“In the following analysis, we assume future inflation of 2% per year.”  How often have you seen something like this in investment projections or other financial analyses?  This kind of assumption leads to biases that can invalidate a financial analysis. Even the great Benjamin Graham wasn’t immune.  In the early 1970s, he wrote the following in his book The Intelligent Investor : “Official government policy has been strongly against large-scale inflation, and there are some reasons to believe that Federal policies will be more effective in the future than in recent years.  We think it would be reasonable for an investor at this point to base his thinking and decisions on a probable (far from certain) rate of future inflation of, say, 3% per annum.” The following footnote was added by Jason Zweig in a revised edition of Graham’s work: “This is one of Graham’s rare misjudgments.  In 1973, just two years after President Richard Nixon imposed wage and price contro...

With my softball league restarting, some golfing, and reading The Intelligent Investor , I haven’t done any writing recently.  But I have had a chance to ask different types of small business owners (who are opening up as much as they can) whether they will be able to operate profitably.  The most common answer is “we’ll see.”  COVID-19 is increasing their costs and forcing them to take fewer customers than they used to take each day.  That’s a deadly combination in any competitive market.  Behind brave faces I suspect many are just hoping to survive long enough to get back to normal. Here are some short takes and some weekend reading: Morgan Housel has an interesting description of why cats sometimes survive high falls better than low falls, followed by a jarring attempt to connect it back to a financial lesson. Preet Banerjee and Derrick Fung discuss the rise of buy-now-pay-later in online shopping.  Making your life worse is getting more and more conve...

Here are my posts for the past two weeks: The Limits of Offering Investment Help Think Twice Before Taking a 5-Year Closed Mortgage A Canadian’s Guide to Money-Smart Living Here are some short takes and some weekend reading: Canadian Mortgage Trends explains why you should care about your credit “hygiene” and not your credit score. Tom Bradley at Steadyhand defends buy-and-hold investing. Canadian Portfolio Manager explains your ETF’s currency exposure.  (This article has a second part ).  Many investors get confused about buying identical baskets of stocks in different ETFs that transact in different currencies.  The situation would get even more confusing if we tried to explain that measuring U.S. companies’ stock returns in U.S. dollars is merely a convention; companies with international operations are affected by changes in many different currencies. Big Cajun Man looks at RESP statistics showing that lower income families aren’t opening RESPs, even though they c...

Learning about personal finance makes people anxious.  Combine this with all the details to learn and the process can be overwhelming.  Kelley Keehn and Alex Fisher aim to help people get past these problems with their book, A Canadian’s Guide to Money-Smart Living .  The authors introduce the reader to basic personal finance topics without getting into too much detail. The book begins by trying to get past emotional barriers to controlling spending and getting readers motivated to learn more about personal finance.  It then covers paying yourself first, record-keeping, planning, mortgages, debts, credit scores, and investing. There were a number of details in the book I liked.  Many financial writers like to mock the idea that small amounts add up, but not these authors.  “The few dollars you spend on muffins, eating out, or other expenditures that you’re not tracking every day, might not seem like much at the time but mount up over the weeks and months an...

The internet is full of debates about whether to take a mortgage interest rate that is fixed or variable.  However, what gets less attention is whether the mortgage is open or closed.  The most common fixed-rate mortgages are closed, and this means you’d have to pay a penalty if you break your mortgage. I can already hear most people saying “but I’m not going to break my mortgage, so I don’t have to worry about penalties.”  However, the future can surprise us.  If breaking a mortgage cost us a finger, we’d think a lot more carefully about what might happen to make us break our mortgage: job loss, job moves to another city, divorce, health problems, bad neighbours, and more. Mortgage penalties aren’t as bad as losing a finger, but they can be bad enough.  Suppose you took out a 5-year mortgage at TD Bank 2 years ago, and it has a remaining balance of $300,000.  According to Ratehub’s mortgage penalty calculator , the cost to break your mortgage would be $16,...

Family, friends, and blog readers often ask me for investment advice.  The challenge with helping these people is that even if the advice I give is good, the results they get can end up being disappointing. Many times I’ve agreed to look at a person’s portfolio.  The most common problem I see is high mutual fund costs with little meaningful financial advice given in return for those costs.  Another problem that’s less common is a portfolio that is too concentrated in a small number of stocks. In most cases, it’s obvious that the investor would be better off in the long run with a very simple portfolio holding nothing but one of Vanguard’s asset allocation ETFs (VEQT, VGRO, VBAL, VCNS, and VCIP).  This isn’t the only good way to invest, but it’s better than most people’s existing portfolios. So, if I were to give one-time advice, in most cases it would be to sell everything and buy an asset allocation ETF.  I might add some advice on not timing the market and avo...

I had to laugh watching Elon Musk gloat on Twitter about Tesla’s recent success and rising stock and the effect it’s had on short sellers.  “Tesla will make fabulous short shorts in radiant red satin with gold trim.”  He’s not a fan of the U.S. Securities and Exchange Commission (SEC): “Will send some to the Shortseller Enrichment Commission to comfort them through these difficult times.”  “Who wears short shorts?” Here are my posts for the past two weeks: Investing Perfection Talk Money to Me Here are some short takes and some weekend reading: David Aston says now is the time to reduce your allocation to stocks if you couldn’t stand the recent stock market turmoil.  The best advice is to stick to a financial plan and its asset allocation percentages, but for those who’ve learned that they just couldn’t stomach the 30% drop in stock prices, the best move is to wait until stock prices have recovered before selling off some stocks.  Today’s higher prices are givi...