Archive for July, 2008

My Worst Financial Advice

July 30, 2008


The blogger who writes the Canadian Personal Financial Blog confessed to the worst advice he had given and challenged other bloggers to do the same. I didn’t have to think too hard on this one – I had committed a blooper that I regret to this day.

When I first started investing, I read a lot of books (regrettably none from the recommended list) but for some reason, I was most attracted by the Motley Fool books. I mean, if guys wearing joker hats are making a killing on Iomega and writing books about how easy pickings can be had in the stock market, really how hard can this investing thing be? If you recall those go-go days, the Motley Fool maintained a portfolio of what they called “Rule Makers”, composed of mostly high-tech stocks like Cisco (CSCO), Microsoft (MSFT), Intel (INTC) etc.

In my first year as an investor, I bought a venture capital fund and the next year, I did my “research” and picked JDS-Uniphase (JDSU) and Yahoo! (YHOO) from the Rule Maker portfolio. When a friend of mine asked for suggestions for investing his RRSP contribution, in a stunning case of the blind leading the blind, I recommended that he buy JDSU. And, that’s what he did and the stock even went up for a while after we bought it, only to fall off a cliff and never recover.

I didn’t come off too badly from my initial forays into stock picking – out of sheer dumb luck, I made a profit on Yahoo! and dumped JDSU after a few years. My friend, on the other hand, still holds the JDS shares and would be lucky to cover the trading commissions when selling. That’s not even the sad part: scarred by his initial experience with stocks, my friend gave up on equities entirely, stuck his savings in money market funds and missed the tremendous recovery from the bear market lows.

Today, I avoid giving financial advice of any sort to friends and relatives. Even when I’m sure of something, I just say how I handle my own situation and leave it at that. It is awful to feel responsible when the consequence of your advice goes bad.

Note: Many thanks to Larry MacDonald for mentioning this blog in his article titled Seven essential websites for becoming a better investor in Globe Investor Magazine. Needless to say, we feel honoured.

Randy Pausch’s Last Lecture

July 29, 2008


I must be among the last persons on Planet Earth not to hear of Randy Pausch, the professor who passed away over the weekend and delivered a “last lecture” on achieving our childhood dreams. A colleague at work recommended watching the video and I’m glad I did. It is 76 minutes long and in it, the professor reminds us of the things that are truly important in our lives but are so easily forgotten in the hustle of everyday life. If, like me, you’ve missed the entire phenomenon, the video is available here.

Should U.S. Estate Taxes Affect the Choice of Investments?

July 29, 2008


In response to an earlier post on Vanguard Total World Stock ETF (VT), reader Doug raised an interesting point — While Vanguard funds have rock-bottom fees, owning US-based assets, including securities, may result in an estate tax payable to Uncle Sam. Doug also posted a link to a BDO Dunwoody bulletin on U.S. Estate Tax Issues for Canadians which points out that the estate tax is a double whammy:

Unlike the U.S., Canada does not have an estate tax. But, when Canadian residents die, they are deemed to dispose of all of their capital property at fair market value, unless the property transfers to a spouse or a spousal trust. As a result, in the year of death, if you are a Canadian resident and you own U.S. real property, for Canadian purposes you may have a large “deemed” capital gain with respect to such property, in addition to a possible U.S. estate tax liability. In some cases, the combination of the Canadian tax and U.S. estate tax liability could end up being a substantial percentage of the value of the property.

Unfortunately, even Canadian residents with fairly modest estates might be liable to pay US estate taxes. For instance, a Canadian resident who owned $500,000 worth of Vanguard ETFs and passed away in 2008 would face an estate tax before exemptions of $155,800. US estate taxes also provides a credit of $780,800 but for non-residents, this credit is prorated based on the value of US assets compared to the value of the entire estate. If our Canadian resident left an estate valued at $3 million (per US rules), the exemption is prorated to $130,000 ($780,000 * $500,000 / $3 million) and would owe US estate taxes of $25,800.

PS: The original post incorrectly mentioned that “Canadian residents will have a U.S. estate tax liability only if their worldwide assets are valued in excess of $2 million”. I regret the error.