Here are my posts for the week: Rule of 72 in Reverse for Mutual Funds Crazy Arguments in Support of Leverage Now is the Time to Consider Lowering Your Portfolio Risk (Rob Carrick mentioned this post on his Carrick on Money Globe and Mail blog -- thanks, Rob) Here are my short takes and some weekend reading: Jeremy Siegel gave a very interesting hour-long lecture that includes the great quote “a bubble is an asset class that is going up in price that you don’t own.” Siegel takes a very long-term view of various asset classes and argues that Robert Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio is thrown way off by recent accounting changes that dramatically lower earnings in the last decade compared to decades past. Big Cajun Man has a nice chart showing that the percentage of Canada’s debt owed to foreigners is lower than the percentage for other nations. However, in just 2 years, Canada’s percentage jumped from 15% to 25% owed to foreigners. The Blunt Be...

During the 2008/2009 stock market crash, it wasn’t too hard to find people telling you to re-evaluate your asset allocation and tolerance for risk . However, that was a terrible time to lower you portfolio risk; now is a much better time to consider this question. It’s natural for your emotions to tell you to sell stocks after they’ve dropped and to buy more after stock prices rise. To a certain extent it is these emotions that drive stock market swings. However, it’s not too hard to see that this behaviour amounts to selling low and buying high, which is exactly the opposite of what most investors want. Re-evaluating your asset allocation isn’t necessarily a bad idea, but there are wrong times to do it. The stock market lows of March 2009 were the wrong time to consider selling stocks. Even if you were right in deciding that your stock allocation was too high for your risk tolerance, making a change back then would have caused a permanent loss of capital. Now would be a gre...

I was reading an article called Why borrowing to invest (leveraging) is a good idea (on a site called FinanceWorks that has since disappeared).  I’ve read many reasonable articles that point out the positive side of leverage and expected more of the same here. However, I didn’t get more of the same. The interesting part of the article begins when the authors take aim at critics of leveraging: “Critics argue that leveraging increases investment risk and that a rate of return higher than the loan’s interest rate is needed to generate a profit. But neither claim is accurate.” Okay, this is going to be good. Apparently, leverage doesn’t increase risk and you can profit even if you pay more to borrow than you make on your investments! Let’s start with risk: “Risk, as far as it pertains to investing, is the odds that you will lose money. By this definition, we have to question how borrowing money can impact risk. After all, whether you invest your own money or that of the bank...

Most people have heard of the Rule of 72 . It’s a way to estimate how long it takes for your money to double at a given rate of return. Less well known is that this rule can be used to estimate how long it will take for investment fees to consume half your portfolio. The Rule of 72 says that if your rate of return times the number of years you earn that return is 72, you’ll roughly double your money. So, if you earn 6% each year, it takes about 72/6=12 years to double your money. When it comes to fees, the same rule works for finding the number of years it takes for fees to consume half of your money. For example, if you invest in Investors Canadian Growth Fund, the total fund costs each year are 3.02% of invested assets. So, it would take about 72/3.02=23.8 years for half your money to be consumed in costs. This rule just gives an estimate, but it’s pretty close. The actual time is just under 23 years. Update 2018 Nov. 27:  This fund's total expenses are now 2.72% per...

I gave a warning about misusing TFSAs this week: Two Common Misconceptions about TFSAs Here are my short takes and some weekend reading: Tom Bradley at Steadyhand makes a strong case that the mutual fund industry has lost its chance to create practices that are friendly to investors. He says that regulators need to cause a transition in the industry that is “jolting, expensive and soul searching.” Million Dollar Journey compares the top Canadian brokerages that offer U.S. Dollar RRSPs. He compares them on fees and on how well they handle currency exchanges between Canadian and U.S. dollars. The Globe and Mail has also come out with its 2013 ranking of online brokerages . Larry MacDonald explains why tax-loss selling is not as valuable as it appears to be. Retire Happy Blog does a good job of interpreting the latest SPIVA scorecard comparing active versus passive investing. The 5-year results look quite dismal for active investors. Canadian Couch Potato explains t...

The name Tax-Free Savings Account does a good job of making it clear that these accounts produce gains that are tax-free. However, the “savings account” part of the name leads to confusion for some Canadians. Here are two common misconceptions about TFSAs. Misconception #1: TFSAs are just for holding cash like regular savings accounts. TFSAs can hold a wide range of investments, including stocks, bonds, and cash just like RRSP accounts. It’s common for banks to offer TFSAs that can only hold cash and GICs, but this is the banks’ restriction, not a TFSA restriction. Most banks offer other TFSAs that do permit holding stocks and other investments. Almost all discount brokerages also offer TFSAs that allow the full range of investments. Misconception #2: TFSAs can be treated like regular savings accounts with many deposits and withdrawals. Most people are aware that there are limits on the total amount you can contribute to a TFSA. For those who turned 18 in 2009 or earlier,...

Here are my posts for the week: Fight Back Investment Survey Troubles Expanded CPP and Debt Here are my short takes and some weekend reading: Anita Anand and John Chapman at the University of Toronto Faculty of Law explain in this short article why investment advisors should be fiduciaries. They say that current Canadian laws in this area are “a mess.” Thanks to Ken Kivenko for pointing me to this one. Where Does All My Money Go ? says you shouldn’t take up a bank’s offer to take a payment holiday. Canadian Couch Potato shreds claims made by a mutual fund company in their ad. Big Cajun Man lays out the reasons why some parents are pushed toward sending their kids to a private school. The Blunt Bean Counter brings us a detailed look at the ins and outs of tax-loss selling. My Own Advisor calls for clawing back Old Age Security at lower income levels. His reasoning is that it makes no sense for working-class Canadians to subsidize the lifestyles of upper-midd...