I've recently been reading and hearing that it’s a myth that leveraged ETFs are leaky.  The truth is that this depends on how one defines “leaky.”  There was an interesting episode of the Rational Reminder podcast where Marco Sammon and Chris Murray explained the nature of leveraged ETFs.  They went far deeper into mathematical details than I will here.  I will look at a simple example and then bring what we learn back to leveraged ETFs to help you decide whether you think the leaks are real or imagined. With any investment, all dollars go somewhere.  There is no leak in the sense that no dollars are ever destroyed.  However, we can have a leak of utility, as I’ll show in the following example. Example Suppose you are offered an investment where your money either doubles or drops 80% on each of 20 flips of a fair coin.  We assume that you’ll let your money ride for the full 20 flips. In one view, your expected return is (+100% - 80%)/2 = 10% per flip....

While I was on The Wealthy Barber podcast , we discussed estate planning steps you should do if you care about your family.  But what if you want the opposite?  Maybe you’re looking for revenge.  Here’s a guide. Don’t bother with a will A will is a chance to clearly state who should get your money and property when you die.  Having a will speeds up the process of distributing your assets.  But if you don’t have a will, you could add months or years to how long it takes for your spouse or children to get the money they need. In one interesting case, an elderly lady with two daughters and a son didn’t want the estranged son to get anything.  So, she told her daughters this, but didn’t have a will.  Somehow, the daughters were supposed to keep all the money and property for themselves, despite laws saying the brother is entitled to his share.  The potential for fireworks was exciting.  Unfortunately, one of the daughters persuaded the mother to ...

When I see someone declaring that RRSPs are a scam and dig into their reasoning, I find they fall into a few categories.  Here are my thoughts on each type. “I sell life insurance products whose investments are better than RRSPs.  Look at this projection.” So far, I’ve found these projections like puzzles.  How long will it take me to see the error?  Do they leave out taxes?  Do they add numbers decades apart without adjusting for inflation or investment returns? Somewhere in the columns of numbers there is a mistake or deliberate deception that makes the life insurance investment seem better than it is.  This is the part of the RRSP-is-a-scam crowd that I have the least patience for. “Now that I’m 72, look at how much income tax I have to pay!” They’ve spent their adult lives enjoying tax refunds from RRSP contributions, but all that is forgotten now.  For a million-dollar RRIF, the minimum withdrawal based on age 72 is $54,000.  For those with o...

While I was on The Wealthy Barber podcast , David Chilton asked me whether I had analyzed cash value insurance.  Mainly, I’ve looked into projections from those selling cash-value life insurance.  They’re like puzzles to try to see where the mistake is.  Usually, they fail to take material cash flows into account, like ignoring tax on certain amounts, or they add dollar amounts from periods decades apart without taking into account inflation.  I haven’t looked at many of these projections, but the ones I’ve seen are flawed. Too much of the life insurance industry tries to confuse people into buying life insurance with premiums that are too high and coverage that is too low.  The truth is that almost everyone is best off with term life insurance with a death benefit large enough to properly protect their families. Here are the broad types of life insurance. Term life insurance Term life insurance is quite simple.  You pay a fixed premium for some period like...

If you follow investment information on social media, you’ve seen a variant of the following chart many times: U.S. stock prices are very high (as measured by the Shiller CAPE in this case), and we are near the right side of the chart today.  The intended message is that we are sure to have terrible U.S. stock returns for the next 10 years.  The R-squared value of 79% means that the correlation is strong.  All the points are close to the line that’s been fitted to them. But what’s the reality here?  Are we doomed?  The first thing to observe is that the chart covers 39.5 years.  That's close to 4 decades.  Doesn’t that mean there should be only 4 dots?  What they’ve done is collect monthly data so that there are 475 points.  But that means that one point overlaps with the next in 119 out of 120 months. With so little data, statistics are completely unreliable.  It could be that the correlation is much weaker and we just happen to be in a...

David Chilton, The Wealthy Barber, asked me on his podcast how people should make sure they can get elder care when they need it.  There are no great answers here, but maybe some hope. There just aren’t enough young people to help all the aging baby boomers who will need care in their homes or in a long-term care facility.  To be one of the people who doesn’t get left out, there are two major solutions: reserve some money for this purpose or cultivate good relationships with your children, or other younger family members, or possibly neighbours. This is as far as I got on the podcast.  It’s a gloomy picture.  But there is some hope: technology.  We may be a long way from fully humanoid AI bots that do our bidding, but lesser technology may come along to ease the burden of taking care of elders. We can imagine improvements in automatic vacuums for cleaning up messes, or better automation of a bed to move people to or from a wheelchair or a standing position....