Except, of course, for that dusty Ferrari poster on the living room wall, that Michael Jordan dunk shot next to the big-screen in the den. Once, during late-night study sessions in the college dorm, they spoke to who you were; now they’re merely embarrassing. Ditto that glass-frame Degas print above the fireplace, Monet’s water lilies in the master bedroom. Pretty, to be sure, but hardly the stuff of the urban (or even suburban) sophisticate.

No, what you need is art. Real art. Original oils, contemporary sculpture, pieces that speak to your good taste, your budding maturity and, most importantly, your heart. You have the desire. You have the means—say, $1,000 to $10,000 in free cash. Well and good. But where to start?

Buy what you love
Of all the advice from artists, gallery owners and collectors, this particular nugget—buy what you love—is near universal. “Don’t buy what other people tell you to,” says Peter Simpson, arts editor with the Ottawa Citizen, and an avid collector with more than 70 pieces of original art. “Buy what you like, because you’re going to be looking at it every day of your life.”

“Does a particular painting move you?” asks Phil Emond, co-owner of the Gordon Harrison gallery in Ottawa’s Byward Market. “Are you emotionally connected to a piece? That’s the art you should be buying.”

Of course, sometimes art can engender too much, or the wrong type of emotion. Edvard Munch’s The Scream is an acknowledged masterpiece, but would you really want to have the thing in your bedroom, staring back at you first thing in the morning?

He who hesitates…
When you do find a piece that speaks to you on an emotional level, that you can live with year-round, jump on it, because as a general rule you only get one chance at original art.

Alymer, Que., architect Graham Murfitt fell in love with a Gothic rendering of the Peace Tower by fellow architect-cum-oil painter Stuart Kinmond. “I saw it, and I had to have it,” says Murfitt. “The problem was, I had nowhere near the asking price in ready cash. So I cut him a cheque for $1,000, and paid for the rest in used fly fishing gear I had lying around the house.”

On the flip side, Peter Simpson says he fell in love with an early Gordon Harrison landscape of the rust-iron cliffs of Prince Edward Island, where Simpson was raised, but—to his everlasting regret—decided he couldn’t afford it at the time. “If I ever find out who bought it,” he quips in his blog, “I’m going to break into their house and steal it.”

He has two tips for would-be collectors short on cash, but loathe to let a particular work of art slip through their fingers. “Most galleries will allow you to pay in instalments. And don’t be afraid to haggle. At the end of the day it’s just another business transaction, and there’s nothing wrong with making an offer below the asking price, as long as you don’t get greedy.”

To gallery, or not to gallery
Of course, asking to “borrow” a painting might go over better with an individual artist—especially one you know—than a swanky high-end gallery. Which brings us to the question: which is better, buying from a gallery, or directly from the artist?

As with most things art, there’s a range of opinion. “If you buy directly from artists you get to know them, get a sense of their artistic philosophy, where they’re coming from, and the concept and significance behind individual works,” says Emond. “Some galleries don’t have the time, or take the time, to get to know their artists.”

On the other hand, gallery representation is important in that it “speaks to the calibre of the art if it’s good enough to  be represented by a high-end gallery,” says Emond.
If you do shop galleries, says Simpson, “don’t be intimidated by your lack of a fine arts degree. You’re ultimately the only expert on what you like.” That doesn’t mean you ignore the expertise at your disposal, however. Ask questions of the gallery owner or staff. Remember, there are no stupid questions when it comes to art—and even if there are, the staff have heard worse.

The problem, of course, is that in exchange for all that expertise, galleries will typically earn commissions of 50% or more on everything they sell. In other words, if you can recognize quality work on your own, you might get more bang for your buck visiting open houses or studio tours, and buying direct from the artist. The ArtistsInCanada.com website maintains a national directory of Internet links to hundreds of artists throughout the county, including photos of their creations—a great way to track down and preview the work of individual artists in your city or region.

The art of valuing art
The art market is perhaps one of the least efficient markets on earth. When you buy a used car, you can look up values in the Canadian Black Book, when you buy a stock, you can look at analysts’ reports. But art is tough to value—and some galleries can take advantage of that if you’re not careful.

Paintings of seemingly similar quality can be priced tens of thousands of dollars apart. Sometimes it has to do with the size of the local market, sometimes a showing gets a lot of buzz, sometimes it’s the artist’s pedigree. “Has he gone to a prestigious school of art, trained in Europe, shown paintings in New York and around the world?” asks Guy Berube, owner of Ottawa’s La Petite Mort Gallery. “All that will be reflected in the prices an artist can command for his work.”

Watch out though, because artists and galleries alike will occasionally employ quasi-ethical means to bump prices a bit higher than they should be. Berube recalls being hired on more than one occasion to bid up the price of various paint­ings on auction in New York. “My job was to increase the value of paintings by getting into bidding wars, and then pulling out at the right moment, so I wouldn’t actually have to pay for them.” The inflated selling price then becomes the new benchmark not only for that artist’s work going forward, but for his back catalogue as well.

The price at which a piece of art sells is also influenced by more mundane economic considerations. “I have paintings in my Ottawa gallery that, if I were selling them in New York, would be priced three times higher,” says Berube. “It all comes down to what the market will bear. In New York I was selling photographs for $15,000. I’d never be able to do that here in Ottawa. There isn’t enough money in the city to support those prices.”

In other words, bargains can be often be had by combing galleries in smaller communities— often at the expense, however, of convenience and selection.

Art as an investment
In a word (or three): don’t do it. “It’s really hard to predict which artists are going to take off, which works will appreciate significantly over time,” says Henry. Occasionally, the dollar value of certain works of art will even crash, as tastes and perceptions shift over time. Thus, a painting that might have been valued at $50,000 twenty years ago, might only be worth $15,000 today.

“I’ve never bought a painting for investment purposes, and I wouldn’t recommend it,” says Simpson. “I certainly have pieces that are appreciating in value, but it’s never been a consideration in the original decision to buy. If the value of one of your paintings goes up, it’s a bonus.”

If you want to make sure your purchase at least holds its value, Emond suggests buying less expensive works by artists whose careers are already flourishing. “Not every painting by a given artist will have the same appeal,” he says. “Less popular paintings tend to be priced lower and they’ll appreciate faster as the artist’s reputation solidifies.”

Photo by Ralf Hirschberger

I admit it: I’m an ETF geek. My bedside table usually holds a well-thumbed book on exchange-traded funds, and I routinely bore people with meditations about the merits of cap-weighted indexes. My wife recently asked, in her charming way, if I would love her more if she were an ETF. I answered yes, since she’d be less expensive, more transparent and easy to trade. Then I ducked.

Given my own enthusiasm, I shouldn’t be surprised when I hear from readers who have sold their dreary, high-fee mutual funds and want to know which ETFs to use in their first Couch Potato portfolio. (For the uninitiated, Couch Potato investors don’t try to beat the market, they simply track stock and bond indexes at low cost.) Some are new to do-it-yourself investing and are still fuzzy on what exchange-traded funds are. Others are keen to cover every asset class, but have only a few thousand bucks in sav­ings. It pains me to say it, but for these investors, ETF port­folios usually don’t make sense. Luckily, though, they can still become Couch Potatoes.

ETFs are not the best way to start out, because they trade on an exchange, like individual stocks. That means you need a discount brokerage account to buy and sell them—and if you have no experience managing your own money, this can make you nervous.

As well, if you’re investing less than $30,000 or so—or if you’re making small regular contributions—ETFs may not make sense when you add up the trading fees. As with stocks, every time you buy or sell shares in an ETF you pay a commission: about $29 at the bank-owned brokerages, or $9.95 at independent ones such as Questrade and Qtrade. If you’re periodically rebalancing your portfolio or diligently tucking a couple of hundred dollars a month into an RRSP, RESP or Tax-Free Savings Account, those commissions will eat you alive. (One exception would be a portfolio of ETFs from Claymore Investments, which offers free pre-authorized cash contribution plans—but such plans are not yet available through the big bank discount brokerages.)

For newbie Couch Potatoes, or those saving in small accounts, low-cost index mutual funds are a more sensible choice, as you can set up regular contribution plans and you don’t have to pay each time you add money. Here are three ideas for the simple spud:

Less than $5,000
If you’re starting from scratch, you won’t find anything easier than ING Direct’s Streetwise Funds. Launched in 2008, the Streetwise Funds are one-stop Couch Potato portfolios. They hold a mix of Canadian, U.S. and international stocks, as well as Canadian bonds, all passively managed and tied to well-known indexes. The Streetwise Funds come in three flavors: the Balanced Fund, the Balanced Income Fund, and the Balanced Growth Fund. All work fine in an RRSP, but RESP versions are not yet available.

The Streetwise Funds have a management expense ratio of 1%, which is higher than you’d pay for a portfolio of ETFs (but less than half the MER of most actively managed funds). And that’s the all-in cost. There’s no fee to open or maintain an account, no minimum account size, no trading commissions, and the fund automatically rebalances every quarter. Once you set up an automatic contribution from your chequing account, you can safely lapse into a coma.

Between $5,000 and $30,000
If you’ve accumulated some savings and you’re comfortable managing your own portfolio, consider TD’s e-Series mutual funds. There are 10 funds in the e-Series family, but a Couch Potato needs only four: TD Canadian Index, TD U.S. Index, TD International Index and TD Canadian Bond index. These are the cheapest mutual funds in the country: you can build a diversified portfolio for less than 0.5% a year. It costs nothing to buy and sell new units, and you can set up automatic contributions from your bank account.

The only drawback is that you must buy them online through TD. You can do this with a TD e-Series Funds account, or you may want to consider opening a brokerage account with TD Waterhouse, which will give you access to ETFs further down the road.

More than $30,000
As your portfolio grows, the low management fees of exchange-traded funds become more attractive. Here’s an idea for moving into ETFs in a cost-efficient way: build a Global Couch Potato portfolio with four ETFs in a discount brokerage (see the Canadian Couch Potato blog for instructions). Then set up automatic monthly contributions to a money market fund in the same brokerage account. Once a year, use the cash in the money market fund to rebalance your portfolio. Assuming four trades a year at $29, the commissions would be $116, but that’s offset by the lower annual fees on the ETFs.

Compared with the e-Series funds, this only makes sense for portfolios approaching $100,000. But if you’re currently using pricier index mutual funds, or if your broker charges just $9.95 for trades, this technique will work for accounts as small as $30,000.

Do the math and figure out what works best for you. Just don’t forget that while costs are important, saving regularly and sticking to the strategy are the most important ingredients in the Couch Potato formula.

This so-called “home country bias” starts from the moment most of us begin to invest. When I bought my first mutual fund more than 15 years ago, I naturally gravitated toward a fund that was as Canadian as a Guess Who album. Homegrown stocks seemed safer—I just wasn’t ready for the exotic allure of Brazilian oil stocks or Indian carmakers.

But now, with the Canadian dollar so strong, I’ve noticed that more investors are interested in loading up on American stocks. Which raises the question: Just how much of your portfolio should be in foreign equities anyway?

It turns out, there’s no easy answer. We spoke to two financial experts, and each gave surprisingly different advice. So I’ve decided to let them fight it out, and I’ll call the winner after we’ve heard their arguments.

In one corner of the ring, we have David Baskin, president of Baskin Financial Services in Toronto. He says he typically puts a whopping 85% of his clients’ equity money into Canadian companies. He knows he’s putting all his eggs into one geographical basket, but insists there are three good reasons to invest almost all of your money at home.

The first is foreign exchange risk. Baskin says investors who plan to spend their retirement income in Canadian dollars should hold their assets in the same currency. “Otherwise you open yourself up to the tragedy that befell so many Canadians when our dollar took off.” In 2009, while U.S. stocks made huge gains, the plunging American dollar trimmed some 15% from the returns of Canadians holding those stocks.

The second is the better tax treatment you get with Canadian companies. If you’re investing outside a registered account, dividends from Canadian stocks are eligible for a significant tax credit. On an income portfolio yielding 4.5%, Baskin says the higher taxes on U.S. dividends can knock about 1.25% off your returns. “That might not sound like much, but 1.25% per year, compounded, is huge.”

Baskin’s last reason is geopolitical risk. Markets in Western Europe and Japan are no riskier than those in North America, but emerging markets are a different matter. Dubious regimes in countries such as Venezuela—which has expropriated foreign assets in the past—could put your capital in peril.

In the opposite corner of the ring is Brad Steiman, a director at Dimensional Fund Advisors in Vancouver. He says that hav­ing a properly diversified account trumps Baskin’s concerns, and by overweighting Canada, you are inadvertently overweighting certain industries. That’s because almost 80% of the S&P/TSX Composite Index is made up of just three sectors: financials, energy and materials. By investing only in the TSX, you have very little exposure to technology, consumer staples and health care. The U.S. market is more diversified, with seven economic sectors each comprising 10% to 20% of the S&P 500 index.

That’s one of the reasons why Steiman says Canadians may want to put just 20% to 40% of their equity holdings in domestic stocks, and the rest in foreign equities. “Your currency allocation and your asset allocation should be separate decisions,” he says, adding that hedging can help with currency risk.

So who’s right? Both sides of this debate make good points. The average Canadian’s portfolio is subject to a strong home bias that’s not always rational. But you can’t blame people for sticking close to home. It’s easier to put your money into companies you know, plus currency risk and the dividend tax credit are real factors.

To solve the dilemma, I suggest a compromise. If you’re an index investor using ETFs, I recommend going for true global diversification in the equity portion of your portfolio with 1/3 Canadian, 1/3 U.S. and 1/3 international stocks, the allocation for our Global Couch Potato portfolio. With ETFs, there’s no need to monitor individual stocks. Plus, currency hedging is often already built in.

If you pick your own stocks, however, we suggest something close to 50% domestic equities and 50% foreign. That’s because currency hedging is impractical for you, and it’s more important that you know the companies you invest in. Dividend investors should go even heavier on homegrown stocks, so you don’t miss out on the dividend tax credit for Canadian companies.

By the way, a good way to get some diversification if you’re a stock picker is to focus on international companies based in the U.S. Global giants such as Wal-Mart, Coke and IBM are easy to research, and they offer international diversification, as they are exposed to economies all over the world.

After all, it’s good to wave the flag. But when it comes to your investment portfolio, waving a few flags turns out to be the smartest strategy of all.

Prioritize your  debt
“Not all debt is created equal,” says Mark Silverthorn, a lawyer and author of The Wolf at the Door: What to do When Collection Agencies Come Calling. For taxes or Canada student loans, the government doesn’t cut deals and rarely gives up. Secured debt, such as mortgages or home equity lines of credit, is tough to get out of too, but credit card and other unsecured debt is open to negotiation.

Find out who’s calling
Most creditors try to collect their debts in-house for the first six months or so. After that, they generally farm the work out to collection agencies. After a year or two the creditor may sell the debt to a debt repurchaser for as little as half a cent on the dollar. Keep in mind who you’re dealing with: creditors want full repayment, but collection agencies receive a commission and want the most they can get as quickly as possible. Debt repurchasers are often content with smaller payments.

Could you get sued?
Collection agencies routinely threaten to sue, but this is often a bluff. Only the original creditor is likely to go to the effort. Silverthorn says the slim commissions earned by collection agencies mean fewer than one in 10,000 consumer accounts end up in court. If you haven’t been served papers within six months of missing a payment, odds are you never will be.

Handle the calls
Creditors have the right to remind you that you owe them money. But only to a point. In B.C., Alberta, Ontario, Quebec and Nova Scotia, you can legally request that collection agencies stop calling you at home. Some provinces also have rules on calls to your workplace. Plus, you can screen your calls, hang up or get an unlisted number.  “You should speak to collection agencies when it suits your schedule,” says Silverthorn.

Cut a deal
If your debt is more than a year old and you’ve avoided a lawsuit, it’s time to bargain. Silverthorn cautions against making token “good faith” payments on bills, as this restarts the debt clock. And credit counseling usually requires that you eventually repay all your debts in full. Instead, try to get your creditors to accept 30¢ to 65¢ on the dollar, less if its been more than two years. But first get it in writing.

Repair your credit rating
Unpaid debts show up as R9 on your credit report: the worst possible rating. This will stay for six or seven years, depending on your province, and have a significant impact on your ability to borrow in the future. But any debt settlement—even for pennies on the dollar—will eliminate that debt and instantly boost your credit score. That’s why negotiating a settlement is generally a better option than declaring bankruptcy.

Brock McEwen, a director at Great West Life, says that with his company’s plan, for every $2 of Great West Life stock he buys, the company throws in $1, effectively creating that 50% return on his money—even if the stock price doesn’t go up. “We’re getting tremendous value,” he says.

Bob Gorman, vice-president and chief portfolio strategist with TD Waterhouse, agrees these types of programs can be a boon. Generally, people can invest between 1% and 5% a paycheque in their employer’s stock. Simply doing that, Gorman explains, can net you high returns.

But there are risks. Some plans lock in your money for while, and having a pension, a job, and investments tied up in one place can be dangerous. “Enron,” utters Ted Rechtshaffen of TriDelta Financial, recalling the disaster its employees faced when the company went bust. The staff not only lost their jobs, but the savings they had in the share ownership plan.

To avoid that scenario, Rechtshaffen says you should keep abreast of your employer’s financial situation, and you shouldn’t have more than 50% of your net worth tied  up in your company. “If it exceeds that,” he says, “it may be necessary to get more balance, even if there are great benefits.” Baby boomers nearing retirement should be especially careful of putting all their eggs in one basket.

In McEwen’s case, he says his company appears to be stable, and for him it’s not just about the money. “Imagine being one of the only execs sitting around a table who didn’t invest,” he says. “I want to support my company.”

But you can register for other special EI benefits: 15 weeks  of maternity leave, 35 weeks of parental leave, 15 weeks of sick leave, and 6 weeks of compassionate-care leave. EI will pay up to 55% of your average weekly earnings, to a maximum of $457.

Of course, there’s a catch or two. For starters you’ll have to start paying EI premiums. They currently amount to 1.73% of earnings, capped at $747.36 per year. (Note that this process works differently in Quebec.) As well, you can’t file a claim until you’ve paid premiums for at least a year. The biggest snag is that if you do draw benefits, then there’s no opting out of the plan as long as you are self-employed.

So is it worth it?

“If you are planning on having a baby, you should register,” says McLarty & Co. tax specialist Kevin Porter in Ottawa. “The maximum parental and maternity benefits available are $22,850, which is approximately equal to 30 years of premiums.” However, if you think it’s unlikely that you would ever take much time away from your business, it’s probably not worth the cost.

RedFlagDeals.com
The granddaddy of Canadian deal sites, RedFlagDeals  has been around for a decade. Its strength lies in the tens of thousands of regular users who sleuth out hard-to-find special offers—some of  them substantial. If you only have time to visit one deal website a day, this is it.

SmartCanucks.ca
The best part of Smart Canucks is its Freebies page. Users spread the word about a wide array of products that companies are giving away for free. Check out the contest page for the latest sweepstakes and draws offered by brands. Since relatively few people enter such contests, your chances of winning are a lot better than the lottery.

Flyerland.ca
No need to dig through the heap of flyers in your mailbox to find the best sales anymore. Flyerland lets you peruse all this week’s flyers online. So finding out which supermarket in your neighbourhood has the best price on milk is a cinch.

BargainMoose.ca
This adorable little blog is run by a 28-year-old self-confessed shopaholic from Manitoba named Anna, who scours the Internet daily looking for bargains. Anna seems particularly adept at finding useful coupons—everything from a Skittles buy-one, get-one-free offer, to a 10%-off coupon for hotels booked through Air Canada.

PriceNetwork.ca
Readers do a lot of the legwork on this website, posting bargains, sales and coupons they’ve stumbled upon. Check out the warehouse sales section, where you’ll learn about the latest manufacturer sale events and store closing sales.

Is it possible that investing just isn’t in her DNA? A growing body of research indicates that could indeed be the case—because a person’s genes actually do correlate with their investing personality.

One of the most recent studies comes from a trio of researchers at Claremont McKenna College near Los Angeles and the University of Washington in Seattle. After studying the financial portfolios of more than 38,000 identical and fraternal twins, they concluded that genetics can explain about one-third of their investment behaviour. Remarkably, the study found twins who grew up in different environments still exhibited similar approaches to investing, right down to their asset allocations and how active they are in the markets.

Genes do matter, says Steph­an Siegel, an associate professor at the University of Washington’s Foster School of Business and co-author of the study. In some ways, they’re more important than upbringing. “The parents’ investing behaviour doesn’t have a lasting effect on their children’s investing behaviour,” he says.

But Siegel’s study doesn’t look at which genes actually make you a good or bad investor. To get a better sense of that, you have to unwind the chromosome. Take the monoamine oxidase A, or MAOA, gene for example. Researchers at the London School of Economics and the University of California, San Diego, say variations in this speck of amino acid can determine the likelihood that you’ll rack up debt. People with both “debtor gene” variations are 16% more likely to carry a balance on their credit card.

Even financial risk can be decoded. A joint study by Northwestern University’s Kellogg School of Management and the school’s Interdepartmental Neuroscience program found that a pair of genes that regulate dopamine and serotonin in men control their risk-taking behaviour. They found that those with particular alleles of these genes may take as much as 25% more risk than individuals without.

Still, you may want to hold off getting your DNA mapped before your next big investment decision. Siegel says genes are important, but they aren’t the only factor. “A big part of their decisions are still based on things people learned throughout their lives.”