Saving for retirment

For Canadians the month of February is the silly savings season and it appears our concerns and insecurities about the future are showing up partly as a reluctance to save for retirement.  March 1 is deadline for putting money into Registered Retirement Savings Plans in which money is exempt from income tax.  Tax is charged when the money is withdrawn at which time one expects to have a lower income and thus pay a lower rate of tax.

I think it is a silly idea but many people will do anything to avoid paying taxes.  Some people have even  borrowed money in order to put it into an RRSP.  This plan is a  subsidy to the financial industry in that the federal government is giving up tax income to pay for marketing for the industry.

This year it appears fewer Canadians are going to take full advantage of this tax benefit.  Some are trying to balance their retirement with paying down a heavy debt load or with a need to help their children with education or to look after aging parents.

An online poll has found that Canadians were planning to save almost $10,000 this year, but 66 per cent say they’re tucking the money away for vacations, luxury items and entertainment.

the_family It could be some Canadians are becoming skeptical about the ability of the financial industry to look after our money in the long term.  Whatever the reason many  are worried about retirement.

I am one of the skeptics because there are two threats to savings.  One is that inflation could wipe out the value of savings and the other is that businesses  and governments in which savings have been placed may go bankrupt and be unable to repay the money.

Given the current economic outlook the best investment is a market garden.

Responsitibilty for the financial crisis

A news report suggests there will never be any criminal prosecutions from the financial crisis.

This is because we are all to blame.

We all want/have wanted the highest possible returns on our investments and pension funds and the people higher up the line have taken advantage of our own greed to line their own pockets.

I suspect that a lot of what happens in courts has more to do with revenge and scapegoats than it does with justice.

A warning for all investors

The following was posted to the comments section of the Buttonwood column  in the January 7, 2012 issue of The  Economicst.

The following story is from an article on hedge funds in the The Economist of November 16, 2006.

THERE is an old Wall Street story that can be adapted for the modern world of hedge funds. A young hedge-fund trainee is taken to the harbour. “Here”, says his boss, “are the partners’ yachts. And over there are the yachts of the bankers who lend to us.” The naive youth replies: “But where are the customers’ yachts?”

This story should probably be issued as a warning to anyone who trusts somebody else to look after their money.

(The author of this comment has a web log on economics at

How to prevent investment fraud

The following was posted to The Economist website regarding an article in the November 17, 2011 issue on crowdfunding.  The U.S. government is going to allow people to invest up to $10,000 into companies not registered with the Securities and Exchange Commission – as if it is right for the government to tell people what they can and cannot do with their money.

I find it a little ironic when I read of securities officials worrying about fraudsters when it comes to fundraising for business because I think securities regulators work mostly to make it easier for people in the industry to make lots of money at the expense of small investors.

Maybe the best way to protect investors would be to encourage them to ask lots of questions and not to part with their money until they have satisfactory answers.  Governments could also require companies to make public lots of information.

One of the features of the economists’ perfect competition model is that all the participants in a market have all the information they need to make sound decisions.

Wall Street protesters and greed

One has to have a lot of sympathy for all those young people whose future is looking somewhat bleak and also with those middle age folks who have lost their jobs and sometimes their homes and all those who are suffering from the economic downturn.  However making Wall Street workers into scapegoats isn’t going to accomplish much other than allowing people to express their frustrations.

Wall Street people may be greedy but their main crime is to be more successful at being greedy than everyone else. Most of us have sought the good life and we have willingly gone along with investment salesmen who have promised high returns.  If the rest of had not been so greedy the people of Wall Street would not have been so successful.

How safe are defined benefit pension plans?

It may appear that the luckiest people in the world these days are those with defined benefit pension plans especially those backed by taxpayers.  However, they are subject to the same risks as any other paper investment asset.  The institution that issues them could go bankrupt or declare a default or they could lose their value because of inflation.  I still think the safest  investment is a market garden.

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