Canadian Personal Finance News | August 2014

"We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation." - Jack Bogle One of the most important decisions investors have to make when constructing a portfolio is how to spread their investments between stocks, bonds, cash and other investments.

Parents often ask me if they should give their children an allowance. The answer is yes! As our children grow and change they will have many different dreams for their future, but whichever path they take they will need to know how to manage their money.

There has been a considerable amount of discussion lately about the investment habits of Gen Y, aka millennials. Most of the headlines claim that millennials are "scared off of stocks" and are invested much too conservatively for their own good.

August 4th, 2014 by Potato Just before Blueberry was born, we had a discussion about why we didn't need life insurance for our situation. I'd like to broaden that discussion a bit, but I have to tread carefully.

"Any time anybody offers you anything with a big commission and a 200 page prospectus, don't buy it." - Charlie Munger These aren't written in stone, but they give you a good idea about some of the unfortunate realities of the investment business.

Drop everything and run when you come across ... Feelings of certainty. They invariably come just before big surprises. People who claim certainty. It's the most potent way to trick someone. Risk-free returns. You'll end up with return-free risk. People who have predicted 564 of the last two market crashes.

"A personal finance crisis is almost inevitable unless you address the truly important tasks in your life before they become urgent." - Carl Richards Here's another one to add to the ever-growing list of scary household saving stats courtesy of Businessweek: Just 45 percent of upper-middle-class households (income from $75,000 to $99,999) saved anything in 2012, according to the Fed study.

"One lesson from 2008 is that if it's very complicated and you don't understand it, maybe you shouldn't buy it." - Harry Markowitz It appears some people didn't learn their lesson from the CDO debacle of the last financial crisis.

Some time ago, I wrote a series of posts on Sequence of Returns (SOR) risk. The focus of those posts was to explain what SOR risk is mathematically and where it comes from (periodically buying or selling from a volatile portfolio of stocks and bonds).

"The only investors who shouldn't diversify are those who are right 100 percent of the time." - John Templeton It's often said that diversification is the only free lunch in finance. However, this an incomplete statement because diversification alone doesn't get you all the way there.

Before I let you read the rest of this post, I want us to agree on a set of facts: 1. It is extremely rare (but not impossible) for any one investor, investment professional, or investment management company to consistently and reliably outperform the market for any appreciable length of time.

August 29th, 2014 by Potato The stats on how many people got nastygrams from the CRA with penalties for over-contributing to their TFSAs this year have come out, and there's a lot of shock over the fact that this keeps happening. Young recently made that mistake.

In my relatively young career I've had the privilege of working with a great many clients from all walks of life. Schoolteachers and successful entrepreneurs, young married couples and retired engineers, doctors, dentists, lawyers and accountants.

"I'm bored." You've said it. I've said it. Your children or nieces or nephews have said it. Our usual response to these two little words is to recommend doing something about it. You tell children to go outside. You pick up a new book or go to the movies.

The huge news in the financial universe right now is that legendary "Bond King" Bill Gross, who founded and built PIMCO into the global leader of fixed income investing, has left for Janus funds. Gross will be running an uncontrained strategy at Janus, and I imagine there will be other products launching behind that.