Wealthy Boomer makes the case that TFSAs benefit the middle class and not just the wealthy. I agree. I’d go even further to say that TFSAs benefit those with incomes just below middle class levels. However, in discussions of increasing contribution limits, the higher the limit the more the benefit shifts to the wealthy. The first $5000 each year is useful for much of the middle class, but an additional $5000 per year would tend to benefit the upper middle class, and further increases would tend to benefit only wealthier Canadians. Larry MacDonald observes that the terms of Warren Buffett’s early investing partnerships made them opaque and would trigger fears of a Ponzi scheme if they were offered today. Of course, Buffett never ran a Ponzi scheme, but Larry is right that it seems crazy to trust anyone as much as Buffett’s early partners trusted him. I see this as further evidence that it is very difficult to predict in advance which stock pickers will beat the index over the ...

A type of mortgage that is appealing to some borrowers is the cash-back mortgage where the borrower is paid an additional sum on top of the amount of the mortgage. For example, in addition to taking out a $100,000 mortgage, the borrower may get an extra $5000. This amount is marketed as being for closing costs or other house-related expenses, but it is often used to avoid having to save up part or all of the down payment. Trying to figure out if these mortgages are a good deal can be challenging. We all know that banks aren’t in business to lose money. So they aren’t giving cash back without getting something in return. Typically, they make up the cash back amount by charging a higher interest rate. The borrower might be made to pay the posted mortgage rate rather than a discounted rate. The amount of the cash back depends on the term chosen. The longer you agree to pay an inflated interest rate, the more cash you get back. So, a 5-year fixed term would attract more cash bac...

I find Larry MacDonald’s Me and My Money columns interesting because they give insight into the reasoning people use for making investments. Two recent columns are about an investor who likes preferred shares and another investor who likes professional money management. In the first case I had a misconception about floating-rate preferred shares and in the second case the investor has mistaken ideas at the core of her reasoning. Preferred Shares Matt Byers likes preferred shares and says “Floating preferred shares are also a perfect hedge against inflation.” Typically, preferred shares pay a fixed dividend, such as $1.25 per year, and the issuer can redeem them for $25 any time after a particular date. For this example the nominal dividend rate is 5%. The issuer will redeem the shares if it can get a better deal.  However, with floating-rate preferred shares, the rate changes with prevailing interest rates. When you buy non-floating rate preferred shares, you are owed a...

Those concerned about our growing tax burden like to draw attention to it by "celebrating" Tax Freedom Day , the day when we've earned enough money to cover all our taxes for the year. However, thinking of taxes as front-loaded like this draws attention away from a different problem with our progressive tax system. The truth is that the first several thousand dollars of income is barely taxed, or even negatively taxed for those who receive income-tested benefits that exceed the taxes they pay. People with upper middle class income get to keep most of their income for the first half of the year, but the incentive to work drops off in the second half of the year. This is because this later income is taxed more heavily. I'd happily trade one-sixth of my income for two months of additional vacation every year because I'd be giving up less than one-sixth of my take-home pay. I'm a believer in a progressive tax system, but only up to a point. I fear for our...

WestJet held off from charging annoying extra airline fees for a while, but they now allow fewer checked bags before applying charges. An interesting consequence of their policies is that it encourages travelers to take more baggage as carry-ons. Travelers used to be able to check two bags up to 50 pounds each. Now only the first checked bag is free. A second one under 50 pounds costs $20. But, you can carry on two bags of 22 pounds each without charge on most flights. For a yearly trip where I normally check 2 large bags, I’m now considering taking 3 bags with the 2 smaller ones meeting the carry-on size restrictions. I don’t know how many people are cheap enough to try to save $20 this way, but I’m expecting the overhead bins to be packed a little tighter than they were the last time I flew WestJet.

Receiving an income tax refund recently prompted me to make a 2011 RRSP contribution. Not wanting to wait until 2012 to get the resulting tax break, I plan to file a T1213 form to get my employer to reduce the source deductions on my pay. Unfortunately, BMO Investorline insists that they won’t send out tax receipts for RRSP contributions until next year. Now I’m trying to decide what constitutes adequate proof to send to CRA that I made the RRSP contribution. A call to CRA didn’t help much. I got a couple of levels deep in the help system to someone who had heard of a T1213, but she was just reading the form and couldn’t tell me much more than what was written on the form. She didn’t inspire much confidence by repeatedly asserting that I must have got some sort of receipt when “buying the RRSP”. I tried to gently explain that one does not buy an RRSP and that a contribution is little more than a transfer between two accounts, but that didn’t help. In the end, all the eviden...

In retailing, the “long tail” refers to the great many products that have only a small demand. Bricks and mortar retailers prefer to sell products that everyone wants regularly, but online retailers are better at satisfying the long tail demand. This can cause consumers to be dissatisfied with their traditional bricks are mortar retailers. When I’m looking for something I need, like many people, I start with an online search to see what’s available. The incredible breadth of retailers available to online searching often results in my finding an item even better for my needs than I first imagined. The next step is to decide where to buy my desired prize. Buying from an online retailer is often a problem because it is usually in the U.S. and shipping leads to annoying delays and extra charges at the border. This leads me to search local retailers for the item I want. But, these retailers often don’t have the item I want. They have an apparently weak selection that doesn’t in...