Friday, September 30, 2011

Net Worth Update: September, 30, 2011

So, this month, I did invest a good chunk of change into dividend stocks.

I will be posting a 'Dividend Income Update' every once in a while, so you (and I) can track my progress.

I'd again like to caution anyone that is looking at the 'dividend as a full-time income' plan - it's not a quick way to get rich. It's all about the slow growth of your money, like a tree that you nurture with paycheques instead of water.

My goal progress increased by about .13%  (from .61% to .739% of my goal of $1,000,000 dollars net worth).


(This post summarized my current net worth in an easy to read table - It's a snapshot, so as unforeseen expenses or windfalls accrue in the month, this will become less relevant.)


Net Assets Sept-15-11 Sept-30-11 Change %
Emergency Fund
$ 1,000.00 $ 1,000.00
$ -
0.00%
Taxable Accounts
$ -
$ - $ -
0.00%
Taxable Brokerage Account $ - $ - $
0.00%
TFSA Brokerage Account
$ 5577.44 $ 6872.44 $ 1250.00 18.18%
RRSP Accounts $ 565.00
$ 565.00 $ - 0.00%
Stock Options $ - $ - $ - 0.00%
ESPP $ - $ - $ - 0.00%
House $ - $ - $ - 0.00%
Receivable (Payable) $ - $ - $ - 0.00%
Other Assets $ - $ - $ - 0.00%
Total Assets 7142.44 $ 8392.44 $ 1250.00 17.50%
Liabilities











Credit Cards
$ - $ - $ - 0.00%
Mortgage $ - $ - $ - 0.00%
Tax Liabilities $ - $ - $ - 0.00%
Other Liabilities $ - $ - $ - 0.00%
Total Liabilities $ - $ - $ - 0.00%
Goal Progress ($1,000,000 CAD)
(Investments + House - Liabilities)
$ 6142.44 $ 7392.44 0.739% 
(Total)
Net Worth $ 7142.94 $ 8392.44 17.50%


(This chart is a modified version of Brien's 'Net Worth' chart from www.2millionblog.com. It is used with permission.)

Thursday, September 29, 2011

Should I keep my investments in Registered Accounts?

I get asked this question alot from friends and family.

Should you keep your investments in Registered accounts like TFSA or RRSP?

In a word, most often, YES.

Do you make more then the Personal Tax Exception (~$10000) anually?
If so, then you can make some use of the tax-avoiding plans and accounts that the Canadian Government has made available to you.

If you simply purchase company stock certificates, and hold them personally, without any broker, it's just you and the tax-man. All gains (capital gains or distributions) will be taxed directly, and you will have no choice or recourse. You will always be taxed twice (when you earn the money as income, then taxes on your gains and dividends).

In a TFSA, you use income taxed money, but all gains in the 'account' are not taxed. This means you are taxed once (when you earn the money as income).

In a RRSP, you use non-taxed money to contribute, then all gains in the 'account' are not taxed. You are taxed when you retrieve the money from the 'account'. You are only taxed once (when you withdraw the money from the account).

In both types of registered accounts, you avoid double-taxation. This is almost always a good thing. To have equities (stocks, bonds, etc) in a registered account you need a broker.

Okay now that we have some background, Lets crunch some numbers!


Non-Registered Account Example

Purchase of Telus (T) stock certificates:  $5000
Annual Dividend Yield 4.2%
Annual Dividend $210
Dividend Taxes (40-80k tax bracket) ~ $28 (13%)
Capital Gains Taxes (40-80k tax bracket)  ~ 11%

Notice that the taxes paid on dividends are taking in to account the 'Dividend Tax Credit', which means that most Canadian company's dividends are not taxed at marginal rates (AKA normal income tax rates). But note that they are adjusted by a gross-up (38% in this example) for taxation purposes, as per the chart shown here for 2012. This means even though they are taxed at a lesser rate, the income is taxed as if it is 38% more then it actually is.

So, while we don't get taxed anywhere near the normal ~22% marginal rate for the 40-80k tax bracket, we still get taxed. Remember that we are paying tax on our income (income tax), and also on the gains that are derived from that income (the dividend). This is essentially double-taxation.

I dislike being taxed, so I am strongly against the idea of being taxed twice.

Also, notice that we will be paying the tax on the dividend every year that we hold this investment.


There is no relief from double-taxation in non-registered accounts.

Now, lets look at that same investment if we put it in a TFSA.


TFSA Account Example


Purchase of Telus (T) stock                      $5000
Annual Dividend Yield 4.2%
Annual Dividend $210
Dividends Taxes (Any Tax Bracket) 0%

So, in a TFSA, which allows a annual contribution of at least $5000, we do not pay tax on our Canadian dividends or capital gains. The USA does not recognize the TFSA as a 'retirement' type of account so you will see large withholding tax penalties on US dividends & gains, which make it a bad idea to hold US assets in a TFSA.

If you wish to take the money out of a TFSA, you do not get back your contribution room until the next year, that is January 1st.

If you are saving away for something medium-term, this makes an ideal place to do it. If you're looking at some place to save for the long-term then you want to look at RRSPs.


RRSP Account Example

Purchase of Telus (T) stock                     $5000
Annual Dividend Yield 4.2%
Annual Dividend $210
Dividends Taxes (Any Tax Bracket) 0%


In an RRSP, you do not pay tax on any dividends or capital gains from Canadian or USA sources. For USA sources, you do not pay withholding taxes either, making it a good place to put USA equities.

Any funds put in a RRSP are tax-differed, so you do not pay tax on the contribution for the year that the contribution is claimed. So investing in an RRSP is a great way to avoid paying taxes in the higher tax brackets.

The flip side of this is that you do pay taxes when you withdraw any amount from a RRSP, and you are penalized an additional percentage if you withdraw before you officially retire.

This means that you must plan much further ahead with the RRSP - You will not be able to withdraw the money without penalties except for a few, specific situations (Home Buyers Plan & Lifelong Learning Plan).

When you take money out of an RRSP you do not get back your contribution room. Ever.


I hope this helps clear up some of the confusion about where to invest your hard-earned cash.

Wednesday, September 28, 2011

Net Worth Update: September 15th, 2011

So, this month, I dove in and bought some quality dividend stocks.
If anyone tells you that your first trades are without worry and peril, they are lying :-P.

I also rolled my taxable stock certificates into my TFSA - I was reading online about some of the records you have to keep for tax purposes when you have stocks in non-registered accounts, and I am honestly doubtful that I could keep up to date with such calculations.

My goal progress increased by about .19%  (from .42% to .61% of my goal of $1,000,000 dollars net worth), and my down-payment fund has been consumed by my TFSA brokerage account.

I'll be making another net worth update in a few days on September 30th.

(This post summarized my current net worth in an easy to read table - It's a snapshot, so as unforeseen expenses or windfalls accrue in the month, this will become less relevant.)


Net Assets Aug-31-11 Sept-15-11 Change %
Emergency Fund
$ 1,000.00 $ 1,000.00
$ -
0.00%
Taxable Accounts
$ 3,000
$ 0.00 $ (3,000.00)
(100.00%)
Taxable Brokerage $ 665.94 $ 0.00 $ (665.94)
(100.00%)
TFSA Brokerage Account
$ - $ 5577.44 $ 5577.44  +++%
RRSP Accounts $ 565.00
$ 565.00 $ - 0.00%
Stock Options $ - $ - $ - 0.00%
ESPP $ - $ - $ - 0.00%
House $ - $ - $ - 0.00%
Receivable (Payable) $ - $ - $ - 0.00%
Other Assets $ - $ - $ - 0.00%
Total Assets $ 5,230.94 $ 7142.44 $ 1911.50 36%
Liabilities











Credit Cards
$ - $ - $ - 0.00%
Mortgage $ - $ - $ - 0.00%
Tax Liabilities $ - $ - $ - 0.00%
Other Liabilities $ - $ - $ - 0.00%
Total Liabilities $ - $ - $ - 0.00%
Goal Progress ($1,000,000 CAD)
(Investments + House - Liabilities)
$ 4,230.94 $ 6142.44 $ 1911.50 0.61% 
(Total)
Net Worth 5,230.94 $ 7142.94 $ 1911.50 36%


(This chart is a modified version of Brien's 'Net Worth' chart from www.2millionblog.com. It is used with permission.)

Tuesday, September 27, 2011

Being made fun of for being frugal

Now, we have all been peer-pressured into buying something.
And when we say 'No, I'd rather not spend $100 on monster truck show tickets', our 'friends' retort:

"You're no fun!"

"You're too cheap!"

"You don't have a life!"



You're right, Jack! All my friends bug me and act like I'm a frugal fool!

It's happened to me too. Both of us know the pain of being ridiculed. So what can we do about this socioeconomic menace?


1) Try telling them the truth:

Tell them that that $100 is the water for your wealth-tree, with karma fueling it's ever-present upward climb...

Or, you could tell them that that $100 will let you retire 1 or 2 days earlier, while they are still slaving away at the 9 to 5.

Or maybe that $100 will be the last straw in the haystack that allows your future child to seek out the higher education that they always wanted.


2) Try telling them a lie:

Tell them that $100 is going to quintuple in the next 3 weeks, and you will be an overnight millionaire.

Tell them that you have to get an ass-transplant, and $100 is the last step towards the rear you've always wanted.


3) Ignore their idle financial prattle:

This is probably the most difficult, and effective tactic. It's a proven fact that friends poke fun because they want to get a reaction. By ignoring them, you rob them of the payoff of the activity.

No reaction -->  No reward


4) Show them your 5 page asset sheet, complete with lots of very large numbers:

... And watch them stammer as they wobble away to their fully-leveraged car and mortgaged-up-to-the-hilt condo.

I like this option BEST.

I thoroughly ENJOY the look on people's faces when they come to the realization that saving and investing soundly will beat the pants off of spending like you're going to die tommorrow.

I guess I'm sort of a jerk that way :-P.



Jack, they won't stop bugging me about being frugal, no matter what I do!

Well, you can always get new friends.

In-fact, go to www.meetup.com, and you can find lots of groups nearby you that share your interests, including being frugal.

It's nearly always free to go to meetings, and the people you find there can be incredibly supportive; after-all, they have probably been in the same situation as you!

Monday, September 26, 2011

An unofficial break

 Well, I am back.

I hadn't posted anything for nearly 2 weeks.

As with almost every other blog writer that 'lapses' on his or her duties, I will blame life, and it's infinite complexity.


What kept you so busy?

I have enrolled in a welding course, occurring on the weekends, and it is definitely a physically demanding task. I come back from the classes absolutely spent.

I have also started 'investing'!

I have put my money where my mouth is, and started buying quality dividend stocks. Between the 'stress' of a full-time job, and my welding course, and my investing on my off hours, I've been very tired. Add to that then I am starting to fit in some time at the gym, and still keep up with my writing group meetings (and actually contribute something)...

I am just exhausted all the time :P.


Why do you do so much work, Jack? You're wasting your life (and youth) away!

That's a very good point.

Should I really be doing all these activities?
Shouldn't I stop and smell the roses and all that?

Well, I like to think that I work hard early in my life, and try and fit in as much 'stuff' as possible, and then later in life, when money isn't as much of an issue, and I have more important things to worry about (like raising children), then I will start easing off on the 'stuff'.

We'll see how well all that goes. I'm thinking I'm wearing rose coloured glasses a bit there, instead of smelling roses.

Wednesday, September 14, 2011

A Tough Week, A Demanding Boss, & A Loss.

Well,

Jack's been having one hell of a week so far.


Monday
One of our oldest cats had been laying on the floor, in pain obviously. I petted him a bit before the girlfriend took him to the vet, and I left for work. I received a text message an hour later that he 'had' cancer. It wasn't even said that they put him down. I miss him immensely.

I felt awful at work. It was one of those day that just make you want to walk out the door, telling you boss that he needs to get the hell out of your way. And that every single customer that calls your phone is going to get sub-par service, even if you don't mean to take it out on them.

I went to my folks, and had a light dinner. I wasn't hungry. We talked about things, idle chatter, really, and it helped me feel a little better.


Tuesday
Labour work day, taking boxes up and downstairs. Frantic rushing to get orders done, working with parts that are flimsy and prone to break. Using tools purchased for price and not functionality.

I finally got the order done, a small prize in an otherwise agrivating day.


Wednesday
First thing, my boss comes down to tell me that I am not charging our customers enough for service calls. "Anything over 5 minutes is a $200 yearly contract!".

The products they call for support on are worth less then $500. Who in their right mind is going to pay almost half the cost of a product for support! They'll just buy a new one - from our competitors.

*shakes head*


On a lighter note,
I read 'The Richest man in Babylon' yesterday. It's quite a good (abet short) book about nuts and bolts financial success in ancient times. I liked the characters, and the morals are all pretty decent. I sometimes found the language difficult to decipher, and it would often get in the way of my understanding the events correctly. I would still recommend it, though.

I'm also reading "The Wealthy Barber" at the moment. I would likely agree with the general 'internet consensus' that it's required reading for those beginning in personal finance (or anyone over the age of 10).
 
It's books like these that can really provide some clear, easy-to-understand insight into personal finance. I would wholeheartedly recommend that anyone, and everyone, pick them up at the library or inexpensively online.

Sunday, September 11, 2011

My current review of Crudential Direct

I'd like to take some time today to share my experience so far with Credential Direct.



Why did you want a brokerage account, Jack? They steal your money with fees and commissions!

Well, a month or so ago in my 'investor infancy', I didn't believe I needed any broker at all.

They would just level heavy commissions on me, and drag down my profits!

I was going to invest in Canadian Dividend stocks, buying directly from other investors that held physical certificates, and use Drips (Dividend ReInvestment Plans) and OCP's (Optional Cash Purchases) to get more stock.

Then I started looking at the forecast down the road for dividends, and how they are likely going to be taxed more and more as time goes on. Then I looked at the long term tax benefits that my investments would enjoy in a TFSA or an RRSP.

I'm putting together a post that crunches some numbers on how your long-term gains can be crippled with taxes in non-registered accounts, but you'll have to take my word for it at the moment.

Long-term investments are often best kept in tax-advantaged accounts, which you currently cannot have without a broker!

So, you have to have a broker to take 'advantage' of tax-advantaged accounts!



Why go with Credential Direct? Why not Questrade, with it's $5 commissions? TELL ME, JACK!

Frankly, I don't like alot of the reviews of Questrade. They make the entire service sound like crap. Too many people that sound pretty pissed off at bad customer service, lost money, delayed trades, and disappearing dividends.

I'm a tough mofo, but when it comes to my money, I want to know the people 'looking after' it are competent, and answer the phone when I call. So far, with Credential Direct, that seems to be the case.

My longest wait on hold so far has been 1 minute. After that, I was able to monopolize an account services gentleman for nearly 20 minutes, as he carefully and calmly answered my questions.

Plus, I have share certificates to deposit. Credential Direct takes deposits of share certificates for FREE. This is compared to $200 each for Questrade. Bloody ouch, indeed.

In-fact, the gentleman I spoke with said if I was in the area (Downtown Vancouver, B.C.), I could drop the certificates off directly at their mail-room, and save myself the courier fees. That's smart of him to offer, and likely a good idea, considering courier fees.

The only negative so far with Credential is the fact that they do not have or allow any sort of USD or USD 'money market' holdings in RRSP accounts. Questrade current offers this, and  so far, this has been my only issue with Credential Direct. I have spoke with their customer support about this, and asked for it three (3) separate times to three (3) different people, so hopefully they get the picture that it is a big deal to me.



I don't like Credential Direct. They stole all my money. 

I'm honestly sorry for you. As far as I can tell, they appear to be a decent, reputable company, charging a decent cost for a decent service.

I would strongly suggest that you call them, and ask why you lost money. They do have 'investment coverage' on deposits, much like banks and credit unions have coverage. So if you money was in your brokerage account, and disappeared, I believe it's covered under that insurance.

If you were a stinker and just lost your money on a bad investment, then I would suggest speaking with a fee-based financial advisor. They may be able to put you back on the right path.



A decent service for a decent price.

At this point, having just made my account, and speaking with their support staff quite a bit, I can feel strongly that Credential Direct is a decent company, with good customer service. They do have fairly costly trades ($20 for < 10 trades per 3 months), and no USD in RRSP accounts, but the fact that they seem to be decent people, offering a decent service, helps me sleep at night.

I would recommend Credential Direct to anyone that is looking for a smaller, less expensive brokerage then say TD Waterhouse, but still wants good customer service. If they pull down their trade fees to $14.95 or $9.95, and add USD holding capabilities to their RRSP accounts, then I would whole-heartily recommend them to anyone.

Saturday, September 10, 2011

What is the Dividend 15 split, and how does it work? Pt.4

Yesterday, I talked about the 'Dividend 15', and how I believe they speculate dividends to make the unusually large yields they offer.

Today, I'll talk about some of the reasons I would not invest in the 'Dividend 15' personally.

Jack, why wouldn't you invest in the Dividend 15! it's a 10% yield!

I'll tell you.

1) Fees.

The 'Dividend 15' is a mutual fund. Mutual funds have fees. I dislike fees alot.

That ~10% yield is eaten up by the following:
0.1% - Manager Administration Fee
0.5% - Manager Service Fee
0.65% - Investment Company Fee
(20% of all profits over a 12% annual increase if NAV >$25) - Fee for good performance

This means that essentially, our yield becomes ~8.8%, which is still pretty excellent. But the icing on this cake is still rancid.


2) Split investment funds are dangerous

I have been reading alot about 'splits' like 'Dividend 15', and how they aren't paying out dividends so much as paying out capital from new investors to old - Much like a Ponzi scheme.

Some more people rightly concerned about such investments here.


3) No Special dividends for the jumper.

When you jump around to garner dividends, you will nearly always miss out on any special dividends that are paid. These dividends are not scheduled, so you cannot time them like regular dividend payments. And special dividends are very often generous, skewing the yearly yield upwards quite a bit.


4) I can speculate for myself, thanks.

If I was feeling like speculating, I'd rather do it myself. Plus, in all honesty, I don't feel like jumping around with such companies. I'd rather they hold my money and pay me well, for a long time. Call it a bit of foolish faith.




Ok Jack, I get it - If it's probably too good to be true, it probably is.

Damn right.

Friday, September 9, 2011

What is the Dividend 15 split, and how does it work? Pt.3

Yesterday, I talked about one way the 'dividend 15' may generate the very high 10% yields that they offer.

Today, lets look at how a 'dividend smash-and-grab' method would worth, if we calculated with real money.

I will continue to work with BNS (Bank of Nova Scotia) because, gosh-darn, they just work so well with this strategy (as many of the other stocks that the 'Dividend 15' say they invest in).

For example, BNS yields dividends quarterly. At the current yield they are at 4% for the year, so approx 1% per quarter. This is a decent yield, especially for a Canadian Bank, which many believe to be essentially bullet-proof.

The most recent dividend was July 27, with an Ex-dividend date of July 5. This means that you only had to hold the stock for ~3 weeks to get a 1% return. Not bad at all.
 
Wow Jack, 1% in a month? Count me in!

You and me both.
 
Say you were a stock fund manager. You had a number of big companies all paying an average 4% yield, quarterly. You only had to hold the stock for a month (the ex-dividend date) to get the sweet dividend.

If you moved the money around, jumping from dividend to dividend, you could do pretty good, right?

There are 12 months in a year, and even if you could only effectively get 11 of these yields, you would average about 11%, minus commissions and trading fees.

This is actually not that far from what 'Dividend 15' yields out.

So can I dividend speculate with $1000?

In short, No.

But maybe you could try with $10000.

Lets say we wanted to speculate BNS's dividend.

1) We invest $10000 in BNS, buying about 192 shares at $52/share before the ex-dividend date.
2) We wait the 3 weeks, and receive a dividend deposit of ~$100 in our brokerage account.
3) We immediately sell the stock, netting approximately the same value back (lets assume it was a smooth-market month, and the dividend depreciation was negligible.)
4) We now add up our booty:

Commissions & Trading Fees (for Credential Direct): ~($40)
Profit from Dividend: ~$100
Total: ~$60.

So, you profited about $60 on $10,000, or 0.6% for a month. Not too shabby.

If you were to invest $1000, you would have netted ~($30), and only made out with ~$9970 of your initial investment.

So if I speculate Dividends I can make 11% a year?

Still a No.

This assumes that the stock will have exactly the same value on the purchase and the sale. I can almost guarantee this would not happen. 

Yes, it may make money due to unrelated capital gains, but since dividends are paid directly from the market value of a stock, it's unlikely that you'll make back exactly the same value as before.

Tomorrow, I'll talk about why I wouldn't invest in the 'Dividend 15'.

Thursday, September 8, 2011

What is the Dividend 15 split, and how does it work? Pt.2

Yesterday, I was looking at the basic stocks that compose the 'dividend 15' fund.

Today, I'll look at how the fund is able to generate such a high-yield.

The dividend split is yielding over 10%. In most cases (and maybe even in this case) this should send alarm bells off. Such a high dividend yield means that the organization paying this yield is forking over 10% of it's market value every year.

By giving away so much, they have less and less available to invest in the organization.


Jack, I'm looking that these companies (all the banks especially). They only provide 3-5% dividends. How does the 'dividend 15 split' yield over 10%?

I am not the fund manager for the dividend 15, so I can't tell you for sure, but there is a good chance that they are doing some active trading of these stocks behind the scenes.

You see, in order to qualify for a dividend, you simply have to own the stock before the ex-dividend date. Think of it as a sort of 'dividend deadline'. If you own it after that, then you don't 'qualify' for upcoming dividend.

I have a strong suspicion that the dividend 15 is actually speculating the dividends of these stocks. Another thing that tipped me off was the fact that they say right on the website "Shares held within the Portfolio are expected to range between 4-8% in weight but may vary from time to time."

This means that they are usually going to have money in these stocks, but really, they may not have any, and they don't have to tell you when or why they are buying or selling. Mega alarm-bells in my head go off.

Let me show you how they may do it, step-by-step.

1) D15 (Dividend 15) watches the ex-dividend dates for a strong dividend stock like BNS (Bank of Nova Scotia).
2) They invest a large amount at the last minute of the ex-dividend date for the upcoming dividend.
3) They collect the dividend, and immediately sell.
4) Notice that since BNS is such a large stock, it's dividend devaluation is minimal, so they don't lose much in the 'dividend smash and grab'.
5) They repeat this process with another companies' ex-dividend date and dividend.

Jack! You've hit a gold-mine! I'm going to speculate dividend stocks too!

Hold on there - This strategy only works if you have a big ol' heap of money, like $10,000+.

How do I know it's only good for the big guys? Easy. I worked out the numbers.

Tomorrow, I'll look at one of the ways I believe the 'Dividend 15' makes it high yields - through a little 'dividend smash and grab'!

Wednesday, September 7, 2011

What is the Dividend 15 split, and how does it work? Pt.1

I was looking at some of the higher (highest) dividend yielding stocks, and this one caught my eye. It's called the 'Dividend 15' or 'Dividend 15 split'. It is currently yielding 10.42% - Which is pretty high for a dividend stock.


Ok Jack, so where do I buy this amazing stock?

Hold on, you can't just buy a stock without learning about it.

The 'Dividend 15' 'stocks' are actually funds that hold a handful of some of canada's best yielding, but most reliable stocks. These companies are the kind that have large operations, and most would call them 'blue-chip', due to the large number of economic 'moats' that protect them from their competitors.

A sampling is as follows:


Bank of Montreal National Bank of Canada Sun Life Financial
Bank of Nova Scotia CI Financial Corp. TELUS Corporation
CIBC BCE Inc. Thomson Corporation
Royal Bank Manulife Financial TransAlta Corporation
Toronto-Dominion Bank Enbridge Inc. TransCanada Corp




















All of these companies are big, having many billions of dollars in girth, and are unlikely to drop off the face of the earth, like we always hear those market 'bears' saying.

You'll notice that these are all Canadian companies, but in even this sample, we have 8 financial institutions. This means that by investing in this fund you are buying into alot of banks and insurance-type companies.

If this particular market segment tanks, you can expect the fund managers to either drop that lovely 10%+ distribution, or move the fund into different investments that may be more lucrative.


Tommorrow, I'll look at how this fund is able to pull of that beautiful 10% yield.

Tuesday, September 6, 2011

Earning Jack - Net Worth Update - August 31, 2011

So, this month, at month-end, I recieved my pay of $1,500.00, and since all the bills were paid off, I placed it all directly in my 'down-payment fund' in the bank, doubling what I already had in there.

My goal progress increased by almost 50% (from .27% to .42% of my goal of $1,000,000 dollars), and my down-payment fund is at a healthy $3,000.00 now.

(This post summarized my current net worth in an easy to read table - It's a snapshot, so as unforeseen expenses or windfalls accrue in the month, this will become less relevant.)
Net Worth


Net Assets Aug-15-11 Aug-31-11 Change %
Emergency Fund
$ 1,000.00 $ 1,000.00
$ -
0.00%
Taxable Accounts
$ 1,500.00
$ 3,000.00 $ 1,500.00
100.00%
Taxable Brokerage $ 665.94 $ 665.94 $ -
0.00%
TFSA Accounts
$ - $ - $ - 0.00%
RRSP Accounts $ 565.00
$ 565.00 $ - 0.00%
Stock Options $ - $ - $ - 0.00%
ESPP $ - $ - $ - 0.00%
House $ - $ - $ - 0.00%
Receivable (Payable) $ - $ - $ - 0.00%
Other Assets $ - $ - $ - 0.00%
Total Assets $ 3,730,94 $ 5,230.94 $ 1,500.00 40.2%
Liabilities











Credit Cards
$ - $ - $ - 0.00%
Mortgage $ - $ - $ - 0.00%
Tax Liabilities $ - $ - $ - 0.00%
Other Liabilities $ - $ - $ - 0.00%
Total Liabilities $ - $ - $ - 0.00%
Goal Progress ($1,000,000 CAD)
(Investments + House - Liabilities)
$ 2,730.94 $ 4,230.94 $ 1,500.00
0.42% 
(Total)
Net Worth $ 3,730.94 5,230.94 $ 1,500.00 40.2%


(This chart is a modified version of Brien's 'Net Worth' chart from www.2millionblog.com. It is used with permission.)

Saturday, September 3, 2011

The Best Canadian Discount Brokerage

There are quite a number of discount brokerages in Canada.

QTrade
QuestTrade
Scotiabank iTrade
BMO Investorline
RBC Direct Investing
TD Waterhouse

...just to name a few.

But which one have I chosen to hold my all-important stocks and investments?

Credential Direct.

It wasn't that they had a fantastic review. It wasn't that they were the cheapest, or the fastest, or the best customer service.
In fact, for the cheapest trades, I would be best off with Questtrade.
With TD Waterhouse, it's said you get very quick trades.
With BMO, you get to speak with a real person at a bank when you have issues.

No, it wasn't due to these particulars that I chose Credential.

It was simply the fact that it seemed like the least amount of people hated them.

You can go on any blog that 'reviews' the discount brokerages, and there will be upwards of 900 comments, all from people just about ready to kill their brokerage for making some unbelievable mistake. One man lost $40,000 due to a mis-communication on the brokerages end. Another had his trade delayed until nearly a two days later, losing him hundreds.

I'm sure there are people that have had such issues, or worse with Credential, but low and behold, in my (not-very) exhaustive search of the inter-webs, I was unable to find many people with such a passionate dislike of this brokerage.

Add to the fact that I live not too far from their office, so if for some reason I wanted to go throttle someone in person, I just might be able to; in less then an hour or two commute!

Plus, I've called them up multiple times, asking asinine newbie questions, and they were usually able to help me, even though they really didn't have to. I've actually applied for Questrade, and iTrade, but never felt comfortable enough to finish the application. With my Credential application, they never made me feel nervous, or worried.

They just seem like decent people charging a decent rate for a decent service.

So, my application is in, and I've provided all the paperwork. I'll keep this blog updated with my experiences with Credential Direct as I have them.






Who do you invest with?
Why are they better or worse then other Canadian Discount Brokerages?

Friday, September 2, 2011

Why Mutual Funds are Stealing your money - Pt3

Yesterday, I looked at some simple calculations that show how a mutual fund steals your money.
today, I will look at some of the ways that Mutual Funds are sold to unsuspecting investors.


But Jack, my adviser told me that my mutual fund is the best one out there!

You must remember that advisers are working their job to make money. I have yet to see an adviser that doesn't charge, and doesn't take a commission on the products they sell. This means that they are going to try to get you to purchase a product from them, and then they receive compensation for it.

The 'better' (more expensive) the investment they sell you, then more they receive in turn.
I am doubtful that a bank would be able to have such nice offices, or pay their employees so much if everyone invested in indexes (at low MER's that is.)


Expert's Bias

People are asked, and even required to defer to 'experts' all the time. We go to doctors for our health, teachers & professors for our learning. Why shouldn't we trust financial advisers with our money? This is what I would call 'experts bias'. But what we have to realize is that most financial advisers are paid to sell.
 
In my eyes, Commission-based financial advisers are no better then used car salespeople, trying to make the highest profit from every duped customer.


Fee-based advisers that do not receive a 'kick-back' from a mutual fund are much more likely to give you a honest opinion, but even they will have 'favored' investments that they prefer, just like anyone. This is why you need to learn for yourself how to invest, even if you buy a pre-packaged product like a mutual fund.

The only people that win with a mutual fund is the people that run and sell the fund.

Tomorrow, I will talk about a sub-set of mutual funds that most of these rules don't apply to, index funds.




Do you feel your financial adviser is stealing from you?
How much have you lost?
Let me know

Thursday, September 1, 2011

Why Mutual Funds are Stealing your money - Pt2

Yesterday, I looked at some of the reasons why a Mutual Fund steals your money.

Today, I will look at some simple calculations to show you how they steal your money.


Lets do a quick and dirty calculation:

Investor Investment: $10,000
Mutual Fund advertised return potential: 8%
MER (Management Expense Ratio) 3%
By-In Fee: 0.25%
Cash-Out Fee: 0.25%
Total gains if advertised rate is achieved: ~ 4.75%
Average annual return of index: 5%

Now, it's obvious here that 5% is better then ~4.75%. But the ingrained belief of people is that with someone 'minding' their money, it will grow faster.

Past market conditions have generally shown this to be false.

Now, lets imagine that we leave that money in there for 10 years, as if we are 20 years old, and want to take it out to make our first house down-payment with it when we are 30 years old.

All market fluctuations are removed, and the mutual fund manager is a star, hitting his return percentage target every year (highly unlikely).

 1 : 10197.91
 2 : 10666.4
 3 : 11156.41
 4 : 11668.94
 5 : 12205
 6 : 12765.7
 7 : 13352.15
 8 : 13965.55
 9 : 14607.13
10 : 15278.17

Seems pretty good. making a ~52% increase over the 10 years.
Remember that the cash-out fee is still looming though, and drops our final value to $15239.97.
That fee is just a tickle in the ribs at ~$39, but it doesn't help our investor.


Now, lets look at it with some market instability (like in reality):

 1 : 9946.79
 2 : 10147.56
 3 : 10152.38
 4 : 10561.34
 5 : 9774.51
 6 : 10091.99
 7 : 12213.86
 8 : 11440.2
 9 : 9671.12
10 : 11506.69

Whoa - That's a pretty rocky ride there now. But this time, our investor still made a profit, netting a 15% return when he cashed out.

The mutual fund didn't return the advertised amount; in-fact it was an average ~ 1.5%, when the average market index returned 5% . Those MER and cash-in/cash-out fees put what many call a 'drag' on the fund, crushing it's ability to perform.

Add to that the fact that the Mutual Fund manager made many trades, and wracked up quite the commission bill (as well as more then a few losses on trades), and you have the reason why the MER is 3% every year.


Disaster strikes our fragile fund

But what if our investor was investing during the late 90's, and the mutual fund manager didn't see the 2008 crash coming?

 1 : 10197.91
 2 : 10666.4
 3 : 11156.41
 4 : 11668.94
 5 : 12205
 6 : 12765.7
 7 : 13352.15
 8 : 13965.55
 9 : 12607.13
10 : 5687.91

Our investor gets off the coaster right at the bottom, and lands on the cement like an exploding watermelon.
He loses over 30%, and to top it all off, the mutual fund manager still collects the 0.25% cash-out fee.

During the 1999-2009 period this pattern was quite common; investors would see the spectacular gains of the bull 2000's market, and invest a great deal of cash , hoping to ride the wave to wealth.

But in late 2008, the market crash came, and decimated many, many, mutual funds. Some were hurt even worse then our example here. But it wasn't the mutual fund managers that 'went hungry' so to speak.

It was the investors that were left out in the cold.

Tomorrow, I'll look at some of the ways that Mutual Funds are sold, and how they are stealing your money, right before your eyes.




What are your thoughts on mutual funds?
Do you like or hate mutual funds?
Let me know :)!