Wednesday, August 18, 2010

Your Money Milestones

Moshe Milevsky’s book, Your Money Milestones brought up so many interesting topics that I chose to write about four of them in earlier posts:

Smooth Consumption over a Lifetime
Owning a Home vs. Renting
Human Capital
Portfolio Construction Taking into Account Employment

This very thoughtful book is worth reading. Its ideas are deep, yet the text is understandable. I didn’t agree with everything written, but the ideas were worth thinking about. To add to the points made in the four earlier posts, I include a few interesting tidbits below.

Choosing a Career

It turns out that not all university degrees are a good deal from a financial point of view. Some types of degrees won’t increase your expected lifetime earnings by more than the cost of acquiring the degree. This is reasonable as far as it goes, but may mislead kids coming out of high school.

Engineering may pay better than Fine Arts, on average, but this isn’t helpful to most individual students.  A given student might be destined to be in the top 1% of his or her class in Fine Arts, but would expect to just barely scrape by in Engineering. I’ve spent my career doing Engineering and Mathematics, but I recognize that it isn’t for everyone. Too many students fail to think about the job prospects for their degrees, but jumping into fields they don’t like and have no aptitude for is no solution.

Men vs. Women and Risk-Taking

Men choose riskier portfolios than women do, and married women choose riskier portfolios than single women do, according to a study of Italian women. Milevsky attributes this to the married women taking into account the stability their marriage provides that allows them to take greater financial chances. I think it’s more likely that some husbands tell their wives which investments to buy.

Income Tax Refunds

We’ve heard that we’re better off reducing income tax taken off at source rather than getting a big income tax refund. After all, why give the government an interest-free loan? However, many people prefer to get a big refund, even when they show they understand that it means having a lower pay cheque through the year.

It turns out that people like the forced savings, even though it collects no interest. Curiously, some of these people even choose to take their refunds early (for a substantial fee) from an income tax preparer.

Mutual Fund Reported Returns

I wasn’t aware that U.S. mutual funds must report after-tax returns assuming the highest individual tax rate. So, mutual funds that distribute dividend, interest, and capital gains income to unit-holders must take these distributions into account in the after-tax reported returns. Canadian mutual funds don’t have to do this.


Milevsky isn’t a fan of all-or-nothing retirement. Neither am I. It makes much more sense to ease out of working life by dropping to 4 days per week, then 3, and so on.


Milevsky is clearly a smart guy who is able to express his ideas clearly. This book is definitely worth a read.


  1. It's a small thing, but I appreciate your use of the phrase "which investments to buy". I think way too many people don't understand that when they invest, they no longer have the money: they own an investment. The illusion that they still have the money is fostered by continual market quotes and account statements showing the value of investments; but the investor needs to understand that just because they own investments totaling $10k doesn't mean they have $10k unless they're really considering selling all those investments.

  2. @Patrick: A side effect of this way of thinking is that investors perpetually feel as though they've lost money. Unless their investments are sitting at an all-time high, there was some point in the past when they had more money than they have now. Some of their money has "disappeared".