Canada Mortgage News warns of banks making no-so-great offers to mortgage clients trying to get them to renew their mortgages early. Calling them “banksters” cracked me up. Larry Swedroe says that tactical asset allocation (TAA) is a rip-off. What do you really think, Larry? Swedroe says that TAA is just another name for market timing and the evidence shows that it hasn’t worked. What he missed is that “tactical asset allocation” sounds smart and it makes investors feel superior when they use it – as long as they don’t compare their returns to an appropriate benchmark. Steadyhand’s Tom Bradley illustrates what’s wrong with CEO compensation. I’m glad I just sold the last Canadian bank shares I own (except for those included in VCE and XIU). Canadian Couch Potato has some fun recommending a coma as the best state to invest in. Big Cajun Man rants about people paying exorbitant interest rates to get instant tax refunds. The Blunt Bean Counter says that there really ar...

A while back Canadian Capitalist described a “foolproof method to convert Canadian dollars to U.S. dollars” using a version of the so-called Norbert Gambit. This involves buying the exchange-traded fund DLR with Canadian dollars, journaling it over to the U.S. dollar side of your account to make it DLR.U, and selling it to get U.S. dollars. I decided to try this at BMO Investorline. Overall it worked, but there were a few surprises along the way. Note that each unit of DLR just holds US$10. This is true whether it is DLR or DLR.U. The difference is that DLR trades in Canadian dollars and fluctuates with the exchange rate, and DLR.U trades in U.S. dollars. I don’t normally like to talk numbers about my personal accounts, so for the rest of this article, I’ll scale all the numbers down as though I was converting C$100,000 to U.S. dollars. The bid-ask spread on DLR was C$9.79 to C$9.81. I placed an order to buy 10,100 units of DLR at a limit of C$9.81. This trade was filled a...

Many of us would be thrilled to be able to retire from our regular 9-to-5 jobs long before the standard retirement age of 65. There is a vibrant community of people dedicated to finding a way to retire when still quite young. However, most of the early retirement enthusiasts have plans without a large enough safety margin to suit me. One blog dedicated to early retirement is Canadian Dream Free at 45 run by Tim Stobbs. Stobbs has a detailed plan to retire at age 45 on savings of $1.1 million. He and his wife plan to live on $2000/month, which sounds low, but they “both plan to do some work on the side after pulling the plug to fund some luxury items and trips.” Most readers of this blog who plan to retire early and have described their financial plans online expect to have roughly the same low spending levels as Stobbs, seemingly without the plan to work on the side. In general, these plans look quite realistic as long as these people are able to keep their costs down to the ...

Many commentators preach the benefits of choosing an asset allocation strategy, sticking with it, and rebalancing regularly. This is good advice, but some investors overestimate the benefits of portfolio rebalancing. If done properly it can certainly increase returns, but the gains are usually quite modest. Consider the following example. Emily starts with a balanced portfolio worth $22,000, half in a stock ETF and half in a bond ETF. Initially, both ETFs trade for $50. Emily’s starting portfolio looks like this: Stocks: 220 shares @ $50 Bonds: 220 shares @ $50 Now, suppose the stock ETF goes up 10% and then comes back down again. If Emily does nothing, her final portfolio value will be $22,000, the same as it was at the start. But, if she rebalances, she will make some money. Let’s see how much she can make (ignoring commissions and spreads for now). After the stock ETF has gone up 10%, Emily’s portfolio looks like this: Stocks: 220 shares @ $55 Bonds: 220 shares @...

The Toronto Star reported that the Ottawa Senators Hockey team claim they will go out of business if companies can no longer write off 50% of ticket costs . I’m a hockey fan, but I’m not a fan of giving professional sports teams tax breaks. When it comes to the financial side of sports, the fan base in one city is in competition with the fan bases in other cities. To see that this is true, we start with the fact that players move around. To the extent that players can move to new teams, the market for player salaries is similar from one team to the next. Poor teams have to pony up close to as much for a given player as other teams are willing to pay for him. This means that all teams face similar costs if they want to compete. Teams that do a better job of evaluating talent can get better players more cheaply (think Moneyball ), but this is the exception rather than the rule. All teams that want to compete face similar costs whether they have a large and rich fan base or a sm...

The Freakonomics guys report on some interesting research into how you can use anchoring to get people to save more in their employer savings plans by supplying them with the right examples. Big Cajun Man is facing a request from his daughter’s potential landlord for detailed personal and financial information to act as a guarantor. Does it make sense to have an online bank account that you don’t use much for these types of requests? This is similar to having an email address specifically for online registrations. Retire Happy Blog put together a video of a stereotypical interaction between a financial advisor and client and then deconstructed it. He wants to know if he was too hard on financial advisors. The Blunt Bean Counter looks at whether you should take into account an expected inheritance in your financial planning. Boomer & Echo explain mortgage payment vacations.

Most proponents of indexing strategies don’t quite manage to implement a pure index approach. They often come close to pure indexing, but they can’t resist adding some sort of twist. The twist may be a form of market timing or some other active strategy. So far, the way I’ve handled my own portfolio is no different. I’ve been on a steady transition from a pure stock picker a few years ago to about 70% indexed today. I intend to keep increasing this percentage, but I’m not sure that I’ll make it to 100%. Selling my last stocks will be fairly painless except for Berkshire Hathaway. After having read all of Buffett’s old letters to shareholders and having held the stock for about 13 years, I’ve become attached and don’t want to sell. I’ve thought through many possible justifications for keeping it, but the only plausible one is that Berkshire is so diversified that it could be thought of as an index of a slice of the American stock market (plus some foreign holdings). Another ...