RISCARIO INSIDER

November 30, 2013

12 TIMELESS TIPS FOR WISE SHOPPING

‘Tis the season to shop. Retailers always find reasons for us to spend our money. Since when did Santa mean shopping? He symbolizes giving. Rather than give something we bought, we can give something more precious: ourselves.

If you must shop, here are 12 timeless tips. For examples, we’ll use gadgets rather than items like clothing.

1. Know What You Want

If you’re prone to saying “I’ll know it when I see it”, you risk spending lots of time shopping. You also risk overspending. Think about what you want first. You can still browse, but now you have a Plan A. If you like wandering around, you could go for a walk.

2. Watch Price Trends

If you don’t have a sense for the normal prices, you can’t tell if you’re really getting a deal. Sales may be based on prices that few would pay.

Items may be cheaper when major sales aren’t taking place. Over the years, I’ve noticed (and this is unscientific) that highend computers tend to be cheaper in late November and early December than just after Christmas. There are sales every week, but the deals vary.

You might notice patterns too. If you’re patient, you can win.

3. EXAMINE The Offers

The screenshot shows a Black Friday deal from Dell. On the surface, the deal looks good: a $90 hard drive for $50. I was tempted but looked closer. Does Dell even make hard drives? My Dell computer has disk drives from WD and Samsung. Since no one else sells Dell hard drives, they can set any price they want. The $90 is a “market price”, which is a fictitious. Even so, the offer looks good. However, the product page doesn’t show the warranty.

Instead, you’re told “For copy of Ltd Hardware Warranty, write to Dell USA LP, Attn: Warranties, One Dell Way, Round Rock, TX 78682 or see www.dell.com/warranty.”

If you click through, you’re told something 100% useless: “Dell-branded hardware products purchased in the U.S. or Canada may come with a 90-day, 1-year, 2-year, 3-year, 4-year or 5-year, or other limited hardware warranty.”

In contrast, Costco sells a WD My Passport Ultra hard drive with a three year warranty and carrying case for $90 (1 TB) or $129 (2 TB). Maybe that’s a better deal for peace of mind?

4. BEWARE OF Substitutes

The Simpsons were once looking for a new TV and kept driving further away to get the best deals. They saw brands like Sorny, Panaphonics and Magnetbox. Some buyers might get fooled by these seemingly familiar brands.

Comparing features and specifications isn’t enough either. What matches or wins on paper may not be a good choice. For instance, the tablet may have short battery life or an unresponsive touch screen.

5. Accept Substitutes

I’m looking for a webcam. My preference is Logitech but there are great choices from companies like Microsoft too. (In this case, I got the top-rated Logitech c920 at Staples today. Lower prices seem unlikely and I’ve lightened Santa’s load.)

Flexibility makes shopping easier. There will likely be something on sale when you’re ready to buy.

6. Watch Sales Cycles

Some items go on sale at specific times of year. For instance, anti-virus software is always on sale on Boxing Day. I don’t know why. A three-user Kaspersky Internet Security suite drops from $80 to $20 at Best Buy. Since the licence lasts a year, this is an annual must-buy item.

7. Wait After Buying

You might buy on impulse. That’s fine. We’re human. You don’t have to open the product immediately.

Wait a day or more. Do you still feel compelled to keep it? If not, return your purchase. This happens to us at Costco where the products keep changing and the return policies are fair.

8. Know The Return Policy

Shop where you can return purchases easily, without paying for shipping/restocking. I’m reluctant to buy online unless the retailer has physical stores for returns. Sorry Amazon. Especially sorry to smaller retailers (even with physical stores).

Suppose you bought the hard drive from Dell and decided you didn’t like it. You can return it without cost or penalty.

9. GET Quality

If you’re comfortable buying fewer items, you’ll have less clutter. The environment will thank you too. Quality costs more but what you get is often more enjoyable. I’m still using my iPad 1, which is still working fine.

10. Latest or Greatest?

Is last year’s model that bad? Everything becomes old. You might save more by getting last year’s proven model. With gadgets, it’s tempting to get the latest because newer is often better. That’s not true for products like toaster ovens where the changes may be cosmetic.

Another option is to get a refurbished model with a full manufacturer’s warranty.

11. Reduce Choice

Shopping consumes mental energy. Less choice can be better. For instance, Costco has a limited selection, which is fine. As an example, you can get hard drives in multiple colours but Costco only stocks black. Does that really matter?

12. Ignore THe Hype

We live in the world of buyer beware. We also live in a world where we don’t have to buy. Our basic needs are limited.

As George Carlin said, “If you didn’t have so much stuff, you wouldn’t need a house. You could just walk around all the time … your house is a place to keep your stuff while you go out and get … more stuff! Sometimes you gotta move, gotta get a bigger house. Why? No room for your stuff anymore.”

Podcast 248

direct download | Internet Archive page | iTunes

PS Just because you have money to spend doesn’t mean you have to spend the money.

November 24, 2013

WILL YOU HAVE FINANCIAL FREEDOM AT 35, 55 OR 75?

Let’s dream. Imagine retiring early with nary a financial worry. What's the magic age? We’ll explore 35, 55 and 75.

Freedom 35

Julian: I’ve got a plan, all right. It’s called a Freedom 35.

Bubbles: What’s a Freedom 35?

Ricky: You’re not going to believe. This is perfect. Julian’s got these guards on the inside that are going to smuggle in a bunch of dope that we grow, sell it for big money in there and then we can retire and never have to break the law again.

This early retirement plan is from the Trailer Park Boys (Season 2, Episode 1). Not recommended.

Very few can afford to retire at 35. Suppose you could. What would you do with the rest of your life even if you live outside a trailer park?

Freedom 55

I never quite understood the Freedom 55 ad campaign by London Life in the 1980s. The idea seems to be buying their products (perhaps whole life insurance) would magically to build up enough savings to let you retire at age 55.

To paraphrase Bruce Springsteen, a dream that doesn’t come true is a lie … or something worse. Was early retirement possible for typical buyers?

Who really retired? Probably the advisors --- on money they made from selling the products.

I grew up in London, Ontario where London Life was headquartered. At Western University, I was taught by actuaries from there and received The London Life Continuing Actuarial Scholarship.

I wanted to believe the dream. When you're in your 20s and 30s, age 55 seems so far away. Being able to retire at 55 had appeal and might have been achievable with a good job and a defined benefit pension plan.

Now people in their 50s plan to keep working after they retire in their 60s, often to supplement their income (Huffington Post, Aug 2012).

Freedom 75

Retirement ages look like they’re getting closer to 75 than 55. We're living longer than ever. That means our money must last longer. Even if we're saving enough based on rosy projections, the investment returns may not materialize. Well-paying jobs aren’t secure. Also, we face unpredictable expenses such as health costs. We don't know what the government can afford to provide for us or for how long.

Consider the case of Tom Palone, who was a VP at Oral-B earning over $100,000 a year. Now 77, he works two physically-demanding part-time jobs paying $10/hour or less. He says, “I earn in a week what I used to earn in an hour” (Daily Mail, Sep 2013).

Where does that leave us? We might have children but there's no assurance they'll care for us physically or financially even if they can. Maybe you can keep working part-time if you’re healthy. Besides earning money, you'll have things to do. Decades of retirement can feel like a job too.

Your Situation

You can get financial projections that show how much you need to save to achieve a particular level of savings by a target age. Unfortunately, higher risk accompanies higher projected returns.

Life insurance is sometimes proposed as a savings vehicle since growth is tax sheltered as in an RRSP. Withdrawals are taxable but you can access the savings via tax-free loans. This assumes that you're comfortable carrying debt when you're retired. Even if you think you are, you may find that you really aren't. If you're borrowing against the collateral in your policy, the interest rates aren't predictable.

Insurers provide guaranteed lifetime income via life annuities. The payments are determined at the time you buy, based on your projected remaining lifetime and projected interest rates. Since we're living longer and investment returns are currently low, the annuity income looks less attractive.

Step One

To get a better understanding of your financial situation, get an independent review by a fee-only financial planner who doesn’t sell any products or get any referral fees from product sellers. Fee-only planners vary in what they charge, ranging from hundreds to thousands. They may save you much more than that through lower cost investments and higher peace of mind.

You can get "free" advice from several advisors who sell investments or insurance, or claim to do real financial planning. You may have trouble figuring out the advisor's biases but don't be surprised if they recommend you buy more of something they sell. The investigation process is time consuming and the proposals may not be clear. A fee-only planner can help with the review and inform you of the options left out.

Whatever your target age, make sure you’re planning financial freedom for you, not your advisor.

Podcast 247

direct download | Internet Archive page | iTunes

PS Financial freedom means little without health.