The Freakonomics guys have some fun crunching the numbers on whether it makes sense to jump subway turnstiles in New York City. Retire Happy Blog looks at what investment returns you should use in your retirement plan. Big Cajun Man reports that the ecoEnergy program is back up and running.

Leveraged ETFs are designed to return double or triple the return of an index each day, but they come with disclaimers warning that they won’t double or triple returns over longer periods of time due to a mysterious compounding effect. I’ve come up with a more concrete explanation that is hopefully more understandable. An example of a leveraged ETF is the Horizons BetaPro S&P/TSX 60 Bull ETF (ticker: HXU). If the TSX 60 goes up 1% on a given day, HXU goes up 2%. The confusing part is that if the TSX 60 goes up 10% in a year, HXU doesn’t go up 20% that year. A partial reason is the management fees charged to run HXD, but this doesn’t fully explain the seemingly missing returns. To understand what is going on, imagine a volatile 2 days where the TSX 60 goes up 10% then goes down 10%. Let’s track a $100 investment in the TSX 60 for the 2 days: TSX 60: Start: $100, after up day: $110, after down day: $99 So, by the magic of compounding we lost a dollar. Here is the unsat...

It is well known that people often make irrational financial decisions even in fairly simple situations where they have all the information they need to make a good decision. I have an idea about why we are this way that is so simple that it is very unlikely to be original, but I couldn't find this idea in other writings in a quick search. One simple model of the value (or utility) of money is that each doubling of your savings has the same incremental value. So, if you start with $100,000, dropping to $50,000 is as detrimental as doubling to $200,000 is beneficial. For small gains and losses, the sizes of steps of equal utility differ by less. For example, a loss of only $1000 is as detrimental as gaining $1010 is beneficial. However, throughout most of human evolution, great wealth for a single individual did not exist. Before the advent of storing food, a large kill would only last until the meat rotted or was taken by other hungry people or animals. We are simply not ...

I happened across an ad claiming that “Penny stocks are the secret to buying happiness during a recession.” I couldn’t resist having a look. The link took me to an “advertorial” by SmarterLifestyles entitled “The Advantages of Buying Penny Stocks.” (I prefer not to give the link, but determined readers can search.) The article contains a number of misconceptions about penny stocks. “Penny stocks offer an incredible upside for potential investors.” They also offer incredible downside. That’s the nature of highly volatile investments. “Low prices allow novices to explore the markets, without risking an extensive amount of money.” Nonsense. You can just as easily buy one share of a $100 stock as 100 shares of a $1 stock. Either way you’re investing $100. I don’t recommend either investment because the commission (likely $5 or $10 or more) is too pricey for such a small investment. “If the stock were to dip in price, the investor will not have lost excessive amounts of money.” M...

An interesting thing about indexing is that it is never the best investing strategy when we look back in time. There is always some other strategy that would have been better if only we had known to make the right decisions. If only I had known the stock crash of 2008 and 2009 was coming. I could have sold out of stocks in advance and bought back at the bottom. But I didn’t know and I rode stocks down and back up again. Unfortunately, we can’t invest to make past returns. We can only invest and accept whatever the market brings in the future. A common human failing is the tendency to think that past events were predictable. We don’t know what will happen over the next month, but after it happens we tend to think that it was obvious that things would unfold as they did. But it was not obvious beforehand. For those who look back, there is always a strategy that beats indexing. But for those who look forward, the best bet for the vast majority of investors is investing in in...

Piracy in China has reached a new level: counterfeiting entire Apple stores. Getting harassed on street corners in China by sellers of fake goods is commonplace, especially if you look western, but a fake Apple store is a new one to me. Big Cajun Man reminds parents not to miss out on the Canada Learning Bond if they have children young enough to qualify. The Blunt Bean Counter explains how to use CRA's low 1% prescribed interest rate for income splitting. Retire Happy Blog has a list of potential questions to ask a financial advisor before hiring him or her.

With the Canadian political parties squabbling over the Conservatives’ plans to reform pensions using Pooled Registered Pension Plans (PRPPs) rather than expanding CPP, a key factor that isn’t discussed much is that current retirees aren’t likely to get extra money each month. Many groups have put forth suggestions for pension reform in recent years. Most of these suggestions have not included plans to give more money to current retirees, but usually this fact was not made clear. Those who are retired now or who will retire soon can be forgiven if they thought expanding CPP would mean they’d get more money in retirement. With the Conservatives pushing defined contribution PRPPs, it should now be clear that you won’t get more money out in retirement unless you put more money in while working.