Inspired by a reader comment on Canadian Capitalist’s article about covered-call exchange traded funds, I’ve decided to make an offer to select investors. I will guarantee payments each year amounting to 20% of the average daily balance in each investor’s account. The idea for this investing approach was sparked by the savvy comments of STU L comparing covered call ETFs to regular ETFs: “I’ll take the income, thank you. The capital gain/loss is unimportant as I’ll hold these stocks indefinitely. 2.25% or +10%? it’s a no brainer decision. I wanted to setup some kind of cash generator portfolio or ATM and these coverd-call ETF’s filled the bill. Everyone gets all weird about the hi yields but have they noticed that more and more companies are bringing out their own call option funds. That says something in itself.” STU correctly points out that 10% is, in fact, more than 2.25%. STU is also right that many companies are coming out with covered call funds, which means that they mu...

The Blunt Bean Counter has a thorough checklist for your yearly financial checkup. Big Cajun Man asks whether warning labels on dangerous financial products are likely to scare you away or make you more determined to prove that you’re sophisticated enough to handle them. Retire Happy Blog explains pension splitting rules. This can save retired couples big money. Larry MacDonald says that if Warren Buffett thinks the rich should pay more in taxes, perhaps he should pay some extra taxes voluntarily. I’ve never understood this logic. If a football player objects to steroid use in the league, what sense does it make to tell him that he can avoid steroids and the rest of the players can continue as they please?

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 an article about a survey of investor attitudes toward their advisors , I said “Portfolio returns should be the main concern of an investor.” When it comes to a relationship with a financial advisor, I now think that other advice about saving, life planning, and tax planning are very important as well. In my own experience with a couple of financial advisors years ago, I never got anything useful in these other areas (and nothing useful in terms of portfolio returns either). I still think that people place far too much importance on whether an advisor is likeable and inspires confidence. Good advice should be more important than a nice smile, but this doesn’t seem to be how people ...

Dalton McGuinty’s minority government in Ontario has agreed to the NDP’s new 2% tax on income over $500,000 to get the budget passed. However, according to Scott Stinson this “is effectively a tax increase of 3.12% because it will be imposed before a high-income surtax that already exists.” McGuinty expects this new tax to bring in an extra $470 million per year, and I’m reminded of the Laffer curve as a reason why this added revenue may not fully materialize. It’s important to consider the possible secondary effects of any change. We tend to take for granted that increasing tax rates will produce more revenues, but the simple example of the Laffer curve shows that this isn’t always true. If the tax rate is 0%, tax revenues will be zero. But if the tax rate is 100%, tax revenues will also be zero because nobody would bother to work. So, somewhere between 0% and 100% tax rates, tax revenues stop increasing as the tax rate increases. Getting back to the new tax increase, the ...

In the spirit of My Own Advisor’s post The Top 5 Things You Need to Know about Dividend Paying Stocks , I decided to sing the merits of selling 5% of your stocks each year.  I don't want to pick on My Own Advisor because he's a good guy and many blogs say similar things, but I had to pick some blog to have some fun with. 1. Selling 5% of your stocks each year provides an immediate return. Even if your stocks subsequently go down in value, you get to keep the cash from selling 5% of your stocks each year. 2. Safety buffer against the worst case scenario. If the worst happens and the businesses you own go bankrupt, you get to keep the cash from 5% sales in all previous years. 3. The value of that 5% increases over time. As long as your business is successful and produces more than a 5% yearly increase in share value, each year’s sale will be worth more than it was the previous year. 4. Many businesses have a long history of rising share values. Several Canadian ba...

How many times have you heard something like the following? “On a $250,000 mortgage at 3.5%, if you choose a 20-year amortization instead of 30 years, your payments will only be $328 more per month more and your savings over the life of the mortgage will be $55,675!” This is just well-meaning nonsense. If there were no such thing as inflation, the figures above would be accurate. But in what universe does is make sense to simply add 2012 dollars to dollars from the year 2042? Even if inflation is only 2.5%, the 2042 dollars will be worth less than half of present day dollars. To figure out the real savings, you have to take into account inflation. Suppose that over the life of the mortgage, inflation is 2.5%. Then we can take the present value of the 20 or 30 years of monthly payments to figure out the potential savings. 30-year case: Monthly payment: $1119.09 Present value: $284,281 20-year case:  Monthly payment: $1446.66 Present value: $273,713 The actual s...

Where Does All My Money Go? says that successful investing is more about psychology than math. I’d say that it’s about having the right psychology to allow yourself to follow the math. I agree that many who are strong at math still do stupid things with their money. Big Cajun Man had some fun with a financial fill-in-the-blanks. My contribution: “Stupid people and their money are … not sitting at my poker table often enough.” The Blunt Bean Counter writes a top-ten list of pet peeves about personal income tax season. Retire Happy Blog gives an example of how to use a trust to save taxes.