Speculation that we’re in a bubble is growing.  I don’t know how to identify bubbles while they’re happening, so the most I can say right now is that the prices of stocks, bonds, and real estate are high.  But let’s suppose for the moment that all three assets are in a bubble.  What are we to do with this information?  Maybe one or more of these assets will crash.  But what if they keep rising for quite a while longer before this crash happens?  What if the economy booms and we grow our way out of the bubble without a crash?  There’s no guarantee that selling assets and waiting for a crash will work out well.  Because I don’t know what’s going to happen, I’m sticking with my investment plan.  The only change I’ve made is to lower my expectations of future investment returns .  So, I haven’t changed the way I invest, but I haven't grown my spending as much as my portfolio’s growth dictates in case future returns disappoint. I managed only...

Many people advocate having a portfolio made up of mostly a core of low cost index funds along with a small “explore” part for taking concentrated risks on favourite investments.  This can work well enough if you’re realistic about it, but most investors cross the line to self-delusion. Ben Carlson does a good job justifying the existence of explore-type investments in his article The Case for Having a Fun Portfolio .  After all, people are entitled to spend their money however they want.  Not every expenditure has to be part of a logical long-term plan.  We can buy a beer, or a motorcycle, or some favourite stock if we want.  So what if the long-term expectation is that the explore part of people’s portfolios will underperform indexes. All the logic makes sense up to this point.  But just about every stock-picker I know can’t resist taking this a step further.  “Besides, the stock I picked is going to do great.”  In their hearts, they know their ...

The email delivery of my blog posts is run through Feedburner, and Google has announced that they’re dropping this email service in September.  So, if my posts are to still get out to email subscribers, I’ll need to find some other way.  My first attempt to find a replacement came up empty.  Suggestions for an easy solution are welcome. I managed only one post in the past two weeks: If Simplicity in Investing is Good, Why is My Portfolio Complicated? Here are some short takes and some weekend reading: The Rational Reminder Podcast takes an interesting look at how to estimate future stock returns.  What they’re trying to do is harder than what I did .  I didn’t concern myself with what would happen in the near future.  I just used a conservative estimate of corporate earnings growth, and presumed that the market price-to-earnings ratio would decline to more typical levels by the time I get to be 100 years old. Bill Hwang’s huge personal loss with his Archeg...

My recent article on A Life-Long Do-It-Yourself Investing Plan describes a way to make investing uncomplicated while keeping costs to a reasonable level.  Reader reactions were very positive, but some of the questions I received are worth discussing. “You’re advocating simple investing, but your own portfolio is complex.” That’s true.  If the all-in-one exchange-traded fund VEQT had existed back when I was switching to index investing, I might have used it for all my stocks.  Unfortunately, it wasn’t around back then, and I settled on a mix of 4 stock ETFs .  In trade for this complexity, I estimate that I save approximately 0.29% per year in MERs and foreign withholding tax (FWT) compared to owning only VEQT. As it happens, I’m well suited to building a spreadsheet to manage my portfolio, including automating rebalancing and following asset location rules.  Even so, if I were starting out today with no spreadsheet, I might forgo the savings and just buy VEQT f...

A big oversight of mine is that I never subscribed to my own email feed.  Like someone who donates to a charity to feel good about themselves without ever checking if the charity is doing good work, I made my articles available for free by email without ever checking whether the service was working well.  Fortunately, my wife subscribed and told me that sometimes there’s a day delay before an email arrives.  I’ve been working on fixing this.  I’ve now subscribed myself and noticed that the font was kind of small.  So I made it a little bigger.  Hopefully, with some periodic monitoring, I can make the experience better for everyone. Here are my posts for the past two weeks: Buy Now Pay Later Apps Safety-First Retirement Planning A Life-Long Do-It-Yourself Investing Plan The Value of Monte Carlo Retirement Analysis The Dumb Things Smart People Do With Their Money Here are some short takes and some weekend reading: Robb Engen makes a strong case for DIY inves...

Even smart people do some dumb things with their money, according to Jill Schlesinger, a Certified Financial Planner and media personality.  In her book, The Dumb Things Smart People Do With Their Money , she goes over thirteen common costly mistakes.  It’s an easy read that might change your mind about a few things.  The focus is on the U.S., and some detailed parts aren’t relevant to Canadians, but the broad themes are still relevant. The parts of the book I liked best dealt with buying financial products you don’t understand, buying a house in situations that clearly call for renting, taking on too much risk, indulging yourself too much during your early retirement years, not having a will, and trying to time the market. On the subject of buying investments we don’t understand, the author says “There just isn't any need to invest in gold,” and “It’s usually a crappy investment.”  On reverse mortgages, some predatory lenders “go to extraordinary (and sometimes ille...

You may have heard of using Monte Carlo simulators to test your retirement plan.  It sounds impressively scientific to hear that your retirement plan has a 95% chance of success.  However, these simulators necessarily make assumptions about future returns, and the simulator outputs are very sensitive to these assumptions. The term “Monte Carlo” refers to any algorithm that uses random samples to solve some problem.  Such methods are used widely in engineering, science, finance, and other areas.  In finance, Monte Carlo simulators are used to create many random sets of possible future investment returns, and we can test a retirement plan against these possible futures.  In particular, we can define success in some way, such as not running out of money or not having to cut back too far on spending, and see how often a retirement plan succeeds. Monte Carlo simulators can work in many different ways.  They can just assume some expected return and volatility for...