peter D. Kaufman. This book covers such a wide array of topics that it resists summary. To this reader, Munger’s biggest ideas are 1) that we should understand the biggest and most useful ideas from a broad range of fields, and 2) that we should understand the many ways that our psychology gets in the way of drawing sensible conclusions. Whether we agree or disagree with Munger’s ideas, I found a great many worth thinking about. I’ll list a few here as an enticement to reading the book. Munger is known for challenging and often abandoning his best-loved ideas: “a thing not worth doing is not worth doing well.” It may not be a good idea to change your mind too often, but we have to be open to the possibility that our ideas...

Here are my posts for the past two weeks: Now We Know What Followed the Lost Decade for Stocks The Clash of the Cultures Here are some short takes and some weekend reading: The Rational Reminder Podcast looks at the future of ETFs in a very interesting interview with Dave Nadig, founder of etf.com. Nadig also has some pragmatic ideas for how to pay for financial advice. Robb Engen at Boomer and Echo says Canadians have an income problem, not a debt problem. This is undoubtedly true for some people. However, there are others who are going to outspend whatever income they get. The question in my mind is how is viewing the problem this way going to help? Probably the biggest effect is that it allows people with big debts to decide the problem is someone else’s fault. This is more likely to trigger giving up than solving anything. On the positive side, it might spur some people to seek higher income. I find the change in expectations since I was a young adult interestin...

John C. Bogle was passionate about helping average investors get their fair share of the wealth produced by the stock market. In his book The Clash of the Cultures , he describes what is wrong with our financial system and what should be done to fix it. Unlike many who shout complaints from the sidelines, Bogle devoted his career to fighting for necessary change. When it comes to those who invest other people’s money, Bogle “observed firsthand the crowding-out of the traditional and prudent culture of long-term investing by a new and aggressive culture of short-term speculation.” Bogle devotes much of the book to the history of mutual funds to make his points. Most modern mutual funds have a “double-agency” problem where managers have to serve both the fund investors and the shareholders of the management company. Sadly, investors lose out on the conflicts of interest; management companies can only make money by dipping into investor assets. Stewardship has given way to salesm...

A decade ago I wrote about the lost decade for stocks from 1999 to 2008 when the S&P 500 total return failed to keep up with inflation. Since the depression, this also happened in periods that ended in 1947 and 1983. At the time I wondered what happened in the decades after these lost decades. Here were the answers: 1948 to 1957: 14.4% per year above inflation 1984 to 1993: 10.7% per year above inflation At the time I wrote “As you can see, those first two decades were spectacular! There is no guarantee that the upcoming decade will match these impressive results, but it does give us some hope.” The results are now in: 2009 to 2018: 11.4% per year above inflation This is in line with previous results, but is more than I could have hoped 10 years ago. S&P 500 stocks have nearly tripled in real terms (above inflation). Those who give up on stocks after weak periods pay a high price.

I managed only one post in the past two weeks: Time to Change Credit Cards Here are some short takes and some weekend reading: A Wealth of Common Sense wrote a tongue-in-cheek eulogy for the 60/40 portfolio after yet another declaration that it’s dead, this time from Bank of America. The eulogy is entertaining, and observes that “60/40 finished out its life strong, returning an astonishing 10.2% per year from 1980-2018 with just 5 down years over the past 39 years.” Some may hope for a repeat performance in the coming decades. However, in the last 39 years, U.S. interest rates dropped from about 20% to 2%. A repeat drop would get us to an absurd minus 16%. Lest you think I’m on the side declaring the 60/40 portfolio dead, the last 39 years saw the cyclically-adjusted price-earnings ratio of U.S. stocks roughly triple. It’s hard to see how it could triple again. Choosing a 60/40 portfolio is sensible enough – just don’t count on a repeat of the last 4 decades of returns. ...

I forgot to pay off my credit card balance a few days ago. I do this roughly every 4 or 5 years. More annoying than paying some interest is that I seem to have to stop using the card for a couple of months to break the credit card interest cycle and get back in good standing . I need a useful reminder feature to help me avoid these mistakes. My Tangerine Mastercard offers the following credit card email alerts: Remaining Credit Less Than $100.00 Credit Card Payment Due Credit Card Transactions Over $1,000.00 Money-Back Rewards Earned Credit Card Payment Received Money-Back Rewards Deposited The alert I really want is “Your payment is due in a few business days, and we haven’t received anything yet.” My wife tells me that her credit card offers this alert along with better cash-back rewards than I’m getting now. Maybe it’s time for me to dump my Tangerine credit card.

Here are my posts for the past two weeks: The Latte Factor Correlation Here are some short takes and some weekend reading: Doug Hoyes and Ted Michalos make a strong case that students are being treated unfairly by preventing them from including their student loans in bankruptcies for 7 years after leaving school. In addition to their other good points, they explain why removing this rule wouldn’t allow students to have bankruptcies of convenience shortly after graduating. One troubling part of the information they bring forward is the fact that university tuition has been rising much faster than inflation for a very long time. What we need is an inquiry into why schooling is so expensive and what unnecessary costs can be stripped out. If they’re anything like any of our levels of government, universities have far too much office staff and administration that contribute little to necessary functions. Jason Heath goes through some reasons for early RRSP withdrawals. He r...

Smart people who analyze different investment strategies often talk about correlations. Investments have correlations that are high, low, positive, or negative. This can all sound impressive, but as I’ll show, any conclusions we draw based on correlations can be suspect. In the investment world, correlation is a measure of how asset returns move together. A positive correlation means two assets tend to give good returns together and bad returns together. A negative correlation means they tend to move in opposite directions. A zero correlation means the direction of one investment doesn’t tell you anything about the direction of the other investment. It’s impossible to know the correlation of two investments exactly. All you can do is measure their correlation over a period of time. We then just assume the correlation will remain the same into the future. To show the problem with this approach, I simulated two streams of monthly investment returns. The distributions I chos...

The first step to improving your finances is to spend less than you earn. But a great many people never seem to find the motivation to take this first step. The Latte Factor by David Bach and John David Mann aims to help readers find this motivation. It’s a short, easy read that many young people might find compelling. The book is the story of a young woman whose finances are a disaster, and she gets some good advice from an unexpected source. Even without the financial lessons for readers, the story works well enough to keep the pages turning. The first two of the book’s main messages are familiar to readers of financial advice: “Pay yourself first” and “Don’t budget—make it automatic.” The idea is that your savings should come off your pay first rather than waiting to see what’s left over after life’s expenses. The final main message is “Live rich now.” The idea is to find a way to live the life you want now instead of waiting until some magical future time when you’ll h...

Here are my posts for the past two weeks: More Buyers than Sellers STANDUP to the Financial Services Industry Here are some short takes and some weekend reading: Justin Bender looks at when it makes sense to own the all-in-one ETF VEQT and when it makes sense to hold two separate ETFs VCN and VT. I answered a similar question in a recent post , but was considering replacing VEQT with all 4 of its components. Preet Banerjee has Ben Rabidoux back on his Mostly Money podcast for an update on Canadian real estate. Big Cajun Man looks at the financial part of a marriage preparation course.

John J. De Goey doesn’t mince words in his book STANDUP to the Financial Services Industry . He says you should be “protecting yourself from well-intentioned but oblivious advisors.” In addition to pointing out the current problems with financial advice, he paints a picture of what it should be. He also offers an extensive list of questions to ask your financial advisor. Although parts of the book appear hastily written, the main message comes through loud and clear: we pay too much for advice that is often based on “facts” that have been proven untrue. Critics of financial advisors often paint them as villains, but De Goey says “Advisors might be better seen as unwitting accomplice intermediaries between some sophisticated corporations and trusting Canadian consumers.” So, your advisor may not be a bad person, but he or she works for people who know Canadians are getting a raw deal. While there is reasonable debate about the value of financial advice, there is little doubt th...

We often hear that stock prices rise because there are more buyers than sellers. Critics like to mock this way of thinking by saying that in every trade, there is a buyer and a seller, so there can never be more buyers than sellers. I think this is just being argumentative. At a given moment there can be more traders interested in buying a stock than selling that stock. This causes the price to rise so that more traders are enticed to sell and some potential traders are discouraged from buying. This continues until buying and selling interest gets back into balance. So, we can give the full long-winded explanation, or we can just say “buyers outnumbered sellers.” I can understand if some people don’t like the short form, but that doesn’t make the people who use it wrong. Critics can accuse them of being unclear, but calling them wrong is just being argumentative. If we want to be even more precise, we shouldn’t be counting just buyers and sellers, but weighting them by the ...

Here are my posts for the past two weeks: Eliminating Mandatory Minimum RRIF Withdrawals Currency Exchange at BMO InvestorLine Ancient Teachings on Earned vs. Inherited Wealth Here are some short takes and some weekend reading: Preet Banerjee argues that if current methods of teaching financial literacy aren’t working well, we should be trying to improve them rather than abandon them. I agree. He started the article with a clever quote: “‘I’m glad school taught me the Pythagorean theorem instead of how to do my taxes. It’s come in really handy this Pythagorean theorem season’ - @CollegeStudent on Twitter.” Much of what I learned when doing my taxes the first time isn’t relevant to me today. This is one of the challenges with teaching financial literacy: what lessons will remain relevant for decades as banks and retailers adapt their methods of undermining our attempts to manage money well? Ironically, it’s the math I learned in school that earned me a good living and ga...

“I see that you are indifferent about money, which is a characteristic rather of those who have inherited their fortunes than of those who have acquired them; the makers of fortunes have a second love of money as a creation of their own, resembling the affections of authors for their own poems, or of parents for their children, besides that natural love of it for the sake of use and profit which is common to them and all men. And hence, they are very bad company, for they can talk of nothing but the praises of wealth.” – Socrates, Plato’s Republic Ouch. That hit close too home for me. I built my own savings rather than inheriting it. I see my savings as my own creation, and I probably talk about money more than many in my life would like. I tend to like hearing the old proverb, “shirtsleeves to shirtsleeves in three generations,” because it sets the builders of wealth ahead of those who inherit and squander wealth. But Socrates sees this very differently. He prefers those wi...

Every so often I’m forced to change the way I convert large sums between Canadian and U.S. dollars at BMO InvestorLine. The basic method I use stays the same, but some of the details change as InvestorLine responds differently. The method I use saves a lot of money compared to using the InvestorLine foreign exchange system. Banks and brokerages hide fees in their currency exchange rates. To see the extra charge, start by taking a sum in Canadian dollars, say C$10,000, and finding out how many U.S. dollars you can get. Then see what this U.S. amount would get going back to Canadian dollars. Many people might guess they’d get their original C$10,000 back, but they’d be wrong. In a recent test I did at BMO InvestorLine, I’d get back C$9754, for a loss of C$246 in two currency exchanges. That’s $123 per exchange. Starting with C$100,000, the cost worked out to $464 per exchange. I use a method called “Norbert’s Gambit” to reduce these costs to about C$25 and C$50, respectively. Nor...

Every so often we see calls for the government to eliminate mandatory minimum RRIF withdrawals. Ted Rechtshaffen writes this “win-win change would be cheered by seniors and likely lead to higher taxes in the long run.” He fails to mention the tax-planning strategies it opens up for wealthy seniors. Under current rules, Canadians have to turn their RRSPs into RRIFs and make minimum withdrawals by age 71. These withdrawals are taxed as regular income. Wealthier Canadians who don’t need this income tend not to like having to make these minimum withdrawals. Here are a few ideas for tax planning if the government eliminates mandatory minimum withdrawals. Marrying a much younger spouse Normally, when you die, all your remaining RRIF/RRSP assets become taxable income. An exception is that you can pass these assets to a spouse’s RRIF without any tax consequences. Currently, this tends to happen after a RRIF has been depleted by mandatory minimum withdrawals. Without these withd...

Here are my posts for the past two weeks: From Here to Financial Happiness Reader Question: Should I Draw Down My RRIF? Here are some short takes and some weekend reading: Canadian Couch Potato does a deep dive into how ETFs work in possibly his last podcast. He also defended cap-weighted index investing against a flawed argument and cleared up a misconception about the fees in asset-allocation ETFs. Unfortunately, he undermined his credibility somewhat with a reference to DALBAR’s nonsensical calculation of investor underperformance. DALBAR likes to say they just have a minor disagreement with their critics about the minutiae of their calculation methodology. The truth is that if you buy some units of a 10-year old mutual fund, DALBAR docks your performance for having missed out on the previous decade of returns. John Robertson reports that changes are coming to TD’s e-series index mutual funds. I’m wondering whether this change will generate any capital gains for non-...

Long-time reader, AT, asked the following question (edited to remove personal details): I’m a single 67-year old living in Alberta. A CGA friend suggests I start drawing extra lump sums from my RRIF to reduce the amount of tax my estate will pay when I die. I'd like a second opinion before I start the withdrawals. Here are the relevant financial details: RRIF/LIF total assets of about $800,000 with total regular monthly withdrawals of $3780 (before tax) Total of CPP and OAS is $1641 per month (before tax) Part-time work brings in $10,000 to $15,000 annually (assume $12,500 in this analysis) Only $8000 in TFSAs (lots of remaining room) To start with, I’m not a CGA, and I may be missing pertinent details about AT’s situation. So, the following is for information purposes only. It’s not advice. AT’s total income works out to $77,552. Coincidentally, this is just slightly below the 2019 OAS clawback threshold of $77,580. So, any extra RRIF withdrawal larger than $2...

Reading Jonathan Clements’ book From Here to Financial Happiness is like having a chat with a wise financial advisor. He covers 77 personal finance topics, most in just a page or two. While it’s aimed at Americans, almost all its lessons are relevant to Canadians. Much of what matters in personal finance is making decisions that help you get what you want out of life. Clements covers these topics as well as the usual advice to spend less than you earn and avoid debt. One example is the third lesson where he asks the reader to “dream a little” and list the things you’d do if money were no object. Later the reader is led through the steps to make some of these dreams a reality. It isn’t until the end of the book that we get into picking investments. This book is wide-ranging and resists any further attempt to summarize it. So, I’ll use the rest of this review to point out a few parts that caught my attention; they aren’t meant to be a representative sample of the contents. ...

I managed only one post in the past two weeks: Irrational Exuberance (https://www.michaeljamesonmoney.com/2019/08/irrational-exuberance.html) Here are some short takes and some weekend reading: Cameron Passmore and Benjamin Felix discuss mortgage rates, REITs, and investor performance in mutual funds and variable annuities. Their podcasts are consistently entertaining and informative. In this podcast, it was the discussion of DALBAR’s studies that caught my attention. DALBAR regularly reports that individual investors underperform the mutual funds they invest in by wide margins because of behavioural errors. The gaps are usually so wide as to make them unbelievable. It turns out that their figures are nonsense, but few people in financial advisory positions seem to examine them closely, presumably because the message that people need help with their investments is welcome. I’ve discussed the problem with DALBAR’s “methodology” in detail before. Here is an attempt at a brie...

It’s been 19 years since Robert Shiller wrote Irrational Exuberance at the peak of the dot-com stock boom. I decided to give it a read to see if it teaches any enduring lessons. Don’t be fooled by the title into thinking this is a book full of entertaining stories about investor excesses. It’s largely an academic work that lulled me to sleep more than once. It takes a deep look at what defines a stock market bubble and what factors led to the then current high stock price levels. As an example of the author’s “playfulness,” he described Dilbert as a comic strip “which dwells on petty labor-management conflicts in the new era economy.” The discussion throughout the book is very thoughtful and thorough, but like much of macroeconomics, it’s hard to say anything definitive. If we raise interest rates, it might help, or might hurt; it’s hard to tell. A few of the book’s details caught my attention. At the time, inflation-indexed bonds paid 4% above inflation. I’d love to be...

Here are my posts for the past two weeks: How High are Rents Today? Canadian ETFs vs. U.S. ETFs Trusts, Whether You Want Them or Not Cut Your Losses Short Here are some short takes and some weekend reading: Preet Banerjee says that taking advantage of employer matching in savings plans is free money and deserves to be in the list of personal financial commandments such as avoid credit card debt. I agree, but it pays to look at the difference between costs in the employer savings plan and the costs in your personal portfolio (https://www.michaeljamesonmoney.com/2013/12/employer-matching-in-group-rrsps.html). In extreme cases where employer plans have very high costs, the employer match can get eaten up in fees over time. Robb Engen at Boomer and Echo says we should stop asking $3 questions and start asking $30,000 questions. By this he means focusing your attempts to build wealth on the big dollar amounts in your life. Robb is in the camp who says to go ahead and buy...

Common advice for stock pickers is to “ cut your losses short .” Investors have a tendency to hang onto loser stocks hoping to get their money back, but the experts say that’s a mistake. I have an example from my stock-picking days to illustrate this idea. I bought shares in some sort of fruit company and ended up losing money. Back in October 2000, I bought 3000 shares at US$20.54. They went down initially, and then bounced around in a range. I didn’t want to sell for a loss and held them. By July 2003, I’d had enough and sold them for US$19.51 each, a loss of just over US$3000. The problem isn’t just the lost money; I also lost time. If I’d sold this turkey sooner, I could have found a better stock to put my money in. Thankfully, I didn’t keep holding to lose even more money and time. What if I were still holding this stock? A quick search tells me this stock now sells for ... wait ... that can’t be right. There were stock splits too. Those shares would now be worth ...

Most of us have heard of wealthy families setting up trusts. We have a vague idea that they’re set up to reduce taxes or provide a controlled income to young beneficiaries. Income taxes on trusts can get complex. But people who set up trusts know what they’re getting into and are usually prepared to pay an accountant. However, as I found out, there’s a type of trust that comes into existence automatically. When a person dies, their executor must file a final tax return by tax-filing season the next year (or 6 months after death, whichever is later). However, this final tax return only applies to income that arrived before or at the person’s death. There are many easy-to-understand websites that explain these tax rules and basic tax-preparation software can handle these returns. But what about the income that comes after death? If there is no surviving spouse, it takes a while to distribute assets to beneficiaries. In the meantime, RRSPs, RRIFs, TFSAs, houses, and other asse...

When it comes to investing, we should keep things as simple as possible. But we should also keep costs as low as possible. These two goals are at odds when it comes to choosing between Canadian and U.S. exchange-traded funds (ETFs). However, there is a good compromise solution. First of all, when we say an ETF is Canadian, we’re not referring to the investments it holds. For example, a Canadian ETF might hold U.S. or foreign stocks. Canadian ETFs trade in Canadian dollars and are sold in Canada. Similarly, U.S. ETFs trade in U.S. dollars and are sold in the U.S. Canadians can buy U.S. ETFs through Canadian discount brokers but must trade them in U.S. dollars. Vanguard Canada offers “asset allocation ETFs” that simplify investing greatly. One such ETF has the ticker VEQT. This ETF holds a mix of Canadian, U.S., and foreign stocks in fixed percentages, and Vanguard handles the rebalancing within VEQT to maintain these fixed percentages. An investor who likes this mix of glo...

We hear a lot about how tough it is for young people to afford sky-high rents today. However, many of the articles I read measure affordability of renting for a single person of modest income. When I was young, few young people could afford rent on their own. Most rented rooms in a house or went in with one or two others to cover rent. This left me wondering if rents really are tougher to afford than when I was young. The last time I rented was decades ago, but I still remember what I paid. Using the CPP maximum pensionable earnings as a proxy for the rise of wages, the townhouse I rented years ago with my wife should cost $1180 per month today. But, a nearly identical place currently rents for $1760 per month. This is just a single example, but it appears to be typical of rents across my city. Renting now takes about a 50% bigger bite out of wages than it did when I was young. So, to the baby boomers who remember how hard it was to make rent decades ago and who might doub...

I managed one post in the past two weeks: Estimating the Value of 0% Financing Here are some short takes and some weekend reading: Robb Engen at Boomer and Echo looks at the range of investment options from the point of view of doing it the easy way or the hard way. He finds the right balance of costs and convenience with owning one of Vanguard Canada’s all-in-one portfolio exchange-traded funds with the ticker VEQT. He avoids the troubles and potential mistakes that come with owning U.S.-listed ETFs. However, there is a middle ground. One can own a base of VCN and U.S.-listed ETFs along with some VEQT so that most rebalancing doesn’t require currency exchanges. This approach is still more complex than just owning VEQT, but eliminating most currency exchanges reduces complexity and the possibility of errors significantly. The benefit of this compromise approach is lower costs than just owning VEQT. Canadian Couch Potato talks to Dr. Stephen Wendel, Head of Behavioural S...

I recently helped a family member buy a new car. She was paying cash for the car, so we had to estimate the value of the 0% financing offered to figure out a sensible price to pay for the car. The key factors that matter for estimating the value of low financing interest rates are duration and interest rate reduction. For example, suppose financing is offered for 4 years at a rate that is 4% below a competitive interest rate. This is a total of 4x4%=16%. However, if the car will be paid off over 4 years, the average balance owing will be close to half the price of the car. So, the value of the financing is about 8%. For this example, you can reduce the car’s MSRP by 8% as a starting point for a cash sale negotiation. This is equivalent to paying the full MSRP and taking the financing. From there you can negotiate down from the adjusted MSRP. It was interesting to talk to multiple dealerships and take this approach. A couple just pretended they didn’t know what I was talki...

Here are my posts for the past two weeks: Switch: How to Change Things When Change is Hard How Fast Will Your Portfolio Shrink in Retirement? Here are some short takes and some weekend reading: Preet Banerjee explains why you should never accept a foreign merchant’s offer to let you pay in your home currency. Benjamin Felix compares renting to owning a home in terms of unrecoverable costs. Big Cajun Man can probably hear the circus music after completing another round with CRA. They’ve accepted both halves of his documentation, but not both at the same time.

Once you’re halfway through retirement, you’d expect about half your savings to be gone, right? This turns out this is very wrong when we don’t adjust for inflation. The return your portfolio generates causes your savings to hold steady for a while and then fall off a cliff. I read the following quote in the second edition of Victory Lap Retirement : “A recent Employee Benefit Research Institute study found that people in the U.S. who retired with more than $500,000 in savings still had, on average, 88 percent of it left eighteen years after retirement.” Frederick Vettese provided further detail. This 88% figure is the median rather than the average. This statistic was used as proof that retirees aren’t spending enough. After all, if you planned on a 35-year retirement, half the money should be gone after 18 years, right? Not even close. Below is a chart of portfolio size based on the following assumptions. - annual portfolio return of 2% above inflation - annual wit...