Well, in my last update I reported that the trip to Turkey helped me lose over 5 pounds. Unfortunately I caught a cold on the plane, it’s Halloween which has lead to much candy eating/poor dieting, and of course I haven’t been working out every day like I was there, so I’ve already put 2 of those pounds back on :( Ah, well, on to the links:
Mike at Money Smarts puts up summary tables to review of all the online brokerages in Canada. I’m of course still a fan of TD Waterhouse (which now offers the lowered commission rate to slightly more households with the threshold of $50k), in part because of the ability to easily buy e-series funds, and in part because once you do get a live person on the phone, they’ve been great every time. Knowledgeable, interested in getting problems solved, and just generally helpful.
Preet asks the perpetual question “Is a variable rate always best?”. One important thing to keep in mind when making that decision is not just whether rates will go up, but how high they’ll go, and how fast they’ll do so. One really rough rule of thumb is to consider the case of rates that go up in a constant, linear way. In that case, you save money in the first bit of the slope vs. a fixed rate, so by the end of the 5-year (or whatever) period, rates have to go up to be as much over the fixed rate as they were below the fixed at the beginning to break even. So for example today, with a fixed at about 3.4%, and a variable at about 2.3%, you’d have to expect the variable rate to be over 4.5% at the end of 5 years to make going fixed worthwhile. The real world is a more complicated place, so of course rate changes won’t be smooth like that, and there’s also the impact of paying down your mortgage, which helps the variable case more: lower rates earlier on are more effective than the higher rates later on. You can always make a spreadsheet to figure it out, but I don’t think the finer points of the math is as important as the very uncertain rate predictions.
Canadian Capitalist has a good post on where some of the tracking error of currency neutral funds comes from. The research shows that it’s not likely that the tracking errors are purely random, so one shouldn’t expect them to cancel out in the long run. Michael James provides a good potential explanation for where this negative correlation comes from.
MacLeans has an article on the rent vs buy decision, quoting Patrick from A Loonie Saved (HT to Patrick who sent me the link :) Here’s his part:
Patrick Doyle, a Toronto software developer who writes the personal finance blog A Loonie Saved, has crunched the numbers for himself and believes it just doesn’t make sense to buy at today’s prices. Especially after factoring in all the extra costs that come with owning a home, like property taxes, insurance, utilities and general upkeep, which can quickly add up. “I choose to rent because I already have a day job, I don’t want to be a property manager, I don’t want to be a real estate speculator, I don’t want to be a highly leveraged investor and I don’t want to be responsible for repairs and maintenance. I just want a place to live,” says Doyle. “If I were to consider giving up these advantages to buy a house, it would have to save me substantial money. Instead, it costs more. For me, that makes the decision a no-brainer.”
Well-put, Patrick! Of course, I’ve got to nit-pick some parts of the article:
Above all, most proponents of home ownership argue that buying a place of your own is an ideal form of forced savings. Canadians clearly aren’t up to the task on their own. In a typical year, fewer than one-third of Canadians make use of their registered retirement savings plans, and even fewer make use of tax free savings accounts, first made available to much fanfare in 2009—though the reason for that could be because so much of their income goes toward mortgages and renovations.
As I’ve argued before, paying down a mortgage is a form of “forced savings” (which to put it another way, means that people are so bad with money that they only way they can save is if threatened with homelessness), but that’s a very poor solution to an inability to save: actually saving is better. Yet here MacLeans’ goes further and adds in renovations. But, generally speaking renovations cost money, and you don’t get that money back when you sell. The urge to renovate should be a point against buying a home for the financially strapped young Canadian.
Either way, observers like Milevsky at Schulich believe the debate between renting and buying has gotten sidetracked in recent years by talk of investments, returns and portfolio allocation. “This debate has become so financial,” he says. “It’s lost the qualitative lifestyle aspect that should drive the decision. When a 22-year-old kid comes out of college and immediately asks, ‘Should I buy or should I rent?’ the question should be, ‘What do you want to do with your life—do you want to start a family, explore the world, build your career?’ That’s more important than the few hundred you may or may not save each month by doing one versus the other.”
I disagree with Moshe — the bloggers and forum lurkers like myself have perhaps been getting overly financial in the debate, but the general public has not. Or, if they have — with dreams of increasing real estate prices and easy roads to financial freedom — it’s because the financial debate has been very superficial. Far too often I’ve seen the old “rent is throwing your money away” line, or comparisons that forget to include big items like property tax, maintenance, or transaction fees. A financial notion only, not backed by any math. The debate is not nearly financial enough for most people. Indeed, I suspect that is how we got to a ~70% homeownership rate, a level that’s even higher than the peak in the US, where people now openly admit that banks loaned money to people who had no business buying a home: by people deciding that they wanted the ownership lifestyle aspect without taking the time to do the math. Plus, those lifestyle decisions — when to move, how much space will be needed for a family and when — should factor into the financial equations anyway.
Rob Ford won in Toronto. Part of the platform was to remove the Miller taxes on car registration and land transfer. I was in favour of the vehicle registration tax when I first heard about it, but am firmly against it now that I saw how poorly it was implemented: it wasn’t a small surtax, but a big charge that was as much as the provincial registration fee to begin with, making it twice as expensive to register a car in Toronto. Plus, it was easy to avoid if you had a friend or relative that didn’t live in Toronto, so it wasn’t good on the fairness front, either. It’s a bad tax, and I won’t be sad to see that one go.
I think the land transfer tax was a good one though: it was introduced at a time when real estate prices in Toronto were climbing double-digits per year, so the 1-2% tax was easy to sneak in, and it was basically just lost in the noise of the market moves. Since it’s not an ongoing tax, it’s also been priced in now, so there’s no reason to get rid of it.
At curling last night, one guy shared the “factoid” that this October has 5 weekends and (5 fridays)… and that it won’t happen again for over 800 years! I naturally called bullshit: October has 5 weekends any time Halloween falls on a Sunday, which should happen approximately 1 in 7 years. Even in the full force of my overwhelming logic, he said no, he read it on the internet that “because of the leap years and stuff”, it won’t happen again for 800 years. Well, a quick scroll through my BB calendar shows that 11 years is all it will take (2021) for that to happen again. Besides, the extra days from leap years don’t get added to October. When I got home I tried to Google it, and sure enough the bullshit is prevalent enough that as soon as I typed “October 5 we…” it automagically filled in “5 weekends 823 years”. 81k results. I weep for humanity.
On the theme of running down of mysterious and wrong-sounding numbers spewed on the Internet, Barry Ritholtz looks into the “average holding period is 11 seconds with HFT” meme, and finds the evidence to be lacking.
Hope everyone has a fun and safe Halloween!