I’ve worked in high tech for a long time now and have lived through many rounds of layoffs. I’ve noticed that employees generally handle the possibility and reality of getting fired quite poorly. ( Disclaimer: No, I didn’t just get fired. In fact, my employer of several years seems quite happy with me. But that could change any time. ) Possibility of Getting Fired Employees are mostly complacent about the possibility of getting fired. That is, until a colleague gets fired or their employer announces upcoming layoffs. Then most employees are nervous wrecks until it seems like layoffs are over. Then they slowly transition back to complacency. There are people who don’t follow this pattern, but most do. Whether they are in a period of complacency or fear, few employees do much to prepare for possibly being fired. If you force yourself to confront the reality of what would happen if you lost your job, it becomes self-evident that you need emergency savings and should limit d...

This week I wrote only one post on the reason why trying hard at picking stocks isn’t likely to benefit most investors: Trying Hard at Stock Picking Doesn’t Help Much Here are some short takes and some weekend reading: Justin Bender reports that when RBC Direct Investing tracks the book value of its clients’ holdings, it isn’t converting each transaction into Canadian dollars as required by CRA. Justin doubts that most DIY investors are making proper currency adjustments. Am I one of the few people who looks up the Bank of Canada daily exchange rates to get my taxes right? One thing I’ve never understood is why the Bank of Canada limits their daily exchange rate data to the past 10 years. Why not just give us access to all the data they have? The cost of the extra storage would be a tiny fraction of a penny. Preet Banerjee has a video explaining all the different costs that come into play when you sell a house and buy another one. His conclusion: stay put as much as pos...

In a post that inspired many debates among commenters, My Own Advisor asked why we should bother to buy individual stocks at all . In a rebuttal to indexers, one commenter, Pullingmyselfup, asked the following question (lightly edited): “Why is investing the only job, hobby, or activity where people are told not to try?” It’s true that indexing proponents discourage people from trying to pick their own stocks and suggest they just buy an index of all stocks. Golfers can improve through training and practice; why can’t stock pickers improve? The truth is that we can improve our abilities to analyze stocks. But investing offers an alternative not available to golfers. Imagine if you had the option to receive the average prize at the next professional golf tournament without doing anything at all. Instead of hoping for some natural golf talent, buying equipment, spending years building skills, and traveling to tournaments, you just sit on your couch and collect the average pla...

Here are my posts for this week: The One-Page Financial Plan What Interest Rate is Your Annuity Paying?  Here are some short takes and some weekend reading: Dan Hallett reports that many financial advisors are churning their clients’ assets into Deferred Sales Charge (DSC) funds ahead of the new CRM2 regulations that force disclosure of costs. DSCs are a way for advisors to get paid up front whether clients stay invested for the long term (at high yearly fees) or pull their money out early and pay a penalty. Patrick at A Loonie Saved makes a good point about how someone wanting to mislead with statistics can shop for time periods that support a particular conclusion. The Blunt Bean Counter reminds us that with low oil prices, now may be the time to look into tax planning with flow-through limited partnerships. Canadian Couch Potato looks at the merits of preferred shares. My Own Advisor takes a run at a list of questions most investors don’t ask themselves. ...

If you buy an annuity for $100,000, and it pays $6000 per year, that seems like a 6% return. But that’s not actually the interest being paid. Most of each payment is just your own money returned to you. Here I try to work out what interest rate an annuity actually pays. To do this, I worked out what interest rate the insurance company would have to make to exactly cover all the payments to a large group of people who buy the same annuity. For that I needed actuarial tables that predict how many people will live to each age. I used data from Statistics Canada. Note that this is not the same as just using average life expectancy; I actually assume the insurance company keeps making payments to remaining survivors each year. There are many types of annuities. Here I focus on the simple case where there is no guarantee period, which means that the payments stop when you die, even if that happens shortly after buying the annuity. I also looked only at single person annuities wit...

In his upcoming book The One-Page Financial Plan , Financial Planner Carl Richards lays out his approach to helping clients with their finances. His methods are certainly far different from the mutual fund salespeople I’ve dealt with in the past. The book gives you a roadmap for figuring out what is truly important to you. The idea is this will put you more at ease with your finances and make future decisions more clear-cut. The book is very well written without much math, making it an easy read. For Canadian readers, this book contains a few references to 401(k)s (the U.S. version of a Canadian RRSP). Other than that, almost everything in the book applies well to investors in any country. Richards finds that most new clients expect to hear some sort of financial trick or a hot tip that will make them lots of money. Of course, that doesn’t exist and Richards goes through a set of steps that puts choosing investments last instead of first. His process begins with the simple ...

Here are my posts for this week: Going from BMO to Tangerine Chequing The Elephant in the Room with Annuities Here are some short takes and some weekend reading: Garth Turner wrote a very interesting piece explaining how important information for real estate buyers is readily accessible in the U.S. but not Canada. Tom Bradley at Steadyhand has some very sensible thoughts on debt and real estate. Boomer and Echo liken the new information Canadians will get from their financial advisors (called CRM2) to the Enlightenment centuries ago. This is a bold analogy, and I hope CRM2 proves to open Canadian investors’ eyes to the fees they pay. Big Cajun Man has some fun playing a variant of buzzword bingo he calls RRSP bingo. My Own Advisor recommends some books for newbie investors.