Friday, March 7, 2014

Short Takes: Pensions and more

I had more opinions than usual this week as you’ll see below. But, first, here are my posts for this week:

UFile Giveaway Winners and Some Buffett Quotes

How Much Gold Fits in a Backpack?

CRA: Your Partners Whether You Want Them or Not

Here are some short takes and some weekend reading:

Susan Eng discusses 10 dumb things people say about pensions. She makes a lot of good points in the first 9 items, but she loses me on her top “dumb thing people say about pensions.” Apparently, instead of cutting down MP and civil servant pensions, we should be fighting so that we all get equally-good pensions. This is hopelessly impractical. If we all retired in our late 50s, there wouldn’t be enough people left to do the work to keep our economy going. There just aren’t enough younger people to make food, run stores, manicure golf courses, and provide all the other goods and services retirees would want.

Rob Carrick has a spreadsheet to help you decide if you can really afford to buy a house. It’s dangerous to rely on a bank to tell you what you can afford. Rob’s spreadsheet is much more realistic. One part of the spreadsheet is a little confusing. Unless it’s been changed already, the home maintenance cost you enter says to divide by 12, but don’t do this because the next line on the spreadsheet does it for you.

Canadian Couch Potato explains why currency hedging doesn’t work in Canada. I come at this from a different direction. The notion of absolute returns is an illusion. Nominal returns of stocks are really a measure of how much more the stocks rose than the value of some currency. Why does it make sense to pick some particular currency to measure a particular stock’s return and call that return an absolute return? Most stocks and investors are affected by changes in the values of many currencies around the world. It makes no sense to declare one currency the “right” one to measure a stock’s absolute return. Currency hedging is little more than creating a strange investment that marries a currency bet with a stock investment.

Mr. Money Mustache explains why we are not all doomed. I’m amazed at how so many people who are entering retirement age are so sure that the world was a better place when they were young. It wasn’t. I understand that they liked being young. But when we factor out changes in age, life is better today than it was in the 60s. Mr. Money Mustache takes a run at explaining this fact.

Preet Banerjee says that after he and his girlfriend moved downtown, they are saving thousands of dollars per year by ditching one of their cars. They are saving money even factoring in the occasional car rental. As a car guy, maybe Preet should upgrade his car rentals to the point where this whole exercise is neutral on costs :-)

Big Cajun Man wonders why we don’t dread debt more. I think the answer is that once we’re in debt, we can’t get out quickly (short of committing a robbery), and people tend to get used to things they can’t change.

Million Dollar Journey is getting very close to the end of that journey. In fact, if you make the accounting less conservative for a defined-benefit pension plan and the principal residence, no doubt the million-dollar mark has already been reached. What’s next?

The Blunt Bean Counter has some tips for getting prepared for the 2013 tax season.


  1. Yes I disagree that you should all have great pensions like me, then I wouldn't feel so privileged. Thanks for the inclusion

  2. I'm all over that idea Michael! But only on the track. Speed limit is the same for smart cars and Ferraris on the street.

  3. It's hard to tell whether that pension article actually makes any points beneath all the emotional appeals. She is right about one thing. I likely will not get the exact same returns as professional investment managers. The "super funds with high returns that you and I cannot access" line was quite funny.

    1. @Richard: I found this funny as well. It does make some sense with the right interpretation, though. The average person gets dismal returns that lag the index badly. The so-called "super funds" just have to come close to matching the index to look great in comparison. So, the average person with a pension will get better returns than the average person trying to manage his own money. This advantage builds over time giving a large advantage to the average person with the pension. I wouldn't have phrased it the way Eng did, but I think her point is valid.

  4. What would we do without well manicured golf courses??