Interest in investing in stocks is low right now, and interest in using leverage (borrowing money to invest) is even lower. This also applies to the Smith Manoeuvre , which is a leveraging technique for borrowing against your home’s equity to invest. I’ve never been a big fan of leverage because it magnifies losses. If your investments do well, then leverage will make them perform even better, but if stock prices have big declines, you can be left with a lot of debt and a shrunken portfolio that won’t cover those debts. Having said all that, using leverage now is far less risky than it was when stock prices were higher. Paradoxically, the average investor is less interested in using leverage right now. Let me reiterate that I’m not a fan of leverage, but if there ever is an appropriate time for it, now is probably that time. I give FrugalTrader at Million Dollar Journey credit for continuing his series on his Smith Manoeuvre portfolio after the big stock price declines. It would ...

Recent stock market declines forced Manulife Financial to borrow $3 billion from the Canadian banks. This brings to mind one of the risks of buying any type of annuity including IncomePlus: default by the insurance company. The main drawback of IncomePlus is the high fees and the likelihood of not keeping up with inflation . On the positive side is the protection from a prolonged decline in stock prices. If stocks perform poorly for a long time, customers of IncomePlus will get a steady income eroded by inflation, but at least it wouldn’t drop in absolute terms. But if this doomsday scenario for stocks plays out, all IncomePlus customers will be leaning on the insurance guarantee all at once. What happens if Manulife runs out of money? Existing regulations require Manulife and other insurance companies to maintain certain financial reserves, and this was the reason for the $3 billion loan. If stock prices really do decline for a long time, creditors will eventually stop lend...

1. The Wealthy Boomer reports that Canadians are dumping mutual funds but buying ETFs (the web page with this article has disappeared since the time of writing). This is encouraging news if Canadians stick to low-cost ETFs. High-cost ETFs exist, and more are likely to pop up. Much of the financial industry is willing to call their products anything as long as they can continue to collect fat fees. 2. The Big Cajun Man debates what to do with his pension after getting laid off from Nortel. He can either take the lump sum and put it in a retirement account or leave it where it is and draw a pension when he is old enough. An actuary can crunch all the numbers, but this will ignore the most important consideration: will the money still be there to draw a pension? Nortel’s pension plan is hopelessly underfunded right now, and business prospects aren’t good. 3. For fixed-income investors who want higher returns, two possible strategies are to choose higher-risk bonds or to choose ...

A member of my extended family I’ll call Don has been hit with a hard sell to buy into a Manulife Financial’s IncomePlus annuity. IncomePlus is essentially a portfolio of mutual funds with very high MERs combined with an insurance component that adds even more fees. For an overall cost of about 3.5% each year, Don is guaranteed payments each year for the rest of his life of at least 5% of his original investment. For the first 20 years, this is just a guaranteed return of his inflation-ravaged capital. If Don’s portfolio happens to grow despite the 5% withdrawal and 3.5% fee each year, there are defined times every three years when the portfolio locks in the gains, and Don’s guaranteed yearly income rises to 5% of the new portfolio size. Don would be counting on such gains just so that his income would keep up with inflation. For Don’s income to match inflation, the mix of investments in his mutual funds would have to grow in value each year by inflation plus the 5% withdrawal...

A Barack Obama presidency is now confirmed. So, what effect will this have on the stock market? Whatever happens to stocks, we can expect the press to link it to Obama’s victory. One theory is that Democrats are bad for business, and stocks will drop in value. Another theory is that Republicans are responsible for driving the U.S. debt to dizzying heights, and the stock market should respond positively to a Democrat as President. Or maybe the market was anticipating an Obama win, and investors will “sell on the news” driving stocks down even though they think Obama will be good for the economy. Or maybe the opposite will happen because of some sort of double-reverse psychology. I don’t know what will happen to stock prices for the rest of this week, but whatever happens, it will be portrayed as the inevitable effect of Obama’s victory. Surely some stock price movements will come as a result of random buying and selling that has nothing to do with the election. Short term p...

The Better Business Bureau reports a scam that has worked on grandparents from California to New Hampshire. The scam is a variant of the loved one in trouble. In this case, a caller claims to be a grandchild traveling in Canada, in trouble, and needing a few thousand dollars. What makes this scam so effective is a combination of factors. Grandparents are very likely to want to help a grandchild. Voices can be difficult to recognize on the phone, especially if the grandparent hasn’t seen a teenage grandchild in a while. Traveling in Canada is quite plausible for a young American. Lastly, Canadians are far too nice to run a scam like this. I’m disgusted with these thieves, but somewhat impressed at the same time. This scam is quite clever. If these criminals put their abilities and some hard work into an honest venture, they probably would do well. Some people are willing to work very hard to avoid having to do any work.