Weekend Reading: TFSA Book Giveaway Edition
On Monday, I wrote a review of Gordon Pape’s new book, How TFSA’s Can Make You Rich. We promised to give away a copy of that book, plus a copy of, Money Savvy Kids, to one lucky reader.
Congratulations to Bryan, whose comment left at 7:33 AM Monday proved to be the winning entry. I’ll get in touch with Bryan today to make arrangements to send out the books.
There was an interesting discussion on Rob Carrick’s Facebook page that stemmed from Rob’s article about how homeowners should handle higher interest rates in the coming years:
Homeowners: Don’t be caught flat-footed when interest rates rise
Low borrowing costs are creating a spoiled generation of homeowners who have never experienced the adversity of rising interest rates. Bulletin for people buying homes today: If you opt for the very popular five-year fixed rate mortgage, you will pay a higher rate on renewal. That you can bank on. Open this article
I suggested homeowners prepare themselves now by setting their mortgage payments above the minimum. Start with an extra $100 per month and keep adding to that when you get a raise or can free up some cash flow.
A few people responded, saying it would be foolish to aggressively pay down your mortgage while rates are so low and that you’d be better off paying the minimum and investing the difference.
While I understand the rationale behind this approach, there’s no guarantee that investors can beat the risk-free return that comes with paying off your mortgage.
We often hear that, over the long term, investors can expect to achieve annual returns of 7 or 8 percent. But market volatility can lead to poor decisions, which leads to poorer performance.
In fact, a study by BlackRock revealed the average investor achieved annual returns of just 2.1 percent over the 20-year period between 1992-2011. Meanwhile, the S&P 500 Index delivered annual returns of 7.8 percent.
The Average Investor Underperforms
The average investor under-performed most asset classes over the past 20 years. Investors even under-performed inflation by 0.5%. Open this article
So we all know that, in theory, putting your excess cash flow into stocks would be a great idea if we could achieve market returns of 7.8 percent. But, in reality, it looks like the better option for the average investor would be to take the risk-free, guaranteed return of paying down your mortgage.
Weekend Reading
Here are my top 10 personal finance reads from around the web this week:
Seven ways today’s economy is like the NHL playoffs
May 15, 2013 · brighterlife.ca · By Kevin Press
Telling a Leaf fan he has nothing to fear with 82 seconds left is a little like telling Angela Merkel to stop sweating that whole inflation thing. It only adds to the pressure. And let’s face it, the Stanley Cup playoffs offer up a level of tension not unlike the global economy. Here are seven ways today’s economy parallels the post-season: Open this article
Money talk: 20 questions to ask your significant other
May 18, 2013 · Financial Post · By Melissa Leong
Couples who disagreed about finance once a week were 30% more likely to split up than couples who said they argued about finances a few times a month. So for the health and success of your relationship, here are 20 questions to get the conversation going. Open this article
Learn to get Uncomfortable to Save Money
May 15, 2013 · Canadian Finance Blog · By Alan Schram
Living in a consumer culture is pretty amazing. We have the strength of international industry and commerce allowing us to do a wide range of jobs while enjoying the benefit of agriculture and machinery half a world away. We don’t need to rely on our immediate neighbours to repair our vehicles or get some bread. Open this article
Thoughts on Retirement
May 22, 2013 · Timeless Finance · by AdinaJ
One of the most common topics in PF has got to be retirement. More specifically: early retirement. Just look at all the blogs whose writers advocate it. You might be led to think that retirement is the ultimate point of reaching financial independence — the two are conflated often enough, after all. Open this article
Financial Lessons over the past 20 years
May 23, 2013 · Retire Happy · Written by Scott Wallace
What has someone like me, who is approaching 20 years in the financial industry, learned over the past two decades, what financial lessons have I learned and what advice would I give to others? Open this article
When Women Earn More: Can This Destroy Your Marriage?
May 22, 2013 · Planting Money Seeds · by Miranda Marquit
Traditionally, the man in a relationship is the “provider,” earning most of the money. What happens to marriage/partner relationships when women earn more than men? Open this article
RRSPs: Hunting Season
May 21, 2013 · Spring Personal Finance · by Sandi Martin
Go into any bank between January 2nd and February 28th and you will be haunted by the specter of an underfunded retirement. The point: buying an RRSP sometime between January and March doesn’t mean you have a retirement plan. Open this article
My Very First Investment: An 11 Year Old’s Stock Pick
May 23, 2013 · moneymamba.com · by JT McGee
Dollar General was the first stock I ever purchased. If I remember correctly, it traded for something like $12 a share, paid a robust $.13 annual/quarterly dividend, and was a model that made sense to me. But did I really understand Dollar General? Hell no. Open this article
New HELOC Rules and How it Affects Smith Manoeuvre Mortgages
May 23, 2013 · Million Dollar Journey · by FrugalTrader
When I started this blog, I wrote about the Smith Manoeuvre in the first month and implemented the controversial strategy in 2008. Up until recently, home owners could access up to 80% of their home equity in a revolving line of credit/HELOC and pay interest only on the balance. Open this article
Dear Canada: Your mutual fund fees still stink
May 22, 2013 · MoneySense · by David Hodges
When it comes to mutual funds, the first thing any investor should pay attention to are costs, as high annual fees and expenses can easily eat up a substantial portion of your returns. That’s what makes it so disconcerting—actually, repugnant—to know that, globally, the average cost of mutual funds in Canada are the absolute worst. Open this article
I hope you all enjoy your weekend. Thanks for reading!
Robb,
Great weekend reading. You obviously put a lot of work into this.
Cheers!
Ken
Hey Robb, love the new round up style, you might be seeing something similar on Y and T soon ;). Great post on Gold Plated Pensions this morning as well. Teachers love to complain, but when you see some of the changes in the labour market happening all around us we’re so fortunate.