April 24, 2010


The fine print taketh away 345x544 We’re sceptical because even the simplest offers have fine print. You're enticed but the many conditions take away the charm.

Not only do you spend money to get the offer, you often spend money to use the reward.

A Common Example

Here’s the fine print in a free movie ticket offer from a pizza chain.
  1. the buy-one-to-get-one-free condition
  2. limited provinces
  3. limited theatre chains
  4. no IMAX films
  5. no IMAX digitally remastered presentations
  6. no VIP room
  7. no 3D films
  8. no Real D 3D films
  9. no non-feature film entertainment
  10. no advance tickets
  11. no midnight performances
  12. no reward points
  13. no pass-restricted movies
  14. no refunds
  15. not redeemable for cash
  16. no reselling
  17. no extensions
  18. no reproductions
  19. not combinable with other promotions, coupons, vouchers or special discount offers

If you get through all that, be sure to go to a participating theatre by the April 29 expiry date.

Okay, some conditions won’t affect your life. Yet someone felt the need to spell them out. There’s no warning that the movie might be a waste of your time even for free and that you’ll be subjected to commercials. That doesn't warrant a mention?

The Surprising Exception

We’re so used to fine print that we don’t notice one surprising exception. In Canada, personal life insurance contracts routinely guarantee everything except
  1. government actions
  2. investment returns
  3. the availability of investment options
Fine print: Products differ and practices change. We’re looking at what’s common to help you in discussions with your advisor.

Government Actions

Provincial governments set the premium tax rates. They range from 2% in most provinces to 4% in Newfoundland. These rates are far below normal sales tax and the federal government doesn’t add a surcharge.

Insurance contracts are usually guaranteed to be tax exempt based on the tax rules when your coverage takes effect. Governments can change the rules but they might compromise and allow existing contracts to operate as before.

Investment Returns

Permanent life insurance plans allow tax-sheltered investment growth. With whole life, the insurer makes all the investment decisions and you get the rewards and penalties for their judgement. With universal life, you pick all the investments and take responsibility for the returns.

The insurer can often remove investment choices from a universal life plan. For example, if the S&P 500 disappears so will indexes based on it. That’s fair but the new indexes might have higher management expenses --- they rarely go down.

The Guarantees

Whole life has the fewest guarantees and is more like insurance on your car or home. You foot the bill for higher claims by others, pricey computer programming (remember Y2K?) and lousy investment returns.

In contrast, term life and universal life insurance routinely guarantee whatever the insurer can:
  • premium rates per $1,000 of coverage
  • administration expenses
  • tax exempt status (under the rules in effect when you got your contract)
  • no new conditions or restrictions
Something to think about when you’re back from the movies.


Podcast Episode 64 (4:43)

direct download | Internet Archive page

PS The movie coupon expires on a Thursday, which means you can’t see the new Friday releases like A Nightmare on Elm Street or Furry Vengeance. Thank goodness.

April 17, 2010


thorns 250x376
When you think of  a rose, do you marvel at the beauty of the flower or think about the prickly thorns?  You get both.

Retirement is like a rose. We're lured by the beauty, but continually reminded of the high price. We face many obstacles. Investment returns are volatile. Company pension plans are disappearing. We're living longer. Medicine does ever-more but costs more and more. Governments face financial crunches because of the aging population. So we personally need to save more more more.

What if the math is wrong?

What if we're actually saving too much? Maybe we don't need 70% of our pre-retirement income when we stop working. That's the discussion in Living on less and loving it in Ellen Roseman’s blog.

Before you start spending your retirement dollars today, consider these two questions:
  1. who benefits if you save too much?
  2. who loses if you save too little?
You do in both cases.

Saving Too Much

If you think you’re saving too much, you may have more than you need. You’ll never know because the final tally takes place when both you and your spouse have died. The remaining value of your estate, can go to your heirs, causes you support and taxes.

You can't predict the future. We couldn’t have predicted the past.

We are living longer than ever. Even if you’re frugal, you could easily face unexpected expenses. Suppose you require a wheelchair. Could you get into your home without a ramp? Would you need a different vehicle? How do you use your kitchen? Is your bathroom accessible by wheelchair? How do you get into the tub? Maybe you need to move to a nursing home. They aren’t cheap.

Even if you’re healthy, your retirement savings could expire before you do. That’s the risk of longevity. Imagine losing financially by living longer. How horrible.

Saving more than you think you need gives peace of mind. You immunize yourself from economic downturns on the route to retirement too.

You might still run out of money but you’re taking extra precautions to reduce that likelihood.

Saving Too Little

Do you really want to imagine the scenario of running out of money after decades of hard work? Even if you want to start working again, what kind of employment could you find? McJobs might get replaced by cheap, reliable robots. You might not have the physical stamina to work.

The government is there to help as a last resort but how much money do you think they'll have as the population ages?

Maybe you've got children and grandchildren. Maybe they can and will support you. Will they resent you too? How will your dignity be affected?

Under saving increases your financial risks and makes you vulnerable to adversity. As with exercise and diet, the savings habit takes time and persistence to show results. Starter sooner gives more time for the magic of compounding growth.

How Much Is Enough?

Suppose you think you you can retire in comfort on 50% of your current income. Do you know how much capital you'll need? There are many unknowns. We're living longer. Investment returns are volatile. Inflation could return. If your real returns drop 1% below your projections, what does that do to you?

There's a book called The Number by Lee Eisenberg. It's readable but the title is misleading. You won’t find simple formulas to estimate how much money you need to retire. Instead, you how retirement money actually gets spent. That could be an eye-opener, especially if you haven’t save much money to date.

If you haven't read The Millionaire Next Door by Thomas Stanley and William Danko, do. You'll come away with a much different understanding of the self-made wealthy. They live below their means and save save save. This prepares them for adversity and opportunity now and for the rest of their lives. How's that for a plan?

Would you rather accumulate more than you need or end your life financially dependent?


Podcast Episode 63 (5:06)

direct download | Internet Archive page

PS Prepare to enjoy the retirement rose but pay heed lest the thorns prick you and draw blood.

April 10, 2010


What the Dog Saw cover (Gladwell)
Christmas 2009 is coming. Look! Here's a new book from Malcolm Gladwell!

Wait ... hold on … it's just a compilation of his articles from The New Yorker. Skip it. You can read them free online. There isn’t even a dog on the cover.

That was my first impression of Malcolm's new book What the Dog Saw. Instead of a “real” book, Malcolm was taking the easy route and recycling for the holiday book buyers --- or so I thought.

I’ve enjoyed Malcolm’s previous books: The Tipping Point, Blink and Outliers. He even grew up in Canada, a nice bonus. Even so, I never read his New Yorker articles. I tried once but they're too long to read online and I don't get the magazine. It's wasteful to print according to the warnings on the bottom of some e-mails these days.

Besides, I don't like reading books but I love listening, especially to the author. Audiobooks are more engaging and portable. You feel the author is talking to you, which is much more personal than reading printed words (even on an iPad). Malcolm’s one of the best, along with Douglas Adams, Seth Godin, Neil Gaiman, Zig Ziglar, Richard Branson, Jeffrey Gitomer and Michael Gerber. How often do you see those names in the same sentence?

The Magic

Months passed before I got the audio book. I was hooked within minutes. The length --- 10 CDs --- is perfect for a road trip, which is how we listened.
“Mustard now comes in dozens of varieties. Why has ketchup stayed the same?”
--- Malcolm Gladwell, The Ketchup Conundrum
Each story is mesmerizing. Malcolm has the rare knack of combining disparate ideas into something unique. You experience a similar sense of discovery with Connections by James Burke. Malcolm’s writing grips you even when he's talking about hair colour, Enron or intellectual property rights.

Prior Insights

Malcolm does more than entertain you. You learn about the world and yourself. Each book changed how I think.

Outliers (2008) added the lens of the 10,000 hour rule, which I didn’t realize applied to my life. Success comes not from innate talent but from years of long arduous practice. That’s uplifting except for the get-rich-quick crowd.

Blink (2005) focuses on the power of snap judgements. Sometimes we’re remarkably perceptive. Other times we stick to erroneous preconceived ideas. Awareness of the process reminds us of biases. That helps us and let’s us harness the power of first impressions for our benefit (even when we’re not there). His article The New-Boy Network seems to be the seed of Blink.

The Tipping Point (2000) shows how a few can create unstoppable momentum. That’s inspiring. You can create change within your own sphere and perhaps beyond. Malcolm also talks about the importance of mavens (experts you trust), connectors (who spread the message to people who may never meet) and salesmen (who motivate to action).

How To

Malcolm doesn’t write “How To” guides but you can extract valuable lessons through introspection. Plutarch said “Know how to listen, and you will profit even from those who talk badly.” Imagine the possibilities from listening to someone who speaks exceptionally well.

If you're new to Malcolm, What The Dog Saw makes a great introduction. If you're familiar with him but sceptical about this book, don’t worry. If you haven’t heard Malcolm read before, the variety makes this book a wonderful introduction.

In What the Dog Saw, the biggest revelation came from Open Secrets, which explains the difference between a puzzle and a mystery. They’re not synonyms. If you're solving a puzzle, you want more and more data. In contrast, you solve a mystery by identifying the few right clues and deducing. That’s a useful new lens.

If you like thinking without getting bored, listen or read Malcolm.


Podcast Episode 62 (4:50)

direct download | Internet Archive page

PS You can find more Malcolm at gladwell.com.

April 4, 2010

The Three Key Questions For Your Charitable Giving

boy giving coins 200x293
When giving, the goals of the charity and tax collector often differ from yours. Charities want money now: a donation deferred may go to another cause or never be made. The tax collector wants donations deferred since that maximizes tax revenue now. What about you? What do you want?

When giving to charity, ask yourself these three key questions:
  1. Why do you give?
  2. What do you give?
  3. When do you give?
Your answers decide which parties benefit and by how much.

Your Reason For Giving

Why does your motivation matter? In many ways, it doesn’t. Giving is good regardless but your reason for giving sets boundaries on where you give.

You've got a range of choices. A pure gift gives you full flexibility but no tax receipt. Registered charities give tax incentives but limit the causes available.

Your Gift

Would you give without tax incentives? Would you give more with tax incentives or recognition?

Foundations with names like Gates, Rockefeller, Rogers and Schulich do good and get recognition for the families. Compare that with Warren Buffett who doesn't want his name on anything. Yes, Warren gets publicity but he's not building edifices in his tribute.

You can give different things. For example,
  • cash
  • listed securities, art or property
  • a life insurance cash value or death benefit
If you give art, what’s the market value? Figuring that out costs the charity in time and money. Conservative appraisals mean lower tax deductions for you. Aggressive appraisals can lead to scrutiny by the tax collector.

Pure Gift

A pure gift has no strings attached. Since you get no tax receipt, the tax authorities have no say in how you use your money. Think of Google.org, which is not a registered charity. That gives the flexibility to invest in entrepreneurship in developing countries (foundations are blocked from initiatives that might be profitable). Their other causes include cheap renewable energy, hybrid electric cars and predicting flu trends in near real-time.

Pure gifts preserve your privacy and could be anonymous. With no records anywhere, you’re less likely  to get pestered to repeat your generosity. We're engulfed by people who could use a boost to better their lives. Think of street musicians, part-time delivery people, restaurant servers and artists. You can attend a performance by an undiscovered playwright or buy a CD from the musician performing at a wedding reception.

Other Forms of Gifts

Scarcity creates value. You can give a more valuable gift than money: time. Time is irreplaceable and we have as much as the wealthiest. You can donate your time by blogging, podcasting, video casting, leaving online comments.

You can give for free when others would charge: volunteering, presentations, coaching, training, mentoring. You can also donate blood, organs (at death) or food.

The Timing of Your Gift

You can give now, continually, or when you die. Tax deductions occur at the time of your gift. The biggest deduction often comes from donating a life insurance death benefit. That's an easy and inexpensive way to leave $100,000, $1 million, $10 million or more. Your gift will be sizable but the charity must wait until you're dead. There's something perverse about helping the charity most by dying. How much does a hitman charge these days?

Without enough regular cash flow, the charity could disappear while waiting for your donation. You get no advantage to your lifetime either. Your estate benefits from the tax deductions, which leaves more for your beneficiaries.

Originally, Warren Buffett planned to donate via his estate. After his wife Susie died, he decided to give annually to the Bill and Melinda Gates Foundation with the stipulation that the money be spent that year.


Podcast Episode 61 (5:08)

direct download | Internet Archive page

PS Thanks for donating your time to reading this post. Sorry, no tax receipts!