Suppose you’re in the happy position that Grandma has offered to fully fund your child’s RESP with $50,000.  The big question is whether you should put the entire $50,000 into the RESP right away or spread it out over time to maximize the government grants.  David Chilton asked for my thoughts on this question when he interviewed me for his podcast . To begin with, let’s make sure this really is a math problem.  If you choose to spread the RESP contributions out over time, how will Grandma react?  Will she say “If you’re not going to put it all in the RESP, I’m not giving it to you.”?  If so, then your choice is made for you.  We’ll assume here that Grandma doesn’t mind if you spread out the RESP contributions.  We’ll also assume that your child is young enough that there is time to spread out contributions before post-secondary education starts. Overview of RESP rules The lifetime limit of total RESP contributions for one child is $50,000.  Each ...

Over a lifetime, investment costs take a huge bite out of people’s savings, but many investors don’t understand how they work.  It’s not that they’re complicated, it’s that the final answer seems unbelievable.  How could it be that these fees nearly cut my retirement nest egg in half? Let’s go through some of the misunderstandings. I don’t pay investment fees Some people think that because they never swiped a credit card or wrote a cheque to pay investment fees, they didn’t have to pay them.  This isn’t true.  If you own mutual funds or exchange traded-funds (ETFs), then fees are quietly deducted from your savings.  The total of these fees for the year is called the Management Expense Ratio (MER). The investment returns you see on your statements are net of fees in most cases.  An exception is that some group RRSPs report before-fee returns.  The fact that you see net returns is good in the sense that you see represent what you actually got.  On t...

David Chilton, The Wealthy Barber, has a great podcast with amazing guests, and I was thrilled to be invited to chat with Dave.  He’s done so much to help Canadians with their finances, most recently with his updated book The Wealthy Barber . Years ago I wrote a positive review of his book The Wealthy Barber Returns , and Dave left a message asking for a phone call.   At the time, I didn’t know Dave was a good guy who just wanted to thank me.  At first I thought I might have said something to upset him.  So, I spent the first minute of the conversation giving two-word answers.  As it became clear Dave wasn’t upset, I relaxed a little, but Dave must have come away with the impression that I can’t talk to people.  Fortunately, we got past that first impression years later, and I was human enough for Dave to invite me on his podcast. Over the coming weeks, I intend to write blog posts or point to existing blog posts giving fuller answers to Dave’s excelle...

I liked Charles Ellis’ book Winning the Loser’s Game so much that I had to read his latest: Rethinking Investing .  It is very short at just over 100 small pages, but is packed with good advice.  Some of it is specific to U.S. tax laws, but most of it useful for Canadians. Ellis takes on three huge areas of personal finance.  The first is your portfolio allocation, or what you should invest in.  The second is your savings plan, and the third is your “spending rule,” or how to spend your assets during retirement.  A detailed treatment of these areas could easily run to thousands of pages, so this book is necessarily at a high level.  Ellis wants you to get the broad ideas right, so that you won’t make big mistakes as you fill in the details. Ellis calls compounding investment returns “your power curve.”  He explains that most of your investment growth comes at the end, which provides motivation to begin early.  Saving is “your first priority.”...

When it comes to big questions about saving and investing, author Nick Maggiulli is critical of the answers given by the financial industry.  In his book, Just Keep Buying , Maggiulli brings data and evidence to answer these questions in interesting new ways.  I find myself agreeing with most of his conclusions, but not always with how he arrives at them or expresses them.  Whether you agree or disagree with his conclusions, Maggiulli adds to the discussion with thoughtful points of view. This book is organized around 21 questions that many people ask, including “How much should you save?”, “Should you ever go into debt?”, "Should you rent or should you buy?”, “What should you invest in?”, and “How soon should you invest?”  The discussion and answer to each question is its own chapter. In the rest of this review, I’ll examine some of these answers. Save what you can How much money should you save?  Maggiulli says to “save what you can.”  On its own, this is...

An organization called Generation Squeeze is calling for big cuts to Old Age Security (OAS) .  For some reason, these cuts are aimed exclusively at senior couples.  Digging into the numbers, the proposal makes no sense. The stated goal of the proposed OAS changes is to free up government money for other priorities.  Whether or not OAS is the right target for reducing government spending is a different discussion.  The puzzling part of this proposal is having all the cuts apply to senior couples. Currently, OAS will get clawed back from any senior whose 2025 net income (Line 23400 of the tax return) is over $93,454.  For each dollar over this income threshold, OAS payments are reduced by 15 cents.  The current rules make no distinction between singles and couples.  The calculation is based on each person’s own income without regard to whether they have a spouse. Generation Squeeze wants to change the threshold to $100,000 for total household income....

Whether you agree or disagree with his arguments, Morgan Housel tells entertaining stories, and his latest book, The Art of Spending Money: Simple Choices for a Richer Life is no exception.  What I liked most about this book is it caused me to think.  Mostly, I agreed.  Occasionally I disagreed.  Sometimes I recognized my own ideas, and sometimes I had something new to ponder.  The book flew by. Most people I know will find that the way they think about spending aligns well with Housel’s recommendations.  The readers who will likely benefit the most are those who give up too much of what matters in their lives to amass wealth.  Such wealth builders are the type of person the financial industry seeks out, and it’s not surprising that writers from the financial industry tend to write for this type of person.  These writers often exaggerate how common it is for the general population to have their type of money obsession.  We all tend to speak ...

The high MERs charged by some employers’ group RRSPs can be frustrating.  But these fees seem small compared to the employer matching of employee contributions.  A recent guest on The Wealthy Barber podcast said “those [group RRSP] fees aren't going to eat that [contribution matching] up over time.”  Challenge accepted!  People, including experts,  consistently underestimate the corrosive effect of high MERs over long periods of time. It’s not my intention to be overly critical of David Chilton or his guest Brian Orlando.  They gave some great information for helping Canadians with their finances.  But I do want to explain how high fees can consume an employer match faster than we might expect. An example The podcast segment began with the example of 2.5% MERs in the group RRSP.  So, let’s compare two scenarios for a hypothetical employee Evan: Group RRSP Evan’s contributions are invested in a crappy closet index global stock fund with 2.5% MER....

Lately, I’ve heard a few references to Dalbar’s measure of how much retail investors underperform the investments they hold due to poor behaviour.  I suspect that if the people making these references understood how Dalbar calculates this measure, they’d be embarrassed at having mentioned it.  There can be legitimate academic debate about the best way to measure investor underperformance, but Dalbar’s simple method is just nonsense. A simple example to illustrate the problem Ann has invested in ABC fund for the past 5 years.  Her initial investment was $10,000.  Over the first 4 years, she left her investment alone and it grew 50% to $15,000.  Ann then got an inheritance of $20,000, which she put into ABC fund to give her a total of $35,000.  In the final year, ABC went up 6%.  Ann now has $37,100. By any reasonable method of analyzing Ann’s investment behaviour, she exactly matched the performance of her fund.  She was always fully invested with ...

Spending from retirement savings, or decumulation, in a way that maximizes what you have left to spend after taxes is surprisingly complex.  I’ve done extensive simulations of various strategies for my situation, including strategies that change over time, to find what works best for me.  Here I describe how I’m managing my RRSP in retirement, but it’s important to remember that it may or may not work well for you depending on your particular circumstances. Looking for the fully optimal financial strategy is futile.  I ran my simulations and chose a simple enough strategy that worked well across a wide range of investment outcomes.  The only reason for changing my strategy is if something happens that is far outside my expectations.  Those who constantly seek perfection waste their time and hurt their outcomes with constant tinkering. Our portfolio and goals My wife and I have RRSPs, TFSAs, and non-registered accounts.  I prefer not to discuss exact amounts...

In his book The 5 Types of Wealth , Sahil Bloom makes the case that there is more to life than money, and that it is a mistake to sacrifice too much to get more money.  To most of us, this is so obvious that it’s not worth saying.  But a minority of us need to think about this message. Bloom lists the 5 types of wealth as “time, people, purpose, health,” and money.  Like much writing on this subject, the author presents the insight that there’s more to life than money as though it’s a new idea: “Where the old, default scoreboard was entirely based on financial wealth, the new scoreboard is grounded in the diverse pillars that define a truly wealthy existence.”  This isn’t news to the majority of people.  This majority never needed this insight, because they have never over-valued money. But for those who toil away for most of their waking hours at their jobs or running their businesses, Bloom’s ideas are important.  Perhaps for them, when they realize they’...

A recent Morningstar podcast gave me yet another reason to stay away from private equity.  Episode 357 of The Long View is an interview with Leyla Kunimoto who “is the founder and editor of Accredited Investor Insights , a newsletter that helps investors navigate private markets.”  Among other interesting insights, Kunimoto explained how the practical expedient rule allows private equity to maintain made-up valuations even after private assets are traded at lower prices. In public markets, company valuations are set by the actual price where willing buyers and sellers trade equities.  In private markets, equity valuations are made up.  The methods owners of private equity use to value their holdings can give a wide range of answers.  It’s up to savvy buyers to determine the true value of any assets they choose to buy.  All but the most savvy buyers of private equity are at risk of overpaying. There is now a proliferation of secondary private equity funds b...

The 2025 investment return for my overall portfolio measured in Canadian dollars was 13.7%, which is below my 2025 benchmark return of 16.0%.  There are two main reasons for this difference.  The first is that we made a large financial gift, and the timing of our stock sale to raise cash for this gift was unlucky.   The second reason is my decision a few years ago to shift gradually away from stocks when stock prices are high as measured by the cyclically adjusted price-to-earnings ratio (CAPE) of world stocks.  This shift is tied to my rebalancing plan that is automated in a spreadsheet.  My benchmark doesn’t do any automated shifting away from expensive stocks. This year, stock prices were high but they gave good returns anyway, and my slightly lower than usual allocation to stocks cost me money.  This has happened two years in a row now.  But I’m content with this outcome.  By shifting modestly away from stocks when they’re expensive, my p...

Long time reader Garth asked for my opinion on Wade D. Pfau’s essay Eight core ideas to guide retirement income planning .  Pfau is a smart guy and it’s no surprise that his article is excellent.  I do have some thoughts around the edges, though. “Play the long game” Pfau starts with an important point: “A retirement income plan should be based on planning to live, rather than planning to die.” This means that making sure you have enough money in old age is more important than trying to squeeze out as much money as you can in early retirement.  But we’re not asking you to sacrifice now.  By taking reasonable steps to protect your much older self, you’re freed up to spend a reasonable amount early in retirement without fear of running out of money.  Pfau lists six steps toward playing the long game which I’ll translate into the Canadian context. Delaying starting CPP and OAS As long as you have some savings to live on and you’re in reasonable health, delaying the...

Alts are all the rage now, at least among the people trying to sell them.  But every time I look into an alternative investment class and then back away from the details for a 1000-foot view, this is what I see:

It’s challenging enough to figure out how much you’ll want to spend at the start of retirement.  Even more challenging is deciding how your spending will change as you age.  These choices make a big difference in how much money you’ll need to retire.  They also shape the spending options you’ll have available throughout retirement.  Here I explore the good and bad parts of common wisdom on retirement spending to arrive at my own spending plan for retirement.  Spoiler alert: the “go-go, slow-go, no-go” narrative is good marketing, but it has cracks. Two extremes Some people focus on the early part of their retirement.  They want as much money as possible available early on while they’re still young enough to enjoy it.  They seem to think of their older selves as a different person who they care less about than their current selves. Others focus on their older selves and worry about running out of money at some point.  These people usually spend far...

When Canadians are just getting started managing their own investments at an online broker, their pre-existing ideas create a lot of confusion.  Here I go through several of the most common misconceptions I encounter in a conversation format. Novice Investor:   Ok, so I’ve opened a TFSA with my online broker, and I’m ready to put my $50,000 in. Michael James:   Great.  We just have to transfer the money to your new TFSA from some external account, like a chequing account at your bank.  Just a few clicks and we’re done.  The money will be there in a day or two. NI:   Wow! That was easy. So, we’re all done? MJ:   Not quite.  All we’ve done is fill your TFSA with dollars. NI:   That’s all I did with the TFSA I used to have at the bank.  It’s closed now. MJ:   Yes, but that TFSA was just a savings account earning a little bit of interest.  You said you want to put this $50,000 away for the long term in an all-in-one ETF. ...