Friday, March 30, 2018

Short Takes: Bank Misdeeds, Investing Simply, and more

I got some good news for this blog: https encrypted connections are now working. Presumably, this means Google will stop punishing me in its page-ranking system. Time will tell.

Here are my posts for the past two weeks:

Replies to Emails I Usually Ignore

Worry-Free Money

Self-Interest or Bleeding Heart

Here are some short takes and some weekend reading:

Rob Carrick has an excellent take on banks, how we should view them, and their influence on financial literacy efforts.

Canadian Couch Potato interviews author John Robertson to discuss his book The Value of Simple. John is very knowledgeable about the complexities you can run into with the mechanics of investing in different ways. Trying to minimize these headaches is important.

BDO Canada has a good summary of the 2018 Ontario Budget. This BDO web page has a link at the bottom to a pdf of the entire report.

John Robertson takes on the false analogy that handling your own taxes and investments is like trying to perform your own root canal. I particularly liked the part where he says that some aspects of taxes and investing are more like brushing teeth than doing a root canal.

The Irrelevant Investor looks at a list of investment options offered in his friend’s retirement plan and says “I wouldn’t wish this lineup on my worst enemy.” Sadly, this list of options is better than the one I had to choose from at my former employer. Costs are much higher in Canada.

The Blunt Bean Counter discusses the types of CRA information requests he is seeing for corporate and individual tax filers.

Robb Engen at Boomer and Echo analyzed some of his readers’ portfolios and found investment fees to be a big problem.

Wednesday, March 28, 2018

Self-Interest or Bleeding Heart?

I don’t mind if the banks mistreat their customers because it just means I’ll get bigger dividends.
I’ve heard comments like this from several people over the past decade. With stories swirling about bank employees up-selling customers on accounts and loans they don’t need and steering customers to expensive investment products, some bank investors just cheer on fatter dividends.

In the short run, letting the banks do as they please may well make investors richer. But I’m doubtful that this is a good idea for the long run, even for people focused solely on self-interest. I’ll argue that you don’t need to have a bleeding heart to want better behaviour from banks.

This issue is part of the larger trend toward bigger disparities in incomes and wealth. If these disparities keep growing, the masses will continue to call for (and vote for) higher taxes on the rich. To date, higher taxes have applied to incomes, but a day may come when we start applying direct taxes on levels of wealth. I wouldn’t want to see this happen, but too much wealth concentration could bring it on.

So, even those whose concern is self-interest have reason to want to limit income and wealth concentration. We need to balance giving a decent life to the weakest in society and maintaining the incentive to work. We may disagree on the correct balance point, but it is certainly possible to go too far either way.

We do reasonably well with this balance in Canada. We don’t need to live in gated communities to keep the poor out, and we can walk around in most parts of the country without fearing getting mugged. I’m nervous in countries with desperately poor people knowing that the modest amount of cash in my pocket makes me a target. This includes some parts of the U.S. I’d rather see the weakest in Canada have enough that desperation doesn’t drive them to steal from me.

There is definitely such thing as too much wealth sharing, but there can be too little as well. A problem we have now in Canada is that we’re getting some of the worst of both worlds. Our total tax burden is quite high, and this frustrates taxpayers. But a huge fraction of this tax money is being soaked up by public-sector unions that protect vast numbers of unnecessary jobs. This limits the amount of tax money that can go to the needy which frustrates advocates for people with mental and physical problems.

We need the functions our various levels of government provide, but we overpay for them by a wide margin. Saving money doesn’t require that we eliminate any government programs. It would be a matter of identifying jobs that don’t make any meaningful contribution. However, efforts along these lines are likely to be resisted fiercely.

In effect, one of the biggest charities funded by taxpayers is all the public sector workers whose jobs shouldn’t exist. Not that I blame the workers themselves. You can’t blame people for taking jobs offered to them. They do what the system expects of them even if some of their output serves no useful purpose.

It’s in our self-interest to set a sensible minimum standard of living for Canadians paid for by taxpayers, but this goal is undermined every time we grow the public sector payroll and divert tax money away from needy Canadians and into more salaries. Allowing Canada’s largest businesses to abuse their customers undermines this goal as well. Even wealthy investors have a long-term interest in treating the poor reasonably.

Monday, March 26, 2018

Worry-Free Money

People do a lot of worrying about money whether they are doing well financially or not. The truth is that most people just don’t know if they’re on the right financial track. Certified financial planner Shannon Lee Simmons offers solutions to this problem in her book, Worry-Free Money. I think her methods could help many people feel more in control of their finances.

“If you don’t know what you can and cannot actually afford, every purchase feels terrifying.” It must be difficult to feel vaguely guilty every time you spend even small amounts of money. I’ve seen this guilt in some of my extended family members.

Simmons is adamant that budgeting “is not the answer. Budgeting makes you feel truly broke, which leads to overspending, under-saving and general anxiety about the future.” Despite her repeated criticisms of budgeting, her approach looks superficially a lot like budgeting. But there are important differences.

We all have moments when we abandon our usual spending rules. Simmons calls these “F*ck It Moments,” and says they are actually a big source of overspending. Attempting to stick to overly-restrictive budgets causes many such moments. “Trying to live frugally is the problem. Instead of helping us to gain control of our finances and our lives, it perpetuates the guilt around spending on anything that makes us happy. Guilt inevitably leads to frustration and hopelessness. Eventually you simply give up.”

Another cause of overspending is the “Inadequacy Influence.” Sometimes we see spending money as a solution to not feeling good enough in some way. Her remedy is to compile a “Life checklist” of the things important to you. This then helps you recognize potential spending that isn’t on the checklist, and recognize that your temptation to spend is likely due to some feeling of inadequacy. Social media can be a big contributor to feeling inadequate.

Simmons’ replacement for budgeting involves identifying fixed expenses, contributions to meaningful savings, and contributions to short-term savings. Money in these categories is automatically moved to a separate chequing account. Whatever is left over is “spending money” in a different chequing account. This left over spending money has a “hard limit” each pay period. If you run out, you have to wait until your next pay period, but the important things in the first three categories remain safely handled.

“By isolating the amount of money you can spend to zero in your Spending account each pay period, you don’t have to guess about affordability anymore.” The basic idea is that spending money doesn’t have to be tracked or budgeted as long as the important things are squared away.

To avoid getting into trouble with credit cards, Simmons recommends that you “transfer the money from your Spending account to that credit card every night.” This may seem onerous, but it’s much easier than trying to dig out of credit card debt.

When her clients have problems with overspending, she has them rate their spending on a 1-5 scale from unhappy spending to happy spending. The goal then is to reduce spending that doesn’t make you happy. This part involves analyzing where your spending money goes, which resembles budgeting. But it’s more of an infrequent analysis of spending than it is a month-to-month budgeting exercise.

The book contains many interesting examples of people in different financial and life circumstances. Each example contains lots of detail about people’s lives and finances. Simmons offers rules of thumb for limits to different types of spending expressed as a percentage of take-home pay. One nitpick is when she says a change reduces a person’s spending money by 10%, she actually means it went down by 10 percentage points. For someone taking home $5000/month and having $2000 in spending money (40%), a 10% drop in spending money is $200, and a 10 percentage-point drop is $500.

To avoid feeling pressure to spend money for social reasons, Simmons recommends talking about money with friends and family. She says they’re much less likely to try to force you to participate in something if you’re honest about it just not fitting into your spending plan. She even offers 5 steps on “Hot to Say No without Guilt.”

In one example about a man fixing his finances after a divorce, the author concludes that “taking money from his retirement account didn’t make sense because much of it would be taxed at a higher rate than the interest he was paying on his credit card.” There are good reasons not to touch retirement savings, but comparing a tax percentage to a credit card interest percentage makes no sense at all. You might as well decide to buy a car instead of a house because the car has more tires than the house has bedrooms.

If you’re considering moving in with other retirees after you retire to save money, Simmons says you should “have noise rules in place, ... set up a shared household repair fund, address what happens if someone wants to move out or passes away, and get a lawyer involved to put it all in writing.”

Referring to a couple who had eliminated their car loans, line of credit balance, and credit card balances, but still had a mortgage, Simmons wrote “and best of all, they were debt-free.” I find it strange that some people don’t count a mortgage as debt. It’s certainly different from other types of debt, but it’s still debt. I’m disappointed to see a certified financial planner thinking this way.

Overall, I found Simmons’ approach to managing personal finances interesting and potentially helpful for many people. If I were trying to help family members or friends devise a plan to spend within their means, I’d use this book as a guide to a realistic plan.

Monday, March 19, 2018

Replies to Emails I Usually Ignore

I get a lot of great feedback from my readers. I get other email as well. Here is another installment of replies to emails I usually ignore.

Dear Mike, Leah, Kathy, Samantha, Nate, Thomas, Julia, Brent, Ray, and many others,

Thanks you for sending unsolicited advertorials related to your employers. I suggest you try a little harder to disguise this “content” as news. I particularly enjoyed your repeated impatient follow-up emails demanding some sort of reply. Here is my reply. I’ve got a bunch of worthless old household items for sale. I demand that you head to my house immediately and overpay me for them.




Dear George, Adam, Melissa, Ronnie, Ryan, and others,

Thank for offering your crypto expertise or to put me in touch with a crypto expert. As it happens, this is an area I understand well. Your analysis is mostly irrelevant or wrong. Perhaps you should stick to guessing why the Dow went up or down today.




Dear LinkedIn,

Thank you for sending the same list of potential people to connect with every week for a year. Yes, I know these people. No, I don’t need to link to them. Thanks as well for keeping me up-to-date on the work anniversaries of hundreds of people. I never cared about my own work anniversary, and for most of these people, I don’t care about their birthdays, but for some reason I need to stay on top of their work anniversaries.



Friday, March 16, 2018

Short Takes: Financial Advisor Knowledge, EI, and more

I managed only one post in the past two weeks, but it’s of significance to me:

Why I Retired

Here are some short takes and some weekend reading:

Robb Engen at Boomer and Echo gives the results from a study showing that financial advisors who give poor advice to their clients tend to act on this advice in their own portfolios. This suggests they don’t know that their advice is bad. This makes sense. I expect that most advisors’ financial knowledge is limited to whatever they learn from their employers’ training and sales materials.

Gail Vaz-Oxlade says our Employment Insurance (EI) system is broken (in a post no longer online). She has a number of examples of people encountering senseless denials and delays. This reminds me of working for a large company that had periodic “travel freezes.” This just meant it was harder to get approval for travel, but not harder in any sensible way. You just got hit with a time-consuming process and arbitrary rejections that had nothing to do with the merits of the travel. I’m not surprised to learn that EI does similar things. It’s hard work to reject only those who deserve to be rejected. It’s much easier to reduce costs by making arbitrary rejections.

Luke Alexander has some useful tips for air travelers. One concerns how airlines manipulate you using information about past searches for flights.

A Wealth of Common Sense tells the story of people who gamed lotteries for millions in profits. This is a case of government lottery designers failing miserably. I’d like to think that some lottery executive lost his job over the mistakes, but that’s probably too much to hope for.

Tom Bradley at Steadyhand reminds us that the important battle over mutual fund trailers rages on. We need to bring the costs of investing out into the open where investors can see them. In another interesting article, Tom explains that low interest rates and high debt can’t last forever. His assessment of the timing of higher rates: “Slow moving train wreck.”

Big Cajun Man explains the ins and outs of RDSP grants.

Preet Banerjee interviews Cait Flanders, author of the book The Year of Less.

Monday, March 12, 2018

Why I Retired

Although I’m younger than the typical retiree, I retired about 8 months ago. It may seem obvious why someone would want to retire, but I’ve been reflecting on what caused me to take the plunge when I did. There were a number of factors that influenced my decision.

1. Adequate savings

I wouldn’t have retired if I didn’t have enough savings. The thought of running out of money makes me conservative about my savings. But my best effort at analyzing my future spending and investment returns shows I have more than enough buffer. Even my wife seems (mostly) convinced we’ll be okay.

2. Autonomy

I’ve never been very good at doing what others want me to do instead of working on whatever interests me at the moment. As I age, my desire for autonomy has been increasing. My employer gave me tremendous freedom to work on just about anything that might help the company. Even so, work chafed me when I wanted to do other things.

3. Taxes

I’m not asking anyone to feel sorry for me that I had a good income and had to pay high taxes. However, I needed to make a decision for myself and my family, not for others. It was disheartening to see part of my income get more than half taxed away. This was most directly visible with bonus payments where I could see that the after-tax amount less than half of the pre-tax amount.

However, taxes on my working income weren’t the only factor. Because my RRSP and TFSA are full, I was adding to non-registered savings. So, I faced significant annual taxes on non-registered investment gains. It began to feel futile to continue earning and saving. Again, I don’t expect any sympathy, but you have to expect me to act in more own interests. I judged the after-tax benefit I’d get from more savings to be not worth the effort.

I tried taking a month at a time off work without pay, reasoning that I’d be eliminating the most heavily taxed part of my income. But in the end I decided to extend that to a full 12 months each year. There’s a good chance I’ll pay less income tax over the rest of my life than I paid in 2017, adjusting for inflation.

4. Wealth Taxes

Currently in Canada, we tend not to tax wealth. We tax incomes at the federal and provincial levels, and have sales taxes on consumption. The main exception to this lack of wealth taxes is property taxes on real estate. However, this could change. Thomas Piketty called for a huge expansion of wealth taxes in his book Capital in the Twenty-First Century. British Columbia recently expanded property taxes on homes worth over $3 million. This is a small start, but it could easily be just the beginning of the spread of wealth taxes.

I hope we don’t see expanding wealth taxes from spendthrift governments thirsty for more cash, but it’s hard to say this is an unlikely outcome. If this does happen, then any further saving I do would become completely futile.

5. Changes at work

My employer made some major changes to the company’s structure and the types of business they would seek. The management team had some big winners and big losers. While these changes didn’t affect me much, they created a natural breakpoint for me. This made it easier to bow out without feeling like I was abandoning my company.


In a less charitable moment, my wife might summarize all this as “lazy.” There’s probably some truth to this, but this is my blog and I get to put these reasons into my own context.

I had been thinking about retiring for some time, but the changes at work were what sparked me to pull the trigger. I wouldn’t have considered retiring if I wasn’t confident I had enough savings. Taxes weren’t a dominant consideration, but even if I wanted to save more to be able to afford a more extravagant lifestyle, income taxes and possible wealth taxes make this difficult anyway. I have more than enough things I want to do to fill my days, and I now have the autonomy to do what I want.

Friday, March 2, 2018

Short Takes: Buffett’s Bet, Closet Indexers, and more

Here are my posts for the past two weeks:

Foreign Withholding Taxes on New Vanguard ETFs

Measuring Returns in Different Currencies. I’m guessing this article bounced off most people, including any investment professionals who read it. The way we measure relative returns between countries if often wrong.

Here are some short takes and some weekend reading:

Ahmed Kabil has an interesting article on Warren Buffett’s bet against hedge funds as well as other types of long-duration bets.

Tom Bradley predicts a lean future for closet indexers, a term referring to mutual funds that charge fees as though they invest actively but are actually very close to being index funds. In Canada, such funds collectively hold hundreds of billions of dollars.

Ellen Roseman explains how vendors can get your new credit card information when you get an updated card.

Tom Spears goes through the things CRA auditors look for as red flags.

Robb Engen at Boomer and Echo wrote an interesting “annual letter to householders” modeled after Warren Buffett’s letter to shareholders.

The Blunt Bean Counter explains that there are only a few weeks left to set up a precribed rate loan to a family member at 1%/year.

Big Cajun Man has a thought that should be scary to some: “all debts must be paid.”