Short Takes: Commission-Free Trading, Asset Location, and more

It’s amazing how little that gets written about investing remains relevant once you’ve decided not to try to beat the market.  Even a great writer such as Morgan Housel has beating the market as the underlying motivation for much of his writing.  Once you choose indexing as an investment strategy, there’s little to do or say on a day-to-day basis other than enjoy other aspects of your life.

Here are my posts for the past two weeks:

Reboot Your Portfolio

Invest As I Say, Not As I Do

The Procrastinator’s Guide to Retirement

Here are some short takes and some weekend reading:

Preet Banerjee explains the good and bad parts of commission-free trading.  I definitely learned a few interesting things about how brokerages make their money.

Justin Bender explains key concepts about asset location decisions, including the main one that it is your after-tax asset allocation that determines your portfolio’s returns and not your before tax asset allocation.  This means that Justin’s asset location strategy that he’s named “Ludicrous” is actually a means of tricking yourself into having higher exposure to stocks than you think you have, as I explained in my article Asset Allocation: Should You Account for Taxes?  DIY investors are best off either using the same asset allocation in every account or, in rare cases, going all the way to Justin’s “Plaid” portfolio.

Jason Heath answers a question about whether it makes sense to withdraw $50,000 from an RRSP to make a lump sum mortgage payment to reduce future mortgage payments and improve future cash flow.  I found it interesting that the questioner didn’t even consider making a small RRSP withdrawal to cover one mortgage payment to free up a couple thousand dollars of cash flow and relieve the pressure.  This isn’t necessarily the best solution, but draining $50,000 from the RRSP is much more extreme.  Perhaps the questioner knows that having a couple thousand dollars available would make some frivolous spending irresistible.

Boomer and Echo explains how to make RRSP contributions and get tax reductions during the year instead of waiting until filing your taxes to get a big refund.