Investing Should Be Boring

August 27th, 2015 by Potato

Stamp collecting is pretty much the definition of boring. Yet stamps are useful things that enable exciting mail to happen. Most people just care that they can put a stamp on an envelope and a birthday card or letter will show up in someone else’s mailbox a few days later. So if we had some big national collective worry that not enough people were getting birthday cards, I don’t think we’d start by trying to get people excited about stamps in and of themselves — we’d just want to get people using them. And to stretch the metaphor, we may see people using high-priced couriers and worry that they’re not getting value for money. Maybe FedEx comes right to your door, but for just a bit of effort to walk down to the post office and source an envelope yourself, you could get your mailing done a lot cheaper.

Because you read the post title, you know this is turning into a stretched analogy to investing.

A few months ago a writer for the Globe contacted me for a short interview1 around the premise of how to make investing more exciting.

I think investments and the whole process of investing are — to most people — pretty boring. And that’s a good thing: investing should be boring. No one’s going to text their friends about putting their money in a diversified, balanced portfolio with reasonable fees and deciding on a level of professional advice that they think they need and is appropriate and delivers value. It’s like watching a kettle of water boil or paint dry or grass grow, except instead of a few minutes, hours, or days to see some action you’re talking decades for your investments to do their job for you. It’s beyond the scope of our every-day sense of scale. Fortunately, with index funds and automatic purchases the boredom doesn’t have to be noticeable, either: you can do some reading and come up with a basic plan over a weekend or two, and then your plan only takes a few minutes or hours per year to maintain — the boring investing stuff can become a background process — so you can get on with your life and do all the fun, exciting stuff you want to do.

And then that’s ultimately what the point of investing is: to help you meet your goals. Watching your child graduate from university, that’s exciting — and having the resources to help pay for your child’s post-secondary education helps make that happen. Clocking out at your job for the last time and knowing you’ll have the money to enjoy a comfortable, stress-free retirement, that’s exciting — and signing up for a company RRSP match and investing some savings yourself can help make that happen. Having an emergency fund to act as a cushion so you’re not constantly stressed out about your financial situation… ok, well that one isn’t terribly exciting, either, but it’s nice and a lot better than the alternative.

Putting money away and investing it — using your RESP, RRSP, and TFSA — will help get you to those exciting goals, but that part of it is dull dull dull2. And that last point about having an emergency fund for security so you know that if your furnace breaks down you can handle it speaks to the other side of the coin for not trying too hard to solve the problem of your investments being boring: they should help remove stress from the rest of your life, not add to it. There are some weeks where boring would be just fantastic.

So rather than trying to shift the way you view investments from boring and stressful to some form of exciting, I think they should be boring — complete with all the wonderful things that being boring brings.

As for getting motivated enough to take that first step towards investing, instead of gamifying investing or finding some way to make it feel exciting, instead I suggest asking yourself what are some things you’d like your investments to do for you? What are some of your dreams or goals that your investments may help you realize?

For me, I like to view my investments as a great pool of potential, all the future stuff I will want and need, just gestating and developing. Somewhere in there is the seed of the new car I’m planning to get in about 8-10 years when my current one (now 5 years old) is ready to be replaced — it’s maybe got vestigial gills and a tail, but it’s starting to take shape. There’s all the stuff I’m going to have in retirement, which are little more than blastocytes out there in this stretched metaphor, but the seeds have been sown, and I’ll just have to wait to see how they develop.

1. Given the time that’s passed, I suppose it’s safe to say that that interview is never going to see the light of day and I’m not scooping anyone by sharing some of what I said.
2. Well, for most people. Some of us, like stamp collectors and baseball fans, are totally engrossed in this activity which to outsiders is totally boring.

Directory of Fee-Only Planners and Coaches

August 17th, 2015 by Potato

I’ve talked about fee-for-service planners before, and how I think it’s how the financial advice industry should evolve — it’s a model that removes many conflicts of interest from the relationship, and maximizes transparency. I’ve even said that as a heuristic for finding an advisor it’s not a bad one, especially as at this point only a few have opted to go down that road.

So it was great when MoneySense created a directory of fee-only planners. ‎I linked to it a lot, it’s included in the book as a valuable resource, and lots of other people liked having it available, too.

They’ve now scrapped the list and are starting something new where they will not just provide a list of planners and what some might see as implicit approval, but also give them ‎an explicit seal of approval. The new process involves a hefty application fee, which will help pay for the magazine to do a survey of past clients, but will mean many fee-only planners will not choose to pay for inclusion so the list will be less inclusive. $2500 is a big fee for a directory listing, so the MS version of the directory is likely to become substantially smaller, and likely skewed towards the most expensive advisors.

I think there’s a lot of value in a free and open directory of fee-only planners.

So I’m going to create my own directory of fee-for-service planners. This will be a more buyer-beware type of directory. It will have no seal of approval, and use free tools and a minimum of volunteer effort (so forgive the barebones look). The only requirement for an advisor to get listed is to fill in the intake survey and have the appropriate business model (i.e. primarily fee-for-service). Those caveats out of the way, I think it will also be hugely useful to the community and capture a lot more planners and coaches than a closed directory with a high entry fee.

The directory is a simple Google Docs spreadsheet and there is also a sidebar link for the directory that more plainly introduces it than this post — please link to that version of the post and directory.

The intake form for advisors/planners/coaches to use is here.

Caveats: the important caveat is that this is meant to be an open listing and these are not recommendations. I don’t have the resources to vet any of these listings. I’ve mentioned a few more on the permalink.

Through the rest of this week I will start contacting the advisors that I know of to start filling out the form and adding themselves, so expect the directory to be a bit barren for the first little bit.

Thanks, and I hope you all find it helpful!

Where’s Potato Been?

August 16th, 2015 by Potato

You may have noticed that the blog is even quieter than normal the past few weeks. To start with there’s the subject of the last two posts: my cat dying didn’t put me in much of a mood to write. Then last week my desktop computer died (hard disk failure), so I’ve been spending the past few days trying to rebuild it and recover some data.

First of course the public service message: back your stuff up. I’ve been very lax about backing up the last little while, and it’s biting me now. My last full system image is from December 2014 — eight months ago!! I have a partial backup of some important folders from June. Thankfully that means I won’t have to repeat all my year-end bookkeeping and taxes, but it still sucks that I’ve lost two months’ worth of work (plus eight months of whatever files weren’t important enough to include in the partial backup — things like media and saved games). I’ve been trying to think of what’s been lost and thankfully can’t come up with much. I know I totally reorganized my book business accounting excel file just last week to make it easier to track unit sales (before I was only tracking revenue and expenses), but given how much time I’ve spent on recovery at this point it’s just easier to re-do the work (and that was open at the time my drive blew up so I guess it’s gone for good).

I was greatly let down by the windows restore tools — my backup boot CD wasn’t able to restore windows, refresh windows, or reinstall windows. The drive had somehow become locked and many of the files were supposedly corrupt in the recovery command prompt environment, but I could still see the directory listings which gave me hope for recovery. So I popped in another hard drive and restored my December backup image (the one I thought I made in April — not much better — was unreadable) so I could boot to windows and see what was going on. I hooked up the original system drive as a secondary drive and fired up the computer. Before I knew what was happening, Windows was running chkdsk on the damaged drive, which wiped out most of the directory structure that I was able to see before. Ugh. Then I wasn’t able to access any of the contents because I wasn’t the “owner” of the folders. When I tried to take ownership the system bluescreened and I was back to the command prompt from the recovery CD. There was a very brief “if you don’t want chkdsk to run, press any key in 1 second” message, which is not enough time to actually hit the key. Given that I’m pretty sure chkdsk made my life more difficult here, I have to recommend that if you’re trying to repair a drive that you find a way to disable auto-chkdsk on startup.

So, days later now, I have a system that thinks it’s December 2014, with some of my files from the June backup. I still wanted to see if a more advanced recovery tool could pull anything from the borked drive, so I googled around and tried a few.

Pandora Recovery was able to scan the drive for document files (.doc, .xls, etc.), and found a lot of files and fragments of files. However, it was a lot of work to sort through the results — the original filenames and creation dates were gone, so Pandora created names based on header information (e.g. file creator). That let me cut out a few to search through, but I was still left with hundreds of documents to open and see what they were. I ended up finding a few invoices that I would need to rebuild my accounting spreadsheet, but no accounting spreadsheet. Most of the documents appeared multiple times, likely an artifact of how Windows saves a new version behind-the-scenes (or in some cases, an artifact of how I’ll go back to a website and re-download a document rather than try to find it in my recent downloads folder).

So I moved on to Recuva. This tool didn’t turn up as many potentially recoverable documents, but what it did pull out of the damaged drive had original filenames and dates modified, which greatly helped me exclude the ones I didn’t need to check in detail (for instance, anything before 2014 would already be on my xmas backup image — I was mostly hunting for recently completed documents). This helped turn up one other document file missed by Pandora (though I can’t say whether Pandora missed it, or if I missed it because the meta information wasn’t helpful), as well as some email files (eml) that Pandora doesn’t seem to check for.

It’s a few days later now and I still am not yet up and running on my desktop. I figured I would take advantage of this “opportunity” to upgrade to a solid-state drive as my boot drive, so I’ve got some more work to do on that (which I was hoping to finish tonight but looks like I will likely be offline until Wednesday).

To get the blog back on track, I have an exciting post coming up for tomorrow.

My Amazing Cat: In Remembrance

July 31st, 2015 by Potato

My cat died today, 18 and a half years old — almost 18 years to the day since we got her. I moved out at 23, when my kid sister was 12, so in many senses I was closer to that cat than my own sister (certainly in terms of time spent within a few feet of each other). Forgive me if I’m a bit of a mess for the next few days.

I’ve often said she’s the best, most amazing cat in the world — you all think that of your cats but you’re wrong because it was my cat (well, now one of you might be right). However, it’s always been hard to explain why she was the best cat, so I suppose I will just throw pictures and mini-stories at you (keep scrolling), and otherwise just remind myself that I don’t need to convince anyone else that she was not just awesome and sweet and loving but the best cat ever.

What’s really amazed me the past few years is how good she is with Blueberry (and vice-versa).

After she stopped pouting in the basement, kitty was fascinated by baby Blueberry and breastfeeding.

Even before she could properly focus, toddler Blueberry was very gentle with kitty and they were great friends.

A fairly recent photo of toddler Blueberry and kitty giving nose kisses.

Together in the sunshine. This is in front of the same window where kitty and I spent our last day together.

She liked to hide behind my big 19-inch CRT, probably because it was made of warm. When I got an LCD she started sleeping on the case of the computer itself -- to the point where the network name of my current computer is CatBed.

Sweet sleepy kitty on the couch. Up on the back of the couch was a great place for her to deploy her soft little paws to rest on your head so you knew she loved you.

She liked to lounge upside-down like this on the floor. Only I may give her tummy-rubs though -- all others will get teeth. That's the kind of special relationship we had.

She really liked sleeping in my laundry. And really hated it if she jumped into the hamper and it was empty.

She loved ribbons. Fun to play with, delicious to eat.

One of the earliest photos I could find, of her lounging on the stairs at my parents' place. A few near-misses of getting stepped on and nearly killing her humans and she learned to find better places to lounge... mostly.

Xmas tree set-up in London (incidentally, this was the first xmas Wayfare and I had together after getting married). Kitty was there with me for most of my life's big events.

A last meal shared with my very dear friend -- even when she didn't want cat food, it's hard to resist the allure of licking the cheese sauce off my leftover mac 'n cheese. I like to think that her weight loss at the end was her slow-motion way of becoming a Force spirit like Obi-Wan.

The Origin Story

We got her years ago, on PEI. At the time I didn’t want to get a cat because I had had dogs until shortly before my sister was born, and my dad promised I could get a dog as soon as he stopped smoking (aside: he would not quit for ~7 more years, when he went cold turkey after a cancer diagnosis). I never saw her at the combination vet clinic/pet store where they got her, but supposedly she was super-friendly with all the people coming in to the store, and was nearly 5 months old (she roamed the store, she wasn’t in a cage). There wasn’t much of a market for pure-bred Himalayan cats on the Island, so the store owner said she was going to adopt her herself if no one got her by 6 mo. My mom and sister fell in love and raced back to the cottage to try to convince the rest of us that we needed a cat. My dad had a conference call, and my sister kept trying to ask him to get the cat. He kicked my mom and sister out of the cottage for making too much noise while he was on the call. My sister made pleading faces and hands at him through the window. Still on the conference call, he scrawled across a piece of paper “FUCK OFF, get the cat.” And so they hopped in the van and went right back to adopt her.

Taking her from the pet shop to our place seemed to break her brain: she couldn’t handle more than two people in a room and was constantly under a bed or the couch. I liked to stay up late into the night reading (some things never change), so I was often the only person up when the nocturnal cat came out to explore. We became best buddies. She immediately started sleeping under my bed, hiding from the others during the day, then snuggling with me in the recliner at night while I read. It took a few weeks, but soon enough she was sleeping on top of the bed with me.

Back in Toronto she started sleeping not just on my bed, but up on my pillow. She used to lick and groom the top of my head before we’d go to sleep. As my hair started falling out she seemed to have a realization that it was not a thing to do any more (I like to humanize it by thinking she mistakenly blamed herself for the hair loss), and instead slept beside me for bit, until a few bad nights of getting nearly rolled on and twitched out of place drove her to the foot of the bed. She also loved the basement. It was full of boxes and dust and places to hide, and being a teenager and the oldest child, I had claimed the basement as my own lair, so once again we became the two souls out on our own, and I started to think of her not as the cat that my mom and sister brought home on an impulse, but as my cat.

Driving

She hated driving. Supposedly she yowled the whole way back from the pet store in the first place. When our month-long vacation on PEI was over, we had to get back to Toronto in the van, and she yowled until about Moncton before settling back with me on the very back row of seats in the van.

When I moved to London, which was about a 2-hour drive away, she would cry for about the first hour and a half of the trip. Every time. The first time I took her out with me it was a terrible snowstorm, and I think it took nearly four hours to do the drive. On that one I swear she figured out how to modify her meows to call to me (and later Wayfare) by name. “Meeep, meeep, meeeowww, jeeeeow, jeeooon, jeeeooon, jeeeooon… [Way-fr; way-fr]…” After I stopped taking her back and forth every weekend she seemed to settle down about driving (a bit).

Even after she stopped crying the entire trip, we’d still get subjected to the protest pee when we tried to drive with her, where she’d pee in her travel crate as soon as it was placed in the car. We got that treatment on her very last long-distance trip, our return drive from the cottage two weeks ago.

Kitty and Blueberry

One thing that never ceased to amaze me is how this shy, skittish cat became fast friends with a toddler. I know Blueberry is awesome and very good and gentle with the cat, but she’s still a toddler and kind of unpredictable. Blueberry would “read” bedtime stories to the kitty while she napped on the couch, and was constantly bringing her toys and interesting things to sniff. Kitty would follow Blueberry around for a surprisingly large part of the day (given how much elderly cats sleep), and often came in to sit and listen to me read bedtime stories to Blueberry. They’d “ooga-mooga” (rub noses) together, and roll on the floor in the sunbeams together. Blueberry was excellent at giving kitty just one or two treats, and kitty was always super-excited to hear her politely ask “Daddy, can I give the kitty a treat please?” and start crinkling the bag.

Fluffball

She was super, super fluffy (Himalayan). But underneath all that fur she was always a small, dainty cat. She was a grazer who always left lots behind in her food bowl, just naturally skinny. All that fur was constantly flying off, and for a long time my wardrobe tended towards grey to hide the omnipresent cat hair.

Wayfare is incredibly allergic to cats, but had almost no problems with my kitty as long as she didn’t take a nap on Wayfare’s face. Many other people I’ve known with allergies didn’t even know I had a cat until they saw her, because their allergies weren’t triggered. I never thought I had cat allergies, but now I wonder if that’s just because of how awesome she was, as I find I get itchy eyes every now and then when I go visit my sister’s cat. It’s too soon to seriously consider whether we will get another cat, but I wonder if Wayfare’s allergies (and possibly Blueberry’s allergies, who also reacts to my sister’s cat but never to my kitty, even when smooshing her face into her side) will preclude us from getting another in the future.

Fur like that needs brushing, and for many years she would willingly come up on my lap and let me brush her. Normally she wasn’t allowed on my desk, but I’d let her up if she let me brush her for a bit. Starting a year or two before Blueberry was born, we were having more and more trouble getting her to accept regular brushing — she’d bite at the brush, or stop coming up on my lap entirely. So we got into a regular habit of cutting out big knots of hair as it bunched up instead. As she got older and less flexible, we had to really thin out the hair on her back near her tail because she couldn’t keep up with her grooming, and wouldn’t let us brush her. The past few months she wasn’t brushed at all: with the weight loss and dehydration we were just too afraid of hurting her or stressing her out, so she was just a big ball of mats across her sides and tummy — though miraculously the fur on top was still pristine and gorgeous (even the vet commented on it).

Goodbye My Dear Friend

I stayed home from work and spent the day with her today, doing a bit of work on the laptop in the living room while she snoozed in a sunbeam from the front window. I’d pet her, and cry, and she’d purr for a few seconds and go back to sleep. At lunch I had mac ‘n cheese, and she woke up to lick some cheese sauce off my noodles, just like old times. I tried offering her food and treats, and while she took 3 treats she only touched food twice, and even then only got a few teaspoons in.

A half hour before it was time to go to the vet she woke up, had a bowel movement, and visited her food bowl. Just like a cat to make the decision hard on you at the last minute. I figured if she was indeed doing a bit better with a few more good days in her, the vet visit could just be a chance for some more subcutaneous fluids and a checkup. We started the vet visit with a health check to kind of assess where we were at in terms of quality of life remaining and make sure that this was a helpful move. She was down to 3.5 lbs, her kidneys had atrophied, she was anemic, and above all, she just lay down on the examination table and didn’t try to get away. I offered her more treats and she wouldn’t lift her head up to take them. Those last two were the deciding factors for me. She died peacefully while I pet her.

The house feels so empty. Which is weird, because I’m up working on my computer, and for the past few weeks she would have been down on the windowsill at the opposite end of the house, not able to manage the stairs to come up here and visit me. There’s no way I could hear or otherwise sense her from here if she were here, but somehow I can just feel the emptiness (the rest of the family left for the weekend in part so Blueberry wouldn’t have to deal with kitty’s death and daddy being a mess). In some ways I’ve slid into the loss gradually — for instance, she used to always steal the footrest under my desk for a bed, but her limited mobility has meant that she hasn’t been there for weeks, so checking before I put my feet up was already a thing I was getting over. I’m not sure I’ll be eating mac ‘n cheese or laying in the sun in the living room for quite a while though.

She was a loving, gentle cat, and she was loved by all who knew her. I miss her terribly.

My Poor Kitty

July 31st, 2015 by Potato

Warning: this post is about sad stuff while I’m grieving, and writing it may just be more for me than you. Feel free to skip this one. Comments have been disabled.

My cat is downright ancient by feline standards, pushing eighteen and a half. Like many older cats, she has kidney failure, and we’ve known for a while now that her days are numbered. The past few weeks she’s had a rather poor trajectory, and it’s clear the end is going to come very soon.

So I’m left with a very hard decision on timing. She barely ate anything yesterday, and refused food this morning, along with other troubling signs like urinating on her cat bed and only having two tiny bowel movements this week.

With my dogs, there was absolutely no question about euthanasia — either as the right move or on the timing. They were in distress, and their health declined hour by hour, rather than day by day. Their deaths came quickly and suddenly, rather than at the end of a chronic illness, and euthanasia was an unquestionable mercy.

With my kitty it’s a much harder decision. She is on a path to basically starve to death, and that is not how I want her to go — I’m comfortable with a decision on euthanasia as an endpoint. But the timing is so hard.

She’s not in distress, she’s not yowling in pain… she’s just lying here in the sunshine, snoozing. But she hasn’t eaten more than a few mL of food in the past few days, and her energy is so low her awake time is measured in minutes, and if she does try to get up and walk she stumbles and falls. Her tummy groans, and she looks nauseous when she does eat, or falls asleep mid-chew. However, she could go on like that for another few days.

It’s hard to say for sure that an injection today is a more compassionate thing to do than one tomorrow, or waiting for some other end at home over the next few days.

I think it’s time. I’ve made our final appointment with the vet. But it’s hard to say goodbye to a dear friend and companion, and I wish I was more sure about this than “I think it’s the right move and the right time.” But waffling on the fine timing is not going to change the fact that I do have to say goodbye to my sweet fluffy baby sometime very soon.

Goodbye, old friend.

Canadian Personal Finance Book Guide

July 26th, 2015 by Potato

As much as I love blogs, if you’re coming to a topic for the first time and need a orientation and structure it’s hard to beat a good book. However, there are so many out there covering so many aspects of personal finance that it’s hard to know where to begin — especially as a Canadian, where suggestions from across the border can be hard to translate into practice here.

I’ve put together a reading guide to help people decide what Canadian personal finance books to read, which is a question I find myself answering a lot. I think something general and easy to read is a good place to start for nearly anyone. In fact, I recommend a few books designed to be general introductions — despite re-treading over some common ground, each brings a bit of a different view and adds information. That helps set the stage for the other books to follow, whether you need more help conquering debt and a budget, want to start investing, or just learning more about how to be a smarter consumer. A reading guide like this can also help put things in context: it’s hard to jump right in to investing and how to manage your retirement nest egg if you haven’t yet given any thought to the notion of saving for the future.

Personal finance reading guide -- click for PDF.

The reading pathway is a PDF infographic type document — click the image above or this link to download it.

I did reach out to a few others for their opinions on what to include for people starting out, but I’ve read a lot on the topic and used my judgement to create the pathway: the final curation, summaries, and opinions are all my own.

Disclaimers: I am the author of The Value of Simple, one of the entries in the pathway. I also embedded links to each book for convenience, and did use my Amazon affiliate code in those links. This did not affect my choice of books for the pathway.

Please feel free to share/mirror the PDF — the attribution is built in.

On Checklists

July 19th, 2015 by Potato

Several beta readers suggested that I close out The Value of Simple with a checklist. It sounds like a great idea, and I took several runs at the problem. However, if you’ve read the book then you’ll know that it does not end with a checklist. The issue is that making a good checklist is hard, and a checklist doesn’t really fit the problem at hand.

A checklist should not be an algorithm in disguise. I could have ended with a flowchart or bulleted list to summarize the steps in planning, investing, and managing it all for the long term, or a checklist to cover all those steps. It could have been a nested checklist (and I had a few decent drafts of those), with big check-boxes like “make a plan” under which would be a separate checklist with items like “do you want to leave an inheritance/legacy” and “do you have a plan B?” or “Investing” with “have you filled your TFSA first?” and “are you diversified?” However, that was getting just too big and complicated, had too many questions as opposed to action items or steps, and in some ways could basically be replaced with the single sentence “in lieu of a checklist, run down the table of contents and place your tick marks.”

Checklists are best for helping to prevent stupid errors, especially where you might forget something, or do some steps out-of-order. So it’s quite difficult to fit them to the overall plan-invest-manage process: it’s too big, and spread over too much time. It’s also a lot of decision-making and assessing your own feelings, rather than mechanical steps to take. For many of the things people may forget, the written plan and calendar reminders I suggested should work better than a checklist.

There are aspects where I could see checklists being handy, basically for isolated parts of your investing process. For example, when buying or selling an ETF there are lots of little things to remember, like setting a limit order, the good ’til date, factoring in the commission, rounding down for the number of units, recording the transaction, making sure that the purchase fits your long-term plan, etc. — smaller, more focused checklists for these tasks might work really well, and I’ve already had some ideas on the back burner that I’ll try to turn into drafts for you to look at.

Why didn’t I pound them out first and include a half dozen in the book? Largely because I’m going to need to test them out on a few people, and try to identify where the common errors may be — and whether a checklist actually helps or makes things worse. What errors do you think people would need a checklist to avoid and in which areas?

2014 Active Investing Update: Execution Risk

July 6th, 2015 by Potato

2014 was a busy, busy year. I wrote and released a book, in addition to all the other stuff going on in my life like being a dad, holding down a full-time job, taking on freelance/coaching clients, etc.1 So I did not have much time left for active investing, and that was one factor in putting in a rather shoddy under-performance of 8.6% vs my benchmark of a 50/50 mix of the Canadian and S&P500 e-series funds which pulled in almost double: 16.7%. Indeed, looking back through my notes from the year, active investing was almost entirely jettisoned from my life when the time crunch got bad. I spent almost as much time doing the bookkeeping and getting ready for tax season for my active portfolio in April as I did on researching new ideas or carefully following the ones I owned through the entire rest of the year. I did not listen to a single conference call all year. For over half of 2014 the time I invested on the active portfolio was precisely zero.

So this gets down to execution risk, another great reason to love simple index investing methods. Even if I did have a workable strategy to beat the index, and the smarts and emotional fortitude to follow through, there are still lots of ways to muck it all up (like not really doing it at all and leaving things on autopilot). That’s an added risk to active investing that we don’t talk about much, and a difficult one to accept: it’s all too easy to say something like “oh, if I had spent more time on it, I would have done better.” But the fact is that I didn’t, and I put myself into a situation where I could under-perform (and also granting that I may have underperformed no matter how much time I put in) by choosing to invest actively. It wasn’t a down year — I still made decent money, which may make it all the easier to fool myself if I wasn’t comparing to a benchmark.

I was overweight oil-related stocks, which hurt this year, but Canexus is a big stand-out mistake. It was a large part of my portfolio (a big part of out-performance in past years), and I just sat on it while it fell 55% in 2014 (and continued to decline in 2015). It’s stunning just how much value was destroyed by their attempt to build an oil-by-rail transloading terminal: over $350M invested, and it sold this year for $75M. Looking back (with the benefit of knowing that there were more declines to come), I should have seen the writing on the wall closer to mid-2014 that this supposed side project was threatening the stable, cash-generating chemicals business that I liked in the first place. That would have been a loss for the year, but not a loss on the position — instead I completely ignored what was happening and lost a lot of money by the time I woke up to how bad things had gotten this year.

I’ve been cutting down the number of positions I hold in the active portfolio and putting more and more towards the passive portfolio, but have not yet gone fully passive — at this rate it will take me several years to wind down to that point. Especially given that I wrote a book on how passive investing works and is so easy to do I should probably just liquidate the active portfolio and go fully passive. As I was putting this post together, Regal (RLC) received a take-over offer, which helps offset some of the other idiot moves I’ve made. The proceeds from selling that have been rolled into the passive portfolio. I also took that opportunity to do a big re-balance: I’ve had a mix of TD e-series and ETFs for a while now, in part because the e-series are easier to buy on autopilot, or in small pieces as the market dips (an idiosyncratic move purely for psychological comfort). I’ve now liquidated the e-series and rolled everything into just four ETFs — and I’ll note for new readers that my passive portfolio is in my TFSA and RRSP so there were no tax consequences to this roll-over, but doing the same thing in a non-registered account would have made me realize (and pay tax on) any capital gains the e-series funds had accumulated. It’s likely I will once again build up some e-series through the next year or two and do another shuffle to roll them into ETFs, or I might finally get into the habit of buying an ETF every few months for the passive portfolio.

This is two years in a row now of under-performance. My cumulative out-performance (”alpha”) is still positive, and by enough still that it raises an interesting conundrum, related to the previous posts on freelancing: in 2014 and the first half of 2015, I’ve ignored managing my active portfolio for the sure thing of freelance work (and the not-so-sure thing of the book). However, if I was able to maintain the 5-year average of out-performance from the years where I was working at it (which conveniently ignores this, my second-worst year relatively speaking), my time would actually be better spent doing investing research than editing/writing/coaching work. Of course, if I were to “risk adjust” that, then I’m back to taking the sure thing of working for a living and indexing my investments.

1. For that matter 2015 has been pretty hectic too, which is why this update on performance is coming 6 months after the fact.
Link to 2013’s update.

Response to Freelancing Thoughts

July 2nd, 2015 by Potato

Last week I did some thinking out loud about freelancing, which included some discussion around some recent posts by Robb Engen at Boomer and Echo. Robb left this really long and thoughtful comment which I think should be a post in its own right so you can all see it. Here’s Robb.

Hey [Potato], I’m not sure if you’re just taking issue with the $1000/month comment or what, but this comes across as a pretty whiny rant. The point is, if you were in financially dire straits, you could easily find a way to double your best freelance earnings. You’re not in that position, so you don’t NEED to hustle that hard.

Think of it this way: the average couple with no kids could rent out a spare room or basement to reach that extra income target. But they won’t, because having a stranger in your house is weird and uncomfortable. One or both of them could take a part-time job or use a marketable skill to earn extra money on the side. But they don’t want to because they’d rather watch TV and look at Facebook.

My advice to millennials [snip] is to hustle. “Do what you love” is a great mantra, but do it on the side. Anecdotally, I know a few people who do it, and plenty who could, but choose not to.

You make a lot of assumptions about me and my situation. I’m actually offended (well, offended enough to make this comment). I’m not in the upper-stratosphere of writers — not even close! I write a lot and do a decent job promoting. I’d say my biggest strength when it comes to my side business is finding what the next thing is going to be.

When the typical online ad revenue streams dried up, I looked for other ways to increase my side income. I noticed plenty of brands trying to start a blog or newsletter, and most of the time they had no content strategy whatsoever. So I’d reach out to a few of them and offer to write articles at $250/post. I took a targeted sales approach and it paid off. Incidentally, many of those relationships turned into advertisers on B&E or RCC.

After the Toronto Star column ended, I was out $8k to $10k per year. Enter the fee-only planning business, which filled that void and to be honest takes less time than writing, finding sources, and going back and forth with an editor (as you described above).

Yes, I benefit from a short commute and a steady 9-5 job. But did you know that I work every Friday/Saturday night from September to December, and from January to March?

Yes, I’m blessed to have a stay-at-home spouse. But that does not limit the time I spend with my family and looking after my share of the household duties. Did you know that my wife has MS? I can’t imagine how tired she gets chasing after two young kids every day while keeping the house in order, groceries stocked, and family on schedule. I drove my daughter to and from Kindergarten most days. I do whatever I can to help ease that burden at home.

Finally, I’m also working on plenty of non-income generating activity on the side, such as completing the coursework required to earn my CFP designation, and doing pro-bono financial planning.

Hey, we also love binge-watching shows on Netflix and do so on a regular basis. But when The Bachelor comes on, or (shudder) Grey’s Anatomy, I pull out my laptop and get to work.

I freelance to replace my wife’s working salary so that she can stay home for her health and to look after our kids. It’s a lot of work, but I’m in no danger of burning out.

I don’t think it’s unreasonable to earn $1,000 per month on the side. Deep down, if your financial livelihood depended on it, you could hit that target. My turn for assumptions: You have the luxury of working on “dream projects” like writing a book or creating a course because you don’t necessarily need the immediate income (these projects may pay off down the road, but likely would not return the time and effort that were put into them). If you had to focus on immediate income, you could easily earn $1,000 per month or more. You know you could.

Potato again. In last week’s post I did some thinking out loud including deciding not to try to quit my job to do freelance full-time, and also trying to think of what the average person might be able to expect in terms of side income if they started freelancing. I started by referring to and criticising a recent post by Robb Engen at Boomer & Echo, which left off anchoring readers at $1000/mo, and then whining that I was nowhere near that and then thinking out loud to try to figure out if the expectation was reasonable or if I just stink [TL;DR: I leave off inconclusive, but suggesting it’s doable for some, and that my odour is not entirely that of freshly baked cookies and rainbows]. I also made some assumptions about Robb’s situation that he found offensive. Robb, for what it’s worth I’m sorry. It’s not going to stop me from continuing to run my big stupid mouth (err keyboard) over the next few lines, but I’m not intentionally trying to provoke you.

I think one thing that comes out clearer in Robb’s post here than in the original is the issue of need. Having the ability to start tapping some kind of side income if you lose your job is a great backstop (whether that’s freelancing or something else), and of course for that to be there when you need it, you have to have at least a little bit of freelancing going on while things are fine. Whether that’s going to bring in $500/mo, $1000/mo or more is hard to say, and not all that relevant except for my own neepery and nit-pickiness on numbers and setting expectations — the point is that doing it will open possibilities and create backstops for you.

His closing point here is valid. I do diddle around a lot on projects with no economic return. If I was in a needful situation I would hustle a lot more for paid work and shelve things like the book and course, and that might make me more positive on the prospects of freelancing.

And a final sticking to my guns moment: I’ll still suggest that Robb is in the upper stratosphere of freelance writers. Freelance writing is not so lucrative that said stratosphere is necessarily paved with gold, and I didn’t want to suggest that that makes it easy to do — writing a lot [hard work] and doing a decent job of promoting is how you get to be a top-level writer. And Robb is a machine.

Wealthing Like Rabbits: A PF Cheerleader

June 29th, 2015 by Potato

I have to admit, I was really afraid to read Wealthing Like Rabbits based on the previews and excerpts I had seen. I was also afraid because the title was explained with this blurb: “Let’s take the word wealth, which is a noun, and start using it as a verb. The new word wealthing will replace saving when discussing any saving that increases your net wealth,” and I was scared that it was going to be wall-to-wall neologisms. I was pleasantly surprised: It’s actually a really good cheerleader for personal finance.

The book kicks off with an alternate reality comparison: what life looks life if you stretch to the max for a house and lifestyle, and what it can look like if you pare it back to something that’s still well within the comfortable range. It’s one of the best uses of this technique I’ve seen, and strongly makes the case that living within your means is not all about sacrifice, but can provide the stability and security you need to actually be happy. “Comfortable is about more than money. Much more. It’s about sleeping comfortably at night and not being afraid to check your mailbox or your inbox in the morning. It is about being comfortable driving to work in a Corolla rather than a Lexus when you are thirty-three so that you won’t have to drive to work at all when you are sixty-three.”

It’s full of highly relatable anecdotes advising readers to set up good savings habits, control their spending, and build their lives on a solid financial foundation. The irreverent examples using zombies and hockey are not taken too far (with the exception of the debt = smoking one), and each chapter has its own unique pop culture reference to help prevent them from being over-stretched.

WLR has the subtitle of An Original Introduction to Personal Finance and the key word there is introduction. It is not a guide or user’s manual, and Robert Brown is no Michael James on Money — the book has a few technical mistakes and misunderstandings. However, most of the sins are of detail and not of message. It’s not detail-oriented, but like a good cheerleader it’s just to get you riled up and rooting for the home team, not to deliver a detailed game plan for the next play. And WLR is good in that role: it is so easy to read and does such a great job at those alternate life comparisons that I think it’s well worth reading for a newbie, and would make a good first introduction to personal finance — the details can be ironed out in their second or third PF book.

I was also relieved to find the bit on the wealthing neologism at the end of the book, and not a new phrase the author tried to wedge into the entire thing.

It is full of quotable bits, which I will end on: “It’s startling to see how a series of seemingly reasonable decisions can result in such an unreasonable amount of money going out the door.”

——

Nitpicking:

I’ve noted some points as I was reading it (and Michael James on Money already covered many in his review), so here is a breakdown of some things to watch for.

RRSPs: The most noticeable errors (in terms of affecting the message) come from discussions of RRSPs. TL;DR: just accept the take-home message that you should save and invest for your future in some combination of an RRSP and TFSA, and pick up the details elsewhere.

Early on in the book, WLR calls the refund from an RRSP contribution a windfall, and suggests that younger readers use RRSPs over TFSAs because they would rather get this windfall when young than when old. Yet later, when discussing the home buyer’s plan, he suggests the opposite: that using the tax savings for a downpayment is “…stealing from a future version of yourself.” [emphasis in the original] Describing the home buyer’s plan is a touch challenging, but to break it down simply I’ll put it this way: it’s a way to use “the government’s portion” of your RRSP as a downpayment now, or to use pre-tax money for your downpayment. For example, if you’re in the 30% tax bracket and were able to save $17.5k in your TFSA as a downpayment for a house, you could instead have put the $25k you made (and were taxed on before putting the funds in your TFSA) in an RRSP pre-tax, and then used the full $25k for your downpayment. In many cases, this difference (~$7.5k depending on your tax bracket — double for a couple) is not enough to worry about getting into a commitment to repay and the psychology of tapping into sacred retirement funds and all that. However, if that amount can make the difference between having 19% down and getting stuck paying CMHC fees or having 20% and avoiding them, it can be well worth it (though you could just save a up for a few more months too). The HBP is often described as a loan to yourself from your RRSP, which is right because you have to pay it back, but doesn’t really get to the main benefit. Of course, the main drawback is that you do have to pay it back and a shocking number of people don’t, which is why WLR comes in against it.

However, it’s also a good safety valve on the RRSP — as a young person you can start saving for “the future” with your RRSP if you want without needing a detailed plan on saving for a house versus saving for retirement, the HBP (and the flexibility of the TFSA) will let you focus on saving and sorting the details out later. WLR makes takes the opposite point of view on this opinion: “It’s important to understand that long-term (retirement) savings and saving for a house are two entirely different things and they need to be treated as such.”

What’s weird is that the book then recommends paying CMHC fees over using the HBP. The HBP has the risk of not getting repaid and costing you some RRSP room and a premature tax bill, but paying for mortgage insurance is guaranteed money out the door.

As for the windfall issue, I tackled that in an earlier post. In short, it’s not — the refund is a total red herring that confuses a lot of people with the RRSP.

When describing the benefits of enrolling in an automatic RRSP payroll deposit plan, the book says that “If you contribute $50 a week to your RRSP, you can reduce your taxes by $50 a week.” Not quite: a $50 automatic contribution will reduce your taxable income by $50; your reduced tax withheld will be more like $15, depending on your tax bracket. Again, it’s still a good idea, but the details are off.

Paying off debt vs investing: There is one bit of flawed reasoning that crops up in a few places. When discussing whether to pay of debt first or to start investing, the book says “Yes, the debt’s interest is likely higher, however, I really, truly hope that the interest on your savings will be compounding for a much longer period of time than the interest on your debt will be, which makes the math favour the savings plan.” No. There is a big benefit to starting to save early, but that applies equally to reducing debt early — investing does not get special treatment in this regard, and your savings from the future will not hitch a ride on the TARDIS to come back and thank you for birthing them earlier. If the interest on your debt is higher than your expected returns from investing, then paying the debt off aggressively is the right move. Your retirement savings may have 40 years ahead of them to compound when you’re in debt, but for the first year of building them up your debt and retirement savings both compound for a year; the year after that adds exactly one year to each: your debt (negative wealth) growing every bit as fast (or faster if the interest rate is higher) as your investments. Where it makes sense to invest before paying off your debt is when your expected return is higher than the interest on your debt — or to pay the penalty for behavioural reasons.

He does have a side point that starting to save and invest early will get you into the good habit of building up your RRSP and avoid procrastinating, and I think this has merit. I’ve seen some people get caught unsure of where to go after finally paying off their debt — starting to invest a bit before the big zero day can make the transition smoother, even if it’s not mathematically optimal. But these behavioural factors are not what the math says you should do. In the margin I starred this paragraph: “…all habits are forming. The sooner you embrace and establish the habit of saving, the easier it will be for you to maintain that habit throughout your life. If instead you develop a habit of postponing saving until a better, more perfect time, you will (with the best of intentions) establish a habit of procrastination. And you know what? There is no perfect time!” That was great and could have stood on its own.

This issue of compounding times rears its bizarre head again when discussing saving for a house. “So, while I’m saying that you need to be saving for your retirement even if you are carrying some debt, in the same sentence I’ll say that you shouldn’t be saving for a house until you are debt-free. That sounds hypocritical but it’s not. Any money you save for a house down payment will not be compounding for nearly as long as your retirement savings will be. Without the advantage of the longer time frame, the cost of servicing the debt is bound to exceed the return on your savings.”

Mortgage math: A big part of the alternate reality possibilities centre around buying a larger house or a smaller one. The most math-heavy part of the book is comparing the housing choices of two brothers, one of whom stretches to the max while the other starts with a more realistic budget. There are many tables of figures there, and even I was starting to tune out at the number over-load.

There is an exceptionally common error about mortgage payment frequency out there that also appears in WLR, “The more frequent your mortgage payments, the less total interest you will pay over the length of your mortgage.” So far so good — this is true. However, the effect of paying more frequently is quite small and often over-stated by confusing more frequent payments with accelerated payment schemes. I highly recommend aligning your mortgage payment frequency with your paycheque frequency — if you get paid biweekly, make your mortgage biweekly. But if you get paid monthly, there is no point in making your mortgage payment weekly — the savings on interest are minimal, and anyway you end up having to push a payment back just so you can keep a balance in your chequing account to spread a monthly paycheque over several weekly periods. WLR falls into the common mistake of confounding accelerated payments with more frequent payments: “The difference is substantial. A $350,000 mortgage at 5% paid monthly would …[numbers]… The same mortgage would cost only …[numbers]… a savings of $30,187 just for paying more often.” [emphasis mine] No, the savings are from paying more, not more often.

Accelerated weekly/biweekly plans are a good behavioural way to arrange paying more on your mortgage, but they are not magic. If your budget is constraining you from paying your mortgage down aggressively, signing up for an accelerated weekly or biweekly mortgage can lead to nasty surprise when you hit your first month with an extra billing period in it.