Yes it’s that magical time of the year again when we all go into our wallets and splurge like the world might end tomorrow, with little thought of what else we might do with the money.

This documentary portrays the front-line street workers who serve the needy under the umbrella of the Salvation Army. One of the world’s largest social agencies, the Army is a religious institution that serves the practical needs of people first, believing that religion is of no use to anyone who is hungry, homeless and hopeless.

Join filmmaker Rosemary House as she peers into the hearts and minds of people on both sides of the street – those who help, and those who need help. Shot in the streets of Toronto at Christmastime, the film chronicles the small hopes and tiny victories of life lived below the poverty line and the daily rewards for those who work to serve others.

Next time your wander past a Salvation Army Christmas Kettle think about this video:

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One of this week’s Dilbert talked about creating an Internet News service that simply paraphrased other news services, but didn’t actually have any reporters of their own, thus making them Parasites (much like this Friday compendium that I create weekly). It’s good to be a parasite, since you don’t have to do anything, now do you?

Parasite

Random Parasitic Financial Thoughts

This week in the Financial Blogosphere saw lots of things that I can paraphrase, borrow and attempt to pass off as new and original works of my own:

• Michael James commented on a new way of doing business in the Mutual Fund industry in his post ETF Pollution Rises to a New Level .
• Strangely the Canadian Capitalist also commented about the same topic in New Powershares Mutual Funds. The topic of a Mutual Fund that is made up of an ETF, makes me think of a TurDuckEn (with American Thanksgiving next week a useful reference).
• These two posts were spawned from an article written by Jon Chevreau in the National Post about Invesco Trimark Powershares Funds (sic). Not sure anything is going to be shaken up by this, but I have been wrong before.
• Preet created a very interesting thought map about the Alphabet Soup of Financial Advisor Designations (if you check the comments I added a few of my own).
• Larry MacDonald continued on his diligence keeping us posted in his Update: The HST Keeps Rolling, which is helpful for us folks in Ontario (who love new fangled taxes).
• Gail Vaz-Oxlade’s blog has had a face lift and looks quite new and exciting but in it she brings up an old topic A Budget By Any Other Name. This site could use some sprucing up too, maybe I’ll put up some drapes.
• I always enjoy stories of bloggers and their lives and the Four Pillars’ post Baby Car Seat Cover — Puke Fail is just that kind of excellent post.  What does it have to do with Money? Nothing, but it is a good read none the less.
• Free at 45 is Ashamed Of Being Wealthy ? Son, if you are ashamed of money, send it my way, I wish to feel your shame!

Come back on Monday and you can read the end of my Risk and Money saga, and then another episode of Big Cajun Man vs. Large Cell Phone Bills, it’s another titanic battle, and you’ll never guess who wins this fight (all next week).

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Sorry but I am derailing my discussions of Risk until Monday of next week with this week’s CPI numbers coming out and the Random Thoughts for Friday.

CPI Delta Returns to Positive

Yes the CPI for October is up 0.1% year over year (as opposed to last month’s year over year which was negative), this means a modest increase overall in prices, which sounds good, but as usual the numbers may not reflect exactly what is really going on with prices in the marketplace.

Well you might ask the question, how much did energy affect this whole thing? Have a look at this graph:

CPI with and Without Energy

Six of Eight Components Up

The bad part about this is that energy still is buffering the index from reflecting real price increases in most areas of the CPI itself. Stats Canada points out:

Major components in the CPI recording price increases in October were: food; household operations, furnishings and equipment; recreation, education and reading; health and personal care; clothing and footwear; and alcoholic beverages and tobacco products.

I am getting tired of the price gouging on SIN items like liquor and smokes (luckily lottery ticket prices aren’t going up in prices, or I’d have nothing to buy on Fridays).

Bank of Canada Core Up

The Bank of Canada’s Core rate is at 1.8% year over year, which is creeping into the “optimal” range for the Bank of Canada, but it also means that if prices go up a little bit more (as a percentage), then we might see some action from the central bank in this area (i.e. Bank Rate hikes).

The Big Table

Sept2008 to Sept2009Oct 2008to Oct 2009

	Relative import	October 2008	October 2009
	Unadjusted
				% change
All-items	100.00	114.5	114.6	-0.9	0.1
Food	17.04	117.4	120.1	2.8	2.3
Shelter	26.62	123.2	121.2	-1.8	-1.6
Household operations and furnishings	11.10	105.2	107.9	2.2	2.6
Clothing and footwear	5.36	94.4	95.0	-1.2	0.6
Transportation	19.88	117.0	113.4	-7.2	-3.1
Health and personal care	4.73	109.2	112.9	3.9	3.4
Recreation, education and reading	12.20	103.0	104.5	1.0	1.5
Alcoholic beverages and tobacco products	3.07	128.0	131.4	2.6	2.7
All-items (1992=100)		136.3	136.4	-0.9	0.1
Special aggregates
Goods	48.78	108.9	107.0	-3.7	-1.7
Services	51.22	120.0	122.1	1.8	1.8
All-items excluding food and energy	73.57	110.6	112.0	0.9	1.3
Energy	9.38	147.5	128.8	-18.7	-12.7
Core CPI	82.71	112.2	114.2	1.5	1.8

Reader’s Note: Tomorrow will be my regular Random Thoughts post, and the conclusion of my Risk and Life postings will be on Monday.

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Yesterday we started out by discussing NFL football, and then got onto the topic of Risk and it’s importance in key financial decisions in your life. Today we continue on with more examples from my life about Risk and how it played part in my decision process.

Example 2: Exercise Options or Not?

When I worked at Nortel, I had stock options and there was always the question about whether I should exercise the options or hold onto them in case the stock went up in price. Luckily for me, they were never worth more than $389.67 (yes I remember the exact amount), and no I didn’t exercise them, because I was foolish, so that money was never mine.

Many people I worked with had the same decision to make but with MUCH larger valuations on their options, and they didn’t “pull the trigger” either. I do know a few folks who simply said, “Give me my money”, every time their options came up, and didn’t care about whether the stock might go up, they simply wanted their money, and those folks (in hindsight) are the ones who did the best in the options game.

Risks are high in options, and luckily it’s a game I won’t be playing any more.

Example 3: Buy or Lease a Car?

Many of my friends have leased cars, but I never thought for me it was a good deal. I have owned used cars most of my life (I did buy a GM product new, which luckily I had an extended warranty on) and I have typically driven my cars until they were dead (or 5 months after that), or until my mechanic told me I had to get rid of it (he did refuse to fix a Honda Accord I owned that was in very bad shape).

My view of a car is purely functional, it is not an extension of my masculinity or of my prestige, so having a new car is nice, but not an important variable for me.

Leasing usually means you can afford “more” car than you can afford, however, after 3 years you own nothing (and if you have driven it too much, or worse dinged it once or twice, you are hit with extensive punitive fees). You can simply walk away from the lease, or you can buy your car at that point, however the money you paid in lease hasn’t gone towards the car really, you are simply paying the current value of the car.

Is there risk here? If you BUY a lemon (i.e. a car that is just overrun with defects and issues) you are going to have a problem getting rid of it and it will cost a lot to maintain it, whereas you can walk away from it if you lease the car (typically the lease period and warranty period are about the same time frame).

I’ll continue to buy cars, unless I get a job where leasing might make sense (i.e. you can write off the value of the lease as a percentage of how much it is used for your job/business).

Tomorrow: Final examples and an epilogue

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On Sunday NFL Coach Bill Belichick (of the New England Patriots) took a calculated risk and instead of punting on a 4th down late in the game he tried to make the 1st down. This in itself is not that risky a play in Football, however there were circumstances around this choice that made the decision very risky:

1. His team was leading at the time by 6 points (more than a field goal, less than a converted touchdown)
2. The ball was on the Patriots 28 yard line
3. There was 2:08 left in the game
4. His team needed to get 2 yards on the play (not a small amount).

If he punts the ball to his opponent he leaves the game in the hands of his defense, and his opponents most likely have to cover over 80 yards to score (and must score a touchdown not just a field goal).

The risk (in my opinion) was far too high for the decision made, and in hindsight the decision was proven wrong, as his team failed to get first down and left their opponents only 28 yards to score a game winning touchdown (which they did), but it is easy to second guess that kind of decision after it has been proven wrong (i.e. Monday Morning Quarterback club, which I am a charter member)

So What?

So what does this have to do with Personal Finance you might well ask?

Do you take into consideration all the risks that are part of your financial decisions? Do you look before you leap, or do you just roll the dice and let the fates take care of things for you?

Risk is involved in all decisions, and you can paralyze yourself worrying about risks, especially in personal finance, but with larger financial decisions it is imperative to think about what you are about to do, and what risks are involved in the decision.

Let me run through a few personal experiences with major decisions and risk.

Example 1: Lock In or Float?

With folks buying their first home, the question always arises, should you lock in your interest rate, or should you go with a lower but floating interest rate? Back when I was looking at houses for the first time, I locked in at 11% thinking I was getting a great deal (given interest rates had been at 18% previously), so I locked in for 5 years. The decision was made because we could afford the payments at that rate and didn’t want any surprise increases in our budget.

The decision was wrong in hindsight because interest rates dropped to much lower rates after that, but I don’t view that as a wrong decision, more a conservative decision.

I now live on a floating interest rate loan vehicle, because I can withstand a sudden sharp interest rate increase.

The risk here is, can I withstand catastrophic interest rate increases?

Tomorrow: More examples…

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OK, Air Canada has been an important part of my life, but their new “Leg Room Tariff” is one step too far in my estimation. Over the years I have watched traveling in an airplane going from being an elegant thing, where civilized folks dressed well and were all civil with each other, to these days where I think it’s lucky that folks are wearing clean clothes (don’t get me started about the people who travel in sandals and then complain that the plane is too cold).

As time has passed, we have gone from complimentary candies at the start of flights and on landing to help you with “popping ears”, to the point now where I would not be surprised to see pay toilets offered by an airline.  Hidden costs abound in air travel these days, where they could just as easily offer a free flight to Toronto from Ottawa and still end up charging you over $150 in service fees (there is a landing fee, does that mean if I don’t pay it we don’t land?).

This new tariff for the seats in Economy that have a bit more leg room are now going to cost more is beyond gouging. Being someone who does not fit in airliner (unless I am in Business class or First Class) being able to sit in a seat that allows me not to have to fold myself in half to be able to fit was nice, but now I will not have access to these seats unless I am willing to pay for them, and the seats are “available”.

The fee will only be $14 for each leg of your trip, to sit in a bulk head seat or in one of the emergency exits, but it stinks in my estimation.  So if someone who cannot open the emergency exit pays for the seat, and refuses to move people may die in an emergency situation? Seems like a safety issue to me.

Will you pay this fee? Me I don’t travel these days, so it is a non-relevant question for me right now, but for the frequent fliers out there are you going to pay? I single out Air Canada on this one, but I will bet other Airlines will add this fee quickly if Air Canada succeeds with this new fee.

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Our friends from Ted.com with an interesting point of view on the Post Financial Crisis  Consumer.

John Gerzema says there’s an upside to the recent financial crisis — the opportunity for positive change. Speaking at TEDxKC, he identifies four major cultural shifts driving new consumer behavior and shows how businesses are evolving to connect with thoughtful spending.

Hope this is true!!! Except about Molars and such….

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For the Remembrance Day week, there was much to reflect on. We live in a great Country (Canada) and are lucky for those who have fought for us and those in our Armed Forces today. Thank You.

I was also excited to see that the Ottawa Public Library has updated their “Stone Knives and Bearskins” interface and are now testing a brand new interface which I like a great deal (and you can find me on their as bigcajunman as well). Try it out and tell the folks what you think of it.

From the Financial Blogosphere

Given the N.C.F.B.A. met this week, I always feel a level of rejuvenation in my blog, and also a level of confusion, given some of the topics that are discussed by some of the members are well over my head financially. I listen and attempt to learn as much as I can, and then go and read about the topics more (so for me it’s like going to a seminar on high level finance ideas).

• Michael James wrote about Veterans’ Pensions and just how little we pay permanently disabled soldiers and members of the military (shockingly low, but might be tax free).
• Speaking of disabilities the Canadian Capitalist wrote about The Sad Story of Nortel LTD Beneficiaries which is another scandalous issue. These folks are going to lose their benefits (or already have lost them), because of how Nortel ran their program. Read the posting, and then ask yourself how your company does Long Term Disability benefits.
• Soon to be Television Personality Preet at WhereDoesAllMyMoneyGo put up a useful video on What is a Mutual Fund for those wanting to learn more about how that investment vehicle works. Preet will hopefully soon be seen on the W Network on a weekly basis, stay tuned.
• Larry MacDonald (who promises to write a follow up one day of his successful book Nortel: Telecomm Empire) writes a useful posting on the Quotable Guide to Passive Investing where he gives you some quips from some very good books about passive investing.
• The Four Pillars asked Should the Government Bail Out Pension Plans? I think my answer is maybe, but they should definitely REGULATE them much more closely! What has been allowed to transpire at GM and Nortel is at least an abomination if not actually criminal.
• Gail Vaz-Oxlade tells you 8 Reasons Why You Don’t Save right on target as usual (wish she wasn’t sometimes).
• Promod at Riscario Insider write about Three Reasons Why Financial Literacy Eludes Us again, wish he wasn’t right.

Have a great weekend all, remember it’s time to put your Snow Tires on!

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The N.C.F.B.A. met on Monday night (OK we sat and watched Preet eat dinner), and as usual the discussions and commentaries were entertaining, enlightening and fun (for me at least), and one of the topics that came up was about Advice and what people do with the advice you might give them (Michael James has in fact written an excellent post on how Investment Advice Usually Reaches the Wrong People).

I remembered one of my worst pieces of “advice” I ever gave to a dear friend, so here again, I reprise an “oldie but goodie” for you, dear reader. This post goes back four years ago, but is still as painful to read today as it was to write back then.

A parable about advice… (not just financial)

A few years ago I car pooled with a wonderful guy we’ll call Jack for this story.

One day after my wife and I came back from a great vacation in Florida, I told Jack about how to get free tickets to Paramount Studios in Orlando, by attending a “Time Share Condominium Sales Pitch” (my father-in-law told me about it), I told Jack that it was a hoot and also kind of sad seeing the “poor souls” (my opinion) who ended up buying these things.

The Sales guy was relentless, he was going to take Canadian money at par, he was going to let us pay with our credit cards, we could stay there right now if we wanted, etc., but we stuck to our guns, got our free tickets and left (with a lot of chuckling and many stories that I still tell to friends).

Jack thought it sounded like a good idea because he and his wife were going on vacation to Florida in a couple of weeks, so he said they would go as well.

Fast forward to the day after Jack and his wife came back from their Floridian vacation. The conversation was mostly about how much fun Jack and his wife had while in Orlando, so then I said, “How about that Time Share sales pitch, what kind of a schmuck would buy those things?”, and after a long pause Jack said, “Well, me, I bought one…”, I think my jaw dropped to the floor, and I might have said two words for the rest of the trip to the office. I never mentioned time shares ever again.

As an epilogue Jack never really did get to enjoy the time share and lost a fair amount of money on the  deal.

Moral to this parable? Advice is a dangerous thing to hand out, and you had better be ready to take the heat when the advice goes wrong, even when your advice was completely misconstrued.

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A small deviation from the We Shall Remember, but my view is that we must remember those who stood for Canada in the past and will stand for us in the future. I am glad to see that Canada seems to be embracing Remembrance Day again, as it is not a day that Embraces War, far from it, it embraces the men and women who have served so that we can enjoy our current lifestyle.

We must always remember, and hopefully we always will.

We Must Remember

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