Friday, September 19, 2014

Short Takes: Portfolio Simplification, Used Cars, and more

I wrote one post this week taking another look at whether the value premium exists:

Does the Value Premium Exist? Redux

Here are some short takes and some weekend reading:

Scott Ronalds at Steadyhand has declared September 19th to be National Portfolio Simplification Day. I come out quite well on his list of questions. “Do you own a long list of investments?” Nope – four ETFs and one stock. “Do you have a Strategic Asset Mix?” Yup – I’ve chosen fixed percentages for the ETFs and use threshold rebalancing when new contributions aren’t enough to keep percentages in line. I’m not adding to the shares in the one stock. “Take a close look at your costs.” My MERs, TERs, foreign withholding taxes, commissions, and spreads add up to less than 0.2% per year.

Preet Banerjee says that the traditional gap between the prices of new and used cars has been narrowing. The games that car manufacturers play with interest rates and incentives can make comparisons difficult. The important question to me is what the price is if I walk in with a bag of 20-dollar bills. This makes it easier to compare prices of new and used cars.

Canadian Couch Potato reports that the main Canadian ETF providers are paying attention to the hidden drag of foreign withholding taxes.

The Blunt Bean Counter explains the complex new world of reporting foreign assets on a T1135 tax form. I sure hope investments in RRSPs continue to be excluded from reporting.

Potato pokes holes in some stories promoting real-estate ownership.

My Own Advisor breaks down the components of a Management Expense Ratio (MER) as well as other expenses not included in the MER. An important takeaway is that “management fee” and MER are not the same thing.

Big Cajun Man is finding that text books are chewing up huge amounts of his RESP savings.

Million Dollar Journey has begun tracking the net worths of a few new people. The latest report is on a couple who seem destined to arrive at millionaire status quickly with a total family income of $284,500.


  1. Thanks for the inclusion, it's not really my money those books eat up, it is actually Student Debt building up for my daughter, but yes, I need to start writing books for Universities.

  2. Thanks for the mention, Michael.

    I'm glad tBBC is bringing attention to the foreign reporting issue.

  3. Michael, thx for link. Hope all is well. Yup, no RRSP inclusion ---yet--

  4. Thanks for the mention Michael. I liked #4 in the Tangerine list, I wouldn't have seen things that way in my 20s, I certainly do now.


  5. I like new cars because I hate constantly bringing in old cars for repair. New cars are a depreciating asset, I like to buy assets that appreciate in value not lose value. So, I lease all my vehicles, that way I buy the best years of the car (first 3) and drive maintenance free. After 3 years I bring it back and lease a different one. This also solves 2 other problems with buying used - variety (I get sick of vehicles after 3 years) and the opportunity to move to a different style of vehicle and I get to keep up with technology. I know it's not for everybody but I love the stress-free flexibility that leasing affords me. I realize it's not for everyone and I don't suggest everyone rush out and lease. Buy what you can afford, I can afford this so I do it.

    1. @Peter: Your approach with leasing works fine if you've got the money, but it is just about the most expensive way to have a vehicle. For most people, spending so much on cars leads to stress in other parts of their lives where money runs short.

    2. Yes for sure, but a car is not an asset, it loses a third of it's value while you're in the washroom. It is an absolutely horrible place to put your after tax dollars.This is about cash flow to me. Buy what appreciates and lease what depreciates. What's wrong with that?

    3. @Peter: There's nothing wrong with that if you can afford it. The way you describe your approach makes it sound like you've chosen a cheap way to have a car. This isn't true. You're using a very expensive way to have a car.

    4. @Michael, you've given me a great idea for a blog post, thank you for that. Not to beat a dead horse or try to talk anyone into my philosophy on Buying vs Leasing, I submit to yo these last thoughts. What’s your time worth? Leasing vehicles may cost you more dollars than dealer financing over the course of many years (and many cars), but you never have to spend time and money hauling it to the shop – since your wheels are always almost-new. As for paying cash, this is like giving your money to some investment dude like DD who promises to lose 18% a year, guaranteed. Guess what you’d do to him? I'd rather invest money and lease my cars. What cheap source of financing do you use to make your car purchases? Take care

    5. @Peter: My time is worth a lot to me, but realistically, less than $100/hour after tax. Comparing leasing to dealer financing is the wrong comparison in my opinion. Both are poor choices for most people. Save up and pay cash. Every time I've bought a car for cash the dealership has tried hard to get me to lease or finance instead. The reason is that they make more money that way, even though they have high requirements for returns on their investments. I urge anyone trying to make this kind of choice to do some real calculations before committing.

      Cars break down whether they are leased or bought. If you focus on better cars such as those recommended in the Lemon-Aid guides, the savings that come from keeping a car past the typical leasing period are staggering.

      If we're going to call paying cash an investment at minus 18% per year, then we'd have to call lease payments investments that lose 100% immediately. Of course, neither analysis is reasonable. Instead of looking for a cheap source of financing, most people should be saving up to pay cash.

      If I had an extra $2000 per month of cash flow more than I really needed for the rest of my life, I might lease a couple of cars for my wife and I, and not worry about whatever charges the dealership makes up each time a lease ends. But few people are in this position. Do a detailed analysis of costs before leaping into car owning or leasing.