Today’s long-term bonds pay such low interest rates that it makes no sense to own them.  There is virtually no upside, and rising interest rates loom on the downside.  Warren Buffett called this “return-free risk.”  He was right.  Here I explain the problem and address objections. As I write this, 10-year Canadian government bonds pay 0.623% interest.  If you invest $10,000, you’ll get a total of only $623 in interest over the decade, and then you’ll get your $10,000 back.  This is crazy.  Even if inflation stays at just 2%, you’ll lose $1237 in purchasing power. Even worse are 30-year Canadian government bonds that pay 1.224% as I write this.  Your $10,000 would get a total of $3672 in interest over 3 decades.  This is a pitiful amount of interest over a full generation.  At 2% inflation, you’ll lose $1738 in purchasing power.  Even a portfolio that only beats inflation by 2% per year would gain $8113 in purchasing power over 30 ye...

When it comes to what really works in investing, two of the greats are Burton Malkiel (author of A Random Walk Down Wall Street ) and Charles Ellis (author of Winning the Loser’s Game ).  They came together to write the short book The Elements of Investing that leaves out “complex details that tend to overwhelm normal people.”  This book is full of excellent ideas that Canadians can apply, although the most detailed advice is U.S.-centric. The elements of investing the authors chose are save, invest in indexes, diversify, avoid blunders, and keep it simple.  We all know that saving is easier said than done.  I was pleasantly surprised at the practical ideas on saving rather than just preachiness. “Because they center their thinking on enjoying the benefits of achieving their goals, most savers and most slim people take pleasure in the process of saving and the process of keeping trim.  They do not think in terms of deprivation.”  “You can too.” For coupl...

This has been a week of IT fixes for me.  I’ve been fixing broken links on the blog and trying to keep the family printer/scanner working.  For a long time we’ve been able to print but not scan from my wife’s laptop.  But on my laptop, I could only scan and not print.  So we sent messages back and forth (“please print this pdf” and “here’s the scan you wanted”).  Finally, after an HP Smart app “update,” scanning stopped working for me too.  Several hours of fruitless attempts to install an updated printer driver led me to try the Windows scan app to access the scanner.  It seemed to work at first, but it produces comically large files because it thinks the paper is 23x32 inches (you can’t make this stuff up).  All this has left me planning to buy a new printer.  It seems silly to buy new hardware over a software problem, but that’s where I am. Here are my posts for the past two weeks: Financial Warning Signs Variable Percentage Withdrawal: Ga...

The concept of Variable Percentage Withdrawal (VPW) for retirement spending is simple enough: you look up your age in a table that shows what percentage of your portfolio you can spend during the year.  The tricky part is calculating the percentages in the table.  Fortunately, a group of Bogleheads did the work for us.  Unfortunately, the assumptions built into their calculations make little sense. If we knew our future portfolio returns and knew how long we’ll live, then calculating portfolio withdrawals would be as simple as calculating mortgage payments.  For example, if your returns will beat inflation by exactly 3% each year, and your $500,000 portfolio has to last 40 more years, the PMT function in a spreadsheet tells us that you can spend $21,000 per year (rising with inflation). Instead of expressing the withdrawals in dollars, we could say to withdraw 4.2% of the portfolio in the first year.  If the remaining $479,000 in your portfolio really does earn ...

I recently saw the headline Five warning signs you are in over your head financially , by Pattie Lovett-Reid.  I saw it as an opportunity to learn more about how to help people avoid financial trouble. Here is a summary of her list of warning signs: You are ignoring your finances. Your finances are giving you a lot of anxiety. As soon as you get paid, all of your money is spoken for, with the majority of it going to debt service. Your creditors are calling non-stop. You are borrowing from Peter to pay Paul. I was expecting warning signs that you’re headed in a bad direction, but these seem to be signs that you’re already in serious trouble that will be difficult to fix.  In a similar vein, here are my warning signs that you’ve got health problems. Most of your blood is on the ground. You haven’t breathed in a few days. You’ve been cremated. My point is that I was hoping for more subtle signs that your finances are heading in the wrong direction.  Catching the problem earl...

Sharp-eyed readers might have noticed that I removed ads from my blog.  The income has been dismal for some time, and I was never really doing this for the blog income.  The deciding factor was that so many of the ads I saw on my blog were at odds with my messages. I started writing because I wanted to learn more about investing and about personal finance in general.  With the help of readers I've made great strides, and I've been pleased to educate others while learning myself. I wrote one post in the past two weeks: Rebalancing When There are No Trading Fees Here are some short takes and some weekend reading: William Bengen, author of the original “4% rule,” revisits his work on safe retirement withdrawal rates.  (The paper appears to now be caught behind a paywall or sign-up.)  This paper is quite interesting, although it travels significantly into data-mining territory.  Here are a few things I wish he would consider in his analysis: longer retirements ...