The financial products available today can make do-it-yourself (DIY) investing very easy, as long as you don’t get distracted by bad ideas.  Here I map out one possible lifetime plan from early adulthood to retirement for a DIY investor that is easy to follow as long as you don’t get tempted by shiny ideas that add risk and complexity. I don’t claim that this plan is the best possible or that it will work for everyone.  I do claim that the vast majority of people who follow different plans will get worse outcomes. Most of my readers will be more interested in the later stages of this plan.  Please indulge me for a while; the beginning lays the foundation for the rest. Starting out Our hypothetical investor – let’s call her Jill – is at least 18, currently earns less than $50,000 per year, and has a chequing account at some big bank.  She has a modest amount of savings in her account earning no interest.  It’s about time she opened a savings account to earn some ...

An alternative to managing a portfolio of stocks and bonds through retirement is to use insurance company products such as annuities and whole life insurance to get more predictable outcomes.  Mixed approaches are possible as well.  Wade Pfau, a professor of retirement income, makes the case for income guarantees in his book Safety-First Retirement Planning.  The book is a dry read, but it’s thorough in its explanation of insurance company products.  Pfau’s intent is to persuade the reader that annuities and whole life insurance can help build a better retirement, but the book had the opposite effect on me. Any reader looking for a deep understanding of income annuities, variable annuities, fixed-index annuities, and whole life insurance along with the vast array of bells and whistles available on these products will find it in this book.  Income annuities are simple enough, but the other insurance products have so many small variants that it seems impossible to...

If your financial life is going well, you’ve probably never used a Buy Now Pay Later (BNPL) app and may not have ever heard of them.  Here I look at what return they make on their money, and who pays them this return. For a good explanation of BNPL apps, see Preet Banerjee’s video where he covers what they are and why you should avoid them.  In a typical case, if you are online buying a $100 item, you might encounter an offer to pay $25 now, and then $25 more in 2, 4, and 6 weeks.  From your point of view, this looks like an interest-free loan, but the BNPL company might only pay the retailer $94.  So, the BNPL company makes $6 over 6 weeks. BNPL Returns For this example, Preet calculates the BNPL company’s return as $6 on $94 invested over 6 weeks (42 days).  This works out to an annual uncompounded rate of (6/94)*(365/42) = 55%. However, the BNPL company didn’t wait 6 weeks for the whole $100.  In fact, it got $25 of this money right away.  So, we c...

I enjoyed Nassim Taleb’s take on Bitcoin (below).  He doesn’t hold back.  There’s a huge difference between pricing Tesla cars in Bitcoin vs. asking for the Bitcoin equivalent of the car’s price in U.S. dollars.  He also says those who believe Bitcoin is a store of value are “ignorant.”  In a different tweet, he says that if you return your car, Tesla has the option to refund you the Bitcoin you paid or the dollar equivalent Bitcoin amount (whichever is less, presumably).  This doesn’t sound like much of a commitment to Bitcoin by Tesla. Tesla is not pricing its cars in # BTC as some idiots are mistakenly stating. Tesla is pricing its cars in $ and converts for the transaction. BTC was down 10% overnight. One must be reaaaaaally ignorant to treat a SPECULATIVE item as a "currency" or reliable "store of value". https://t.co/0MGKlzH0Wk — Nassim Nicholas Taleb (@nntaleb) March 25, 2021 Here are my posts for the past two weeks: Pre-Construction Deals Create a Dish...

Canadians who take their CPP at age 60 instead of 70 “can expect to lose over $100,000 of secure lifetime income, in today's dollars, over the course of their retirement,” according to Dr. Bonnie-Jeanne MacDonald in research released by the National Institute on Ageing (NIA) and the FP Canada Research Foundation .  However, those who retire before 70 need savings to tide them over until their larger CPP pensions start if they want to live at least as well in their 60s as they do later in retirement.  Here we look at the amount of savings required by a retired 60-year old to be able to delay CPP and OAS pensions. We’re used to thinking of CPP and OAS pensions as just a few hundred dollars per month, but a 70-year old couple just starting to receive maximum CPP and OAS pensions (but not any of the new expanded CPP) would get $61,100 per year, rising with inflation for the rest of their lives.  If the same couple were 65 they’d only get $43,700 per year.  If this 65-yea...

Mutual fund investors caught by deferred sales charges (DSCs) understand their downside.  They’d like to sell their funds but face penalties as high as 7% if they sell.  DSCs are set to be banned across Canada (but only restricted in Ontario) in mid-2022.  Until then, mutual fund salespeople masquerading as financial advisors can still sell funds with DSCs to unsuspecting investors. Before DSCs existed, it was common for advisors who sold mutual funds to get a “front-end load,” which is a fancy term for giving some of an investor’s money to the advisor or the advisor’s employer.  So, an investor might invest $50,000 with an advisor, but the first account statement might show only $47,500.  The missing $2500 was a 5% front-end load offered as an incentive to the advisor to hunt for mutual fund buyers. Not surprisingly, investors didn’t like to see a big chunk of their savings disappear like this.  Mutual funds had a problem.  They needed to give commiss...

One of my family members often helps her friends file their income taxes with TurboTax.  For a couple she helped (let’s call them the Greens), she entered their medical expenses the way she thought was best.  Then TurboTax offered to “optimize” the medical expenses.  So, she tried it.  The result was that the Greens owed almost $2000 more in taxes.  So much for optimization. Optimizing medical expenses is surprisingly tricky.  You get to decide which partner in a couple makes the claim.  The Greens have unusually large medical claims this year.  When Mr. Green claims them, the total taxes owing for both of them is nearly $2000 less than when Mrs. Green claims them.  But TurboTax insists that Mrs. Green should claim them.  What went wrong? The answer begins with how medical expenses affect your taxes.  First, your claim is reduced by 3% of your net income, but this reduction is capped at $2397 (in 2020) for higher earners.  So, ...

I have a spreadsheet that calculates how much I can spend each month during my retirement.  However, lately I’ve felt that I really should back off somewhat from this amount because stock prices are so high.  After all, it doesn’t make sense to spend lavishly now and cut way back after a stock market crash.  Here I describe what I’ve done to account for high stock prices. My spreadsheet estimates my safe monthly after-tax spending amount, rising with inflation, that would consume all my savings by age 100.  It assumes that total stock returns are 4% above inflation each year, before taxes and other portfolio expenses.  The spreadsheet calculates this spending amount daily as I age and my portfolio level changes (not that I need to check it this often).  I chose a 4% real stock return because it is a little lower than the historical long-term average.  This provides a modest buffer in case future returns are below the historical average. Although I’m ab...

If you buy a pre-construction home, both you and the builder are committing to a price in advance.  This can be a good deal for both parties in that you and the builder get some certainty in the price you’ll pay.  However, once the home is built and we see which direction housing prices moved during construction, we find out whether you or the builder came out ahead on the fixed price agreed in advance.  This creates incentives for dishonesty. If housing prices rise before construction is finished, the builder would rather cancel the deal with you and sell the home to someone else for a higher price.  In theory, the contract you have in place prevents the builder from getting out of the deal.  In practice, there are manoeuvres the builder can try to get out of the deal with you.  The more housing prices rise, the greater the builder’s incentive to break the deal. This creates a “dishonesty option.”  For a builder prepared to get out of the deal with ma...

I got interested in a math problem and haven’t written anything about money lately.  A researcher thought there was a mistake in a 50-year old paper about trying to choose the largest number in a sequence, but it turns out the old paper was right, and the researcher was considering a subtly different problem.  Retirement has allowed me to indulge obsessions like this now and then. Here are some short takes and some weekend reading: Warren Buffett ’s annual letter to shareholders is out.  He says “bonds are not the place to be these days.”  “Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.” Tom Bradley at Steadyhand explains why the odds with SPACs are stacked against the individual investor.  He also had an interesting take on why Canadians’ net worth isn’t rising as much as it seems . In a recent Rational Reminder podcast , Ben Felix explains some interesting ideas for retirement simulations to c...