Friday, April 12, 2019

Short Takes: Investment Fees, Downside Protection, and more

I wrote one post in the past two weeks:

Consumers Can’t Avoid Computer Bots

Here are some short takes and some weekend reading:

Tom Bradley at Steadyhand looks at the current landscape of investment fees. Costs aren’t dropping in all areas.

Dan Bortolotti answers a reader question about downside protection with stocks.

Big Cajun Man has some tax trouble and shows what can happen to this year’s taxes when a previous year is still in dispute.

The Blunt Bean Counter discusses the issues occupying his time this tax season.

Tuesday, April 2, 2019

Consumers Can’t Avoid Computer Bots

You may have heard some people complain that when they used online chat on some big business’s website, they were chatting with a computer bot instead of a real person. You might think this isn’t a problem for you because you don’t use chat features on websites. Think again.

The dream of big businesses is to run their customer interfaces with computers rather than employees. Most of the time I actually prefer to do things myself on a website, such as banking transactions, travel packages for my phone, and even some troubleshooting. However, there are times when we need to speak to a person to solve a problem.

After you’ve waded through phone menus, listened to music for several minutes, and finally get a person on the line, you may not really be getting human responses. Increasingly, call center employees just read computer responses off a screen. As these computer algorithms get more sophisticated, call center employees make fewer decisions on their own.

Even your local bank branch will have you interacting with computers. It’s common for bank tellers to try to upsell you on bank products. One time I happened to have a view of the teller’s computer screen when the upsell came. The exact language the teller used appeared on screen: “Hey, have you thought about opening a TFSA?” This is creepy, and it’s getting progressively more common.

With each passing year, customer-facing employees of big businesses have less discretion to make their own decisions. They can’t overrule computer decisions. For now, what they can control is what they enter into the computer. I remember pointing out a small dent in a stove being delivered to my house. The delivery person said “so you’re refusing delivery, right?” He had his finger hovering over a small touchscreen waiting for my answer. I wasn’t sure how to respond. “If you refuse delivery, they’ll send a new stove at no extra cost to you.” I was being helped to give the right response so a computer would decide to send me a new stove.

A few years ago, my bank upped the amount of cash I could withdraw per day from cash machines, but I had to do it in two transactions, and I was getting hit with two withdrawal charges of a dollar each. The branch manager reversed one of the charges, but told me she wouldn’t be able to do it again in the new year because much of her discretion was being taken away. Even branch managers have to do what computers tell them to do.

The next time you’re frustrated with an employee at a big business, remember that getting angry at the employee doesn’t help. Low-level employees have little discretion; company policies are set at headquarters and are transmitted throughout the business by computers. Be polite, stand your ground, and maybe the employee will poke the computer in such a way that you’ll get what you want.

Friday, March 29, 2019

Short Takes: Simplified Investing, Swap-Based ETFs, and more

Here are my posts for the past two weeks:

Compensating for Your Money Personality

Padding Retirement Savings

Here are some short takes and some weekend reading:

Ryan Krueger wrote a very entertaining piece drawing analogies between stock analytics and basketball analytics. He then draws the nonsensical parallel between NBA players shooting more 2-pointers and investors taking concentrated positions in a few dividend stocks. The article may not make much sense, but it’s so well written it’s worth a read.

John Robertson discusses the swipe at swap-based ETFs in the latest federal budget. I agree with his take that these swap arrangements that turned different types of income into capital gains always seemed too good to be true. The party appears to be over.

Big Cajun Man explains some positive changes to RDSPs in the latest federal government budget.

Canadian Mortgage Trends reports that the mortgage industry is unhappy with the latest federal budget. I take this as a positive sign. Too many young people are burying themselves financially by borrowing too much to buy a house. If those who profit from sales activity are unhappy, this must mean the budget won’t do much to drive more activity.

Andrew Hallam gets roped into a timeshare sales pitch and describes his experience. It takes a backbone to hold off some very persuasive salespeople, and it takes number-crunching skills to realize just how bad a deal timeshares are.

Preet Banerjee explains mutual funds and exchange-traded funds in his latest learn about investing video.

The Blunt Bean Counter has some tax tips for students.

Wednesday, March 27, 2019

Compensating for Your Money Personality

When my wife and I were young, we were very frugal. I recall walking around for over a month with the same ten-dollar bill in my pocket. We’re less frugal now but still having a hard time transitioning from workers who save to retirees who spend. Fortunately, we’ve found some ways to compensate for the aspects of our money personalities that aren’t helping us any more.

In my case, I fuss over spreadsheets that show we consistently underspend our safe monthly allowance. This gives me constant reminders that I’m no longer an 18-year old kid who doesn’t have enough money to eat lunch.

In my wife’s case, she feels the pain of every expenditure. This is particularly true if the expense seems extravagant, like eating out. To compensate for this, I pay in almost all situations where we’re together.

This wasn’t a revelation of mine; my wife knows herself well enough that she’s the one who wants me to pay. In fact, I might not even have noticed this pattern if she hadn’t pointed it out. She says thinking “it’s all free for me” helps her enjoy the moment without fretting about money.

We’ll never completely pull free of our financial natures and early-life experiences, but we’ve found some ways to compensate.

Monday, March 25, 2019

Padding Retirement Savings

In the nearly two years since I retired, I’ve been asked a few times why I didn’t work longer to build a bigger nest egg so that my wife and I could live a better lifestyle in retirement. After all, I did walk away from a good salary and generous variable pay. The truth is that we’re not very interested in living lavishly, but I decided to take a look at what I passed up.

It’s not hard to see how much more money we could have had in our accounts, but this doesn’t tell us directly what kind of lifestyle we could afford. What matters is how working longer would have translated into extra spending per month during retirement.

Fortunately, I have a spreadsheet that takes all our account balances and computes the amount we can safely spend per month (after taxes), rising with inflation, until we’re 100 years old. This spreadsheet makes a number of fairly conservative assumptions about investment returns and takes into account CPP, OAS, interest, dividends, capital gains, and income taxes.

The question I decided to answer is how much more income did I need to earn during the rest of 2017 (the year I retired) for our safe spending level throughout retirement to rise by $50 per month. The answer was higher than I initially guessed: $47,100. That’s a lot of income to make a modest increase in lifestyle.

Why did it take so much income for only $50 more per month? To start with, living in Ontario, that income would have been taxed at 53.53%. So, $25,200 of it would have been consumed in taxes right away. Then our incomes would have been slightly higher throughout retirement. So, we’d have paid more taxes each year of retirement, and the OAS clawback would have been higher.

In the end, continuing to work just didn’t translate into much increase in retirement spending. That said, let me make a couple of things clear. I’m not asking anyone to feel sorry for us; we’re very happy. And I’m not calling for reductions in income taxes. I’m not sure what tax rates are best for our society, and I’m not inclined to support government policy changes just because they’re good for me.

But you have to expect individuals to make decisions in their own interests. I didn’t retire to protest high taxes. I retired because working more didn’t benefit us enough to be worthwhile. A side effect of retiring is that the government isn’t collecting anywhere close to as much income tax from me. One person doesn’t make much difference, though. Government revenues will only suffer if enough others do the same. I don’t know how many others retired young for similar reasons.

So, to answer those who asked about why I didn’t keep working, it’s because it just didn’t make enough of a difference to our retirement to compensate for the time lost. As time has passed, I’ve become more comfortable with my decision to retire. I have far too many projects on the go to worry about working 9-to-5 for someone else.