Even the Unbiased have Biases


CentsAbility’s tagline is “unbiased financial education”, but we wouldn’t be human if we didn’t carry some biases.  In the name of transparency, here’s what we believe:

1. Good enough beats perfection

Will you be healthier if you exercised for three hours each day and never ate chocolate cake again?  You bet.  Is every person that aims for that goal doomed for failure?  Almost certainly.  Yes, you need life insurance – but an informed guesstimate is fine.  Yes, you should do some loose form of budgeting – but tracking every penny for the rest of your life doesn’t have to be it.  Yes you should save for retirement – but it’s impossible to know exactly how much.  And yes you should invest – but doing hours of stock analysis is not necessary.

Perfection is unrealistic and usually impossible in every day life.  And yet the fear of making an imperfect choice so often leads to making no choice at all.  So when faced with “good enough” action vs paralysis, we vote for any step that moves you in the right direction.

2. Process goals beat outcome goals

Here’s an outcome goal: I will win my next tennis match.  Here’s a process goal:  I will practice tennis every second day for one hour.  See which one you have much more control over?  Breaking outcome goals into step-by-step process goals empowers and motivates.  How do you eat a whale?  One bite at a time!

3. Simplicity beats complexity

We believe:

  • Low-cost mutual or index funds beats picking individual stocks
  • For temporary needs, term insurance beats whole life insurance
  • Finding an advisor you trust beats spreading your money out among many

Simple strategies often perform as well as, or better than, complex ones. And as a bonus you’ll actually understand what’s happening with your money.

4. Wanting what you already have goes a long way to being financially successful

We humans are on a hedonic treadmill.  That’s the tendency for humans to return to their normal state of happiness even after major positive or negative events happen.  Sobering thought if you believe you’ll be happy once you get X, Y or Z.

You don’t have to love everything about your life.  And you can take steps to change things – remember process goals above? But remain grateful as you strive for the next thing, as in ”Man I wish we could own a bigger house…and my life is blessed”.

5. Human nature has its weaknesses, so set good defaults

Did you know that willpower is a finite resource?  Setting smart defaults means pre-selecting smart options for your money.  And that means you don’t have to be making willpower-draining decisions over and over, exposing you to bad choices. So automate whenever possible: Auto-save.  Auto-escalate those savings.  Join your group savings plan at work.  Can’t handle lines of credit or credit cards? Go for an installment loan instead.

When automation isn’t possible, set a personal default position.  Tax refund, bonus or inheritance?  Follow the 40/40/20 rule: 40% toward debt, 40% toward savings and spend the rest. Love to shop but spend too much?  Go shopping with cash only.  Get invited to too many home parties?  Have a personal policy of neither hosting nor attending them (…guilty as charged, and no offence).

6. Update your Net Worth every month

Okay, so this isn’t really a bias, or a belief.  But we think it’s one of the most important things you can do for your money.  And we don’t mean kind-of-guessing at what your Net Worth is each month.  It means logging in, getting hard numbers, doing some basic math and then looking for trends.  Reviewing your Net Worth each month creates a powerful feedback loop that allows you to adjust and get on the track you want.

7. Have an updated will and enough life insurance

Absolutely non-negotiable. Your loved ones deserve this.

8. Passive investing is a great choice, but it’s not for everyone

We love the low-cost passive options of index and exchange-traded funds (ETFs).  We believe that over the long run, passive investing will outperform active investing.  And that do-it-yourself passive investing is a viable option for the right investor.

However, most financial advisors sell active, not passive, investment products.  And many investors are better off using an advisor if it helps them invest their money appropriately and confidently. Especially if the advisor can help manage emotions through market cycles.

9. Building wealth takes patience and work

We’re sorry, there is just no road to easy wealth.  If you are looking for a hot stock or a way to get rich quick, CentsAbility isn’t for you. Instead, we believe in having a plan, saving regularly, making sacrifices, and committing to an investment strategy that suits you.

And step-by-step, we’re here to help you do that, biases and all.

Rich regards,


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What Bruce Springsteen Can Teach Us About Investing


For Christmas I received Bruce Springsteen’s autobiography Born to Run.  Not because I especially like Bruce Springsteen, but I’d heard it was a great read.  It is. Right now I’m learning about the early stages of his career.  It’s what you’d typically expect: poverty, partying and hard work.  He’s tasted a bit of fame at this point in the book, but mostly it’s been setback after setback.  Fortunately, we already know that in the end things work out pretty well for The Boss.

But success is loud, and failure is silent.  It’s the success stories we most often hear.  We don’t hear much about the ones that don’t work out.

Here’s another example, as told in Jordan Ellenberg’s book How Not to Be Wrong: The Power of Mathematical Thinking.  In World War 2, Mathematician Abraham Wald was asked to figure out which parts of American fighter planes should be more heavily armored.  It’s a problem because while armor is protective, it also makes planes harder to manoeuvre.  He was given statistics from the military showing that the planes coming back from Europe had more bullet holes in the fuselage, and not as many in the engine. Wald had a simple and elegant insight: the reason the planes didn’t have many holes in the engine is because the planes with holes in the engine never made it back.  The ones with holes in the fuselage did.  Success was loud, and the ‘failed’ planes – the forgotten ones that were key to the analysis – were silent.  Until Wald gave them voice.  Extra armor, it was decided, would go on the engines.

It’s this type of thinking we have to apply when we hear about successful investing strategies.  I read a persuasive article about a strategy called BTSX – “Beating the TSX”.  The BTSX strategy involves ranking the stocks in the TSX 60 from highest to lowest dividend yields and then investing equally in the top ten.  The results are intriguing as the strategy has indeed outperformed the index over the past 15 years.  I thought about the BTSX for a long while.  It’s simplicity and common sense appealed to me. I considered giving it a try, at least with part of my portfolio.

Then I remembered about the planes.  And Bruce Springsteen.

It’s only when something succeeds that we pay attention to it.  The military only kept statistics on the planes that succeeded in coming back. Bruce Springsteen is able to write a novel about his life because he is now a famous musician.  If BTSX wouldn’t have worked, there would be no article about it.

To quote Jonathan Clements from The Humble Dollar:

To be sure, there are investment heroes who beat the odds and come out on top. Berkshire Hathaway Chairman Warren Buffett, with his five-decade record of beating the market, is probably everybody’s favorite example. But in many ways, this is the power of anecdotal evidence: We remember big lottery-ticket winners, whose smiling faces make the evening news. We forget about the millions of losers, because they’re never mentioned.

I don’t know how BTSX will perform in the future.  Maybe it will end up beating the TSX index for all time!  But maybe not.  And it doesn’t matter, because investing is done best by sticking to a well-diversified asset mix that considers your goals, time frame, and risk tolerance. And for me, the BTSX strategy does not fit that bill.

So when you hear about about hot stock, a sure-fire investment strategy, or a friend who doubled her investment portfolio last year, remember to think critically.  Building wealth is not about finding the secret to beating the stock market. It’s about having a plan, saving regularly, making sacrifices, diversifying properly, respecting your risk tolerance, and committing to an asset mix that suits you.

Ugh, that sounds so boring when you put it that way!  Better go see what The Boss is up to in his book; it’s likely something more exciting.

Rich regards,


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I have to save how many million for retirement?


Pat and Curt would like an above average retirement with income of $70,000 per year.  They figure they will receive $25,000 through government benefits, leaving them responsible for $45,000 per year.  The “Rule of 20” tells them to multiply this amount by 20 and presto! that’s how much they’ll need to save for retirement: $900,000.  In 25 years when they retire, they’ll actually need $1.5 million to account for inflation.

$1.5 million!  Pat and Curt are 40 with two kids, a mortgage, line of credit debt and a dog.   Assuming they have $150,000 saved for retirement, they’ll need to save $1300 per month – per month! – to get to their goal.

There are two methods of planning your retirement savings: goal-based planning and budget-based planning.  Goal-based planning by all accounts sounds like the rational and superior method.  Choose your future goal and then do what you need to do to reach it.  It’s proactive, logical and motivating. But what if it’s not?  What if saving $1300 per month is such a ridiculous notion to you that you do the exact opposite – save nothing.  It’s paralysis caused by an impossible goal.

That’s where “second-rate” budget-based planning comes in.  Budget planning is what it sounds like – make a budget and see what you have left over to save for retirement.  You have $200/month to save? $100? $50? Great, start there.  It’s a lot better than saving nothing under high-pressure goal-based planning.   Maybe you can’t save anything right now.  But you make a plan to obliterate your credit card debt and attack retirement savings afterwards.  Or maybe you expect a raise in six months, so you make a plan to start saving then.

Really the answer, as it does so often, lies in the middle.  Calculating a goal-based amount using the Rule of 20 is a good idea because it gives you a (very) rough number to shoot for.  If it’s possible to save that much, wonderful for you!  If the number makes you want to crawl under a rock, forget it for now.  Save what you can now.  Adjust when you can later.

That’s not second-rate.  That’s real-life.

Rich regards,


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No one can serve two masters


No one can serve two masters.

Coming across this adage the other day made me think how true it is. While it is surprisingly easy to want one thing and do another, this behaviour will eventually bring on negative consequences. Perhaps to one’s conscience, sanity, or sense of self. And certainly to one’s finances.

‘No one can serve two masters’ is helpfully defined by McGraw Hill as “Prov. You cannot work for two different people, organizations, or purposes in good faith, because you will end up favoring one over the other. (Biblical.) Al tried going to school and working, both full-time, but soon discovered that he could not serve two masters.

Think of your most pressing financial goal.  We’ll use the example of wanting to get out of debt.  Of course this is what we want!  In fact, we want nothing more – our debt can bring us stress, can prevent us from moving forward and can be tough on relationships.  And yet the spending patterns continue.  We are serving two masters: 1) wanting to be free from debt, and 2) spending how we’ve always spent.  These are two opposite forces that cannot be reconciled. Serving these two masters means makes us feel overwhelmed, defeated and hopeless.

We cannot change our impulse to spend.  It’s ingrained, and that’s okay.  And fortunately we have mechanisms at our disposal that can help.  That can create just enough space for us to make the decision that our tomorrow-self would want us to make.

So let’s keep it easy.  At your next spending decision, ask yourself:  Which master am I serving?  Am I:

1) Helping my financial goal

2) Hindering my financial goal

Help or Hinder.  That’s it.  And the answer might be #2 – that’s okay.  You’ll know that’s the master you chose to serve at that moment.  This is a subtle, but incredibly important step.  It’s like eating a late-night chocolate bar you don’t need. Saying “I am eating a chocolate bar that I don’t need” makes you own that decision.  It makes you responsible and aware.

I suppose the best of us can stay so focused as to resist opposing forces.  For the rest of us, choosing our desired master a little more often is an auspicious start.

Rich regards,


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Are RRSP Loans a Good Idea?


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RRSP Express Loan.  On-the-spot RRSP Loan.  RRSP Maximizer Loan.  These are some of the names banks are using to promote RRSP loans.  It’s a win for them because they get to both make a loan and receive the proceeds in the form of an RRSP investment.

Can RRSP loans make sense?  Sure.  Are they for everybody?  No.

Signs of being a good RRSP loan candidate are:

  1. You are already making RRSP contributions.
    • You’ll see why below.
  2. You are able to pay back the loan within 12 months.
    • This keeps interest costs, which are paid with after-tax dollars, more reasonable.
  3. You are in one of the higher tax brackets.
    • Your refund will be proportionally larger.
  4. You do not have high-interest debt such as credit cards.
    • Any extra cash is better used paying down the card.
  5. You can easily afford your current debt payments.
    • If your debts are already stretching your thin, don’t add more.
  6. You are 100% committed to applying your tax refund to your loan.
    • Receiving a large lump sum can be tempting to spend elsewhere…
  7. You have a higher than average tolerance for risk.
    • If the investment you make with the loan proceeds decreases in value, you still owe the full amount of the loan.

From a hamster-wheel angle, there is absolutely nothing wrong with foregoing an RRSP loan and simply starting (or increasing) your RRSP contributions going forward.  This way you are ahead on your retirement savings instead of behind.  However, some people are more motivated to pay off a loan than they are to save.  Using an RRSP loan is better than not saving for retirement at all, as long as most of the statements above apply.

If you are going to borrow for your RRSP, the best case scenario is an RRSP Gross Up Loan.  Imagine that you already contribute $3000 annually into your RRSP, and that you take out a $2000 RRSP Loan for a total contribution of $5000.  Assuming a 40% tax bracket, you will receive $2000 as an RRSP refund which fully covers the RRSP Loan.

Another version is the RRSP Top Up Loan.  In this example you contribute $3000 to your RRSP already and borrow another $7000 for a total contribution of $10,000.  Assuming a 40% tax bracket, your refund is $4000 which partially offsets the RRSP loan.  You are still responsible for the remaining $3000.

Most major banks have RRSP Loan Calculators so Google yours.  If you have an Advisor, they will be able to run your numbers for you.

Don’t forget that tax brackets are graduated.  Depending on your income, your RRSP contribution could push you into a lower tax bracket meaning that you’ll receive a smaller tax break on some of the contribution.  This tax chart can help you, but simply be prepared that your refund may not be as big as you think it should be.

RRSP loans are one tool to consider and may be right for you.  There’s also nothing wrong with avoiding debt and saving in the good ol’ straightforward way of monthly RRSP contributions.  You do you.

Rich regards,


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When Should You Start Talking to Your Kids About Investing?

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I want my kids to be investors.

In a 2015 BlackRock Inc survey, 51% of Canadians believe investing is like gambling, and only 44% believe investing is for “people like them”. Much of this sentiment comes from fear and misunderstanding of the markets. Bad news is, savings accounts and other safe products pay anywhere from basically nothing to a whopping 1.8%. To echo Rob Carrick, you can’t save your way to retirement if you’re not even keeping up with inflation.

What’s a great way to make Canadians comfortable with investing? Start talking about it really early.

Whenever you begin talking to your kids about money is the same time you should talk about investing. They are not separate concepts. The easiest way to start the money conversation is around age five and with an allowance. Many experts recommend splitting that allowance into the categories of Save, Spend and Give. There should also be a fourth right off the bat, which is Invest.

Whenever you begin talking to your kids about money is the same time you should talk about investing.

If you assume explaining investing to a child is too difficult, think again. First of all, your kids are learning sponges – look at how much they are absorbing every day at school! Secondly, investing is a simple idea at its core: Saving for something that is a really, really long time away. The difference from regular ‘Saving’ is simply a matter of time. Saving is for short-and medium term goals (like a video game or first car) and Investing is for long-term ones. We started by telling the kids that investing is so that they will have money to live on when they’re a grandma or grandpa. You can fill in more blanks as the kids get older.

Initially our kids’ investing money was held in a separate bank account. Now that our oldest is 12, we have introduced her to the concept of mutual funds and have opened an account in my name on her behalf. It’s a simple, low-cost balanced fund through Tangerine. She understands that she owns a small part of a whole bunch of companies, and we check every couple of months on the performance. Through these regular investing meetings, she’s learning about diversification, dividends, risk tolerance and being comfortable with the ups and downs of investing. These aren’t long complex meetings. We may chat for 5 or 10 minutes, then not again for two months.

In the end, I hope that my children never have to talk themselves into being investors. They’ll already be one.

Rich Regards,


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Don’t Waste Your Money on These Financial Products

Over the years, I’ve kept a list of financial products that are complicated at best, and a waste of money at worst. Here are seven of them:

  1. Extended Warranties – I never begrudge the person trying to sell me an extended warranty.  After all, it’s their job.  After politely declining, I excitedly explain to them that I “self-insure all my appliances and electronics for when they need repair”.  At which point their eyes glaze over and they’re glad to ring my purchase through.  In short, skip these.  Instead, buy reliable products and put what you would have spent on the warranty into your emergency fund instead.
  2. Payment Protection Insurance (PPI) – PPI is an insurance that will pay off a credit card, line of credit or loan if the holder dies, becomes disabled or ill, or loses their job.  This type of insurance is expensive ($80/month or more is common) and notoriously hard to collect.  People have paid thousands of dollars in premiums only to collect…nothing.
  3. Mortgage Insurance – Having mortgage insurance through your bank is better than not having any insurance at all.  Again, the record isn’t great in terms of how easily claims are paid out.  Not only that, but the value of your insurance decreases every time you pay down your mortgage.  A better option is to have a separate Term Insurance policy – see below.
  4. The Wrong Kind of Life Insurance – Most of us will only ever need Term Life Insurance – a shorter term, simple and inexpensive life insurance that allows us to buy a hefty dose of it at a reasonable price.  It’s good when you are younger, have debt and/or are raising a family.  Other types of insurance such as Whole Life and Universal Life are suitable for more permanent insurance needs.  They are also more expensive and pay higher commissions to advisors.  I’ve never read a better article about life insurance than this one by Glenn Cooke.  A good insurance broker will help you figure out how much insurance you need, and for how long, before they recommend a type of insurance.
  5.  Index Linked GICs – On the surface, these sound great – investors can participate in the upside of the stock market, without risking their principal.  Except there are limits on how much you can earn, your return may not include dividend payments, you can’t control when you sell the investment, and the fine print is literally 5 pages long.  In fact, ATB Financial in Alberta simply doesn’t sell them due to the product’s lack of transparency.  If you want to ‘try’ the market, buy a mix of GICs and conservative mutual funds instead.
  6. Group RESPs – You can buy three types of RESPs – Individual and Family RESPs (typically through your bank or investment advisor), and Group RESPs (typically through an organization that focuses on RESPs alone).  Group RESPs are restrictive and expensive, and difficult to leave without paying steep fees.
  7. Segregated Funds – Segregated funds are a lot like Mutual Funds, but sold by the Life Insurance industry.  They too limit the downside of investing in the market.  That downside protection comes with a price – the fees on Segregated Funds are 0.5%-1.5% higher than your average mutual fund.  There’s a case to be made for older people buying Seg Funds, but anyone else who wants to try out the market would probably be better off with a conservative mutual fund.  If your advisor is suggesting them, ask them to justify their recommendation.

Feel passionately that any of these shouldn’t be on this list?  Have any other ideas?  Let me know, below!

Rich regards,

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Hello Spending, I’ve Been Expecting You

Imagine that yopublicu have a big presentation to make at work.  If public speaking isn’t your forte (and even if it is), you may feel nervous.  And you might feel disappointed in yourself for being nervous because a confident, knowledgeable person would not be.  Oh puh-leeze!  Confidence and knowledge have nothing to do with it.  The fact is, we are wired to want to please people.  And performing in front of them makes us vulnerable to their disapproval.  No wonder we get anxious!

So how to deal with this?  Does the advice “don’t worry about it” or “you’ll be fine” or “think positively” help?  I didn’t think so.

What if instead, we expected worry to show up?  The book Anxious Kids, Anxious Parents teaches a key concept which is to expect the worry.  Instead of dreading worry, learn to expect it.  So when it arrives (which it inevitably will), you don’t get upset.  You know it’s coming.  Your internal dialogue becomes “Oh hey, there you are Worry!  I’ve been expecting you.  You’re welcome to stay while I do other important stuff in my life”.

And you realize that you can accomplish great things even while you feel worried or anxious.  That you do not have to choose between anxiety OR success.  That a wonderful state of duality is possible: to feel anxious AND be successful!

Let’s put on our personal finance lens now.  After all, money is as much about psychology as anything else.

When we are out living our busy lives, we will inevitably run into things that we want to buy.  And we will have impulses, because evolution has wired us that way.  These impulses can leave us feeling powerless and disappointed.  Our good intentions of sticking to a budget desert us.

But having an intense desire to spend money is nothing to be ashamed of.  The impulse to spend is natural, normal, and always there.  And that impulse doesn’t need to write your story.  Next time it comes, give it this message:  “Hello Spending Impulse!  Yes I was expecting you, and here you are! It’s fine that you’ve arrived, and you are welcome to hang out.  By the way, I’ve got other goals I’m going to accomplish.”

“But having an intense desire to spend money is nothing to be ashamed of.”

You do not have to choose between being financially responsible and feeling impulsive.  You can feel impulsive AND be financially successful.   And that acceptance, that kindness, toward your impulses might be just the thing to stop them from turning into action.

Rich regards,


The One Week Challenge That Will Make Your Life Better

Give up dessert for a lifetime?  No way.  Give up dessert for a week?  Possible.

Just to be clear, I have not given up dessert.  Not even for a week.  But, I have been giving up other things that are bad for me.  The easy part is this: I’ve only committed to giving them up for a week at a time.

The first bad habit I quit for a week was Google News.  Google News being my homepage, it was a constant source of information.  Too much information, it turns out.  Because every time I wanted to look up something quickly, I got sucked in by my  homepage.  Fifteen or twenty minutes would pass by unnoticed.  When you do this 3 or 4 times a day, that’s time that adds up.  Being informed is important; being over-informed is a waste of time.  That was two weeks ago, and I haven’t felt the need to set it up as my homepage again…yet.

The second negative item I gave up was Facebook (except once to post this article!).  It will come as no surprise the many hours that I have regained of my life, even just for a week.  The week is up tomorrow.  And while I can’t see myself being off Facebook forever, I now know I can stay away for days at a time without any detrimental effects.

In fact, life has become noticably better.  For one, I have way more time.  I’ve even picked up my old guitar and have been plunking away on it – something I never had time for (or so I thought), before.  Side note: for those interested in teaching yourself guitar, even if you’ve never held a guitar in your life, try all the free beginner lessons on this amazing site www.justinguitar.com.

I also revel in my newfound willpower.  I like that I can stay away from these things.  And while cutting down my coffee intake hasn’t officially been on the list yet, I notice I’m drinking less of it.  I just feel more capable.

Since this is a personal finance blog, I do need to bring this back to managing your money.  Changing certain money habits for a whole lifetime might seem impossible.  But what about for a week?  For one week could you…

1.  Bring your lunch instead of buying?

2.  Not buy clothes?

3.  Commute to work via public tranportation?

4.  Limit yourself to $20 in discretionary spending?

5.  Track all your expenses?

Small tangible actions beat grandiose intentions every time.  Good luck.

Rich regards,


Do It Yourself Investing – Choosing a Brokerage

A series featuring my personal leap into DIY Investing. 

So you’ve decided to start investing on your own.  You’re feeling good, you’re feeling excited, but also probably confused.  With so much to consider, where do you start?

When you invest on your own, one of the first things you’ll need is a discount brokerage account. Lucky for investors, brokerage fees have been dropping dramatically.  In January 2014, RBC leveled the field when they announced fees of $9.95 per trade regardless of the size of your account.  A little while later, CIBC rocked the brokerage world by announcing $6.95 trading fees.

There’s no such thing as a “best brokerage.”  Do you value easy to navigate websites?  Customer service?  Low trading fees?  Access to research?  Good reporting?  We chose CIBC not only because of the low trading fees, but moreso because of the convenient integration it offered with our regular banking.

Two personal finance powerhouses have put the time and money into researching the brokerages for you.  Read these two articles as a first step to deciding which brokerage is best for you.

1. Globe and Mail:  The best and worst online brokers in Canada (December 2014)

2. MoneySense Magazine: Canada’s best discount brokerages (May 2014)

Not ready to invest completely on your own?  Last month we explored “investing-on-your-own-with-help” – a good option for lower fee investing while still having some support.

Once you’ve decided on your brokerage, be ready for the paperwork.  If you have multiple accounts (imagine TFSAs, RRSPs, Spousal RRSPs, RESPs, LIRAs and non-registered), just opening your accounts will be a painful process.  It’s not something you can do on your coffee break or while watching Breaking Bad.  And if you have investments you want to transfer into your brokerage, that means more paperwork yet.  Here are 5 tips on being ready:

1. Watch out for Deferred Sales Charges –  If you currently own mutual funds, find out from your existing institution if they have Deferred Sales Charge fees attached to them.  DSCs can be significant, and can happen if you sell some mutual funds within 6 or 7 years of buying them.  If yes, you can sometimes avoid the fees by transferring the investments “in-kind” instead of “in cash”.  Talk to your new brokerage about this option.

2.  Keep a record of your contact person – If you open the accounts over the phone, make sure to write down the name and extension of the person you are speaking with.  There’s a good chance you’ll need to talk again and it’s simpler to deal with someone familiar with your situation.

3.  Have your most recent account statements handy – It’s much easier to complete the forms online or over the phone when you have your current statements in front of you.

4.  Get reimbursed – Ask if the brokerage will reimburse any transfer and/or closing out fees from your other institution.  Depending on the amount you are transferring in, there’s a good chance they’ll agree.

5.  Ask about incentives – Brokerages compete for your dollars and may offer cash-back incentives depending on the amounts transferred in.

While opening a brokerage account can be onerous, it is not especially difficult.  By putting in some research and time, you’ll be on your way to do-it-yourself investing.

Next up: choosing your investments.  That’s where the fun really begins!

Rich regards,