Year: 2009

Categories
Personal Finance

New Rules of Retirement – Book Review

I recently received a copy of “New Rules of Retirement” written by investment advisors Warren MacKenzie and Ken Hawkins.  Now if you’re wondering why I would even bother looking at a book written by a couple of investment advisors, I should clarify that these guys are not the normal “mutual fund/used car salesman” type of advisors.  MacKenzie runs the investment company called “Second Opinion Investor Services” which offers unbiased investment advice.  As it says on their web page, they don’t sell any financial products – only advice so they really are unbiased.  Ok, nobody is truly unbiased but these guys are close enough.  They are big believers in passive or index investing, ETFs and index funds – so they are ok in my books!

On with the book review…

What it is about

The book is a fairly complete retirement planning book.  A good portion of the book deals with investing but there is also a lot of discussion about lifestyle factors such as health, housing needs and how you are going to spend your time in retirement.  The investing section lays out some planning strategies and also suggests that lower costs and passive investing is the way to go.

Any good?

Yes, it is very good.  I would say that most people (even readers of this blog) would gain from reading this book, it is a wealth of facts and figures and they talk about many, many different aspects of retirement that most books don’t cover.  If you have already read 4 million financial books and don’t feel you would gain from this one then consider giving it to a friend who perhaps needs a little nudge in their retirement planning.

A couple of chapters I found very interesting were:

Health

This book covers various retirement topics like the odds of being independent at different ages, various age-related spending factors and happiness.  They say that most seniors are not dependent on external care and that the fear of huge medical bills in retirement is a bit exaggerated – especially for the earlier stages of retirement.

They included some interesting stats from a study done by Statistics Canada which show that not all seniors end up dependent.  One stat is percentage of seniors who are “independent in activites of daily living” – in other words they are completely independent.

age 65-74  88%
age 75-84  70%
age  85+  41%

Keep in mind that just because someone is not complete independent doesn’t mean they are completely dependent – there are a lot of non-independent seniors who will use some home care but not necessarily a lot of it.

Another statistic they looked at was a measure of independence – Activities of daily living (ADL) which includes tasks considered vital to retaining personal independence, such as bathing, dressing, eating, taking medication and moving around the house.  The report found that only 6 percent of males and 7 percent of females between age 65 and 84 were ADL-dependent which means they couldn’t do the basic tasks on their own.  For over 85 years of age – the rate of ADL is much higher at 20% plus.  Regardless, even for the 85 year old plus crowd – close to 80% were still ADL independent which is pretty high. Of course most people are dead by this age, but still… 🙂

Annuities

I haven’t done much research in annuities but I have to say that after reading this book, I may try to incorporate them into my retirement planning.  Annuities are basically contracts where you give a big chunk of cash to an insurance company (say $100k) and they will guarantee a certain payment each year.  This is similar to a defined benefit pension except that you have to save up the money to buy in.

For those of us without a good pension, we have to live on OAS, CPP and our savings.  If the stock market crashes then this can cause a bit of stress if your nest egg loses some of it’s value.  MacKenzie and Hawkins suggest that perhaps older retirees can consider buying annuities to reduce their stress.

If someone needs a minimum of $25k per year to live on and their CPP and OAS only add up to $14k then if they bought an annuity (or several at different times) that pays them $11k per year then they could guarantee they will always have enough to get by.  Of course with the rest of their portfolio they can withdraw a moderate amount (ie 4% rule) to give them a good standard of living.

Annuities are cheaper as you get older (ie the payouts get higher) so they say to wait until you get older – and even then – just buy what you need, when you need it.

Stay tuned for the great Canadian book giveaway – coming soon!

Categories
Announcements

Contest Winners – $50 Chapters.ca Gift Certificates

A quick note to let everyone know that wolfe and Swati are the winners.

I’ll be in touch with them by email to work out the delivery.

Categories
Announcements

LinkStuff – Friday, Jan 23

It was interesting to watch some of the inauguration speech by US President Obama this week.  While I think it’s great that a black man is president of the US – I thought the far more important milestone in US history this week was that George Bush is no longer in office.  As a Canadian, I don’t really care if the Dems or Pubs are in power (although I’d be more likely to vote R if I was an American) but if someone like Bush is charge – that is cause for concern.  His re-election ranks right up there with the OJ acquittal in terms of unexplainable events.

The funny thing is that I thought he was a pretty decent president for the first couple of years – but now Bush just reminds me of one of those movies where the company janitor gets promoted to CEO because of an administrative error.  In the movie, the former janitor usually ends up being very competent and saves the company from some impending financial disaster.  In real life…well it’s safe to say the opposite happened.  I’m sure he’s not a bad guy but he just got in way over his head.

The links

Squawkfox had a great post on words and expressions not to use on a resume.  I was wondering why she asked for my resume a while back – that’s where she got all her material.  A must read!

The Money Gardener broke the news about a plan by the Ontario and Canadian governments to provide a 10% down payment for anyone buying a house in Windsor.  That area has been hit hard by the auto sector so I guess the government is just trying to keep the city afloat.

Good Financial Cents– a new blog – wrote an introduction to asset allocation.   The author of this blog, Jeff Rose is a pretty nice guy and is also a certified financial planner in Illinois.

Bible Money Matters had a good post called do you ever plan to fully retire? A great question – I’d like to not have to work but I also don’t want to be sitting around all day.

Preet had an interesting idea about buying a Civic and renting a Ferrari.  I’ve never rented a fancy sports car but I always thought that renting made a lot more sense than buying.

The Oblivious Investor had a very interesting post about diversification using individual stocks.  It’s not that easy!

Dividend Growth Investor discusses when to buy back dividend stocks that you sold?

Amateur Asset Allocator says that socially responsible investing is a myth.  I couldn’t agree more!

Moolanomy says that Lending Club is better than credit cards when funding a small business.

The Well Heeled wonders is it time to buy?

Million Dollar Journey has 6 reasons why a recession is a good thing.

Canadian Capitalist wrote about preparing for tough times (ie layoffs etc).

The Intelligent Speculator speculates on Google stock.

Investing School explains what a hedge fund is.

ABCs of Investing wrote about 529 educational savings plans and explained what a stock exchange is.

Financial Blogger reveals the dark side of the MBA.   Wasn’t that a Pink Floyd album?

Money Ning has 50 ways to save money when traveling.

Green Panda Treehouse says that Circuit City liquidation Deals aren’t good deals.

Goto Retirement lists some key policy provisions with long term care insurance.

Blunt Money has some suggestions for maintaining your motivation.

Carnivals

Carnival of Personal Finance

Categories
Money

Economic Stimulus Tax Cut Package 2009

President Obama has proposed an economic stimulus tax cut package for 2009 which contain about $275 billion  worth of tax cuts to individual tax payers as well as businesses.  The big question is – does this package contain a stimulus check in 2009? The idea behind this money is to promote  individual spending as well as business spending and job creation.  The large amount of the tax cuts is  partially due to the need to get Republican support for stimulus package.

Is there a stimulus check in 2009?

There will be a stimulus check in 2009 for selected groups – however there won’t be a blanket check for all taxpapers like there was in 2008.  However – the year isn’t over yet and the economy hasn’t recovered so don’t give up hope – the stimulus check could happen this year.

What is an economic stimulus package?

In 2008 the government sent out economic stimulus checks to 130 million Americans with the idea that this money  would be spent on consumer goods and services thereby stimulating the economy. Most economists think that this  program was not successful because too many people either saved their stimulus check or paid down debt.   Regardless, the economy has slowed down into a recession with the possibility of a depression which has increased the motivation for another stimulus package.

Individual tax cuts

Obama has proposed tax cuts of $1,000 for couples and $500 for individuals.  This would apply to individuals  with a maximum income of $75,000 and households with a maximum of $150,000 in income.  This is similar  to a stimulus check except you would receive this amount over time rather than all at once.  The idea  behind tax cuts for individuals is to promote spending which will increase economic activity.  More economic  activity is good for the economy and will help fight off the recession.

Business tax cuts

Here are some of the proposed business tax cuts:

  • Tax credit for companies that avoid layoffs or make new hires.  I would assume that if they have offsetting  layoffs and new hires they wouldn’t get any credits.
  • Allow companies to write off losses from 2008 and 2009 to retroactively reduce tax bills from the last 5 years.   Normally these companies would only be able to write off the losses on current or future tax bills.
  • The tax write offs would be effective from Jan 1,2009 so any expenditures since then could be included in the  tax loss.

Second economic stimulus check

At the moment Obama has not proposed a 2009 stimulus check like the one that was sent out in 2008.

Categories
Personal Finance

Illusionary Competency

There’s an old parable about 4 blind Indian mystics trying to describe an elephant. The first, running his hand along the elephant’s side says “elephants are rough and wrinkled”. The second mystic, touching the elephant’s tusks declares “no they aren’t, they’re hard and smooth”. The third, feeling the trunk, argues “well, at least we can agree that elephants are a thick tube with an opening at the end” to which the fourth, holding the tail responds “they are a tube, but they’re a thin tube and there’s no opening on the end”.

I ran into this recently when an administrative assistant at the school did some work using Latex (a popular piece of software for creating documents with a precise layout, often used for journal articles and thesis preparation). She had been given some citations to put into bibtex format (a tool for managing references often used with Latex) along with some citations already in bibtex format to use as a template. She saw me in the hall and said “I put some citations into Latex and it was very easy. Why does everyone talk about Latex as if it’s complicated? I found it very easy!”

Beyond mistakes she made in the part she did (which was understandable, she didn’t know how to compile or cross link the documents so she wouldn’t be able to test if it was right or not), there are a massive number of capabilities that Latex has that she wasn’t even aware of. I was at a lose loss how to politely answer her and try to correct her limited view of a mature, sophisticated tool.

I think this is common when people start exploring a new area. They learn something and mistakenly believe they have achieved knowledge or mastery of the entire field (since, like the blind Indian mystics, they are unable to see the field as a whole). Gambling might be the most obvious example. I’ve linked before to Roger William’s “A Casino Odyssey” where he makes the observation that often people’s early experiences gambling will determine their life-long perspective on it (if they win the first few times they’ll get addicted, if they lose the first few times they won’t have any interest in it again). Stock investing can be a similar experience. If people happen to start investing in a bear market, after a couple months (or years) experience they’ll start thinking they’re the next Warren Buffett. Then the market turns on them and they realize (hopefully) how little they understood what they were doing. Conversely, I’ve known people who put a big chunk of money into the market recklessly, lost big, then sworn off stocks for life. The market isn’t as dangerous as they believe it is, but they’re unwilling to learn more about it or try again.

Even when someone starts feeling that they’ve mastered a complex area of human knowledge or skill, it can be difficult to assess their actual expertise. It can be even harder to assess this ourselves. The Beardstown Ladies, among others, show us that publishing a book (and having Japanese investors making a pilgrimage to meet you) doesn’t prove that you understand the basics (even concepts such as rate of return).

As much as I’d love to finish this post with a simple way you can actually assess your competence, I’ve got nothing. Standardized tests and certification can be easily gamed (Q: What do you call the guy who graduates at the bottom of his medical school class? A: Doctor). Having other people assess you is often unreliable and can be easily influenced by factors about you other than your ability in that area. Plus, how do you ensure that they’re competent *TO* assess you? Similarly, in the workplace or other fields where proficiency is judged, many other elements in addition to the person’s skill in a particular area affect their performance (such as their work ethic, how personable they are, how well they get along with team mates, etc).

Categories
Announcements

Reminder of $50 Chapters.ca Gift Card Giveaway

Don’t forget to enter in the contest to win one $50 gift card at Chapters.ca.  There are two cards to giveaway and so far only 30 comments so get over there!

You have to leave a comment (on the contest post, not this one) saying what if any changes you are going to make to your asset allocation this year.  If you don’t know what asset allocation means then a comment saying “no change” will suffice.  🙂

Contest will be closed at 8 pm on Thursday, January 22.

Contest is open to Canadian residents only.

Check out similar contests at the Canadian Capitalist and the Financial Blogger.

Categories
Investing

Questrade Mutual Fund Fee Rebate And Free Transfer Offer

Questrade discount brokerage has just come out with a great way for retail mutual  fund owners to save on high management fees by offering to rebate up to 1% of those  fees.

What’s the deal with the Questrade mutual fund rebate?

Questrade will rebate up to 1% of the management fee for any mutual funds  held at Questrade.  This amount has to exceed $29.95 per month for the  investor to get any rebate.  This means that you need to have more than $36,000 in mutual funds before the rebate kicks in.

How is this possible?

When an investor buys a mutual fund from an advisor then the advisor is paid  a “trailer” each year which is based on the amount of the investment.   Typical trailers for equity mutual funds are 1%.  Bond and money market funds  will be lower.  The amount Questrade will rebate will be equal to the trailer  paid on the funds you owned.

The problem is for a do-it-yourself investor who wants to buy retail mutual  funds is that they can only buy them through an advisor or a discount  brokerage and they are charged for the trailer even if they don’t have an  advisor.  With this new program the investor will be able to save most of the trailer amount.

How much will it cost to transfer my mutual funds to Questrade?

If you transfer before March 2, 2009 from a different financial institution and transfer at least $25,000 then it will be  free of charge.

How much are mutual fund trading fees?

Questrade charges $9.95 per mutual fund trade.

I don’t have $36,000 – is it still worthwhile?

Depends on the situation – if you are close enough to $36k (ie $30k or more)  and will be buying more mutual funds then it might be worth doing even though  you won’t get the rebate for a while.  At the very least it won’t cost you  anything.

Another situation might be if you have some back-end funds that you don’t want to pay commissions on.  If you are planning to just buy low cost ETFs then you might consider moving the mutual funds to the same institution.

Where do I sign up?

Click on the banner below or on any of the links you see in the article.

I demand more information!

Check out my Questrade discount brokerage review and my Questrade referral promotion articles for more information.

Is it really cheaper to pay $10 per trade rather than get my advisor to do it for me?

Let’s look at an example – say you have $100k in mutual funds with an average mer of 2.5% and the only service you get from your “advisor” is he completes 12 trades per year for you “free of charge”.

With the advisor you will pay a total of $2,500 per year for the fund management, the advisor’s services and the 12 trades.

With Questrade you will get a rebate of $1,000 (approx) and you will pay $120 for the trading fees for a grand total of $1620 for the fund management and the 12 trades.

$2,500 (current fees) – $1620 (Questrade fees) = a savings of $880 per year.

Personally, I’d rather invest in passive index funds and ETFs which are way cheaper (also available at Questrade) but for anyone who wants to own retail mutual funds – this is a great deal.

Categories
Opinion

Begging

This post will upset some readers. I won’t insist that readers promise not to be offended or anything like that, but if you’re not in the mood to read something that may get you worked up, you might want to skip today’s post. If you’re angry and don’t have the time to write a well thought out comment, feel free to cut and paste one of the following (these work equally well for other posts that make you angry on this, or other, blogs):

  • “U R stuppid & cheep MrCheap!!@!”
  • “Well, I guess I can unsubscribe from this trash in my RSS, thanks!”
  • “Nice try, but you’re too [naive / unenlightened / white / uneducated / overeducated / male / affluent / impoverished / rural / urban / straight / unworldly / Canadian] (pick all that apply) to understand the complexity of this issue.”
  • “You, sir, are a heartless brute!”

I’ve had a long, strange history with beggars. In my home town, most homeless were outpatients from the mental hospital, and were as likely to scream something strange at you as to ask for change. My undergrad was in a slightly larger community and you’d occasionally run into beggars asking for change around town. When working down in San Francisco during the dot com boom, I lived on the north side of the Tenderloin and I’d walk across Market St. every day on the way to work (both areas are thick with beggars).

The strangest part is that something about me antagonizes beggars. Most of my friends have noticed that if we’re walking down the street together and we run into a belligerent beggar, without fail he makes a bee-line straight at me. I’ve actually been attacked by beggars 3 times (twice in SF and once in Toronto), so I’m cautious around people who are pan handling.

Historically, and in developing countries, the implied message when someone begs from you is “I’m desperately poor, if you don’t give me some cash for the bare necessities of life there’s a good chance I’ll suffer permanent harm.” I have no problem with this style of begging (although they aren’t likely to get cash from me), and as long as the beggar doesn’t harass or threaten me after I say no or ignore them I’m happy to have a live-and-let-live attitude towards them.

Some people who visit Canada from developing countries have expressed shock to me at the pan handlers they see around Toronto. They can’t figure out why people who are able to walk and have no obvious disabilities would be asking for money. I understand the perspective that a large number of people asking for money on the street have mental health or addiction issues, but once they start crossing the line to harassing and threatening other people it becomes unacceptable to me.

Rather than the traditional mode of begging, many beggars in a Western context take the stance “I’m going to make you uncomfortable and put you in a situation where you’ll pay money to get out of it”. This could be a beggar raising his voice and making a scene (with the expectation you give him some cash to quiet him down), getting uncomfortably close to people or their vehicles (perhaps with a squeegee) and only giving them space when paid for it, or intimidating people who can’t easily escape (I often see mothers with small children being shook down by aggressive pan handlers).

One of my friends has run into a beggar repeatedly who hangs out near the subway station she uses. He’s followed her a few times, and its gotten to the point where she gets pretty freaked out whenever she sees him. I don’t understand why it’s acceptable for him to set up camp at a public transit station and terrorize people.

At this point I feel that rather than begging what’s actually going on is a softer form of mugging. I’m definitely of the opinion that many criminals in the justice system have mental problems, but there are still unacceptable acts that society condemns regardless of the underlying health of the individual. If a shoplifter suffers from a compulsion, or a wife beats her husband because of anger issues, it doesn’t excuse the theft or the assault (although it may moderate the punishment). Similarly, I can’t understand why we tolerate the sort of behaviours that have become so common from beggars.

There are occassionally even larger escalations of violence. I am certainly aware that violence between beggars is more common than violence between them and society at large (and that the violence can go both ways). To me these news reports seem to be extreme examples of standard behaviour, rather than bizarre or isolated incidents.

I have in the past offered food to beggars, but often they’ll take offence at this, and start screaming at me (with the hope that I’ll give them cash to quiet them down I suspect). They’ll indignantly shout “I didn’t ask you for food!” I have no hard feelings at all towards homeless people who don’t beg (if they don’t beg they aren’t beggars). There’s one man who lives around Berkeley that a friend told me about who would tell people off if they tried to give him anything (he’d spend his time going through the trash). Apparently he even gets angry if he thinks people have put things in the trash for him to find. I’m not sure what his world view is, but I respect that he’s living his life in harmony with his values and not causing trouble for other people.

At one point I was debating about doing a PhD in anthropology and focusing on homeless/beggar populations. When I investigated, the consensus among people I talked to was that current academic work on homelessness was done from a sociology / political perspective. There wasn’t much work that viewed homeless societies as distinct societies and approached them from a viewpoint of understand their norms and values, rather than viewing them as a problem to be solved.

One of the few things I like about living in Waterloo instead of Toronto is that I haven’t run into any beggars here (although with RIM’s share price there might be a few in the near future). I understand that people who fight to have beggars left alone by police feel that they’re defending a vulnerable segment of society, but sadly I wonder how many of these champions are living their lives in the suburbs, driving their SUVs and seldom encountering the population that might not be as down-trodden as they believe.

Do you give money to beggars? Do you feel that it helps them? If you accept that throwing money at beggars at a societal level has never solved the problem (and typically draws more beggars to the area where services are being offered) what do you feel would be the best approach to let people live in an urban environment without being molested? Since police crackdowns are typically met with anger and protests, is the only option for people who don’t want to be victimized to move to smaller towns or the suburbs?