Despite what many people think, you’re not depleting the forest when you buy a real tree, says Allyson Brady, executive director of the Saskatchewan Environmental Society. Almost all Christmas trees are grown on farms, like corn or pumpkins. For every tree that’s harvested, up to three more are planted. Since the tree farmer doesn’t want to go out of business, there is no danger that trees won’t be replaced.

It takes between seven and 10 years for a Christmas tree to reach living-room size. During that time, the tree absorbs carbon dioxide, releases oxygen, and provides a habitat for wildlife. Shipping the tree does consume fuel, but in Canada, a lot of trees are grown locally, which minimizes the impact.

When we’re done with our Christmas trees, most municipalities collect them and turn them into wood chips for parks and mulch for gardens. Real trees are natural, renewable resources that are easily absorbed back into the ecosystem.

Artificial trees are not. Most are manufactured in China and are made with polyvinyl chloride (PVC), a polymer derived from oil. Brady says PVC is “one of the worst plastics for the environment.” To make matters worse, the manufacturing process produces carbon dioxide; so does shipping the tree here from overseas.

It’s true that if artificial trees are used for many years, their environmental impact is diluted—but they all get thrown out sooner or later, and they’re not biodegradable. “Trees that are made of PVC probably won’t break down for 200 years,” says Brady. “And once the PVC does break down and starts leaching into the soil, it creates some very toxic chemicals.”

So which tree should you choose if you want a green Christmas? “If you were really determined not to have an environmental impact, I suppose you wouldn’t have a tree at all,” says Brady. “You could just decorate a potted plant.”

But even Brady doesn’t go that far. She may be an environmentalist by day, but come Christmas Eve, she says you can’t beat the look and smell of a real tree in your living room. “I get them mainly because they’re nostalgic for me,” she says. “But I was glad when I did the research and found that it’s not that big a deal.”

I know, I know. Most of us are putting away next to nothing these days. But mark my words, that’ll change once we clue in to the fabulous extra money to be earned with the new Tax-Free Savings Account (known as a TFSA), available starting in January.

How much? Let’s assume you have $50,000 invested in a regular savings account at 3%. After one year, you’ll earn $1,500 in interest. Sounds great, until the taxman comes for his cut. Depending on your income, he’ll take upwards of $450. With a TFSA, the taxman goes home empty-handed.

If you’re still in the dark about TFSAs, don’t fret. Just think of them as a more flexible RRSP. Just like an RRSP, you can open a TFSA as a regular savings account or as a mutual fund, or fill it with stocks, bonds or guaranteed investment certificates.

The big difference is in how taxes are paid. With RRSPs, you get a tax break when you contribute. When money’s withdrawn, you’re taxed. For TFSAs the process reverses. There’s no tax break at first, but what you earn in interest isn’t taxed.

In that regard the longer you leave your money invested, the better off you are. If your $50,000 investment grows to $150,000, you’ll keep every penny when it’s withdrawn. “It’s really hard to find the negatives in TFSAs. I mean, we looked for them,” Greg Hurst, principal at Morneau Sobeco in Vancouver, tells me.

TFSAs also have fewer restrictions than RRSPs. Actually there are only two. First, you must be 18 to own one, and second, the contribution limit is $5,000 per year, no matter what your income.

Five thousand bucks doesn’t seem like a lot until you realize unused contribution room carries forward every year for the rest of your life. If you only put in $1,000 this year, next year you can deposit $9,000. Plus, if you take money out (which, by the way, you can do whenever you like without paying a penalty) your contribution room rises by an equal amount. Withdraw $20,000, and next year you can put $20,000 back.

The easiest way to use a TFSA is as a regular bank account to save for a house, car or other big purchases. Say you’re 25 now and don’t expect to buy a house for another 10 years. If you contribute the full $5,000 a year at 4% interest, you’ll have $61,200 for a down payment when you’re 35. That’s over $2,500 more than a non-registered savings account.

Personally, I’m excited about the income splitting opportunities of TFSAs. My wife doesn’t work, but any interest she earns in a TFSA account isn’t attributed back to me.

If there’s any debate about TFSAs it’s whether they’re a better way to save for retirement than RRSPs. For low-income Canadians, earning less than $35,000 a year, the answer is yes. “It never made sense for anyone to contribute to an RRSP if they’re always going to be in the low-income bracket,” Jamie Golombek, managing director of tax estate and planning at CIBC in Toronto, says.

The reason is that government subsidies like Old Age Security and Guaranteed Income Supplement are based on income. Since TFSAs don’t count as income, seniors won’t see those payments clawed back when they withdraw money.

For the rest of us, the decision is a lot trickier. A simple rule of thumb is that if you’re in the same tax bracket when you contribute money as when you withdraw it, there’s no difference between TFSAs and RRSPs. Of course, few of us work 40 years without substantial pay raises. So TFSAs are best for young people just starting their careers. When they’re 65, and in a higher tax bracket, they’ll come out substantially ahead.

But older Canadians can benefit from TFSAs as well. Boomers who’ve contributed the maximum amount to their RRSPs now have another place to shelter their investments from taxes. And a senior who doesn’t spend everything he’s forced to withdraw from his Registered Retirement Income Fund can shovel the extra amount right back into a TFSA.

Golombek has one more way to hit the jackpot with TFSAs: as a holding tank for risky stock picks. Say a new mining company goes public and you think the stock’s going to strike gold. If you buy $5,000 worth and roll it into a TFSA, and then your stock value triples to $15,000, all that money is yours. Normally you’d pay around 24% capital gains tax.

For Canadians and TFSAs, this could be the beginning of a beautiful friendship.

So last year, when Gregory went shopping for a new home, her eyes lit up when she saw one kitchen aid she had never thought about—a butler’s pantry. The 2-m x 3-m room is tucked between the kitchen and dining room of her new house. It gives Gregory a place to store partyware, wine and a microwave. It also offers her a convenient spot to plate food before it’s served to guests. “The butler’s pantry was one key reason I bought the house,” says Gregory, 46, a mortgage broker. “I entertain a lot. This weekend, for instance, I’m having 35 people over to celebrate my father-in-law’s birthday. The pantry makes it easy to serve everyone. It helps me stay organized.”

A butler’s pantry may help organize you, too. In Victorian times, these tiny rooms were a buffer zone between kitchen and dining room. Servants used the butler’s pantry to prepare the plates and keep the mess of dirty dishes and splattered pots firmly separated from the spotless luxury of the eating area.

Butler’s pantries largely disappeared with butlers themselves, but they are staging a quiet comeback. You can credit a large part of their newfound popularity to fatigue with open concept living. As attractive as it may seem to have your cooking area flow seamlessly into your dining room, just like in the design magazines, the nasty reality is that there’s something a bit off-putting about trying to stage an elegant dinner party while a stack of dirty dishes and pots are clearly visible in your kitchen.

Francesco Di Sarra, a Toronto home builder, first noticed the appeal of butler’s pantries four years ago and has been incorporating them into his luxury homes ever since. When his company, Capoferro, conducted an informal survey of about 100 visitors at a recently constructed model home, 95% of them said the single feature they liked best about the house was the butler’s panty. “It was amazing to watch,” says Di Sarra. “Potential buyers went in with a critical eye and came out of that room smiling.”

A butler’s pantry can be as simple as a bit of counter space and some cupboards, separated from the dining room and kitchen by swinging doors. What it provides is the luxury of space. Foodies, in particular, love the notion of finally having a convenient spot to store all the gadgets they don’t use frequently enough to have in the kitchen itself. “These days, we all have specialty pots, small appliances and kitchen gadgets that have to be stored somewhere,” says Kevin Fitzsimons, a Toronto interior designer and editor of Your Source design magazine. He recently built a $150,000 butler’s pantry for Art Smith, Oprah Winfrey’s personal chef, that included rolling racks for flatware, gallery shelves for 150 pots, a washer/dryer for favorite linens, a specialty dishwasher for stemware, espresso and cappuccino makers, wine fridge and an ice-cream maker. “All the stuff that didn’t fit in his kitchen is in his pantry,” says Fitzsimons.

If you think your home could use a butler’s pantry, consider:

Where to put it:

You don’t need to put in a new addition to make room for a butler’s pantry. You can convert a mudroom or laundry room into a pantry, or you can add swinging doors and counters to a small hallway, turning a wasted space into something useful. “The smallest one I’ve done is five feet along just one wall,” says Pam Vanderbraak, a kitchen designer with Deslaurier Custom Cabinets in Ottawa, who says some of her clients have even converted main floor closets into butler’s pantries. Of course, more is more, but even a modest 2-m x 2.5-m space offers plenty of potential. “You can fit a lot into that,” says Lorin Russell, a kitchen designer with Muskoka Cabinet Co. in Ottawa. “Cabinets, sink, small wine cooler, an under-the-counter fridge, warming drawer for dinner dishes and maybe even a dishwasher drawer for easy clean-up.”

What to pay:

A modest 1.5-m pantry along one side of a small hallway will cost $6,000. That includes four upper cabinets with glass doors for stemware and china, as well as six under-the-counter easy-slide drawers for flatware, linen and small appliance storage.

A larger 1.5-m x 3-m pantry will set you back at least $10,000. Extras such as fine walnut cabinets, crown molding, a sink, wine fridge, and various kitchen gadgets can boost the total to $15,000 or more. One tip: make sure to budget for adequate lighting ($500 and up) since pantries are often situated in areas where there aren’t any windows. “Lights in the cabinets can cascade down and create a nice effect,” says Russell. “It sets a nice mood.”

How to plan:

Do you entertain a lot? Then you may want a second set of cutlery, good china and stemware. Make sure to have extra drawers put in specifically for these items. “It’s amazing how much space a butler’s pantry can save,” says Gregory. “I was going to buy a dining room set but realized that with the butler’s pantry, I didn’t really need a complete set. I could store crystal, stemware, linen and flatware in the butler’s pantry. So that gave me the opportunity to get a bigger table in the dining room—I didn’t need a buffet hutch at all.”

Why not?

You may want to consider specialized appliances such as a small under-the-counter refrigerator drawer to store the overflow of fruits and vegetables from the kitchen on party night. Also useful is a fancy cappuccino maker. As a general rule, you should always get the longest countertop you can to give you maximum room for food and beverage preparation. “Remember,” says Russell, “the butler’s pantry is a landing point where you can stage up a lot of really nice food and drinks. It’s often the secret to a very successful party.”

We’re off-shore from Barcelona, on board The World, which bills itself as the first private community at sea. The staff and the residents would prefer that you not call your vacation aboard this floating global village a cruise. That’s fine with me. I’ve never seen the charm in lining up for midnight chocolate buffets and similar cruise ship rituals. And one of the reasons we’ve decided to make this trip are the constant assurances that it’s not really a cruise at all.

Think of it instead as checking into a grand hotel that just happens to move. A gleaming 12-deck vessel the length of two football fields, The World is the largest private yacht on the planet. It contains 165 residences ranging from studios to three-bedroom apartments. You can pay $825,000 (U.S.) to $7.3 million for one of the residences—or you can rent one.

My husband and I are renters. Our 131-sq-m abode for the next six days is a sprawling centre-hall apartment. Its kitchen is larger than the one I have at home. The dining room seats eight. A living room features two sofas and two plasma TVs. Oh yes, there are also two bedrooms, two bathrooms (the master with a Jacuzzi) and a 15-m teak deck with another Jacuzzi.

How much for all this luxury? About $2,500 (U.S.) per night for the two of us. A smaller studio starts at about $1,300. At these prices, you wouldn’t want to vacation on The World every year, but for a 25th anniversary celebration, there’s no indulgence like it. Only about 150 passengers are on hand at any one time, so there are absolutely no crowds anywhere, ever. While enjoying our eggs Benedict on the deck of Tides restaurant in the morning we never see more than 10 other diners. The staff knows our names and our habits. “Will you be having your usual latte?” asks our waiter David as he places a linen napkin on my lap.

Tides is one of four restaurants on board. One night we enjoy a gourmet dinner with Californian wine pairings in Portraits, the ship’s haute cuisine restaurant. Another night we avail ourselves of the “Call-A-Chef” service and watch as a pair of chefs come to our apartment and whip up a goat’s cheese and artichoke salad, noodles with prawns, asparagus tips and black truffles, rack of lamb and a passion fruit mousse. Our candlelit table is strewn with rose petals. In between courses, our waiter entertains with stories from The World’s exotic ports of call.

Should you want to actually use the cappuccino maker or pots in your kitchen, you can buy groceries at Fredy’s Deli where they stock everything from tins of foie gras to ink jets for your computer.  However, I didn’t get the impression that a whole lot of cooking was going on among the residents who are required to spend a yearly minimum of $33,000 (U.S.) on food and beverages. I did, however, detect the smell of burnt toast in the ninth-floor corridor one morning.

Residents of The World vote on its itinerary each year. The idea is that she will be in all the right places at all the right times—Rio for Carnaval, Valencia for the America’s Cup, Scotland for the British Open. Highlights of the 35 countries in the 2007 itinerary included Tierra del Fuego, Buenos Aires, Grenada, Barbados, Lisbon, Bordeaux and Barcelona.

We sailed from Barcelona to St. Tropez. The Film Festival was just around the corner in Cannes but we chose instead to play golf. Did I mention that there’s The World Country Club on the top deck complete with a simulator loaded with 52 of the planet’s best courses? You pick your course and the first hole is projected on a floor-to-ceiling screen. You tee up your ball on a mat and whack it at your target. The simulator calculates where your ball lands, keeps score, even informs you of ball speed and distance.

On subsequent days, we squeezed in a couple of matches of tennis, a Thai massage (for me) and a workout at the gym (for him), as well as an entertaining karaoke night at Quantum nightclub. We also did some people-gawking in St. Tropez, a place that defines the expression “nothing exceeds like excess.” Even the poodles wear Prada.

We spent our final morning sailing into postcard-perfect Portofino on the Italian Riviera. That night three Italian tenors were scheduled to entertain the citizens of The World. My husband and I had to content ourselves with some simple pasta at a local trattoria before schlepping our bags onto a train bound for Nice. While we were heading home, our former ship would be making her way toward Rome. Believe me, once you’ve seen The World, plummeting back down to earth isn’t easy.

So what is alpha? The term comes from the geeky realm of financial theory—more specifically, from what’s known as the Capital Asset Pricing Model, or CAPM (pronounced cap-em) for short. The fi- nance professors who invented CAPM were looking for a unified theory to explain what makes the market tick. They argued that in a logical universe any investment’s expected return should be in line with its risk. Rational investors should demand a higher payoff from investing in dicey assets such as gold mining stocks than they do from holding boring, safe investments such as government bonds. On average, high risk should be reflected in high returns.

That’s the theory anyway. Problem is, you often see cases in which a safe, steady portfolio produces results that are much better than a risky, volatile portfolio. While this reversal of performance might seem to call into question the whole tidy structure of CAPM, the finance professors have an alternative explanation for why safe sometimes beats risky. They say that the reversal occurs because of a manager’s skill. They call this skill alpha. In plain English, alpha is supposed to be the dash of extra return that a truly outstanding manager can add to the risk-adjusted performance of a portfolio.

Now you understand why every money manager likes to think that he or she has alpha. If he or she didn’t have alpha, you would be just as well off investing in an index fund. But if he or she does have alpha, you and other clients should pay big fees to get yourself some of it.

The problem is that genuine alpha is rare—75% of mutual funds don’t keep pace with the market. Even in cases where a manager does beat the market, you can’t be sure that his success is because of alpha. Anybody can get lucky and beat the market for a year or two. For that matter, anybody can look back and check what strategy would have performed superbly over the past decade, then announce that, golly, he’s discovered the secret to generating alpha for years to come.

Unfortunately, hot streaks don’t always last and a strategy that beat the market in the past doesn’t always continue to beat the market. In fact, high-flying strategies often come crashing down to earth. While alpha sounds scientific, the term doesn’t refer to any specific approach to investing. It’s really just another way for a money manager to beat his chest and boast, “I can beat the market.”

So what should you do if a money manager tells you he can generate alpha? Ask to see a long-term track record of his results. Ask him to explain precisely how he is able to generate alpha. Ask how much borrowed money is involved and be leery of strategies that involve borrowing more than half again your original stake.

You should inquire what risks are involved. (There are always some.) Also, ask how much of the manager’s own money is invested in his fund. If he’s not putting all his own wealth into his strategy, maybe his alpha isn’t quite so sure after all.

In no case should you put all your money into any one alpha-generating scheme. Wide diversification is still smart, no matter what alpha bettors say.

“Believe it or not, this wouldn’t actually bother me so much,” Buchanan continued, “if I hadn’t bought Jacob Internet Fund in January 2000. I got my guts ripped out by that fund.” (Jacob Internet lost 79.1% in 2000, another 56.4% in 2001, and 13% more in 2002.) “So I sold it at the end of 2002. As soon as I got out, the damn thing turned into a superstar.” (Jacob went up 101.3% in 2003.)

“Why does this keep happening to me?” asked Buchanan plaintively. “I know—I don’t think, I KNOW—that the second I sell my emerging markets fund, it will take off. But if I keep it, it will keep losing money! What’s wrong with me? What should I do? Is it Murphy’s Law of mutual funds?”

Buchanan emailed me because of a column I had written in 2002 called Murphy Was an Investor. In our daily lives, we all shake our heads over the apparent workings of Murphy’s Law (“Whatever can go wrong will go wrong”) and its corollary (“. . . in the worst possible way at the worst possible time”). We tend to believe that it will rain if we forget our umbrella and be sunny if we lug it along,  or that whichever checkout line we stand in will turn out to be slowest, or that whenever we change lanes on the highway the other lanes will speed up. But does the perverse logic of Murphy’s Law govern investing, too? And is the whole concept merely a cleverly expressed superstition, or does it have some basis in fact?

The maven of Murphy’s Law is an Oxford trained physicist named Robert A. J. Matthews. A few years ago, Matthews set out to investigate one of the oldest examples of Murphy’s Law: Why does bread always seem to land butter-side down when it falls on the floor? You might think it’s because the buttered side is heavier; a psychologist might say we are more apt to recall a wet landing than a dry one; a skeptic might simply insist that which way the bread lands is random. It turns out all those views are wrong.

“Like most people, I guess,” says Matthews, “I thought it’s a 50/50 chance, unless you’ve got a pound of jam on one side.” With the uniquely British gift of taking essentially silly things very seriously, in 2001 Matthews enlisted 10,000 schoolchildren across England to tip buttered toast off plates. Just over 62% of the time, the bread landed butter first—a percentage much too high, across so many trials, to be the result of chance. Matthews easily ruled out the weight of the butter as a cause: When unbuttered toast was inscribed with the letter B in magic marker, then placed face-up on a plate and tipped off the table, it landed B-side down most of the time.

So why does toast tend to go splat on the wrong side? “The universe is designed against us,” Matthews says flatly. Given the width and velocity of falling bread and the typical height of tabletops, there isn’t enough room for a tipped piece of toast to make a full rotation before it hits the floor. And tabletops are so low because humans average less than six feet in height.

That’s what engineers call a fundamental design constraint. Does investing have its own design constraints? Of course it does. From the beginning of 2003 through the end of 2005, emerging markets gained an average of 36.3% annually. But decades—in fact, centuries—of history show that economic growth of greater than 2.5% to 3.5%, after inflation, is not sustainable. In the short run, stock markets can perform better than the economies they represent and the companies that make them up. In the long run, it’s impossible. A period of unusually high returns must be followed by more normal returns. That’s why the Japanese stock market, after its record-setting returns in the 1970s and 1980s, lost roughly two-thirds of its value in the 1990s. It’s why the U.S., after the boom of the late 1990s, suffered the bust of 2000 to 2002. And it’s why emerging markets, after years of scorching gains, were not a good choice to throw money at in early 2006. At that point, the only question was not whether they would lose money, but when. (I told Michael Buchanan to sit tight and, in fact, emerging markets went on to have a good year overall in 2006. But I reached Buchanan too late; he had already sold.)

The pursuit of extreme growth carries within it the seeds of its own destruction. As Warren Buffett quips, “Nothing recedes like success.” That brings us to Murphy’s Law of Investing: sooner or later, a stock or fund return that is much higher than average almost always fades back toward average. By the same token, a badly below-average return is also liable to reverse.

This tendency for trends to flip with the passage of time is called regression to the mean. Without it, giraffes would get taller with each passing generation until their hearts and hips burst under the strain. Big oak trees would drop bigger acorns, yielding larger and larger saplings until full-grown trees collapsed of their own height and weight. Tall people would always have even taller offspring, and so would their kids, and so on, until no one could get through a nine-foot-tall doorway without ducking.

Regression to the mean is nature’s way of leveling the playing field, in almost every game, including investing. So, whenever you gamble that a very high (or low) investment return will continue, the odds are overwhelmingly against you. Michael Buchanan should have been betting on regression to the mean; instead, he bet against it. By constantly grabbing the hottest returns he could find, he virtually guaranteed that he would get scalded sooner or later.

Other aspects of Murphy’s Law apply to investing. Robert Matthews points out that a great Cambridge mathematician, G. H. Hardy, believed in Murphy’s Law of Umbrellas. “Hardy was convinced that there is a malevolent rain god,” says Matthews, “so he would send an assistant outside carrying an umbrella to trick the god and ensure that it wouldn’t rain on Hardy’s cricket match that day.” Even in soggy England, however, the odds that it will rain during any given hour of the day are only about 10%. So, even when the forecast is for a 100% chance of rain that day, the odds of rain at any particular hour are much lower. Therefore, most of the times you lug an umbrella because of a rainy forecast, you will end up never opening it. And the more often you tote an umbrella around under a sunny sky, the more likely it is to stick in your selective memory. You will be much less inclined to remember the less common cases when you brought your umbrella and it did rain. As a result, you will tend to overestimate how often you carried an umbrella in vain, and to underestimate how often you didn’t bring it when you should have.

Likewise, whenever one sector of the stock market is hot, diversifying your money across other assets will always feel like a waste of effort—an umbrella you never seem to need. As Michael Buchanan’s story shows, however, it is a mistake to think you don’t have to be diversified. No matter how many times you carry an umbrella without needing it, you will be very glad indeed to be carrying one when a downpour finally hits.

Your apparent tendency to pick the wrong checkout line holds an investing lesson, too. If three cash registers are open, the odds that you will pick the fastest line are only 33%. Two-thirds of the time (assuming the same number of people are waiting and the checkout clerks are about equally efficient), one of the other lines will move faster. With four lines open, your odds drop to one in four. So the raw math is always against you: No matter which line you pick, it will usually be the wrong choice. You may think your success rate is a function of how well you size up lines, but in fact it’s predetermined.

Now consider mutual funds. On average, over time, half the funds will do better than the market and half will do worse—before expenses like trading costs,  management fees, and taxes. After expenses, the odds of sustained outperformance go from 50/50 to about one in three. Thus, if you try picking mutual funds that will beat the market on the basis of their past returns alone, you will end up wrong about two-thirds of the time. That’s why intelligent investors don’t make that mistake.

The regret you feel from chasing a hot fund or stock becomes even more painful when you hear strangers boasting about their successes—on television, online, at the next party you go to. You screwed up, but somehow they keep making money. It’s that same uncanny feeling you get after you switch lanes on the highway: As soon as you move out of the “slow” lane into the “fast” lane, the fast lane turns into a parking lot. Whichever lane you are in is the wrong one—or so it seems. The truth is more subtle: when the other lane is slow, you can pass many vehicles in a blur, so you have only a vague sense of how many you have passed. But when your own lane is slow, one car after another passes you in a discrete whoosh. What’s more, safe driving requires you to focus more of your attention on the road ahead than on what is in your rearview mirror. So you get a much better and longer look at the cars that have passed you than at the ones that you yourself have passed.

With investing, too, your losers, and other people’s winners, can often feel more visible than your own good decisions. At a cocktail party or a barbecue, it might seem as if everyone but you has a great investing move to brag about. As you sheepishly excuse yourself to get a refill, it might not occur to you that all these folks made investing mistakes, too, and that a party is the last place they would ever discuss them. This mistaken feeling of being the only one with investing regrets can tempt you into taking risks you normally would avoid. It’s important to remember that everyone makes mistakes, and that everyone who makes mistakes has regrets.

With investing, there are two basic kinds of mistakes. The first is instantaneous and infuriating: you buy and the price tanks, or you sell and the price soars. You instantly know you did something wrong, and you immediately kick yourself.

The second kind of mistake is not obvious at first. While you’re lying on a towel at the beach, there is no single moment when you can look at your skin and see it turn from a healthy bronze glow to the neon red of a painful sunburn. A burn occurs so gradually that the transition is invisible. An investment mistake is often like a sunburn: it results from forgetfulness, carelessness, or creeping commitment to a choice that you may never have been happy about. But after the fact there’s no mistaking it, and it can burn like hell, and you’re sorry you did it.

The more an outcome appears to be the result of your own choice and the more readily you can imagine having done something different, the more painful your regret is likely to be. So, whenever possible, do as little as possible. Instead of making judgments one at a time, you should follow policies and procedures that put your investing decisions on autopilot. Think of it as cruise control for your portfolio. In 1995, I got a speeding ticket driving my in-laws’ car—and was so mortified that I swore I would never get another. Ever since, whenever I get on a highway, I check the speed limit and set my cruise control—eliminating all worries that I will get careless or emotional and end up speeding. “The more you can automate your investing,” says psychologist Thomas Gilovich of Cornell University, “the easier it should be to control your emotions.” Here are three forms of investing cruise control.

Have rules for ruling things out.

It was easy in 2006 to be angry that you didn’t put all your money into energy stocks right before oil prices blew sky-high: “I knew it!” But you are less likely to feel regrets later if, at the time, you followed rules for ruling investments out.

What are some good rules? Never buy a stock simply because it’s been going up in price. Never put more than 10% of your money into any one company. And never put your money into any stock or fund that you’re not willing to hold for at least five years.

Sticking to a few simple guidelines for why not to buy enables you to look back and say, “I didn’t put all my money into energy stocks because I would have had to break my own investing rules.  That wouldn’t have felt right. Sooner or later, it’s bound to be a mistake.” This way, you make an impulsive decision feel like a bigger departure from your normal behavior, so you are less likely, when you look back, to regret not having acted on that impulse.

Get Help pulling the trigger.

Because it can be so hard to sell a hopeless loser, you may need to get used to the idea. If you’ve re-examined your original reasons and concluded that an investment truly was a mistake—but you still can’t face getting rid of it—then you need a push. Psychologist Robin Hogarth of Pompeu Fabra University in Barcelona suggests changing the log-on password for your brokerage account to something like “dumpmylosers.” Typing that reminder every time you check on your account, puts you in the position of a musician who practices constantly. The idea of selling losers will become second nature to you; as you internalize it, you will become more comfortable with the need for action.

Writers, engineers, and graphic designers all know that the best way to spot their errors is to have someone else look over their work. A few money-management firms make it mandatory for each investment holding to be reviewed by someone other than the person who bought it; banks can reduce their losses by having bad loans re-evaluated by someone other than the executive who first authorized them. It is a lot easier to admit that investing in a stock was a mistake if you are not the person who made the mistake. Get a second opinion whenever you can.

Think about the silver lining.

It helps to think of your losing investments not as liabilities but as the tax assets they are. Taking a tax loss is one of the few attractive loopholes left for Canadians looking to reduce their tax bills. If you let your loss fester, it has no value to you. If, instead, you sell and lock in the loss, then you generate cash you can put to work elsewhere, and you can write off the loss and cut your tax bill.

Thinking about the tax benefits of selling your losers can help you stop focusing on whether the stock you sell might bounce back as soon as you sell it. As money manager Whitney Tilson of T2 Partners likes to say, “You don’t have to make it back the same way you lost it.” If a stock or fund was really a mistake, you should get rid of it and find a better use for the money. Murphy’s Law may rule our lives, but it doesn’t have to rule our portfolios.

Asian spice

Looking for an exotic locale? The ocean-lapped country of Malaysia in Southeast Asia might fit the bill. It offers everything from urban metropolises and sunny beaches to mountain peaks and jungle retreats. Although Malay is the official language, English is compulsory in schools in this former British colony, so you can usually get around without being a native speaker. “The language issue is probably easier than in France,” jokes Samuel Teo, a representative of Alter Domus, a relocation consultant in Vancouver. On top of that, the country boasts excellent health care—so good in fact that many Canadians and Americans are flocking here as medical tourists for cosmetic surgery and other operations.

To attract affluent retirees, the Malay government operates the Malaysia My Second Home (MM2H) Programme to allow foreigners to stay in Malaysia for extended periods. Participants over 50 must deposit a minimum of RM150,000 (or about $43,000) in a Malay bank account (yes, you get interest and you can withdraw part of it after a year) or have access to a monthly pension of at least RM10,000 ($2,900), as well as having at least RM350,000 ($102,000) in liquid assets back home. In return, you get a 10-year pass that allows you to come and go. The pass is renewable and you pay no tax on income derived outside of Malaysia. Property prices in Malaysia are reasonable: you could buy a three-bedroom, 100-sq-m condominium in Penang for RM300,000 to 330,000 ($86,000 to $94,000) or pay about RM1,000 to 2,000 ($285 to $570) per month to rent the same space.

Where the expats are: Kuala Lumpur (although most are working there) and Penang (mostly retirees)
For more information:
www.penangmyhome.com/Main.htm
www.iproperty.com.my
www.mm2h.gov.my

Living la Vida

Mexico nabbed first place in a list of desirable retirement locations by International Living, a travel publication based out of Waterford, Ireland. That’s a fact that hasn’t escaped the 900,000 Canadian and American retirees who now call Mexico home. They love the country’s culture and history, as well as its reasonable cost of living.

Exactly how much it will cost you to live depends on where you choose to locate and whether you decide to buy or rent. In general, a couple of thousand dollars a month will support a retired couple in a comfortable lifestyle. In Morelia, a beautiful city about three hours northwest of Mexico City, homes start around $100,000, according to Cynthia Katz, owner and editor of Adventures in Mexico newsletter, which is based in the city. Living expenses are minimal. Electricity runs about $8 (U.S.) a month, drinking water $6 and telephone service $14. Most services are ultra-cheap by Canadian standards: a dentist’s visit will cost you $15 to $20, a maid for the day $5. As for the health-care system, which features many internationally trained doctors and English-speaking staff, “the consensus is that it’s pretty good,” says Katz.

You can easily get a basic tourist visa to stay in Mexico for six months, she says. And if you’re 51 or older and you have a steady income of about $2,000 a month or more, you can apply for a Rentista, a non-working visa that entitles you to stay longer than six months. After fi ve years, you’re eligible for permanent residency, acquiring most of the rights and obligations of a Mexican national, including access to the state medical system, providing you have no pre-existing condition. Spanish lessons advised, but not crucial.

Where the expats are: Lake Chapala, Puerto Vallarta, San Miguel de Allende and Mazatlan
For more information:
www.mexico-newsletter.com
www.mexperience.com/retirement

Europe on a retiree’s budget

For the past six years, while winter winds buffeted Canada, Jeanne Zapior played bridge, painted and relaxed in the Algarve—Portugal’s much cheaper alternative to the French Riviera. “I love watching the surf come in on the lovely sandy beaches,” says Zapior, a senior from Toronto. “Sometimes I just take my chair down there and read.” For a change of pace, she hops in her car to explore quaint villages and ancient Roman and Moorish ruins, returning at night to a 600 euro-a-month $825) fully equipped one-bedroom apartment.

While prices have risen in Portugal since it joined the European Union 20 years ago, it still represents excellent value. A dinner of flopping-on-the-plate-fresh fish, with all the fixings and wine to boot might set you back 35 euros ($50) for two people, and a four-week-long stay during the winter (including airfare, apartment and car rental) starts at about $1,700. Most retirees don’t actually move to Portugal for good—even a two-bedroom apartment costs upwards of 200,000 euros ($275,000), and getting year-round health care is problematic. But if you’re looking for a winter’s getaway in a spot with spring-like temperatures (usually between 14° and 23° C) and a little European culture, this might be the place for you.

Where the expats are: The Algarve, Lisbon for the big-city life
For more information:
Eurosun Holidays Inc., 1-800-387-9927 or
416-249-2011 (www.eurosun.com)
Signature Vacations (www.signaturevacations.com)
www.visitportugal.com
 
Ecuadorian dreams

John van Rooyen, 55, picks oranges for his breakfast and grows herbs for his dinner on his acreage in the Andes. When the former Haligonian isn’t in his garden, he enjoys whiling away the time with his Ecuadorian wife, Flor, and their 3-year-old son. In another life, van Rooyen worked his way across Canada, building houses, then traveled extensively. But, seven years ago, with no pension and some investment income to live on, he found his “piece of paradise” in Vilcabamba, a picturesque town high in the mountains. “It’s warm, beautiful and affordable,” he says. “I’ve visited or lived in 50 different countries and I don’t know why the whole world isn’t here.”

Van Rooyen says he paid a mere $25,000 (U.S) for a sprawling ranch-style home and several acres of land, but prices have gone up since. Still, Ecuador is one of the world’s better-value locales with two-bedroom apartments on offer for $60,000 and a three-bedroom villa on one of the country’s pristine and undeveloped beaches for $75,000. “A single person can live very comfortably here for about $1,000 a month,” says David Morrill, the Ecuador correspondent for International Living, which ranked the country No. 2 on its list of desirable retirement locales.

Direct flights from Canada are rare, but retirees over 65 get half-price fares on several airlines as well as discounts on in-country transportation, not to mention deals on taxes, utilities and entertainment. Petty crime is common and you have to take steps to protect your property, but you’re more likely to be the victim of a more serious crime in major American cities like Miami or Los Angeles. Spanish lessons advised.

Where the expats are: Quito and the Andean Highlands, or beach communities like Manta and Crucita. There are few strictly expat communities.
For more information:
www.ecuador.us
www.internationalliving.com/ecuador

Peaceful in Panama

Panama topped International Living’s list of best places to retire for six years, but it fell to fourth place in the most recent listings. On the plus side, says Yuri Sapozhnikov, a transplanted Canadian and international real estate broker with CPanama in Panama City, “the only place you’re going to feel cold in Panama is in the refrigerator section of the supermarket.” Average daily temperatures range from 17° to 32° C year round. As an additional enticement, Panama offers discounts to expats on everything from transportation to closing costs for home loans. The government wants to attract “pensionados,” with an income of at least $500 a month and it goes out of its way to make the deal as sweet as possible for expats who meet its requirements. “Basically there are no property taxes for foreigners for up to 20 years,” says Sapozhnikov. As well, you pay no tax on foreign-earned income such as pensions, investment earnings or business proceeds.

A two-bedroom villa on the beach sells for as low as $140,000 (U.S.) while an older, two-bedroom apartment in Quito fetches about $80,000. The country boasts excellent health-care facilities, with many English-speaking doctors. “It’s much better service here than in Canada,” claims Sapozhnikov. On the downside, though, the country recently put a 30-day limit on its tourist visa (a change that led to its drop in International Living’s ranking). And, “unless you have a verifiable pension or pockets deep enough to afford a $40,000 investment in a forestry project or $200,000 in real estate or a government bank CD, it can be difficult to get a resident visa,” notes International Living. Spanish lessons advised.

Where the expats are: Panama City, as well as the Pacific beaches between Punta Chame and Farallon, while Pedasi and Canbutal are popular with upscale buyers.
For more information:
www.internationalliving.com/panama/retire.html
www.cpanama.com

Tom McCullough, president of Northwood Stephens, started asking such questions two years ago, when he realized that a potent tool for family therapists called a genogram can also be used for financial planning. A genogram is a schematic diagram of your family history that allows you to see recurring patterns of behavior at a glance. It lets you analyze your financial situation not only in terms of your own life, but also in terms of all the generations that came before you.

A genogram looks a lot like a family tree, except it’s packed with all the stuff that’s usually never talked about. Genograms tell you what a family is really like—who’s divorced, who isn’t speaking to whom, who has a history of bad relationships, and who has alcohol problems. Patterns of behavior often recur in families and those patterns can foretell your own financial future.

“How you deal with money is a family trait,” says Fredda Herz Brown of Relative Solutions, a firm in Cresskill, N.J., that uses genograms to help wealthy families resolve conflicts. “Attitudes are taught emotionally, sometimes without words. Kids learn by what they see people doing, so every interaction you have with money teaches your kids your attitude towards it.”

Sometimes the behavior spotlighted by a genogram can be as simple as a refusal to talk about money. Sometimes it can be as dramatic as a tendency to clinical depression. In many cases, though, the patterns are more subtle. “In one client’s case, there was a history of strong parental favoritism and conflict in the family,” says McCullough. “So whenever a financial issue came up, our client was first and foremost concerned that her children were treated completely fairly.”

Not all the news that’s turned up in a genogram is bad, McCullough says. In fact, a genogram can help give your kids a sense of your family’s accomplishments and build a sense of pride in the legacy they’ve inherited. “Imagine if the last three generations of your family were very generous to a particular cause. You may want to
expose your kids to that.”

Creating a genogram is a lot of work, says McCullough. But if you’re willing to go through the process of interviewing family members and inquiring into family history, you’re nearly certain to have flashes of self-discovery. You may realize, for instance, that your tendency to hoard money is a characteristic that has run in the family for generations—and by achieving that insight, you can gain the power to break the pattern.

The goal, says McCullough, is to allow people to lead the lives they want to, rather than the lives their family background has pushed them into. “If there are strong patterns in your family, you may decide to avoid them if they’re negative, or reinforce them if they’re positive. But the first step is understanding that these patterns do exist.”