Friday, August 1, 2014

Short Takes: Pension Crisis, Philosophies for Investing Success, and more

I wrote one post this week about how I can feel myself getting complacent about stock market risk:

Stock Markets Only Go Up?

Here are some short takes and some weekend reading:

Preet Banerjee discussed the possibly looming pension crisis on the Bottom Line panel on The National. While we’re doing well on average, this average consists of some doing very well and some in trouble.

Million Dollar Journey has an excellent list of key philosophies for long-term investing success. Beginning investors and old hands would do well to read it.

John Heinzl does a great job of explaining the problems with covered-call ETFs.

Rock Star Finance lists the net worths of the many personal financial bloggers who make their net worths public. The top one is actually Break 50 whose net worth is listed in British Pounds instead of dollars. I’m almost tempted to make my own savings public to get on this list. Almost.

Rick Ferri is an outspoken advocate of index investing, but even he doesn’t have a purely indexed personal portfolio. I’ve said before that there are very few true index investors.

Canadian Couch Potato says that if you started investing in stocks in the past 5 years, you don’t really know your tolerance for risk yet. However, older investors who suffered through 2008-2009 had their nerves tested.

My Own Advisor gives the results of a Sun Life survey on the difference in attitudes toward retirement between men and women.

Big Cajun Man explores a market timing strategy. It might be more believable if he included references to “Dementia 5”.

Monday, July 28, 2014

Stock Markets Only Go Up?

Stock indexes in Canada have risen so steadily for the past year that the part of my brain that is no good for investing is convinced that everything is different now and stock markets only go up. Let’s let that part of my brain think some more.

Now that my stocks will beat inflation by 25% or so every year, I can throw the 4% rule out the window and go with a 20% rule. My current savings can produce way more than enough income to cover my lifestyle. So, I can declare myself financially independent and ramp up my spending by a factor of four or so.

Believe it or not, many people really talked this way during the tech bubble of the late 1990s: “as long as I can make 15% or 20% a year on my stocks, I can retire soon …”.

That’s a nice daydream, but my more rational side needs to take over. A stock market correction is coming. It may come soon or it may come after markets rise another 50%, but it is coming. The future holds many small corrections and the occasional larger one. I can reasonably hope for lumpy returns that beat inflation on average by a modest margin. As long as I keep my costs low, the 4% rule is as high as I should go.

Friday, July 25, 2014

Short Takes: Psychology Undermines Returns, Reward Cards, and more

Here are my posts for this week:

A Saver’s View of RRSP and TFSA Room

Stuff Tax

Here are some short takes and some weekend reading:

Daniel Solin has some clear explanations of what drives people to make poor investing decisions. I can definitely see my younger self in many of the bad choices driven by psychology that he describes.

Gail Vaz-Oxlade has some sensible things to say about reward credit cards. Her reasonable advice contrasts sharply with the barrage of breathless blog posts about the latest and greatest reward cards from bloggers who make commissions from getting people to sign up for new cards.

Canadian Couch Potato takes a look at iShares’ core ETFs and gives an interesting explanation of why two seemingly very similar ETFs have different MERs.

Million Dollar Journey lays out his plans to build a portfolio to fully cover his living expenses. I’m in this process as well.

Big Cajun Man explains the difference between disability insurance and critical illness insurance. He doesn’t see why you would need both. My goal has been to build up enough savings that I don’t need either type of insurance because I’ve become self-insured.

Thursday, July 24, 2014

Stuff Tax

No, I’m suggesting that the world should stuff taxes. I’m thinking about the many costs of owning great piles of stuff. We’ve heard of lotteries as a tax on those who can’t or won’t do math. Those who own too many possessions pay a stuff tax.

I’m not focusing here on things you truly need and use, like a bed. I’m thinking of the things you own but don’t use at all or at least often enough to justify owning them. Some good examples of large items are under-used boats and camping trailers. In the medium size category is furniture we don’t need. Among smaller items are a thousand books that will never be read again and a hundred pairs of shoes.

Here are some different types of stuff taxes:

1. Initial purchase price. The financial drag begins with buying an item in the first place.

2. A larger, more expensive home. If you have enough excess stuff, you need a bigger house to hold it all.

3. Higher house insurance premiums. If the replacement cost of your stuff exceeds the typical thresholds set by your insurance company, you may have to pay a higher premium.

4. Higher moving costs. The more your stuff weighs, the more you pay to move it all.

5. Lost time due to searching. The more stuff you have, the more time you spend sifting through it all to find the thing you want at a particular moment.

6. Lost time due to tidying. The more stuff you have, the more time it takes to clean up for company or during spring cleaning.

No doubt readers could name many other costs that come with owning more stuff.

Given my take on owning too much stuff, you might think that I’m the one in my immediate family who just owns things that matter. In fact, I think I’m probably worst by this measure. I’ve improved greatly over the past decade or so, but I still have a long way to go. The battle rages on.

Wednesday, July 23, 2014

A Saver’s View of RRSP and TFSA Room

We hear many stories of people who seem completely unconcerned about building up great piles of debt. However, there are savers at the other end of the spectrum who handle money far differently. My own tendency toward saving shows up in how I feel about RRSP and TFSA room.

Looming in just over 5 months (at the start of 2015) is more contribution room in my retirement accounts. This is a good thing. Contributions reduce my taxes over the long run. However, to me it doesn’t feel entirely good. It feels like a debt. It feels like I owe money to my retirement savings accounts. It should be satisfying to max out my contribution room, but what I usually feel is just relief that only lasts until the start of the next calendar year.

It’s not that I gnaw my fingernails with worry. I’m generally happy, and there isn’t much that keeps me awake at night. But RRSP and TFSA room feels like an obligation. When I had mortgage debt, the feeling of obligation was much stronger, but the feeling of having to top up my retirement savings accounts is similar.

I’m not looking for sympathy here – I live a great life and my finances are in very good shape. My point is that spenders and savers have very different emotional responses to money matters. My feelings about contribution room may not apply to all savers, but I doubt they are unique.