Wednesday, December 30, 2015

Reader Question: Small cap and Value Tilts

I received a thoughtful question from reader A.J. concerning how to index:
“Hello. I love your website.

I've read dozens of books on investing: Paul Merriman, Malkiel, Ferri, Ellis, Bogle, Swedroe, etc. All of these guys disagree on how to index! It is confusing. Some of them wholeheartedly believe in value and small stocks. I've seen their research, it seems very solid.

On the other hand, how can anyone predict the future?

In Bogle's book, He says that ‘if someone wants to tilt, it would be reasonable to do 85% total stock market fund, 10% value stocks, 5% small stocks.’

So that is what I've done with my US and International holdings. Can I get your thoughts on this? Thanks.”
Thanks for the kind words. Without knowing more about your financial life, I can’t advise you directly, but I can tell you how I view my own portfolio.

The truth is that we just don’t have enough historical stock information to make confident judgements about fine differences in stock allocations. I’ve chosen an allocation for my stocks, but I make no claim that it is optimal. As you say, “how can anyone predict the future?”

The main thing I do is stick with my allocation. I doubt it would have made much difference if I had used slightly different percentages. But what can make a big difference is tinkering. When investors make changes to their allocations, they are often shifting from an asset class that has recently performed poorly to an asset class that has recently performed well. Their reasons may sound smart, but they are really just selling low and buying high.

As long as investors are adequately diversified and have an appropriate allocation to fixed income, I doubt that fine differences among small cap tilt and value tilt percentages will make much difference. Much more important are costs and potential losses due to tinkering.

Good luck, A.J.

Tuesday, December 22, 2015

Capital in the Twenty-First Century

Having read several reviews touting the great importance of Thomas Piketty’s Capital in the Twenty-First Century, I decided to read it myself. While it does deal with important financial issues, it’s not a page-turner. What surprised me most was Piketty’s embrace of huge government.

Much of the book consists of dry discussions of historical data on income and wealth inequality around the world. Given a choice between a picture and 1000 words, Piketty consistently chooses both. In one memorable discussion, the reader learned that there are 10 times as many people in the top 1% as there are in the top 0.1%.

All the historical information is oddly disconnected from Piketty’s central argument. He says that because the rate of return on capital (r) is greater than the rate of economic growth (g), wealth is destined to become ever more concentrated in the hands of a small number of ultra-wealthy people.

However, it’s not quite this simple. For one thing, the wealthy spend some of their money and pay taxes. For another, they often split their fortunes among multiple heirs. And some heirs mismanage their inheritances. So, return on capital has to be enough bigger than economic growth to compensate for these factors. Maybe it is.

Another fact that does not fit with Piketty’s line of argument is that some of the more prominent ultra-wealthy people (think Warren Buffett and Bill Gates) built their fortunes rather than receiving them as inheritances. It may well be that wealth concentration is likely to increase in the future, but Piketty could have devoted more effort to convincing the reader of this fact.

Proposed new taxes

Piketty’s remedies for the problems of income and wealth concentration surprised me. I expected suggestions for high income tax rates on huge incomes, perhaps 90% on income over $1 million per year. I also expected capital taxes on great wealth, perhaps a 3% per year tax on wealth above $25 million. However, Piketty is more ambitious than this.

I should have realized my guesses were wrong when Piketty declared that he saw as reasonable a tax system where governments control two-thirds to three-quarters of all income. I find the prospect of so much of a nation’s output being centrally controlled and planned frightening.

Piketty proposes a yearly progressive capital tax on everything we own. No assets would be exempted. Your house counts. Your RRSPs count. Everything counts. Here are the proposed tax percentages with wealth amounts converted to Canadian dollars:

0.1% (0 to $300k)
0.5% ($300k to $1.5M)
1% ($1.5M to $7.5M)
2% (over $7.5M)

An example

Let’s take a look at the impact of such a tax. Imagine a couple who are retiring at 65 in a paid off home in Toronto. They have no pensions beyond CPP and OAS, but they have managed to save up $2 million for their retirement. They have saved very well.

Based on the 4% rule, this couple hope to draw $80k per year from their savings. This will be enough to live well and do some traveling. Now let’s hit them with Piketty’s capital tax. Let’s say their house is worth a $1 million so that the capital tax is based on $3 million. Their yearly capital tax works out to $21,300 on top of the roughly $8000 they’ll pay in income taxes.

This couple thought they would be able to spend about $6000 per month from their savings, but can now only spend about $4200 per month. While it is certainly possible to live a good life on this smaller amount, they have to wonder why they worked so hard to save their whole lives.

Of course, this example assumes the capital tax comes into effect just as this couple retires. If the capital tax had been in place through their whole working lives, they would never have come close to $2 million in savings. Young people just starting their careers and facing this tax would be justified in concluding that saving is futile.

In my own case, I’ve crunched some numbers to see the impact such a capital tax would have on my finances, and my conclusion is that I’d quit my job immediately. Trying to build my savings further against such a relentless drain would be pointless. Piketty’s percentages may not look big, but let’s see what they look like as 25-year figures rather than yearly percentages:

2.5% (0 to $300k)
12% ($300k to $1.5M)
22% ($1.5M to $7.5M)
40% (over $7.5M)

If we are trying to prevent wealth concentration, why are we taking money away from people whose net worth is less than $300k? Even the next bracket ($300k to $1.5M) is just middle class people with some equity in their homes and some RRSP savings. In my opinion, a wealth tax should not even kick in until wealth is at least $5 million. Applying Piketty’s wealth tax looks more like a way for governments to confiscate assets from everyone instead of just targeting the very wealthy.

An alternative to a wealth tax

Bill Gates proposed a “progressive tax on consumption as an alternative to a tax on capital. I’m not sure how to make such a tax work, but it seems preferable to Piketty’s proposal. The hypothetical couple above would likely not run afoul of a tax on conspicuous consumption.

World government

Piketty sees the competition among countries to attract business with lower taxes as a problem to be solved with coordination among countries. He recognizes that it is hard for one country to introduce a wealth tax if people can move their assets to a neighbouring country. So, he dreams of coordination that amounts to a quasi-world government setting tax rules everywhere.

I find such a prospect terrifying. At least now if a government becomes grossly inefficient, citizens at least have the difficult option of leaving. But there would be nowhere to hide from a bad world government.


Piketty may be right about wealth concentration being a growing problem. However, I’d prefer remedies that target the truly wealthy. The goal should not be to turn most assets over to the governments of the world.

Friday, December 18, 2015

Short Takes: TFSA Use and more

Here are my posts for the past two weeks:

Excuses to Shop

Reader Question about Non-Registered Accounts

Pension Ponzi

ETF Fear, Uncertainty, and Doubt

ETF Tips I Don’t Follow

Here are some short takes and some weekend reading:

Maclean’s explains that TFSAs are being used primarily by older Canadians. This sensible article is a breath of fresh air compared to the nonsense I keep reading about how the $10,000 TFSA limit is needed to help the middle class. As far as I can tell, proponents of the higher TFSA limit want it because it will benefit them (or their clients) personally. Promoting self-interest isn’t so bad, but making up nonsense arguments is annoying. Higher TFSA limits help those with either high incomes or substantial existing savings. That’s the truth. I would benefit from higher TFSA limits; it would allow me to put even more of my savings into TFSAs belonging to me, my wife, and adult kids. But I don’t think more TFSA room would be good for our country.

Preet Banerjee explains how inflation and the change of government affect the TFSA contribution rules in his recent Drawing Conclusions video.

Big Cajun Man says now is the time to do a TFSA transfer if you plan to make a simple withdrawal and put the money into a new TFSA in January. However, if you fill out the direct transfer paperwork, you can make a TFSA transfer at any time in such a way that it won’t count as a withdrawal and contribution.

Frugal Trader at Million Dollar Journey updates us on his journey to financial independence. His family’s annual expenses are currently in the $50k to $52k range without vacations, and he aims for $60k/year passive income by 2020. It’s not clear to me whether this will be enough to cover income taxes and 5 years of inflation. Perhaps he means the $60k figure to be in 2015 dollars so that the actual dollar amount will be larger in 2020.

Boomer and Echo look through a Morningstar report on mutual fund fees to find that Canada ranks dead last among 25 countries.

My Own Advisor tells us his “magic” strategies for growing his dividend income. The most important part of his magic strategies is to actually spend less than you make so you have funds to save and invest.

Wednesday, December 16, 2015

ETF Investment Tips I Don’t Follow

I came across an article promising 101 ETF investment tips from 57 ETF experts (but it appears to not be online any more). While debating whether I thought I could slog through such a long article, I decided to focus on just those tips that I don’t follow. If I have a good reason not to follow them, I should be able to explain it. And maybe I’ll find a gem among the tips that changes my mind about the way I invest.

Talking about the tips I do follow is like having a meal with like-minded friends. It’s an enjoyable way to spend time, but that’s not my purpose here. So here are just those tips I don’t follow.

4. Allocate your age as your percentage in fixed income.

I don’t have any bonds at all in my long-term savings. I only use safe fixed income investments for money I’ll need in less than 5 years. I plan to carry this approach into retirement by holding 5 years of my spending in guaranteed investments and holding the rest in stocks. I expect my allocation to fixed income to be less than my age indefinitely, but I don’t recommend this approach to others. Each person’s appetite for risk and employment situation are different.

5. Save at least 10% of pay into a target date fund.

I prefer to save much more than 10% of pay during good times because bad times are inevitable. I’m not interested in target date funds. I see the beginning of retirement as just a phase change in a lifetime of investing rather than as a final destination. I prefer to control my allocation to fixed income myself.

22. Stop comparing your investment returns to your neighbors’ or that of a specific index.

I agree it makes little sense to compare your returns to your neighbours’ returns. After all, most of your neighbours don’t know their investment returns and will likely make up wild overestimates. However, I’m leery of those who say not to compare your returns to an index. It’s true that comparing your returns to the wrong index is a bad idea. For example, don’t compare your portfolio of 5 Canadian balanced funds to the S&P/TSX. But you could compare this portfolio’s returns to a 50/50 blend of a Canadian bond index and the S&P/TSX. Whenever I hear an advisor say not to compare your returns to an index, I suspect the advisor might be trying to hide huge fees.

39. Buy and hold investing is dead and only works in bull markets where inflation is a constant.

I hear this nonsense all the time from those who try to sell their ability to beat the markets on your behalf. Fortunately, the very next tip is that buy-and-hold investing isn’t dead. Subsequent tips call buy-and-hold investing “not great in 2015,” “better than the alternative,” “the worst way to invest, except all the other methods that have been tried so far,” and my favourite “boring and the only proven long term winner.” I guess the compilers of this list didn’t mind including contradictory views.

82. Over a 20-Year Time Horizon, I’m Bullish On The Nasdaq 100 (QQQ).

This is just one of a series of items in the list where advisors talk about areas where they think there will be long-term investment success. I stopped trying to beat the market years ago. I much prefer to just own everything with very low costs and bet on human progress.

I didn’t find a gem that changes my mind about my investment approach, but I still find it useful to read the ideas of those who disagree with me from time to time. Doing this too often can be exhausting, but doing it too little keeps you from learning. After all, I would never have switched to index investing if I had just read about the latest ways to beat the market.

Monday, December 14, 2015

ETF Fear, Uncertainty, and Doubt

There have been a number of prominent articles about the dangers of trading Exchange-Traded Funds (ETFs) over the past year. The latest ETF story is from the Wall Street Journal. I read each of these articles looking for some new concern, but they tend to be the same recycled fears along with a scary title. Here I’ll list the categories of concerns and what I do to try to avoid trouble.

1. Some ETFs stink.

Yup, that’s right, not all ETFs are great. Some have high built-in fees and others are too narrowly-focused to be safely owned by the unwary. I stick to very low cost index ETFs.

2. Investors can lose money trying to actively trade ETFs.

True. That’s why I don’t trade them actively. Apart from a rare need to rebalance my portfolio to my target asset allocation, I don’t plan to sell any ETFs until I need the money in retirement. I buy more ETFs when I have more savings to invest.

3. Sometimes ETFs trade for prices far from their Net Asset Values (NAVs).

The NAV of an ETF is the price it should trade for based on the current price of the stocks or other investments it holds. ETFs are structured to keep their prices close to their NAVs, but it’s possible for ETF prices to differ significantly from their NAVs. This is rare, but it has happened. That’s why I always use a limit order.

If I’m going to buy an ETF, I first check that the bid-ask spread is small, and then I place a limit order for a few pennies more than the current ask price. Most of the time my order gets filled at the current ask price. But it’s possible for the price to run up on me. In this case, my order won’t be filled at a price higher than my limit. Similarly for sales, I place my trade a few pennies below the current bid price to limit the damage in case there is some sudden volatility.

Some people ask why I go a few pennies worse than the best currently available price. The answer is that I couldn’t be bothered to have to place my order again if the market happens to move a penny and my order never gets filled. By placing my order a few pennies away, this rarely happens to me. Because the market gives you the best available price even if you say you’ll accept a slightly worse price, my strategy rarely costs me extra.

4. Investing in ETFs cuts into the livelihoods of people peddling expensive mutual funds.

This is the unstated motivation behind some ETF fear mongering. I can’t tell for any particular article whether the writer has this motivation, but you can be sure that it is behind some stated ETF “fears.” Just to be clear, I have no reason to think this particular Wall Street Journal writer’s motivation is anything but concern for investors losing money trading ETFs using market orders.

I’d be pleased to hear if there is something else I should be doing to protect my portfolio, but I’m not going to lose sleep over yet another article about ETF dangers.

Wednesday, December 9, 2015

Pension Ponzi

Canadian baby boomers don’t have to look very far in their circle of friends to find people retiring in their 50s on very generous life-long public service pensions. In their book Pension Ponzi, Bill Tufts and Lee Fairbanks try to persuade readers that “public sector unions are bankrupting Canada’s health care, education and your retirement.” Of course, unions argue differently. As with most debates between sides with polarized views, there is lots of room for both sides to be wrong.

While the authors make a number of excellent points, they hardly give a balanced view. This book is written to outrage you more than it is written to inform you. I’ll go through some of the book’s good and bad points before offering my own thoughts on public service pensions.

The Good Parts

Mounting public debt is a sign that governments at all levels in Canada have been overspending for decades. “There is really only one place that meaningful cutbacks can occur, and that is the size and cost of the government workforce and its salaries, benefits, and pensions.” When companies face tough times, they are forced to cut jobs. The same is true for governments if they plan to balance their books.

“The age for regular retirement in the public sector needs to be raised to 65 for full benefits, with penalties for early retirement.” I don’t like the use of the word “penalties” here because pension reductions should not be seen as a punishment. If you start collecting a pension in your 50s, you’ll collect money longer than if you start at age 65. The pension payments must be reduced to make the total payout the same.

To remain competitive, companies must routinely evaluate their workers and lay off workers who don’t perform well. However, “neither incompetence nor lack of achievement is cause for anyone to lose their job in the public sector.” This point is somewhat overstated, but it is largely true. Few bad public sector employees lose their jobs.

The “oft-touted idea that public sector employees would all receive more money were they working in the private sector is totally unfounded.” There is a very wide range of talent within the public sector. The most talented government employees in technical positions could do well in private industry, but many of the others could not get and hold a comparable private sector job. If public sector workers could easily make more money in the private sector, more of them would do so.

The Not-So Good Parts

Much of the book is devoted to describing specific pension-related abuses by top bureaucrats. These problems should be fixed, but I doubt they are representative of the typical public sector retiree. The authors use these examples to boil readers’ blood rather than inform them.

The authors give many dollar amounts in their examples of waste and abuse. Unfortunately, they adjust for inflation and investment returns only when it suits them. The pension abuses are bad enough without overstating them by adding up nominal dollars to be spent in future decades without adjusting for inflation.

The authors point to a report showing that a family with 2 children only needs 43% of their pre-retirement income to have the same disposable income in retirement. They arrive at this figure by deducting child costs, employment costs, mortgage payments, and retirement saving, and accounting for the reduction in income taxes. It is not fair to compare this 43% figure to a 70% pension. If we’re going to say that public service workers actually make much more than they appear to earn because of their pensions, then the actual percentage of their true incomes they receive as a pension is well below 70%. Put another way, we cannot count the retirement savings for the example family as part of income unless we’re prepared to count employer pension contributions as part of income for public sector workers.

My Take

Among the many people I’ve dealt with professionally in government as well as friends working in the public sector there is a strong feeling of entitlement to their pensions. On one level, this makes sense: they expect to receive what they were promised.

But there is more to this feeling of entitlement. I would say that almost everyone I know who has been in government for at least 25 years doesn’t like their jobs. They tough out as many years as they can to get to a pension they’ve earned through suffering.

The most common complaints I hear are bad coworkers, bad managers, and insufficient meaningful work. It’s normal for workers to complain a certain amount in the private sector, but things seem much worse in the public sector. No doubt there are parts of the public sector with good working conditions, but this seems to be more an exception than the rule.

The problem is that Canadians derive no benefit from the suffering of public servants. We can’t afford to pay people for enduring poor coworkers and a dysfunctional work environment. I would love to see a more efficient public sector where workers feel that their efforts have real meaning. This can only happen if the public service does a better job of identifying poor performers at all levels and laying them off.

Steve Jobs famously declared that he wanted only A-players working at Apple, no B-players. The public service doesn’t have to get rid of B-players; they just have to stop employing the obvious F-players.

On the specific pension issues raised in this book, here are my thoughts:

Pension Accrual: For the most part, pensions accrue at 2% per year for a 70% pension after 35 years. For some occupations, a 70% pension is reached after only 30 years. People should not be able to have a standard retirement before age 65. An accrual rate of 1.5% so that workers reach a 60% pension after 40 years makes more sense. For occupations with physical demands, it should be standard practice to shift workers to less demanding roles in their later years.

Retirement Age: The standard retirement age should not be earlier than 65. Like CPP benefits, anyone collecting a pension sooner than age 65 should get a reduced pension, even if they’ve reached the 40-year mark. This is not a punishment; it simply reflects the fact that pensions that start early will be paid longer. There should not be bridge benefits for those retiring early unless there is a corresponding reduction in pension benefits. Anyone who wishes to retire early should save up to make up the difference for a reduced pension.

Retirement Salary: Currently, pensions are based on an average of the best few years of income. This encourages “spiking” to artificially inflate earnings at the end of a worker’s career. The pension should be based on lifetime average earnings, but with appropriate adjustments for inflation and investment returns. CPP is a good model here. If you earned half the maximum pensionable earnings 30 years ago, this counts the same as earning half the pensionable earnings today, even though the dollar amounts are higher today.

Employee Contributions: It makes sense for employees to contribute half the value of a pension and for the government employer to contribute the other half. However, this can’t be based on unrealistic return expectations in defined-benefit plans. If you assume high investment returns, then you’ll conclude that very little needs to be saved today to cover pension payments in the future. Using realistic returns means employees would make a fair contribution to their own pensions. But it doesn’t make sense to use low bond returns either. The correct return to use is somewhere between bond rates and historical real stock returns.

Overall, I found this book useful for learning the important issues in the public service pension debate, but it is far from balanced. I encourage readers to seek out other points of view before drawing any conclusions.

Tuesday, December 8, 2015

Reader Question about Non-Registered Accounts

A reader, R.V., asked the following thoughtful question about investing in a non-registered account:
“As I approach maxing my registered accounts, I need to start thinking about perhaps opening up a non-registered account.

At present, I do the following:
TFSA: TD e-series funds (25% each of Bonds, CAD Index, US Index, & Int'l Index)
RRSP: 70% VXC and 30% VAB via a brokerage account

For Non-reg, I was thinking of HXT. Benefits of a swap-based ETF is no dividend to worry about and only need to be capital gains tax upon selling.

Do you have any comments and/or recommendation on some non-reg ETFs? What do you normally buy for your non-reg account?”
To start with, R.V. is obviously handling his finances very well given that he has maxed out his RRSP and TFSA. He has also chosen good diversified low-cost index mutual funds and ETFs. If he can stay invested and not tinker too much with his asset allocation, I’m optimistic about his future.

I don’t give financial advice directly for a couple of reasons. For one, I don’t know R.V.’s situation well enough to be certain of what’s best for him. Another reason is that I’m a big believer in learning the right answer yourself instead of just trusting experts. However, I can describe the way I invest my own money and why I do it that way.

I split my money into short-term and long-term savings based on whether I’ll need it within the next 5 years. My short-term savings only go into safe investments that come due when I need them like GICs, government bonds, savings accounts, and cash. From here, on, everything I discuss applies to my long-term savings.

I treat all of my long-term savings as a single portfolio with a single asset allocation. I don’t mind having skewed asset allocations in each account if the whole portfolio mix is as I want it. I use VCN for my Canadian stocks and I fill up my non-registered accounts as much as possible with VCN to get the preferred tax treatment on Canadian dividends. It’s still better to have VCN in an RRSP or TFSA, but when there’s no room left, Canadian stocks are better in a non-registered account than non-Canadian stocks.

Some people choose to put their bonds in a non-registered account because they expect bonds to have lower returns than stocks. Bonds get poor tax treatment in a non-registered account, but this has to be balanced against the higher expected returns of Canadian stocks. I haven’t had to make this decision because I don’t own bonds in my long-term portfolio.

HXT is potentially a good choice for a non-registered account because the swap arrangement causes dividends to get turned into deferred capital gains instead of paying taxes on the dividends every year. I’ve chosen not to use swap-based ETFs because I’m uneasy with the counterparty arrangement. There are experts who say that counterparty risk is very low and that even if there is a default, the losses would be modest. Another potential risk is that the government could change tax rules for these swap-based ETFs. I’ve just decided that I don’t need these risks in my life.

I consider it more important to maintain my portfolio’s asset allocation than to focus solely on minimizing taxes. So, I’m content to have some U.S. and international stocks in my non-registered accounts even if it results in paying some taxes. Right now, my portfolio’s total costs (commissions, spreads, MERs, other fund costs, and foreign withholding taxes) are below 0.2% per year. Trying to save another basis point or two by distorting my asset allocation would be letting the tax tail wag the investing dog.

Whatever strategy R.V. settles on, it’s important to avoid tinkering too often. Our instincts can lead us to buy high and sell low. When we have intelligent-sounding reasons to modify our strategy, it’s often just fear keeping us from buying low and greed pushing us to buy high.

Monday, December 7, 2015

Excuses to Shop

My wife received some credit card spam that started as follows:
“The year is almost over, but you can still build your January rebate! Use your [brand of credit card] to earn cash back on special gifts, last-minute holiday purchases and everything in between.”
She laughed and showed it to me. My first thought was who would spend an extra $1000 now just to get $20 more back in January? Most people aren’t great at math but they’re not this bad. This message seems like it shouldn’t work on anyone. But credit card marketers can’t be this dumb. There has to be more to this than I saw at first.

One possibility is they are aiming this message at people with multiple credit cards in an attempt to get them to use this particular card more often for things they were going to buy anyway. But I think there is a better explanation.

I think this message is mainly aimed at shopaholics. Addicts will latch onto any excuse to scratch their itch. Compulsive shoppers need an excuse to shop for things they don’t really need or want and will latch onto just about any idea no matter how nonsensical: rebates, points, Black Friday, Cyber Monday, and Boxing Day/Week/Month.

So this message wasn’t meant for me or my wife. It was meant for more profitable customers who need excuses to compulsively overspend.

Friday, December 4, 2015

Short Takes: Private Car Sales, Faulty Investing Assumptions, and more

Here are my posts for the past two weeks:

How Much Do You Need to Save to Retire?

The Overconfidence Gap

Value of a Public Service Pension

Here are some short takes and some weekend reading:

Ellen Roseman explains the trouble you can get into if you sell a car privately but the buyer doesn’t transfer ownership.

A Wealth of Common Sense brings us an excellent list of faulty assumptions about investing.

Dan Hallett gets riled up about income funds that trick investors with unsustainable monthly payments. It’s sad when people count on regular income that is certain to drop eventually.

Big Cajun Man got an answer from CRA about whether his son continues to be eligible for the Disability Tax Credit.

Kerry Taylor meets Sean Cooper, the millennial with a paid-off house, to find out if his critics are right about whether he received financial help from family and whether he lives an intolerably cheap life.

Preet Banerjee explains how the new Canada Child Care Benefit works. My main takeaway is that these benefits are way more generous than anything I ever got when my kids were young.

Boomer and Echo explain how they turned a blog into a profitable business. He says “bloggers shouldn’t have to apologize for advertising.” I agree with this, but I have a different objection. I don’t like it when a blog tricks me into reading what appears to be a useful article but is actually advertising. I don’t mind advertising if I can clearly see the difference between it and a real article.

My Own Advisor says that when it comes to “fools with tools,” it’s not the credit card tool that is the problem but the fool who wields it. I’d say banks, credit card companies, and retailers play a role as well when they use sophisticated methods to encourage people to live beyond their means.

The Blunt Bean Counter clarifies a complex tax issue: Capital Cost Allowance (CCA) on rental properties.