In Warren Buffett’s latest letter to shareholders , he comments on companies using debt, but his ideas carry over to personal finance as well. We use debt sparingly. Many managers, it should be noted, will disagree with this policy, arguing that significant debt juices the returns for equity owners. And these more venturesome CEOs will be right most of the time. At rare and unpredictable intervals, however, credit vanishes and debt becomes financially fatal. A Russian-roulette equation – usually win, occasionally die – may make financial sense for someone who gets a piece of a company’s upside but does not share in its downside. But that strategy would be madness for Berkshire. Rational people don’t risk what they have and need for what they don’t have and don’t need. When times are good, it’s easy to make the payments on your debt; potential problems seem distant and harmless. But times can turn bad suddenly. Nearly 20 years ago, many Nortel employees with fat salaries found...

It’s not easy to figure out the best way to handle retirement accounts once you’re no longer collecting a regular paycheque. I’ve been working on the best way to handle my own retirement, so I was quite interested to read Larry Swedroe and Kevin Grogan’s book Your Complete Guide to a Successful and Secure Retirement . I’ve appreciated the academic rigour in Swedroe’s other books, and this one proved to be more of the same. Unfortunately for Canadians, this book is for Americans. Most of the book is relevant to Canadians as well, but detailed discussion of retirement accounts and tax laws are for Americans only. Knowing the rough mappings (IRA, RRSP) and (Roth IRA, TFSA) helps in some cases. This book leans toward giving advice to high net worth families. It isn’t entirely this way, but some parts are clearly intended to draw in rich clients for the authors’ advisory business. That said, it’s easy enough to ignore these parts and focus on solid advice relevant to people of mor...

Here are my posts for the past two weeks: Emotional Money Choices CPP and OAS Breakeven Ages Here are some short takes and some weekend reading: Preet Banerjee and Liz Mulholland appear on TVO to discuss financial realities and strategies for low-income retirees. Preet also interviewed the team from Passiv who offer a service to keep your DIY portfolio at a discount brokerage balanced for only $5 per month . Doug Hoyes and Ted Michalos say that not-for-profit credit counselling agencies are now just debt collectors funded by lenders. I’d be happy to read a rebuttal, but they make a very compelling case. Canadian Couch Potato gives us a new Excel spreadsheet for rebalancing portfolios of ETFs. The new feature is that it handles ETFs that consist of more than one asset class, such as the new all-in-one ETFs. This spreadsheet will certainly help DIY investors, but I prefer to use Google spreadsheets because they can look up stock prices. I just have to record changes i...

My wife and I are savers, and I like to think we make mostly rational financial choices. But there are a few less than rational things we do with money that make us happier. I’m not saying it’s irrational to seek happiness, but the reasons for these choices are definitely on the emotional side. Over-saving for retirement We saved quite a bit more than we needed to retire to the life we want. We could have quit our jobs earlier, but nagging doubts about whether we had enough drove us to work longer. It’s quite reasonable to save some extra as a buffer, particularly if you have a high-paying job and you’d make much less trying to re-enter the workforce years later. However, we went well beyond a reasonable safety buffer. But if we hadn’t over-saved, we would have felt uncomfortable, and we likely would have reduced spending on pleasures like travel. So, given our conservative financial natures, I think we made the right choice, even if it is somewhat emotional. Large saving...

The default age to start collecting CPP and OAS is 65, but Canadians are allowed to defer these pensions until they’re 70 in return for permanently higher payments. The internet is filled with analyses of how old you have to live to come out ahead by delaying benefits. The mistake people make is in how they use these “breakeven” ages. Suppose you work out that your CPP breakeven age is 85. If you don’t live that long, you’ll get more if you take CPP early, and if you live longer, you’ll get more by delaying CPP to age 70. There are many factors that feed into calculating a breakeven age, including how aggressively you invest, but let’s just use age 85 as an example. Worrying about the breakeven age only makes sense if you have enough savings to live on until at least age 70 without one or both of CPP and OAS. If you don’t have enough savings, you have little choice but to start taking government pensions before your savings run out. We’ll assume that you do have enough savin...

Here are my posts for the past two weeks: Happy Go Money My Investment Return for 2018 Preet Banerjee features prominently in this week’s short takes and weekend reading: Scott Terrio explains how trying to optimize your credit score can make your finances and your life worse. Credit scores measure your profitability to banks. You are the product, not the customer. Joint bank accounts curb wasteful spending according to a study by the University of Notre Dame’s Mendoza College of Business. My wife and I aren’t spenders, and we’ve always found joint bank accounts about as appealing as sharing a toothbrush. But this study could partially explain why some couples are adamant that joint bank accounts are the way to go. Preet Banerjee explains research results on what motivates us to save for retirement. It turns out many people are more interested in helping their families than helping themselves. Preet Banerjee interviews Dr. Avni Shah who explains research into ho...