Friday, October 11, 2019

Short Takes: Student Bankruptcies, Early RRSP Withdrawals, and more

Here are my posts for the past two weeks:

The Latte Factor


Here are some short takes and some weekend reading:

Doug Hoyes and Ted Michalos make a strong case that students are being treated unfairly by preventing them from including their student loans in bankruptcies for 7 years after leaving school. In addition to their other good points, they explain why removing this rule wouldn’t allow students to have bankruptcies of convenience shortly after graduating. One troubling part of the information they bring forward is the fact that university tuition has been rising much faster than inflation for a very long time. What we need is an inquiry into why schooling is so expensive and what unnecessary costs can be stripped out. If they’re anything like any of our levels of government, universities have far too much office staff and administration that contribute little to necessary functions.

Jason Heath goes through some reasons for early RRSP withdrawals. He runs through some of the numbers to show there are situations where you’re better off not deferring RRSP withdrawals as long as possible.

Cross-Border Experts recommend that Canadians own U.S. properties through cross-border trusts to avoid expensive and time-consuming probate.

Steve Garganis says you can prevent someone from fraudulently getting a mortgage on your home by taking out a secured line of credit you have no intention of using. I’d be interested in the opinions of other experts on how effective this would be.

Robb Engen at Boomer and Echo argues that passive investing is not a bubble. He’s right about this, but it’s certainly possible for popular ETFs to contribute to a bubble in the same way that active investing can contribute to a bubble. It’s possible for a narrow ETF that becomes popular to cause a bubble in some asset class. However, narrow ETFs aren’t really passive investing. As a passive investor in broad index ETFs who buys and holds for the long run, I’m not worried about causing bubbles.

Big Cajun Man sees media confusion over the difference between debt and deficit. “Debt” is how much your life sucks. “Deficit” is how fast your life is getting worse.


  1. There is an obvious way that index funds do push up prices. If investors were willing to accept an average 7% gross return (a PE of 14.3) from mutual funds with a 2% fee, they were only getting 5%. With index fund fees headed towards 0 they can now invest at a 20x PE and get the same net return.

    As with many things in investing, it was better before everyone was doing it :)

    1. @Richard: Interesting thought. Of course there are forces that would act against this, such as active investors selling when individual stock prices rise too high. But, it seems plausible that overall this effect should push prices up somewhat.

    2. Disciplined active investors? Where did those come from? :)

      Most active investors still seem to be trapped between client fund flows that are still determined by net returns / optimism, and the unappealing alternatives. They buy/sell as clients force them to, and if they don't buy stocks they will probably do worse.

      They may have a small amount in cash to say they are "preparing for a downturn" (when in truth they haven't benefited from that market timing in the past, and are even less likely if prices are actually permanently higher). The die-hard value investors who truly have a large cash position may not count for that much.

      More commonly, if an investor withdraws money from an active fund and moves it to an index fund then they have not moved the market but they are earning higher returns. In light of this they may increase the size of their investment and push up the market.