Savvy investors have a plan and stick to it. However, even positive events, such as receiving stock options from an employer, can disrupt their plans. Call options on a single stock are just not a part of most investors’ long-term investing approach. Here I investigate how incentive stock options fit with an index-based investing plan. One simple answer would be to exercise the options (if they are in the money) at the earliest opportunity and sell the received stock. However, there are cases where this clearly makes no sense. For example, if you have 1000 options struck at $10, and the stock trades for $10.10, it makes no sense to cash out for only $100. Given the downside protection the options provide, it makes more sense to hold on. If the stock manages to get to $11, the value of the options increases 10-fold. Another answer is to go on the open market and sell call options on your employer’s stock. On paper, this gives you both the stock value above the strike price p...

I’m expecting to be named as executor of a couple of estates and will likely help out in others. So, I was interested to read The 50 Biggest Estate Planning Mistakes ... and How to Avoid Them by Jean Blacklock and Sarah Kruger. In addition to mistakes in planning an estate, the authors cover mistakes in serving as an executor and in being a beneficiary. Although the book is framed as a list of common mistakes, it serves as a how-to guide and provides some entertainment value with numerous anecdotes. My main criticism of this book is that it comes on a little strong in promoting the services of trust companies and various other experts that may be needed in preparing a will or settling an estate. I don’t doubt that these experts are sorely needed in many cases, particularly for larger estates, but this theme is overdone in the book. The strength of this book is the experience it draws from. Reading through the various mistakes people make I realized that I could make many of t...

Blue Hedge Investments are shaking things up in the Canadian investment landscape.  I've had a few people express concern that I've either lost my mind or have sold out to scam artists. The web site is gone now, but trying to "INVEST NOW!" took you to a warning about investments that are too good to be true. Larry Swedroe reports that hedge funds had another lousy year. The Blunt Bean Counter warns that new rules could lead to punitive taxes for incorporated contractors who are declared “incorporated employees” by CRA. Potato has some interesting thoughts on the debate about whether to prepare for financial emergencies with cash savings or a line of credit. He believes that it makes more sense to invest extra cash above one month of emergency savings. I think this depends on your situation in life. As many experienced tech workers with high-paying jobs found out a decade ago, your job can disappear and it can take years to find a new one at just 75% of your...

Writing this blog has taught me a lot about personal finance and investing. This is one of a series of articles where I argue with my former self by disagreeing with one of my previous articles. Unlike politicians, I’m allowed to change my mind as I learn more from my readers and my own research. In a post on the costs of trading stocks I said “I’m not against direct ownership of stocks. I happen enjoy tracking the progress of the businesses that I own, and I’m hopeful that I will prove to be slightly above average at stock picking.” I followed up with my prescription for success in stock investing: “Predicting the long-term future of a stock is best done by trying to predict the future success of the business rather than looking at wiggles in the chart of stock prices.” I’m still not against direct ownership of stocks for highly skilled investors, and I still believe that fundamental analysis beats technical analysis. However, I’m no longer hopeful that I’m a good enough sto...

Rob Carrick says it’s time to lock in your natural gas price. He reasons that current prices are very low compared to previous highs. Buying a fixed-price contract for natural gas is like buying insurance against price increases, but for natural gas this insurance is quite expensive. Carrick says that the current gas supply charge he pays is 12 cents per cubic meter. (He also points out that at this low price, the supply charge is only about half of what you pay. The other half is storage and distribution costs.) The peak price was 42 cents per cubic meter. The cheapest price he could find to lock in for the next 5 years is 19.7 cents. To make these figures more real, let’s use my family’s consumption numbers. We used 4700 cubic meters of natural gas over the last year. This translates to a cost at current rates of $564 per year (plus roughly another $564 for storage and distribution). At the peak price, this would be $1974 (plus $564). At the best 5-year locked in rate,...

An acquaintance of mine I’ll call Carl mentioned that he invests with RBC’s private investing service where he pays a fixed percentage fee on his portfolio each year rather than paying management fees on all of his funds. I asked what other fees he pays and Carl’s reply was that there were no other fees. He said that he only pays the percentage fee and is pleased that he negotiated it below 1% per year on his sizeable portfolio. I just had to check into this. It turns out that Carl’s portfolio is mostly invested in RBC’s Series O Private Pools. (Note: 3 years later RBC's private pools were "merged" with their funds.) Carl was partially correct in that he does not pay any management fees on these funds. But, he does pay a management expense ratio (MER) and a trading expense ratio (TER) on each fund. Many people think that management fees and MERs are the same thing because of the similar names, but they have differences. MERs contain the management fees plus a few...

David Trahair’s book Crushing Debt is subtitled Why Canadians Should Drop Everything and Pay Off Debt . This led me to believe that the primary focus of the book would be the need for individuals to reduce their debts. However, to get to discussions of personal finance and debt reduction, readers have to wade through the first half of the book which is about macroeconomic factors related to debt. The book has some interesting parts, but overall it is a little thin on useful content. “A financially illiterate, disorganized client is a bank’s most profitable customer.” The thought of giving my money away to a bank is a great motivator to get me organized and seeking financial knowledge. Trahair even claims that he once arranged to give a series of free lectures at a university, but the university’s “Financial Partner” put a stop to his lectures because “it would be bad for their business.” “Household debt levels are threatening the stability of Canadian banks.” The McKinsey Gl...