Following up on her bestselling book Thinking in Bets , Annie Duke’s new book How to Decide makes good on its promise of “Simple Tools for Making Better Choices.”  This is a workbook of sorts filled with reader exercises and space to write in your work.  Readers can get a lot out of this book by just reading through it, but they’ll get more if they try some of the exercises. A necessary part of improving decision making is avoiding common types of mistakes.  But we tend to believe that while others make these mistakes, we don’t make them ourselves.  Duke does an excellent job of illustrating different types of mistakes and persuading readers that we make these mistakes too.  Perhaps a critical part of getting readers to understand their own failings is that Duke characterizes them as normal human tendencies rather than “mistakes” or “failings”.  Whatever we call them, it’s apparent that avoiding them requires mental effort and building new habits. A common...

I recently made my annual withdrawal from my BMO Investorline RRSP.  Curiously, Investorline added an extra eight cents to the withdrawal.  I suppose it’s possible I mistyped the amount, but it seems unlikely.  I remember typing in the dollar amount and deciding to add the “.00” to the end.  The eight key isn’t beside the zero key on my keyboard.  Is it possible that RRSP withdrawals are reviewed and retyped by an actual human at Investorline, and the person misread the final zero as an eight?  If this is right, I’m surprised the process isn’t more automated. Here are my posts for the past two weeks: Transitioning Your Portfolio into Retirement Quit Like a Millionaire Choose Financial Independence Here are some short takes and some weekend reading: The typical Canadian who takes CPP at 60 instead of 70 “loses over $100,000 of secure lifetime income in today’s dollar” according to a report by the National Institute on Ageing (NIA) and the FP Canada Research ...

Many of us dream of financial independence.  Chris Mamula, Brad Barrett, and Jonathan Mendonsa offer many practical ideas for achieving financial independence (FI) and enjoying the journey along the way in their book Choose FI: Your Blueprint to Financial Independence .  They avoid many of the problems we see in the FIRE (Financial Independence Retire Early) book category. The authors avoid the biggest problem with most FIRE books.  It’s annoying to tell the story of a high-income earner deciding to live like a student his whole life and retire in his 30s, and then say “you can too!”  Although I point out the bad parts of books, I can forgive a lot if my mind is opened to a good idea.  For this reason, I’ve enjoyed FIRE books even if they have some bad parts.  This book manages to avoid the worst parts of other FIRE books. The authors don’t bother much with retirement.  FI gives us choices so we can “scrap the idea of retirement completely and focus on...

Many of us dream of what life would be like as a millionaire.  In their book Quit Like a Millionaire , Kristy Shen and Bryce Leung tell the story of starting dirt poor and eventually retiring millionaires in their 30s.  The book is a cross between a how-to guide and their personal stories that works quite well to keep the reader engaged.  The main criticism is that the authors don’t seem to have realistic ideas about how the stock market is likely to perform, but this doesn’t take away from the practical ideas and motivation to help readers achieve financial independence. The book covers the usual subjects like education, debt, housing, banks, investing, taxes, travel, and retirement, all woven into Shen’s personal story.  She grew up dirt poor in rural China, and after coming to Canada made a series of steps ultimately leading to wealth.  If she can do it, you likely can too, and the authors set out to show you how. It’s common to hear that you should follow yo...

It's common for investors to want less risky investments as they transition into retirement.  This means that somewhere in the years leading up to retirement, investors plan to sell some of their stocks to buy more fixed-income investments.  What is the best way to make this transition? Like most things in life, there is no single answer that applies to everyone.  A range of approaches are possible, from a gradual shift over several years to a sudden sale of stocks on retirement day.  To decide which approach makes sense, I’m guided by my rule that I only invest in stocks with money I won’t need for at least 5 years. Last-minute stock sale upon retirement Can it ever make sense to wait until just before retirement to sell a pile of stocks to get to the asset allocation you want in retirement?  The answer is yes, if a number of conditions are met. Suppose you’ve been working for several years at a secure job with the plan to retire when your savings hit a target ...

I thought I was going to have to replace the locks on my house doors.  At first I just had to jiggle the key a little to get it in the lock.  But then it was getting bad enough that as I fought with it, I wasn’t sure the key could go in all the way any more.  Fortunately, before I called a locksmith, I did an online search.  The locks just needed a little grease.  I can’t believe how well it worked.  The locks had seemed like they were broken, not just a little stuck. There might be better lubricants for the job [a reader suggested graphite spray as a better solution], but I just used WD-40 in the keyholes.  A few seconds later, the locks were like new.  Don’t forget to hold a tissue or rag under the lock to catch the excess; it can make a mess dripping down your door. Here are my posts for the past two weeks: CPP Timing: A Case Study The Capitalist Code Management Expense Ratio per Quarter Century (MERQ) The Ultimate Retirement Guide for 50+ The ...

People without pensions like to call civil servants’ pensions “gold-plated.”  However, when they get a chance to get their own pension, they often turn down half of it. The inflation-indexed pensions common among government workers are extremely valuable.  Government accounting fictions set the value of these pensions lower than they really are, and taxpayers stand ready to make up the difference. Fair or not, it frustrates many private sector workers who have no pension to have to contribute taxes for others’ pensions.  But when these frustrated taxpayers get the chance to collect their own CPP pensions, they often opt for payments less than half of what they could be. The catch here is that to get the largest CPP payments possible, you have to wait until you’re 70 to start collecting CPP.  These payments are more than twice as large as payments are when you take CPP starting at 60. We can’t blame people for taking CPP early if they don’t have any retirement savings...

Canada’s tax system is very complicated.  It takes an army of accountants to help Canadians navigate the tax system and another army of tax collectors at Canada Revenue Agency (CRA) to police all the rules.  Author and CPA Neal Winokur thinks we need to simplify the tax system even if it puts him out of work.  He offers ideas to fix the tax system in his book The Grumpy Accountant .  The book also serves as an easy-to-understand introduction to the Canadian tax system. The book is written in the style of a story, not unlike The Wealthy Barber , which works surprisingly well.  The “story” parts are very brief, so we get to each tax issue quickly, but the story helps to give context as we follow a couple throughout their tax lives.  This presentation, along with the fact that Winokur doesn’t get mired in unnecessary details, helps the reader get a good high-level understanding of the major aspects of Canada’s tax system. Winokur advocates huge simplifications...

Suze Orman dropped out of the spotlight a few years ago, but she’s back with the book The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime .  The book contains solid financial advice for retirees and near-retirees.  The advice is aimed at Americans, but Canadian readers can easily skip parts that aren’t relevant in Canada.  Surprisingly to me, some of the best parts of the book aren’t directly about finances. My favourite chapter is “Where to Live.”  It begins “I imagine some of you are thinking you might breeze right past this chapter.”  I was skeptical initially, but the advice is excellent.  The main choice we will face is whether to live out our lives in the same home or move somewhere else. Orman explains the many advantages of moving somewhere more suitable for an older you, but she recognizes that many people are determined to stay in their homes.  If you plan to stay, you should consider making changes to...

Savvy investors know they pay fees to invest in mutual funds and Exchange-Traded Funds (ETFs).  Most of these costs are captured by the Management Expense Ratio (MER).  MERs are calculated by taking the fees charged in a year and dividing by the total fund assets.  By focusing on annual fees, the MER percentage is misleadingly low.  What really matters is how much of your money goes to fees over a lifetime of investing. For someone who begins investing at age 30 and lives to 85, the total investing period is 55 years.  However, the portfolio is small initially and may be small late in life.  When it comes to the cumulative effect of fees over a lifetime, what matters is how long the average saved dollar is in your portfolio from the day you save it until the day you spend that dollar and all the returns it has produced.  For a nice round figure, I use 25 years as the average holding period for saved retirement dollars. This gives rise to the Management...

Ben Stein has an interesting short book called The Capitalist Code: It Can Save Your Life and Make You Very Rich .  He aims it mostly at young people as a combination of financial advice and a defense of capitalism. The advice part of the book is essentially to save some money to invest in stocks as a way to hitch a ride on the incredible wealth generation capitalism provides.  He says that when “we hook up our lives to the mighty engine of capitalism,” we’re generating wealth to deal with the wide array of uncertainties in life. On the subject of employment, Stein “will always advise working at one loves,” and “we might as well be prisoners as work in jobs we loathe.”  I agree with this to an extent, but we have to meet the world halfway.  If all the people who love painting landscapes tried to make a living at it, 99% would starve.  You have to choose among jobs that have some hope of paying enough money to live. To those who might doubt the benefits of capita...

There are many factors that can affect your decision on whether to take CPP at age 60 or 70 or somewhere in between.  Here I do a case study of my family’s CPP timing choice. Both my wife and I are retired in our 50s and had periods of low CPP contributions because of child-rearing and several years of self-employment.  So, neither of us is in line for maximum CPP benefits.  If we both take CPP at age 60, our combined annual benefits will be $11,206 (based on inflation assumptions described below).   The “standard” age to take CPP is 65.  If you take it early, your benefits are reduced by 0.6% for each month early.  This is a 36% reduction if you take CPP at 60.  If you wait past 65, your benefits increase by 0.7% for each month you wait.  This is a 42% increase if you wait until you’re 70. However, there are other complications.  If you take CPP past age 60, any months of low CPP contributions between 60 and 65 count against you unless you c...

You might have noticed I’ve written quite a few book reviews lately.  The books I had on hold at the library were taking a long time to become available (maybe because of the pandemic), so I put more books on hold.  But then they started showing up in bunches.  I’m barely staying ahead of the return dates.  You can expect more reviews in the coming weeks as several of the books I have out now are about money. Here are my posts for the past two weeks: Bond Quiz Value Averaging Mom and Dad, We Need to Talk Napkin Finance Here are some short takes and some weekend reading: Preet Banerjee interviews Multi-Level Marketing “survivor” David Pride who needed 3 years of therapy to de-program his brain when he left.  I know there’s a cult aspect to many MLM schemes but had no idea it was this powerful. Mark Burgess has a sensible take on when to start your CPP.  He also points out the conflict of interest financial advisors have when they advise on CPP timing. Just...

When it comes to money and finances, it seems like everything we learn is more complicated than we hoped.  The book Napkin Finance: Build Your Wealth in 30 Seconds or Less by Tina Hay offers very short overviews of a wide range of financial topics.  The format is appealing in some ways, but it’s an American book and much of the content isn’t relevant to Canadians. The book covers a wide range of financial topics, including compound interest, credit, investing, college costs, retirement, taxes, GDP, and Bitcoin.  Each begins with the image of a napkin with drawings overviewing the subject.  Then there are a couple of pages with further explanations.  The format felt gimmicky at first, but it grew on me.  Before people can understand the many details and subtleties of an area, they want a quick understandable overview for context. The book contains lots of humour to help hold readers interest.  One of my favourites was “A hedge fund is a fee structure i...

I wasn’t sure what to expect from Cameron Huddleston’s book Mom and Dad, We Need to Tak: How to Have Essential Conversations with Your Parents about Their Finances , but I was pleasantly surprised.  It’s well written and contains lots of practical advice about the steps we need to take to make it easier to help our parents as they age.  The book is U.S.-centric, so some of the more detailed advice is less useful to Canadians, but is still well worth a read. A common theme throughout the book is that some steps with helping your parents need to begin long before they need help.  I’ve been in the position of rooting through a house full of papers trying to figure out what accounts there are and what bills need to be paid.  I can only imagine how much worse the experience would have been if I didn’t have a power of attorney document prepared in advance. It’s tempting to decide that there’s no need to do anything right now because your parent or parents are fine.  H...

The book Value Averaging by Michael E. Edleson promises a simple mechanical strategy for beating the market over decades by routinely buying more stocks when they’re low and selling some stocks when they’re highest.  It was first published in 1991 and “has steadily grown to cult-classic status” according to William J. Bernstein in the 2007 edition.  Despite the impressive endorsements, the method doesn’t work.  Value Averaging’s supposed success depends on measuring returns incorrectly. Dollar Cost Averaging (DCA) As a warmup, the first investment strategy Edleson describes is Dollar Cost Averaging (DCA), which is the simple idea of investing a fixed dollar amount every month (or other fixed time period).  When the market is down, your money will buy more shares than when it is up, so your average purchase price over a year will be lower than the average share price over that year. To illustrate the advantage of DCA, Edleson compares it to another strategy that he c...

After my recent post arguing that Owning Today’s Long-Term Bonds is Crazy , I got a lot of thoughtful reaction, but I also found that many people are confused about how bonds work.  So, I’ve put together a short quiz to test your bond savvy. For each of these questions, we assume that you have just invested $10,000 in a 30-year government bond paying 1.2% interest. 1. What payments will you get from this bond if you hold it for the full 30 years? a) It depends on how the consumer price index changes over the years. b) You get $120 each year for 30 years, and at the end you get your $10,000 back. c) It depends on how interest rates change over the 30 years. 2. If interest rates rise, what will happen to your annual interest payments? a) They will go up. b) They will stay the same. c) They will go down. 3. If interest rates fall, what will happen to the resale value of your bond? a) It will go up. b) It will stay the same. c) It will go down. 4. Suppose interest rates rise over the n...

My printer saga from two weeks ago ended with me replacing my HP thing (is it a printer if it doesn’t print?) with a Brother laser printer that a family member no longer needs.  The only amusing part of the installation is that the default printer driver caused black and white to be reversed so that every printed page was almost solid black.  It’s all fixed now after some wrestling with printer drivers, but the test pages drained all the toner.  I guess that works well for whoever sells toner. Here are my posts for the past two weeks: The Elements of Investing Owning Today’s Long-Term Bonds is Crazy How to Really Ruin Your Financial Life and Portfolio Your Money’s Worth Here are some short takes and some weekend reading: Robb Engen at Boomer and Echo describes how he invests his own money using VEQT.  The big advantage of his approach is its simplicity.  It makes sense to spend some time figuring out how you’ll run your portfolio.  But for most of us, once...

The landscape for financial advice in Canada is confusing at best.  There are many designations that range from essentially mutual fund salespeople to highly-skilled fiduciaries.  Author Shamez Kassam aims to explain it all in his book Your Money’s Worth: The Essential Guide to Financial Advice for Canadians .  This book has a lot of useful information about financial advice (mostly for wealthy people), but understates problems in the industry, and contains repeated pitches for readers to use a financial advisor. The main topic areas covered are the various types of advisors, investment products and principles, insurance and estate planning, and a set of forms designed to help evaluate and choose a financial advisor.  The emphasis in this book on advising the wealthy starts early in the introduction: Advisors “offer big-picture concepts and solutions, and then coordinate with your accounting and legal professionals.”  There is some information relevant to people...