The best way to respond to stock market news is usually to ignore it.  This is (almost) what I do.  The exception is that I make small adjustments when stock prices are very high.  David Chilton asked me about these adjustments when he interviewed me for his podcast .  Here I give a fuller answer to his question. I hesitate to talk too much about this part of my portfolio plan, because it is a small step toward market timing, and investors get themselves into a lot of trouble with market timing.  I once described how I handle high stock prices to a friend, and he responded by selling all of his stocks.  The change in my own stock allocation percentage was barely noticeable, but he had gone to zero, mainly because I caused him to think about high stock valuations.  This was definitely not the outcome I wanted. Most sensible people avoid market timing.  I used to be one of them.  But I realized that I was against market timing unless something ...

People who have savings when they retire are faced with tough choices for how to spend their money to get the most out of retirement.  Their instincts to try to preserve their savings often leads them to mistakes such as living too small, overpaying their taxes, and not getting the most they can out of CPP and OAS. The common investment accounts retirees have are RRSPs, LIRAs, TFSAs, and taxable (non-registered) accounts.  Trying to figure out which accounts to draw from is already a complex problem.  To add more complexity, retirees might have a workplace pension, a possible inheritance, income from part-time work, and face decisions on when to start drawing CPP and OAS.  Fortunately, it’s not important to come up with a perfect plan.  What you need is a good plan that isn’t too far from the best possible. It’s not possible to go through all combinations of retirement scenarios in a single article.  Instead, I’ll discuss how some good savers go wrong in re...

Suppose you’re in the happy position that Grandma has offered to fully fund your child’s RESP with $50,000.  The big question is whether you should put the entire $50,000 into the RESP right away or spread it out over time to maximize the government grants.  David Chilton asked for my thoughts on this question when he interviewed me for his podcast . To begin with, let’s make sure this really is a math problem.  If you choose to spread the RESP contributions out over time, how will Grandma react?  Will she say “If you’re not going to put it all in the RESP, I’m not giving it to you.”?  If so, then your choice is made for you.  We’ll assume here that Grandma doesn’t mind if you spread out the RESP contributions.  We’ll also assume that your child is young enough that there is time to spread out contributions before post-secondary education starts. Overview of RESP rules The lifetime limit of total RESP contributions for one child is $50,000.  Each ...

Over a lifetime, investment costs take a huge bite out of people’s savings, but many investors don’t understand how they work.  It’s not that they’re complicated, it’s that the final answer seems unbelievable.  How could it be that these fees nearly cut my retirement nest egg in half? Let’s go through some of the misunderstandings. I don’t pay investment fees Some people think that because they never swiped a credit card or wrote a cheque to pay investment fees, they didn’t have to pay them.  This isn’t true.  If you own mutual funds or exchange traded-funds (ETFs), then fees are quietly deducted from your savings.  The total of these fees for the year is called the Management Expense Ratio (MER). The investment returns you see on your statements are net of fees in most cases.  An exception is that some group RRSPs report before-fee returns.  The fact that you see net returns is good in the sense that you see represent what you actually got.  On t...

David Chilton, The Wealthy Barber, has a great podcast with amazing guests, and I was thrilled to be invited to chat with Dave.  He’s done so much to help Canadians with their finances, most recently with his updated book The Wealthy Barber . Years ago I wrote a positive review of his book The Wealthy Barber Returns , and Dave left a message asking for a phone call.   At the time, I didn’t know Dave was a good guy who just wanted to thank me.  At first I thought I might have said something to upset him.  So, I spent the first minute of the conversation giving two-word answers.  As it became clear Dave wasn’t upset, I relaxed a little, but Dave must have come away with the impression that I can’t talk to people.  Fortunately, we got past that first impression years later, and I was human enough for Dave to invite me on his podcast. Over the coming weeks, I intend to write blog posts or point to existing blog posts giving fuller answers to Dave’s excelle...

I liked Charles Ellis’ book Winning the Loser’s Game so much that I had to read his latest: Rethinking Investing .  It is very short at just over 100 small pages, but is packed with good advice.  Some of it is specific to U.S. tax laws, but most of it useful for Canadians. Ellis takes on three huge areas of personal finance.  The first is your portfolio allocation, or what you should invest in.  The second is your savings plan, and the third is your “spending rule,” or how to spend your assets during retirement.  A detailed treatment of these areas could easily run to thousands of pages, so this book is necessarily at a high level.  Ellis wants you to get the broad ideas right, so that you won’t make big mistakes as you fill in the details. Ellis calls compounding investment returns “your power curve.”  He explains that most of your investment growth comes at the end, which provides motivation to begin early.  Saving is “your first priority.”...