The subject of foreign workers is heating up in the U.S. right now, and has been a hot topic in Canada in recent years.  Local workers often see foreign workers as cheap labourers who take away their jobs.  Employers see foreign workers as a way to find scarce skills and cut costs.  As is common in debates, both sides are partially right and partially wrong. In a simple but flawed view of the world, there is a fixed set of jobs available in a country, and workers compete for these jobs.  With this way of thinking, when a foreign worker gets a job, that’s one less job available for local workers, and when a foreign worker leaves (or any worker retires), there’s one more job available to local workers. This way of thinking is reasonable for most jobs, but it’s wrong for the most skilled positions.  There are only so many highly skilled people to go around.  These workers help make businesses succeed.  They create more jobs than the one job they occupy....

Recently, Braden Warwick at PWL Capital created an excellent CPP calculator that we can all use.  One of the numbers this calculator reports is the IRR (Internal Rate of Return) you’ll get between your CPP contributions and the CPP pension you’ll collect.  Some financial advisors (but not Braden) decide it makes sense for their clients to take CPP as early as possible (age 60), and invest the proceeds.  Their reasoning is that they believe they can earn a higher return.  Here I explain why this logic compares the wrong returns. The return you’ll get on your CPP contributions depends on the contributions you and your employer have made and the benefits you’ll get.  These amounts depend on many factors about your life as well as some assumptions about the future.  Typically, the return people get on CPP is between inflation+2% and inflation+4%.  (However, it can go higher if you took time off work with a disability or to raise your children.  It al...

Inflation is a risk we have to face in financial planning, particularly in retirement.  We need to measure inflation risk correctly to be able to make reasonable financial plans.  The best guide we have to the future takes into account past inflation statistics.  But the field of statistics is full of subtleties, and even Dimensional Fund Advisors (DFA) can make mistakes. DFA creates good funds, and their advisors tend to do good work for their clients.  I’d prefer to find errors in the work of a less investor-friendly investment firm, but they provided a clear example to learn from.  They misapplied a statistical rule, and as a result, they misinterpreted the history of inflation over the past century. I discussed this issue with Larry Swedroe in posts on X.  I respect Larry and have followed his work as he tirelessly explains evidence based investing to the masses. A Simple Example To explain the problem, let’s first begin with a simpler example.  So...

Scott Galloway uses a unique style in his book The Algebra of Wealth: A Simple Formula for Financial Security .  Rather than offer generic advice to choose a career that pays well, Galloway takes the tone of someone telling you privately what he really thinks of various career options, for example.  He takes a similar approach to other topics as well.  Readers may not agree with all of his advice, but they can’t say his opinions weren’t clear.   The book is divided into chapters on focus, good habits, and avoiding mistakes; choosing a career and developing skills; spending, saving, and budgeting; and investing.  The blunt commentary on choosing a career was the most interesting part of the book.   For those concerned that this is some sort of math book, it isn’t.  The few formulas in the book are mostly not intended to be taken literally.  For example, “focus + (stoicism x time x diversification),” and “value = (future income + terminal value) x d...

As we’ve learned in recent years, inflation can rise up and make life’s necessities expensive.  Despite the best efforts of central bankers to control inflation through the economic shocks caused by Covid-19, inflation rose significantly for nearly 3 years in both Canada and the U.S.   Uncertainty about future inflation is an important risk in financial planning, but most financial planning software treats inflation as far less risky than it really is.  This makes projections of the probability of success of a financial plan inaccurate.  Here we analyze the nature of inflation and explain the implications for financial planning. Historical inflation Over the past century, inflation has averaged 2.9% per year in both Canada and the U.S.(*)  However, the standard deviation of annual inflation has been 3.6% in Canada and 3.7% in the U.S.  This shows that inflation has been much more volatile than we became used to in the 2 or 3 decades before Covid-19 appeared...

Benjamin Graham is widely considered to be the “father” of value investing, the process of finding individual stocks whose businesses offer the prospect of future price gains while offering reasonable protection against future losses.  Graham co-founded Graham-Newman Corp. nearly a century ago.  Stock markets have changed drastically since then. Early in Graham’s investing career, his approach was to buy stock in companies that were out-of-favour and severely undervalued.  He described these methods in his 1934 book Security Analysis . But Graham’s investment methods were never static.  As Jason Zweig explained in Episode 75 of the Bogleheads on Investing Podcast : “People criticize Graham all the time for being old-fashioned, for having these formulaic techniques for valuing stocks, … and then people say these things are all out-moded.  Nobody invests like that any more.  Nobody should.  And that completely misses the mark for two reasons.  First...

Many people like to say that passive investing doesn’t exist.  However, these people make a living from active forms of investing and are just playing semantic games to distract us.  Active fund managers and advisors who recommend active strategies are the main people I see claiming that passive investing doesn’t exist, but what they say isn’t true. There is a continuum between passive and active investing; they are not absolute properties.  We can reasonably call an investment approach passive even if it involves some decisions, just as we can call a person thin even if their weight isn’t zero.  We may disagree on the exact threshold between passive and active investing, but the concept of passive investing still has meaning. By “passive investing,” most people mean some form of broadly-diversified index investing with minimal trading.  Although passive investing usually requires substantially less work than active investing, passive investors still have decisi...

Richard Oldfield was an investment manager for three decades, and he evaluated and appointed investment managers for a decade.  His book, Simple but not Easy: A Practitioner’s Guide to the Art of Investing , was first published in 2007, and his second edition, that I review here, came out in 2021.  The quality of the writing makes it a pleasure to read, but it comes from a time when “investing” meant stock picking, and few doubted that active investing based on star managers was the best approach.  For those who still think this way, this book offers many useful lessons, but others might see it all as advice on traveling by horse-drawn carriage. The 2007 edition of the book is left intact with a new preface and a lengthy new afterword added for the second edition.  The new afterword provides interesting commentary on the modern investment landscape, but I still can only recommend this book to those dedicated to trying to beat the market. Many themes in this book migh...

When it comes to stocks, index investing offers many advantages over other investment approaches.  However, these advantages don’t always carry over to other asset classes.  No investment style should be treated like a religion, indexing included.  It pays to think through the reasons for using a given approach to investing. Stocks Low-cost broadly-diversified index investing in stocks offers a number of advantages over other investment approaches: Lower costs, including MERs, trading costs within funds, and capital gains taxes Less work for the investor Better diversification leading to lower volatility losses Choosing actively-managed mutual funds or ETFs definitely has much higher costs.  For investors who just pick some actively-managed funds and stick with them, the amount of work required can be low, but more often the investor stays on the lookout for better funds, which can be a lot of work for questionable benefit.  Many actively-managed funds offer dec...

Authors Tony Martin and Eric Tyson have updated their book, The Canadian’s Guide to Investing , but it certainly does not seem very up-to-date.  Despite a few references to ETFs and some updated examples, most of the text seems decades old and no longer very relevant.  There are some good parts, but there are better choices for investment books. The book makes reference to many things that used to be true.  Extensive discussion about “funds” is almost exclusively about mutual funds with little about ETFs.  Buying stocks is “costly unless you buy reasonable chunks (100 shares or so) of each stock.”  You can “call the fund company’s toll-free number” and invest by “mailing in a cheque.”  “A great deal of emphasis is placed on who manages a specific fund” – this is mostly a thing of the past.  “Invest in a handful of funds (five to ten).”  There is discussion of real estate “declines in the late 2000s.” There are repeated references to MERs of 0.5% t...

Recent Rational Reminder podcasts ( 319 and 321 ) have had a debate about tax rates on RRSP contributions and withdrawals.  Most people agree that when you contribute, you’re lowering your taxes at your marginal tax rate.  The debate concerns withdrawals.  Some say that RRSP withdrawals come at your “average, or effective tax rates, not your marginal tax rate.”  Here, I address this question. With Canada’s progressive tax system, the first part of your income isn’t taxed at all (or is taxed negatively when you consider income-tested government benefits), then the next part of your income is lightly taxed, and marginal tax rates increase from there as your income rises. A question that comes up in my own portfolio accumulation and decumulation planning is what order to stack income each year.  Is it CPP and OAS that are taxed lightly and RRSP withdrawals taxed more, or should I stack the income in some other order?  What about other income from non-register...

Suppose a casino offered the following bet.  You roll six fair dice.  If anything but all sixes shows up, you get $20.  But if all sixes show up, you lose a million dollars.  There are a number of practical problems with this game.  The casino would demand a million dollar deposit in advance, and the odds are way too sensitive to imperfections in the dice and to player skill at not throwing sixes.  But this is a thought experiment designed to shed light on real world financial events. Initially, few people would play this game, because losing a million dollars is too scary.  But if you watched someone playing, even all day, you’d likely never see a loss.  You’d just see the player collecting $20 every 10 seconds or so building up to many thousands of dollars.  The fear of missing out (FOMO) would set in for some and tempt them to play. Over the long haul, the casino expects to pay out $933,120 for every million dollars it wins.  So playi...

My post describing my experience with the dual-motor long-range Tesla Model 3 I bought back in April 2019 generated further questions about battery life, recalls, and driving range in winter that I answer here. Battery life Recently, I was in a waiting room and couldn’t help overhearing a conversation about electric vehicles.  The two people agreed they wouldn’t consider owning one, and the dominant stated reason was fear of high-cost battery replacements.  It became clear after a while that they mistakenly believed EV batteries would have to be replaced as often as lead-acid batteries in gas cars.  The truth is that Tesla batteries are expected to last longer than the rest of the car. A few days ago, I was startled to receive a notification on my phone that my car’s battery needed to be replaced.  A few seconds of poking around on the Tesla app eased my worries.  I didn’t realize that my car has a lead-acid battery as well as its large high-tech battery. ...

Actuary Frederick Vettese has a third edition of his excellent book, Retirement Income for Life: Getting More Without Saving More .  He explains methods of making your retirement savings produce more income over your entire retirement.  These methods include controlling investment fees, optimizing the timing of starting CPP and OAS pensions, annuities, Vettese’s free Personal Enhanced Retirement Calculator (PERC), and using reverse mortgages as a backstop if savings run out. This third edition adds new material about how to deal with higher inflation, CPP expansion, new investment products as potential replacements for annuities, and improvements to Vettese’s retirement calculator PERC.  Rather than repeat material from my review of the second edition , I will focus on specific areas that drew my attention. Inflation “We can no longer take low inflation for granted.”  “An annuity does nothing to lessen inflation risk, which should be a greater worry than it was befor...

Back in April 2019, I bought a dual-motor long-range Tesla Model 3.  I had some concerns about buying an electric car, but my research showed that none of these concerns were likely to be real problems.  Still, buying the car felt like a leap of faith.  Now that I’ve had it for 5 years and 4 months, I can say that it’s been the best car I’ve owned, even better than my Lexus GS400 . Some concerns I had before I bought the car were its price, the charging network when traveling, home charging, battery reliability, self-driving features, and ongoing costs.  Something I didn’t know about in advance that turned out to be a pleasant surprise is the one-pedal driving.  A negative about owning this car is that somehow EVs have become political. Price Compared to other luxury cars, Teslas are reasonably priced.  However, there is no lower end Tesla model suitable for the bulk of car owners.  Teslas are still too expensive for most people.  The lower annual...

In his book Tightwads and Spendthrifts , marketing professor Scott Rick promises advice for “financial aspects of intimate relationships.”  What got my attention early is that his guidance “is rooted in rigorous behavioral science.”  Applying the scientific method to human interactions is challenging, but it is generally better than relying on opinions.  The book gives useful insights into how people think about spending money. The introduction gives a four-question quiz designed to place the reader on a scale from 4 to 26.  Those at the low end of the scale are called tightwads, and those at the other end are spendthrifts.  Roughly half the respondents fell in the middle third of the range and are called “unconflicted consumers.”  Most of the book deals with tightwads, spendthrifts, and their interactions; little is said about unconflicted consumers. Demographic differences Extensive surveys revealed some interesting demographic differences between tightwa...