Another monster list for your July reading pleasure. These top three are the ones you shouldn’t miss, but the whole list is down there…I’m sure you’ll find something interesting on retirement income satisfaction, how to handle a windfall, surviving close encounters of the banking kind, how the 4% rule works outside of the US (where most of the retirement income research has come from), and the first article I’ve read about market bubbles that didn’t blame it on fear and greed (plus more…lots more).
Let’s dig in:
FAIR Canada Submits Brief to Parliamentary Standing Committee on Finance
Frustrated by the recent stories about high-pressure, unethical sales practices at Canadian Banks? (For a refresher, here’s the first one on CBC Go Public) FAIR Canada (Canadian Foundation for Advancement of Investor Rights) has submitted recommendations to make banking fairer for consumers, including:
“a requirement for a best interest standard that includes acting fairly, honestly, and with a duty of loyalty to the client and avoiding conflicts of interest. A best interest standard would combat the proliferation of harmful products, damaging sales practices and financial incentives not in the client’s interest, would remove structural conflicts of interest (notably embedded commissions) and require banks to adapt their business practices so that employees no longer prioritize sales over the interest of the consumer.”
And for those of you who want the committee to act on FAIR’s recommendations, here’s the list of MPs who serve as members or associate members and how to contact them.
Read the full brief from FAIR Canada here.
Build your own financial planning spreadsheet
From Lars Kroijer, an <insert your own superlative here, because I’m running out> series in which he literally builds an incredibly practical spreadsheet in front of your eyes, complete with commentary and mistakes that he corrects in real time. Watching his screencasts has made me a better planner, and even if you ultimately don’t use the spreadsheet for planning, just copying what he’s doing will make you smarter about your own money. Watch them all here.
The Subjectivity of Wealth, Or: Don’t Tell Me What’s Expensive
From Piggy at Bitches get Riches, a(nother) smart and saucy reminder:
“If you lack the empathy to be able to imagine financial circumstances more dire than your own, perhaps you should retire from polite society and eat your avocado toast in silence…
“Fortune does not smile equally upon us all. If you started your life healthy, debt-free, and unfettered by familial financial obligations, you should count yourself lucky. And yes, you can acknowledge that luck while still taking pride in your accomplishments. But the fact remains that sometimes the only thing separating you from a poorer but equally talented, driven, and worthy person is an accident of birth.”
Read the rest here.
You can read this month’s entire list below, and browse through past lists here.
I want to move away from my stocks and mutual funds in order to build a Couch Potato portfolio with ETFs. What is the best way to do this? Should I sell everything at once and pay all of the taxes this year, or should I sell my assets over a longer period, like two to three years?
May's list of the best Canadian personal finance news, articles, and blog posts from around the internet, expertly curated for interest and relevance.
Build your own Financial Planning Spreadsheet (part 1) | Lars Kroijer
Link to YouTube Playlist: https://www.youtube.com/watch?v=1LUIQa5hgMg&list=PLXy71rkGuCjUyHPkvSd-a_LUUZqcBQgOb
Part 1: Build your own financial planning spreadsheet
Part 2: Adding minimal risk asset
Part 3: Adding volatility of returns
Part 4: Adding multiple scenarios
Part 5: Adding retirement spending
Part 6: CAGR vs. annual returns
Part 7: Adding a range of allocations
Part 8: Estimating Fees
Part 9: Adding variable cash in/out flows
Part 10: Model walkthrough & taking stock
Retirement Income Satisfaction | Michael Finke
Retirees are more satisfied when more of their income is from guaranteed sources, even if their portfolio is big enough to generate the same amount of income sustainably.
FAIR Canada makes a number of recommendations including a requirement for a best interest standard that includes acting fairly, honestly, and with a duty of loyalty to the client and avoiding conflicts of interest. A best interest standard would combat the proliferation of harmful products, damaging sales practices and financial incentives not in the client’s interest, would remove structural conflicts of interest (notably embedded commissions) and require banks to adapt their business practices so that employees no longer prioritize sales over the interest of the consumer.
"If you lack the empathy to be able to imagine financial circumstances more dire than your own, perhaps you should retire from polite society and eat your avocado toast in silence...fortune does not smile equally upon us all. If you started your life healthy, debt-free, and unfettered by familial financial obligations, you should count yourself lucky. And yes, you can acknowledge that luck while still taking pride in your accomplishments. But the fact remains that sometimes the only thing separating you from a poorer but equally talented, driven, and worthy person is an accident of birth."
"Failing to save for retirement was always described as a sort of slow financial suicide. 'If you don’t start setting aside 35% of your income by the time you’re 22, you’ll starve to death in a dirty hovel in Marseilles like old Monsieur Dantès.' In trying to emphasize the importance of saving for retirement, I believe many financial thought-havers have turned their poorest listeners away from the idea altogether."
"Many financial planners use a simple rule of thumb: withdraw 4 percent a year from your savings until you either die or run out of money. This one-size-fits-all solution is suboptimal for a reality where the potential outcomes are almost infinite, or as Sharpe describes it, a 'multiperiod problem with actuarial issues, in a multidimensional scenario matrix.'"
"The quicker you realize market corrections and bear markets are not “bugs” in the financial system, the happier you will be. Acceptance of these facts is critical to creating your own form of Advil for financial pain, without the ulcer inducing side effects."
"Goals can provide direction and even push you forward in the short-term, but eventually a well-designed system will always win. Having a system is what matters. Committing to the process is what makes the difference"
Before you find yourself inside one of Canada's Big Banks for whatever reason, familiarize yourself with some survival tips. Don't end up as a salesperson's dinner.
"Any time you get a financial windfall, the best thing to do is nothing (for a while). This is especially true when it comes to receiving an inheritance. Don't feel the urge to invest it into a portfolio. Don't feel the urge to give any of it away. And especially don't fall into the common trap of spending it. "
"We need to find ways to give our brains a break. If our minds are constantly processing information, we never get a chance to let our thoughts roam and our imagination drift. Luckily, there are several research-backed changes you can make to boost your creativity."
Perhaps because of the proliferation of personal finance websites focusing on early retirement, I've noticed a lot of talk lately about safe withdrawal rates. I think this is absolutely terrific, as financial independence is one of the single most empowering life goals one can pursue! But greater exposure also has its downsides, as core assumptions…
"We're talking about economic efficiency here. Obviously there is more to life than economics and a ruthlessly economical life may not be worth living. My life is far from being perfectly efficient and there are other purposes to living and even your career than simply maximizing the economic benefit from it."
"how much more emphasis questions of asset allocation get and how little attention people sometimes give to the outcomes that asset allocation is meant to fund...it has nothing to do with which ETF to pick. These are the real reasons why people who have accumulated wealth turn to an advisor"
"It might feel good nowadays to look at your accounts online and see nothing but green. That will change when the stock market starts going down. Looking at your losses then, if they are displayed in red, will make them burn like fire. Investing apps and websites don’t offer the option to view portfolios in black and white. Maybe they should."
"If you view the plunge in asset prices that marks the end of bubbles as an indication
that everything you thought you knew about long-term investing is wrong, you end
up using the end of someone else’s game as an excuse to never again play your own.
Like a passenger who questions whether it’s safe to get on a plane because he sees
hundreds of people eagerly getting off the previous flight. "