I was reminded recently that companies change over time.  Years ago, I bought a Remington shaver.  My reaction was similar to Victor Kiam’s: “I liked the shaver so much I bought the company.”  I didn’t buy the company, but I bought nothing but Remington shavers for decades.  My perception was that Remington was a company that sold a high-end product, and I was willing to pay for a better shave. However, when the time came to replace my shaver recently, all the Remington choices were suspiciously inexpensive.  I settled on the F4 model, which turned out to be terrible.  Scraping it over my face for three times as long as my previous shaver didn’t produce an acceptable shave. I decided to contact the company to see if I had just missed a better model.  They annoyed me by suggesting that I don’t know how to shave correctly and ultimately offered me my money back.  They didn’t seem to understand that I didn’t care about getting my money back; I just w...

Reader N.T. asked me the following thoughtful question (lightly edited for brevity and privacy): I was reading your article Calculating My Retirement Glidepath , and I am still a little confused on your drawdown strategy. I think I understand the broad concept but I am confused on the details on how to execute. I was hoping you can comment on what I plan on doing with my parents’ retirement drawdown strategy. They are ETF index investors like yourself with a 60% stock/40% short-term bonds split. My dad will be 73 and my mom will be 60 when they retire. I plan on withdrawing 4-4.5% from their investment portfolio. Based on the safe withdrawal of 4% study and some of the recent research done from another great Michael, Michael Kitces, I think the success rate of my parents not running out of money is like 98-99%. I can’t tell you how you should handle your parents’ retirement spending, N.T., but I can explain how I would handle it for myself.  There are three areas I’ll discuss: what...

There aren’t many financial gurus willing to call out financial companies by name for their bad behaviour, but Ramit Sethi is one of them.  In his book I Will Teach You to be Rich , he promises “a 6-week program that works,” and he includes advice on which banks to use and which to avoid.  The book is aimed at American Millennials; Canadians will learn useful lessons as well, but much of the specific advice would have to be translated to Canadian laws, banking system, and account types.  The book’s style is irreverent, which helps to keep the pages turning. It may seem impossible to fix a person’s finances in only 6 weeks, but this is how long Sethi says it will take to lay the groundwork for a solid plan and automate it with the right bank accounts and periodic transfers.  The execution of the plan (e.g., eliminating debt or building savings) will take much longer. Sethi is rare in the financial world because he will say what he really thinks about banks.  “I h...

Last year I said I wasn’t counting on 2020 delivering another year of double-digit returns.  Well, despite a wild ride in the stock market, I wasn’t too far from double digits with a return of 7.7%.  This almost exactly matches my 2020 benchmark return of 7.6%. My return is somewhat lower than 2020 stock market returns because I’m now retired and have 5 years worth of my safe spending level in a combination of savings accounts, GICs, and short-term bonds.  This amounts to about 20% of my portfolio, and the rest is in stocks (see here for more detail on my holdings and how I run my portfolio). There were two main factors that determined how well my portfolio performed relative to my benchmark.  The first is that because I’m living off my savings, the returns from early in the year are slightly over-weighted compared to later in the year.  So, the stock market crash brought my portfolio’s returns down more than my benchmark’s returns.  The second factor is ...

Morgan Housel is an excellent writer.  No matter the topic, any article of his is a compelling read, as is his book The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness .  It may seem bold to declare the lessons you teach to be “timeless,” but Housel delivers on this promise.  Thoughtful readers will learn about themselves in reading this book. The format of the book is 20 independent essays, with just a few threads linking them together.  Collectively, though, they provide useful insight into the way we all think about money. The introduction observes that we’ve collectively “become better farmers, skilled plumbers, and advanced chemists,” but Housel has “seen no compelling evidence” that we’re getting better at handling our money.  He believes this is because “we think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance).”  I’d like to a...

Many people have heard of the Smith Manoeuvre, which is a way to borrow against the equity in your home to invest and take a tax deduction for the interest on the borrowed money.  It was originally popularized by Fraser Smith , who passed away in Spetember 2011.  Now his son, Robinson Smith, has written the book Master Your Mortgage for Financial Freedom which covers the Smith Manoeuvre in detail for more modern times.  Smith Jr. explains the Manoeuvre and its subtleties well, but his characterization of its benefits is misleading in places. The Smith Manoeuvre In Canada, you can only deduct interest payments on your taxes if you invest the borrowed money in a way that has a reasonable expectation of earning income.  Buying a house does not have the expectation of earning income, so you can’t deduct the interest portion of your mortgage payments. However, if you have enough equity in your home that a lender is willing to let you borrow more money, you could invest t...

I decided to check out the Microsoft software class action settlement .  They say “If you bought PC versions of Microsoft MS-DOS, Windows, Office, Word, Works, and/or Excel between December 23, 1998 and March 11, 2010 (inclusive), you may be eligible for compensation from this settlement.”  There is a link to submit a claim online.  I bought 4 computers during the relevant period, each with Windows and Office.  They assigned a claim value of $13 for Windows and $8 for Office (at least in my case).  So my claim total came to $84.  You have until 2021 Sept. 23 to submit a claim and if you get any money, it won’t be until 2022 sometime.  By then I will have forgotten about it and any money I get will brighten my day. Here are my posts for the past two weeks: The Myth of Simple Interest on Loans Your Money or Your Life The Total Money Makeover The Right Way to Calculate Net Worth Is Delaying CPP “Actuarially Neutral”? The Sleep-Easy Retirement Guide Here a...

There are many big questions when it comes to retirement and David Aston meets them head on in his thoughtful book The Sleep-Easy Retirement Guide: Answers to the Biggest Financial Questions That Keep You Up at Night .  His style is to discuss the advantages and disadvantages of different courses of action which works very well for the big questions he tackles. The main audience for this book is “relatively knowledgeable readers” and “the seasoned investor” who need help “answering the more complex and challenging questions.”  The first question sets the tone for the rest of the book: “How can I fit my retirement dreams within my financial reality?” The Big Questions In the chapter covering, “How big a nest egg will I need?,” the author does an excellent job making it clear that the safe starting withdrawal rate depends on how old you are when you retire, a fact that too many commentators miss.  For those retiring at 65, he suggests the default starting withdrawal rate is...

You can start your Canada Pension Plan (CPP) payment any time from age 60 to 70.  The longer you wait, the bigger the monthly payments.  We often hear that CPP is designed to be actuarially neutral, which means that you expect to get the same total amount from the system no matter when you start taking payments.  However, the truth of this statement changes depending on whose point of view we consider. In his thoughtful book The Sleep-Easy Retirement Guide , David Aston writes that CPP is “designed to be ‘actuarially neutral’” and “you won’t usually go too far wrong if you start [payments] any time after you retire and are eligible.”  This isn’t true for most of us. If we look at this from the point of view of the CPP system itself, it’s true that they care little whether you start payments early or late.  As long as their guess is right about how long the average person will live, they know how much they’ll pay out.  To be even one year off in their averag...

A few years ago, Robb Engen wrote an article with the same title as this one .  He convincingly defended his method of calculating net worth.  I don’t think he’s wrong, but his method doesn’t work for me.  The reason is that he calculates his net worth for a different purpose than I do. The idea of Assets - Liabilities = Net Worth is simple enough.  What’s the debate?  It turns out that what to count among assets and liabilities isn’t always obvious.  Robb says “The correct formula for calculating net worth is the one you use consistently over time to measure progress. That’s it.”  Implicit is the idea that your goal is to measure progress.  At my stage of life, my goal is different. When I was younger my main purpose in calculating my net worth was to measure my financial progress.  However, as I approached retirement I became more interested in how much I could safely spend each month during retirement.  This different goal puts new r...

Dave Ramsey is a very popular radio show personality who offers personal financial advice.  He captures that advice in his book The Total Money Makeover , Classic Edition.  Ramsey says the formula for financial success isn’t complex, and that there is little in the book you can’t find elsewhere.  “Personal finance is 80 percent behavior and only 20 percent head knowledge.”  As a result, his book is long on motivation, and short on specifics of how to follow his “baby steps” to financial freedom.  This focus on motivation may be what his target audience of people who handle money poorly need most.  While most personal finance experts discuss the dangers of debt, Ramsey takes debt aversion to a new level, which is also likely good for his target audience. It’s not hard to find things to criticize about Ramsey’s approach.  Many readers may find the frequent bible references off-putting, particularly toward the end of the book.  The religious content ...

The first edition of the best selling personal finance book Your Money or Your Life , written by Vicki Robin and Joe Dominguez, came out nearly 30 years ago.  In 2018, Robin revised and updated it, and added a foreword by Peter Adeney, a.k.a., Mr. Money Mustache.  The book lays out a 9-step plan to fix your finances.  Only the last two steps deal with investing, so the main focus is on transforming the way you think about spending and earning money. Robin’s passion for helping people comes through loud and clear.  Part of her motivation for rewriting the book came from thinking about rampant student debt: “What kind of society turns its young people into a profit center for the debt industry?”  We work and waste our money so that “We are sacrificing our lives for money, but it’s happening so slowly that we barely notice.” In the original version of this book, all 9 steps were simple to understand and perform.  In the update, the final two steps related to i...

A persistent myth is that you don’t pay compound interest on installment loans, such as mortgages, car loans, and other personal loans.  I’ll show that this is nonsense. One example of this myth comes from an Investopedia article on car loans : “Auto loans include simple interest costs, not compound interest.”  The reasoning is that if your payments cover all the interest that accrues each payment period, then there is no opportunity to build interest on top of interest. However, money is fungible.  Why can’t we think of each payment as going against principal and leaving the interest owing?  Then there would be interest building on top of interest.  We could also think of payments applied proportionally.  For example, if a payment represents 5% of the remaining amount owed, we could think of the payment covering 5% of the remaining principal and 5% of accrued interest.  This proportional method is the most useful way to think about how payments apply,...

Ordinarily I disagree with those who follow the end-of-year tradition of complaining about the past year, but 2020 is a year I’m happy to see end.  After we pull through this COVID-19 winter, I’m looking forward to great times in spring and summer.  So far, I’ve made good use of my “lockdown” time sorting through the stuff in my house and giving away or throwing away much of it.  Each unwanted thing that leaves my house makes me smile, especially if it goes to someone who does want it. The only post I managed in the past two weeks is a review of Annie Duke’s latest book: How to Decide Here are some short takes and some weekend reading: John Robertson compares his free CPP calculator to the one created by Doug Runchey and David Field.  He also observes that “CPP has enormous, unmatchable longevity insurance benefits,” which are maximized when you delay starting CPP payments to age 70. Ellen Roseman interviews Fred Vettese in the latest Moneysaver podcast to discuss ...