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carrick on money

By Rob Carrick

The hazards of picking individual stocks as an investor are bluntly summed up in a video interview with Harold Pollack, the co-author of a new book called The Index Card: Why Personal Finance Doesn't Have to Be Complicated. He says that in trying to pick winning stocks, investors are chasing shiny objects and making bad choices. Pollack argues that investors would be better off with low-cost index funds, which give you exposure to all the stocks in major stock indexes like the S&P/TSX composite and S&P 500.

I agree. I own a small number of individual stocks, most of them long-term dividend growth stalwarts. But for the most part, I avoid stock picking and use index-tracking exchange-traded funds. Lately, I've had a big increase in questions from investors who own higher cost mutual funds and want to explore ETFs. Here's a good primer I found on how to get started as an ETF investor.

Low-cost index mutual funds are another option – here's a rundown on how they compare to ETFs. I've been updating the Globe and Mail ETF Buyers' Guide in recent weeks. Here's the instalment on Canadian equity funds, and here's one on U.S. equity funds. I cover bond ETFs on Saturday. Stay tuned.

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Rob's top web links

Buying a house with friends
> In expensive markets like Toronto and Vancouver, more and more people are giving this strategy a look. Speaking of home buying, here's some interesting intel on why you won't get a good night's sleep the first night in your new place.

A fresh take on the latte factor
> That's the name of the rule that highlights all the money you can save on a cumulative basis if you give up
small purchases like a daily latte. Some think this is foundational thinking in managing money, others disagree and say it's big expenditures like car payments and mortgages that matter (I'm in that latter group). Here, a blogger wonders if we're missing the point on lattes. Are we just buying them out of habit, and not because we really like them?

Six ways to save money at Starbucks
> Some good suggestions here that are easy to follow up on. Example: The do-it-yourself iced latte you mix yourself while in a Starbucks store.

What "old" looks like to millennials
> I really liked this video of millennials being asked what age they consider to be old. The young people are then introduced to some seniors and asked to rethink their answers.

When it pays to live beyond your means
> Rapper 50 cent projected the image of living a life of wealth, and then he declared bankruptcy. Turns out the cash he was rolling in was a prop to make him look rich and successful.

This couple looked at 150 houses before finding one
> Oddly, they were looking in Edmonton, not usually considered among the country's hot housing markets.

Today's featured investment tool
I use this income tax calculator all the time in my work. Very handy for seeing how much tax you pay at various income levels and on different types of income.

Ask Rob

The question: "You mentioned in January of this year that you thought the EQ Bank was a good place to put your money in their savings account paying 3 per cent. I understand that this is a promotional rate used for marketing and could change at any time, but do you see any down side risk to this other than them dropping their rate?"

My reply: In fact, EQ has already dropped its rate to 2.25 per cent. That's still among the best rates available by far. Expect EQ's rate to fall further as it gets more established. As to other risks, EQ parent Equitable Bank is a member of Canada Deposit Insurance Corp. That should provide some peace of mind. Here's a good rundown on EQ from a blogger.

Do you have a question for me? Send it my way. Questions and answers are edited for length.

Featured Video
Squawkfox blogger Kerry Taylor and I talk here about how to tell how much house you can afford to buy.

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