Index investors usually choose some target allocation percentages for the different asset classes of stocks and bonds in their portfolios.  As markets move, these percentages can wander, so investors need to make trades to get back to their target percentages, a process called rebalancing.  Long-time reader JC asked how rebalancing changes when there are no trading fees. Younger people with smaller portfolios typically rebalance only when they add new money to their portfolios.  This can be as simple as buying more of whichever asset class is furthest below its target percentage.  Those with larger portfolios can’t always keep balanced with new money; sometimes they have to sell an ETF that’s been rising to buy another that’s fallen behind.  One way to do this is to rebalance based on the calendar, perhaps once per year.  With this approach, having no trading fees makes little difference in how investors rebalance. More ambitious investors may try “threshol...

I wrote one post in the past two weeks: Fortress Fiasco Here are some short takes and some weekend reading: Justin Bender brings us his ultimate guide to foreign withholding taxes on ETFs.  Unlike other so-called “ultimate guides” I’ve seen from other financial writers, this one really is comprehensive and useful. Morgan Housel says being happy financially requires managing your expectations as much as making more money. Alexandra Macqueen explains what goes into calculating official inflation figures and the controversies surrounding what is and is not included. Jason Heath is a Certified Financial Planner who refers to his practice as “advice-only” to try to distinguish his services from those paid by commissions or percentage of assets. The Blunt Bean Counter explains how large gifts to grandchildren can have some unpleasant tax implications if you’re not careful.

A great many investors have lost money on Fortress syndicated mortgages.  The fact that investors sometimes lose money isn’t news.  But I have a more personal story concerning how these syndicated mortgages were sold. According to Neil Gross , “thousands of Fortress investors were badly stung or wiped out entirely – losing perhaps hundreds of millions of dollars in total,” but the Financial Services Regulatory Authority (FSRA) “announced that everything’s been settled by Fortress agreeing to pay an administrative penalty of $250,000 – an astonishingly low amount in comparison to the estimated $320-million that Fortress pocketed in fees and paid its agents.” At question is whether Fortress misled investors.  Gross says “FSRA hasn’t provided a rationale for the low penalty, or an explanation about why Fortress was given such a settlement deal without first compensating its investors.” My small contribution to this story started with a friend (let’s call him Jake) asking for...

I wrote one post in the past two weeks in the form of a quiz: A Quiz on the 4% Rule Here are some short takes and some weekend reading: Rate Spy has some statistics about Canadian mortgage deferrers who are soon to have to start making payments again.  How much this will affect the housing market is anyone’s guess. Morgan Housel explains why we should save like pessimists and invest like optimists.  I would add that we should avoid debt like pessimists as well. Robb Engen at Boomer and Echo asks whether he has already achieved FIRE (Financial Independence Retire Early).  FIRE gets used to mean so many different things that it’s hard to say.  To me, financial independence means not needing income from work ever again.  So, Robb doesn’t pass this test.  I define retirement as being free from demands on my time that I can’t ignore because I need the money.  Robb doesn’t pass this test either.  However, to many people FIRE means quitting the job th...

Reporters and bloggers write endlessly about William Bengen’s 4% rule for retirement spending, but its details are widely misunderstood.  So, I’ve created a short quiz to test your knowledge of this rule.  I give answers below, but this isn’t multiple choice, so you’ll have to decide for yourself how closely your answers match reality. Jane retired a year ago with $500,000 saved.  She is using the 4% rule, so she initially withdrew $20,000 to spend during her first year of retirement.  Today it’s time for her next withdrawal, and her portfolio has grown from $480,000 to $505,000.  Inflation was 2%, and she’s now 66 years old.  To follow the 4% rule, how much should she withdraw today? Jane pays a hefty 2.5% MER on her mutual funds.  If she reduces her costs to only 0.5% per year, how does that change her withdrawals under the 4% rule? Tom saved aggressively during his working years and retired at 45.  How does the 4% rule apply in his case? Jim i...