Short Takes: Mutual Fund Fees, Getting Out of Debt, and more

It was a short week for me because I was off playing some golf in Florida. My only post for this week was

Leasing a Car is not Like Renting It

Here are my short takes and some weekend reading.

There is a serious problem with Canada’s mutual fund industry. In a letter to the Canadian Securities Administrators (CSA), Steadyhand Investment Funds clearly explains this problem and how to fix it. My favourite part of the letter is a quote from a mutual fund investor who clearly does not understand how advisors get paid: “Our financial advisor is such a nice man. Every year he takes us out for a wonderful dinner. I wish we could pay him [in] some way.”

Mr. Money Mustache shows a young couple how to change their finances to climb out of debt and prepare for a family.

Canadian Capitalist and Canadian Couch Potato review iShares’ latest currency-unhedged ETFs.

The Blunt Bean Counter discusses some tricky tax situations related to travel expenses for rental properties, declining a tax-free rollover to a spouse, and pooling charitable donations between spouses.

My Own Advisor has a sensible reaction to stock tips in an investment newsletter he read.

Preet Banerjee offers some options for cutting down on bank fees.

Big Cajun Man discusses his experiences with boomerang children.

Million Dollar Journey explains that an increase in your property’s assessed valued doesn’t translate directly into an increase in your property taxes.

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Leasing a Car Is Not Like Renting It

A colleague of mine has seen me throwing away a lot of paper over the past couple of years, and I explained that I’m trying to live a life with fewer things. The way I see it, my possessions tend to own me rather than the other way around. This colleague recently told me that I inspired him to do the same thing, and he began by leasing instead of buying his most recent car. He sees leasing as like renting instead of owning.

The social thing to do in this situation would be to say something like “that’s great – enjoy your new car.” But, I’m no good at saying things I don’t believe. I had to tell him that I didn’t agree that leasing a car is like renting it. For one thing you often end up paying for about half of the car. Further, the details of lease contracts push much of the risk back onto the consumer.

This colleague really hasn’t significantly reduced his exposure to the risks of owning a car. Further, because lease contracts are complex, few people understand them enough to figure out if they’re getting a good deal or not. If you believe that car dealerships don’t take advantage of this asymmetry of understanding, I’ve got a nice bridge I’d like to sell you.

The main thing that consumers see is that lease payments tend to be lower than car loan payments. However, at the end of the lease, the consumer has no equity and may be on the hook for extra charges depending on the car’s mileage and other factors.

So, leasing a car is not really like renting. Most people would be better off to save up for a car and buy what they can with their savings, even if it means buying a very modest used car.

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Short Takes: Cartoonist’s Financial Advice, Clamp-Down on Advantaged ETFs, and more

Scott Adams of Dilbert fame

has some very funny takes on active money managers and investing like Warren Buffett.

Canadian Capitalist explains how the latest federal budget clamps down on ETFs that use fancy derivative arrangements to turn income into capital gains.

Larry Swedroe reports that the 2012 study comparing actively-managed mutual fund returns to benchmark indexes shows that active managers lost again last year.

Canadian Couch Potato explains why you should avoid automatic dividend reinvestment in taxable accounts.

Mr. Money Mustache has some sensible thoughts on living a life without line-ups.

The Blunt Bean Counter explains “how financial institutions misreport or don’t adjust their realized capital gain/loss reports for the adjusted cost base reduction on flow-through shares.”

Big Cajun Man explains the generous matching of contributions to a Registered Disability Savings Plan (RDSP).

My Own Advisor has a sensible set of 2013 financial goals and is on track so far this year.

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