There are a lot of reasons for people to feel a bit wary when it comes to the wide, wide world of personal finance. Whether it’s the quality of advice you receive, the level of precision required for RESP contribution strategies, or what you’re supposed to do with digital assets in your estate, there’s a lot to know. Thankfully, John DeGoey, The Loonie Doctor, and Katharine Schwab all have thoughts to share with you this month.

If you’ve still got a few minutes after reading through those, Dirk Cotton has some words of wisdom about the unreliability of any kind of financial prediction, and Emma Pattee provides a really thoughtful discussion on the meaning of success and how her family of origin influenced her perceptions. My friend and fellow advice-only planner, Owen Winkelmon, wrote a concise summary of 7 ways to split income with your spouse, which can be a great way to increase your family net income.

Finally, if you’d like to get a good handle on your appetite for risk but find those questionnaires a little much, RiskLiteracy.org, a nonprofit university-based project, has a 2 minute test (in multiple languages) that can help you get to know how well you understand risk and the math used to express it. Happy reading!

Misinformed Consent

From John DeGoey

"If the intentions are good, but the advice is nonetheless bad, how do we characterize the acceptance and implementation of that advice? Would your opinion change if the person giving the unwittingly bad advice refused to change the advice once the error in her ways was pointed out to her?"

Read the full article here.

Optimizing a Lump Sum RESP Contribution Strategy

From The Loonie Doctor

“You don’t need the precision required to fire proton torpedoes into the exhaust of the port of the Death Star. Again, the biggest mistake people can make with an RESP (besides getting sucked into a fee-laden and restrictive group plan) is holding on too long before pulling the trigger.”

Read the full article here.

How Facebook is designing for an incoming avalanche of dead users

From Katharine Schwab

"Facebook isn’t the only company that will face a conundrum about what to do with its droves of user data when those users pass on. The challenges facing the company reflect the tech industry’s larger problem with designing for endings–whether it’s the end of a product’s life or the end of a user’s life."

Read the full article here.

You can read this month's entire list below:

Black Holes, the Higgs Boson and Retirement Planning | Dirk Cotton

“Retirement models, whether mathematical, spreadsheet, or Monte Carlo simulation, can't predict the future the way models do in the physical sciences.”

I'm more proud of my marriage than I am of my career | Emma Pattee

“I interviewed a financial psychologist last year for an article I was working on, and he told me that every time my husband and I make a decision about money, we aren’t the ones making the decisions, our grandparents and great-grandparents are."

Different Ways to Split Income With A Spouse | Owen Winkelmolen

Owen is out here consistently writing some of the clearest summaries on big, sprawling topics.

Risk Literacy Test | RiskLiteracy.org

How risk-literate are you? That is, how easy is it for you to understand probabilities and use them to inform your choices? Here’s a short test you can use to assess your risk-literacy.

If you like the idea of rental income, you may like the idea of dividend income – but is it really better than taking capital gains? Dirk Cotton takes you through the economic theory, behaviour, and history of these two strategies. In “Get More From Your Financial Advisor,” Peter Dunn sees investments as the latest workout regimen (with all the pitfalls and distractions) and provides a metaphor for how you can work with your advisor. Finally, try getting “unstuck” with our friend and fellow advice-only planner, Natasha Knox.

If you have more time after soaking up the Top Reads, try giving feedback to the CRA (they’re asking!), and Jean Knight Pace invites you to enjoy leftovers. My friend Dan Bortolotti helps you figure out what to do when your advisor doesn’t live up to promises, Eric Barker reveals his secrets for cybersecurity, Morgan Housel shares a mindset approach to volatility, and Christine Benz asks if advisors really add enough value to justify their fees.

The Mystery Of Dividend Preference And The 'Spend Dividends Only' Strategy

From Dirk Cotton

“If you plan to spend down retirement savings with a strategy based on preferring a dollar of dividends to a dollar of capital gains, you are betting against economic theory, portfolio theory, historical evidence, tax law, behavioral finance and the wisdom of Warren Buffett.

"Then again, maybe you will be lucky.”

Read the full article here.

Get More from Your Financial Adviser

From Peter Dunn

“Your investments are the latest workout regimen: a Peloton, OrangeTheory, Bar Method, or CrossFit. They’re exciting, sexy and a distraction from what really matters more than anything—your food intake and nutrition.

"Investing is to working out as financial planning is to nutrition.

"You might think working out is the basis of your relationship with your body, but it’s not. Just as an effective relationship with your adviser is based on planning, not your investments. Most people don’t realize this, and some advisers don’t either.

"The most important part of your time with your financial adviser is not the investment update they give you. It’s the life updates you give them. This is the primary way you’re underutilizing your adviser.”

Read the full article here.

Get Unstuck in Your Personal Finances

From Natasha Knox

“Transformation in personal finances is a similarly complex process, and Lippit’s [Managing Complex Change] model is highly applicable to financial change.

"This model is particularly useful in diagnosing the reasons why previous attempts at change may have been ineffective.”

Read the full article here.

You can read this month's entire list below:

Public Consultation Survey | Canada Revenue Agency

"Solid take from former financial planner Andray Domise on how the RRSP program was designed for a past reality and doesn't work for the people who need it most: "So what we’re left with is a savings scheme that benefits almost everyone except the people it was designed to protect, and often have the most need for access to emergency cash."

What to do when financial advisors don’t live up to their promises | Dan Bortolotti

An excellent check on whether the problem with your portfolio is your advisor, your investment policy, or your unrealistic expectations.

Things I've Learned from The Tasty Cheapskate | Jean Knight Pace

All hail the humble leftover!

11 Secrets That Will Make You More Secure On The Internet |Eric Barker

“Hacking, data breaches, spying... What's it take to be secure on the internet these days? Here's what you need to know, from a former FBI cyber crime agent.”

Fees vs. Fines | Morgan Housel

“It sounds trivial, but thinking of volatility/drawdowns/uncertainty/pain/terror/ulcers as fees instead of fines is an important part of developing the kind of mindset that lets you stick around long enough for compounding to work.”

Is Hiring an Advisor Worth It? | Christine Benz

Can advisors add enough value to justify their fees? Five key factors to examine, some of them easy to quantify and others a lot squishier.

What is success? What is best? How do you make the right decision? The intricacies of personal finance require deep dives into countless areas, from investment vehicles, through decision making and your own definitions of success. Jenny Anderson takes a swipe at the latter, with some thoughts on the personal side of your balance sheet. Dan Bortolotti, the Canadian Couch Potato, provides careful consideration of the new suite of all-in-one diversified ETF portfolios, and decries the bad press they’ve been receiving. My friend Alexandra MacQueen, co-author of that classic read “Pensionize Your Nest Egg” and one of my fellow presenters at a recent Globe & Mail education session, discusses what pension decision really is “best” in light of your longevity.

If you have time for more than the Top Three, I recommend reading more of Alexandra’s work and her take on the CPP dropout provision. There’s a thoughtful piece from Scott Terrio on Canada’s credit scoring system - and how it’s not doing what you may have believed. Owen Winkelmon, a member of the Advice Only Planners forum, has some useful tax planning strategies for families, and my friend Chris Enns is using the Marie Kondo method on your expenses. Last but not least, read Michael Batnik’s thoughts on uncomplicating your portfolio, Sara Taber’s realization of where all that unused produce is coming from, and Morgan Housel’s list of things that we definitely know about the next recession (hint: none of them are “when”).

The only metric of success that really matters is the one we ignore

From Jenny Anderson

“Community is an insurance policy against life’s cruelty.”

Your personal balance sheet includes way more than just your finances - who are the people you can rely on, and that can rely on you, when life goes sideways? Really, you just have to read this.

Read the full article here.

Vanguard, iShares or BMO? A side-by-side comparison of the new all-in-one diversified ETF portfolios

From Dan Bortolotti

Others dismiss these funds as cookie-cutter solutions, or argue that they’re only appropriate for very small accounts or unsophisticated investors. What nonsense. I’ve reviewed a lot of portfolios over the years, with six- and seven-figure balances, many of which were designed by people who manage money for a living. Almost none of them were more thoughtfully structured than what Vanguard, iShares and BMO have packed into a single ETF.

Read the full article here.

How to make the right pension decision when longevity is so variable

From Alexandra MacQueen

The "best" option is not the one that may pay out the most, but the option that reduces the most risk.

Read the full article here.

You can read this month's entire list below:

Why the 17% drop-out rule is key to your CPP entitlement | Alexandra Macqueen

How years of low or no income are (or are not) dropped out of your Canada Pension Plan benefit

Canada’s credit score obsession is leading people to make bad financial decisions | Scott Terrio 

The credit scoring system isn’t designed to do what you’d like it to.

Family Financial Planning: Tax Strategies For Families With Children | Owen Winkelmolen 

Planning strategies for parents to decrease taxes and increase benefits

How to Start Organizing Your Expenses … Just Like Marie Kondo | Chris Enns 

A lot of the things that stress us out about having a messy house are the same things that stress us out about our finances.

Un-Complicating Investing | Michael Batnik

If you can just find the right-ish mix of stocks and bonds, you can move onto more productive uses of time like trying to advance your career and spending time with friends and family.

Farms aren’t tossing perfectly good produce. You are. | Sara Taber 

The most important behavioral change consumers can make to address food waste isn’t to buy certain kinds of produce. It’s to actually eat what we bring home.

Recessions: It's Been a While | Morgan Housel 

Three things we know for sure about the next recession (none of them are when).

The Laws of Wealth: Psychology and the Secret to Investing Success by Dr. Daniel Crosby isn’t a book that I’d normally pick up off the shelf¹. However, after having deeply respected his work on investor behaviour and following him on Twitter for many years, it was time to read his work in more than 140-word bursts.

Crosby is part of what I think of as the second wave of behavioural² finance, and isn’t here to simply list the many ways we humans act irrationally, end up sabotaging ourselves and calling it a day, or, as he puts it:

No shrink worth $200 an hour would label you pathological and show you the door, yet that is largely what behavioral finance has given the investing public: a surfeit of pathology and a dearth of solutions.

Rather, this book is designed to first articulate the behavioural quirks that make us human, and immediately offer rules to follow to circumvent our worst tendencies. Rules like “You Control What Matters Most,” “If You’re Excited, It’s a Bad Idea,” “You Are Not Special,” and “Diversification Means Always Having To Say You’re Sorry” make up the first half of the book, and you could comfortably stop with them and - provided you actually follow the rules - see immediate improvement in your behaviour.

In the second part of the book, Crosby builds on those rules and introduces the decision-making framework of Rule Based Behavioral Investing, or RBI for the baseball-inclined, through application of the Four Cs:

• Consistency: frees us from the pull of ego, emotion and loss aversion, while focusing our efforts on uniform execution

• Clarity: we prioritize evidence-based factors and are not pulled down the seductive path of worrying about the frightening, but unlikely or the exciting, but useless

• Courageousness: we automate the process of contrarianism: doing what the brain knows to be best but the heart and the stomach have trouble accomplishing

• Conviction: helps us walk the line between hubris and fear by creating portfolios that are diverse enough to be humble and focused enough to offer a shot at long-term outperformance

My only beef with Laws of Wealth, other than a disdain for the Oxford Comma is, admittedly, one of semantics. In “Rule #2: You Cannot Do This Alone,” Crosby consistently conflates the role of financial advisor with the role of investment manager. Managing a portfolio is not the same discipline as providing nuanced financial advice, even though they are frequently offered by the same person, and - here in Canada, at least - at a significantly higher cost than when offered separately. Fortunately, by the end of the chapter we agree on something important:

Our natural tendencies will be toward excess complexity and flashy marketing, seeking out those who lead with bold claims of esoteric knowledge. What will add much greater richness is a partner who balances deep knowledge with deep rapport. Someone we will listen to when we are scared and who will save us from ourselves.

If you get nothing else from this book, get that.

Who should read it?

The Laws of Wealth is written for an audience who already have the Investing 101 basics down, and uses fairly technical terminology that isn’t going to resonate with everyone. If you don’t understand the basics or the terminology, start with The Value of Simple by John Robertson before digging into The Laws of Wealth.

This book isn’t for you if you’re looking for secret investing sauce or a model portfolio. It’s not exotic or groundbreaking; in fact, Crosby himself calls the investing rules that make up Part Two “arduous, boring, and commonsensical.” Exactly what investing should be!

If simple, common sense, rules-based investing sounds like something you’d like to apply to your own portfolio, or a standard you’d like to evaluate prospective (or current) portfolio managers against but lack the framework for doing so, this book is for you.

If you only have time to read one chapter:

Definitely read “The Four Cs of Rule-Based Behavioral Investing,” since it’s the entire book summarized in a short 38-pages.

If you only have time to read one two paragraph(s):

It is unrealistically nihilistic to assume that there is nothing that can be known about stocks that can give you a probabilistic edge in making financial decisions. Conversely, it is unrealistically optimistic to assume that anyone, no matter how worldly or educated, is able to predict the future with any useful degree of certainty.

The middle ground between these two approaches must scrupulously avoid conjecture about the future, rely on systems rather than biased human judgement and be diversified enough to show appropriate humility. It is an approach that says, ‘I can know some things, but I’ll never know everything,’ and while it’s likely to make you some money, it will never land you a spot on CNBC.

(“Rule#7. Forecasting Is For Weathermen,” pages 77-78)

If you only have time to read one two sentence(s):

Exceptional investing over a lifetime cannot be predicated on luck. It must be grounded in a systematic approach that is applied in good times and bad and is never abandoned just because what is popular in the moment may not conform to longer-term best practices.

(“The State of Money Management” p. 113)

¹Which is all about my own hang-ups over the narrow monetary definition of the world “wealth” and nothing else. I am what I am.

²Yes, I’m going to spell it “behavioural” except when I spell it “behavioral.” Sorrynotsorry

Winter weather often brings blankets, fireplaces, and hot drinks. While you’re thawing your toes, you may feel inclined to dream a little, and I have the reads for you to do just that. Dreams about retirement, and who you might be when you stop working, are right up my alley.

If you find yourself in dreams that present themselves as reality - like forecasts on anything from sports to financial markets - I hope you’ll treat them like entertainment rather than hard truths. If your dreams start leading you down dark paths, with nightmares of recessions, I invite you to take a page from the book of Kitty and Piggy, who ask you to focus on managing only that which sits firmly in your areas of control.

The full list of great reads has some fabulous writing, including three by my colleagues in the Advice Only Planners Forum. I hang out with them for good reasons! Whether you’re wondering about Canadian Equity ETFs, the Canada Pension Plan, Optimizing Government Benefits, or why so many finance folks were crying on Twitter when Jack Bogle died, there are many answers - and quite a few questions - for you to consider.

How Retirement Changes Your Identity

From Teresa Amabile

Who are you when you’re not working? Fascinating research on the transition of self-identity when work ends (and a reminder that you don’t have to wait until retirement to decouple your fundamental sense of self and purpose from wage earning!)

Read the full article here. 

Delusions

From Josh Brown

On forecasts (sports, economics, matters, and otherwise):

“There’s nothing wrong with being entertained by information, and to enjoy making and receiving predictions based on it. If we have to make decisions about the future, some information is better than no information. But the extrapolation – that even more information would be better than just some, and having the most information would be better than even more, and so on – it simply doesn’t work this way.”

Read the full article here.

Ask the Bitches: How Do I Prepare for a Recession?

From Kitty

“If the thought of a recession still keeps you up at night, remind yourself that you have no control over what the broader economy does. Everything from weather and agriculture to politics and war influences the global economy. That shit is beyond you.

What you do have control of is yourself. Be prudent and thoughtful in your passive preparations for lean times. Then sit back, relax, and let life deal whatever bumps it may.”

Read the full article here.

You can read this month's entire list below: 

Understanding Canadian Equity ETFs | Justin Bender

A remarkably clear look at what’s going on inside the different Canadian Equity ETFs. Looking forward to the rest of this series!

Common Investment Mistakes by Retirees | Jason Heath

An outstanding summary of some seductive ideas to think critically about in retirement, like dividend investing, claiming CPP early if you have enough savings, and too much in unrealized capital gains.

Optimizing Your Government Benefits: Both Now and In Retirement | Owen Winkelmolen

A great one-stop list of the different income-tested benefits available to Ontarians and the thresholds to watch for if you want to maximize them.

On Jack Bogle (1929-2019) | Jason Zweig

A collection of almost everything Jason Zweig has written over the years about Vanguard’s founder and the father of indexing, Jack Bogle. Bogle passed away in January, and was inflexible in his championing of low-cost investing.

Making a Plan: With a Sketch and a Whole Lot of Stretch | Chris Enns

“A plan is not a strict schedule that I must adhere to, but an exercise in which I use my imagination to sketch a version of the future which helps me answer one question: what should I do next?”

10 Things Investors Can Expect in 2019 | Ben Carlson

An almost word for word repeat of Ben’s column of (almost) the same name in 2018, and the only forecast worth paying close attention to.