Inflation....The Silent Killer!

I remember when I was a kid, my grandma gave me a dollar to spend at the local Macs store. Oh wow, was I rich. I would walk out with a rocket pop, a length of fizzees, a package of pop rocks and a handful of Mojos. My Dad told me when he was a kid he could get a bag of chips, a pop and a comic for 25 cents. Holy crap! Nowadays with one dollar, you would be lucky to buy one item of candy from a convenience store and still walk away with change. Inflation is a bitch.

It's not easy trying to save up money when an invisible force is silently eating away at it. I can only imagine in 30 years how much money it's going to take to retire comfortably. If my wife and I both put $5000 a year into our TFSA and invest in quality stocks and reinvest the dividends, I'm hoping we can beat inflation and come out on top with a tax free income that will only keep growing with compounded interest. When a loaf of bread costs $100 dollars, I'm pretty sure CPP won't be able to cover the cost of a case of beer. Who knows what will happen in the next 10-30 years.

Adventures in Investing: Part Deux

Last time I talked about what your priorities should be before investing any extra money. Once you have zero credit card debt, and you have a plan to contribute extra money to your mortgage, it's time to get more out of your TFSA by using it to invest and increase your overall return. But where does one begin?

Depending on your location, you may be limited to which discount brokerage you can deal with. I myself like going to a physical building and talking to an actual person when dealing with investing. There are many discount brokerages that have no physical location and you end up sending a cheque or transferring funds to them. This allows you to pay cheaper commissions, but always look out for added fees that are in the fine print. I'll list a few of the more popular discount brokerages that you can use.

ScotiaItrade- Part of Scotia Bank, they have Tax Free Trading Accounts with no annual fee. You can also open RRSP and cash trading accounts. If you transfer your existing Mutual Funds(Yuck) to an RRSP trading account and have a minimum $50,000 in assests, you pay $9.99 a trade. A steal of a deal. Nothing mentioned about a annual administration fees either... I might have found my new brokerage service!


RBC Direct Investing - RBC has Tax Free Trading accounts as well, but you must have a minimum  $25,000 in your RRSP accounts to waive the $75 annual maintenance fee. You need to have $100,000 in assets to get the 9.99 commission rate, otherwise it's 28.95 per trade. They do allow you to hold US funds in RRSP accounts with no currency conversion fees.


TD Waterhouse- I'm assuming the Tax Free Trading accounts are no annual fee as well. You have to have $25,000 in your RRSP trading account to waive the annual maintenance fee. You pay $29 per trade unless you have $100,000 in assets, then you only pay $9.99. I hope TD gets off their high horse and allows you to hold US funds like RBC does.

Quest Trade- No annual fee on any account you open. Commissions are $4.95- $9.95 and there are no currency conversion fees. No physical location so you have to send them a cheque or transfer funds. Be wary of fine print fees. Very popular to DIY investors.

BMOinvestorline- It says no fee TFSA. You must have $25,000 in your RRSP trading account to waive the $100 annual maintenance fee. You pay $29 per trade unless you have $100,000 in assets, then you pay $9.99 per trade. I'm sure they charge currency conversion fees for US stocks.

CIBC investorsedge- Starting Sept 2011 there's a $50 annual admin fee for all new Tax Free Trading Accounts, existing investoredge accounts will be exempt, so open one now if you don't want CIBC eating your future profits. They allow you either to pay $29 per trade, or you can pay $395 a year for 50 Trades(Works out to $7.90 a trade) Then $6.95 per trade if you go over your pre-paid trades. $100 annual fee if you don't have a minimum of $25,000 in your RRSP trading account.

Wow, that was painful reading through all those bank websites. Do your own homework, read through for yourselves and find one that works for you. My advice for people new to self investing is make an appointment with an actual representative from the brokerage service you choose. Tell them you want to become a self directed investor and have them go over the types of accounts you want to open. Write down any questions you may have beforehand and make them regret asking  "Are there any questions?". Find out about the fees and maintenance charges. I also advise people new to investing to find a discount brokerage that has good customer service and investment seminars to learn the ropes before going full throttle into investing in the stock market. Just don't ask what stocks to buy as that service is not included when paying discount commission. I hope this helps those looking to start investing for themselves and let their nest egg grow, middleman-free.

Adventures in Investing!

Many people ask me how hard it is to start investing on my own. Honestly, it's not as scary as one might think. If you bank online, your 80% there already. The hardest part is finding a good discount brokerage to use. Most of the major banks have them now. I chose TD since I bank with them already but there are many independent trading sites you can use. Then you must find a strategy that works for you. My strategy involved cutting out the middle men that are involved in mutual funds and optimize my return. No one wants unwanted hands in their wallet, or for the more eccentric people reading this, hands in their satchel.

 Before you start investing with money other then RRSP funds, you should be paying off any credit card debt or student loans first. Make sure you keep at least 3 months salary in a savings account for emergencies. If that seems like a lot of money, start saving $100-$300 a month in an emergency fund account. Once you reach your 3 month amount, or " safety bubble" as I like to call it, start allocating it to other areas. My wife likes allocating funds to Lulu Lemon or Victoria Secret, but I frown on that investment strategy. A lot of people wonder if you have some money left over, where should you put it? I like a balance between investing and paying off the mortgage. Using the $5000 limit on your TFSA is a good start for investing. Fill it up till you hit your yearly contribution limit, then any extra money you have left over should be used to pay down that dreaded mortgage. Paying down your mortgage is a guaranteed investment of 4-5%. Sounds good to me!

Next time I will talk more about different trading accounts and fees involved with them. Any comments or suggestions are appreciated!








 

Saving Spree: It's The New Pink!

 

My wife and I are in the process of building a new house. In the beginning we had a whole year to save up some money to add to the down payment. A few months ago we found out our window of savings is cut in half. Yowzers; time for a savings spree!

To maximize the amount I can save each month, I have tried to cut almost all personal spending... no new Ipad to buy and sell stocks at coffee and lunch , no beers after work on Fridays with the boys, no eating out at all. A lot of people tell me that I'm not not living life to the fullest. Holy shit! Does anyone these days know what it's like to sacrifice trivial things in order to obtain something significantly better? If eating nachos and drinking beer is living life to the fullest, then I'm a frick'n rock star.

It's a lot easier for a man, and by that I mean a manly man, to cut their budget to Nil. Clothing is an easy fix. I have a pair of work boots, street shoes and dress shoes. If you own more shoes then that, you are not a manly man. If you buy your underwear individually and not in a package of at least 3, you are not a manly man. My wife on the other hand does not share my opinion on my clothing budget, but sacrifices must be made!

We looked over what bills we were paying in a month and tried to cut things out that we didn't need. Our HD channel package was increasing from $9.95 to $13. We axed that because most of the shows we watch are on the HD channels included in our package. Good-bye womens beach volleyball on TSN HD, you will be missed. We also axed some options in our auto insurance that were increasing that we didn't really need. I was told to increase our deductibles, but in the end it did not lower our premiums enough to make it viable. My wife was put in charge of paying the power bill in order to battle her rare genetic predisposition of needing the lights to be on in other rooms, especially if no one is in there. The treatment is working.

We used to spend $400 a month on groceries which is more then enough for two people. My wife never complained at all at how much we spent... until she had to pay for them. I did lower our budget to $300, but now that it's getting into crunch time, I might have to make due with $50 a week. Lots of rice, beans, fruit and vegetables. Kraft dinner is a weekly event in our kitchen but even if I was a millionaire, I'd still buy the stuff. I make a list Friday when all the new flyers are available and I plan out our weekly meals with what's on sale. I stock up on the loss leaders and if it's not on sale, I embrace my country's mosaic culture and buy it at Wal-mart or SuperStore. I hate going to those places, so I usually get up early on Saturday to beat the crowds. I love the smell of sebah baharat in the morning.....

In the end it all comes down to how much you are willing to sacrifice to obtain your goal. I owe a lot to my wife to keep the saving spree on a frugal level and not on the edge of madness. Without her, I would be eating hot dogs with baked beans, I'd be a level 8 wizard in the latest RPG video game, and have all my friends thinking I'm terminally ill because I've been sick every time they want to hang out, just to save money.

Find a balance that works for you and keep the end prize in mind when making purchases you don't need. Do you want a cup of $4 coffee everyday, or a new house? Do you want to order a $35 dollar steak prepared by a high school student who thinks his hands are clean because he didn't get any pee on them so there's no need to wash , or a new house? Do you want the latest techmo thingie that's obsolete in 6 months, or a new house?  I myself would rather have the new house.

Do you have anything to add? Let me know in a comment below!

Take your Tax Free Savings Account and shove it.... full of money!

In 2009, we were told to go open a Tax Free Savings Account and grow your money tax free! Woo wee!

I opened a TFSA and my interest rate was 2.5%. I never knew how to fully take advantage of it, hell I never knew you could invest with one either. I went to the government website and it calculated that in 35 years, I would have $278,000! Then I got to thinking, "In 35 years, that's probably the cost of a new car."

Well today I'd like to show you what $417 a month can get you in 10 years. If you haven't guessed, I really like Enbridge stock. The company is solid, its dividend is solid, so I thought it would be the perfect stock to use in this example.

The price of 100 shares of ENB on January 3, 2000 cost $1430 and the dividend they paid out was $.63 cents per share.  That was a yield of 4.4% on that investment. Over the course of the next ten years, Enbridge increased its dividend by an average of 10% each year. 

I searched market prices of the first day of trading in January as well as the dividend paid that year for the last 10 years.

It looks something like this:

Jan 2001| Market price $18, Dividend-$.70 cents/share

Jan 2002| Market price $21, Dividend-$.76 cents/share

Jan 2003| Market price $21.80, Dividend-$.83 cents/share

Jan 2004| Market price $26.85, Dividend-$.915 cents/share

Jan 2005| Market price $29.77, Dividend-$1.04/share

Jan 2006| Market price $36.80, Dividend-$1.15/share

Jan 2007| Market price $40.73, Dividend-$1.23/share

Jan 2008| Market price $39.94, Dividend-$1.32/share

Jan 2009| Market price $40.20, Dividend-$1.48/share

Jan 2010| Market price $48.05, Dividend-$1.70/share

Now if you had bought the 100 shares back in January of 2000 you would be making 11.8% a year on that initial investment of $1430 (1.7/14.30=11.88).

Your 100 shares would now be worth$ 4805, a 236% increase.

And you would have made $1175.50 in dividends on that initial investment. Your investment would have been paid for in 2 more years.

If you would have re- invested the dividends, You would now have 136 shares and each year you would get paid $230. Now you may think that’s not amazing at all, but you’re not looking at the big picture.

A Tax Free Savings Account (TFSA) allows you to put $5000 away each year and you are not taxed on any interest or capital gains received from that money. Well if you had a TFSA back in 2000, and saved $5000 a year for 10 years at an interest rate of a generous 3%, You would have $59038.98. Not too shabby.

If you had bought $5000 worth of Enbridge stock each year, and re-invested the dividends, You would have 2323 shares of stock.  With a dividend of $1.70 in 2010, You would get paid 3438.04 annually tax free! And that’s just the icing on the cake.  The market value of the $50,000 you had invested over the ten year period is now worth $111,620.15!

That’s just for starters. Compounded growth starts to snowball after ten years. If you kept investing for another five years, the annual dividend payment you receive would be double. If you kept if up for 30 years, I think the results would make for a VERY comfortable retirement... TAX FREE!

What, me worry?

Every day, I check my stocks to see how they are doing. I like seeing the green numbers and grumble when I see red. People at work laugh when they hear me checking on the computer at lunch; it's either a "Woohoo" or a Curse. The funny thing is, I don't need to check on my stocks everyday. I only care about the dividends coming in each month and it's guaranteed to be there no matter which country has a melt down or world wide crisis erupts. I swear, the markets are so volatile these days that if someone on wall street farts, it turns into a selling frenzy!

I was recently asked how to tell which stocks pay dividends. When I first started out investing, I would always look up a stock's symbol on Google finance but it would never tell me the dividend history. Then I started looking stock up on Yahoo finance but for some stocks, it wouldn't show that they paid a dividend, even though I knew they did. Then I found the Globe and Mail's investor section with easy to find information with there search function, you don't even need the stock symbol. Just start typing in the name and it auto selects the right stock. For me, it has everything I need to check out a stock; financials, charts, analyst ratings and my favorite, dividend history!

http://www.theglobeandmail.com/globe-investor/

Stick with the blue chip, large and mid cap stocks that have been around a long time. My personal favs are:

• Enbridge
• Bell
• TD
• RBC
• Scotia Bank
• BMO
• Fortis
• Shaw
• Rogers

 There are some I'm not very satisfied with, mostly those who cut dividends recently and in the past, but with time they might make there way into my good books again. So now it's time to sit back and patiently wait for the dividends to come in. It starts with a trickle, but after re-investing the dividends and buying more stocks each year, it will soon turn into a flood of income. The only worries I have are picking which stock to buy next!

Keep up with the Joneses or else!

This commercial basically sums it all up:  http://www.youtube.com/watch?v=WFMwYNX5qUk

We have a mindset that we must have the best of everything. We need a bigger TV because the Smith’s down the street bought  a  56”. If our neighbour gets a new car, we must buy a more expensive one with doodads that we won’t even use. We buy expensive clothes and perfumes because celebrities sell them, and maybe we can be just like them if we use those products.  But, it’s not our fault entirely. We are bombarded everyday with commercials, billboards and magazine ads telling us we need to buy these things. We don’t need them, we want them. Somewhere in our brainwashed minds we came to a conclusion that we cannot live without these unnecessary desires.  And worst of all in this day and age, if we can’t afford what we want, we use credit.

Most seem to think credit is the greatest thing since sliced bread...  make the minimum payment and it’s all good. The only ones who win from all of this are the credit card companies. They  make a whopping 10-30% on the balance of what you owe on your credit card and people are ok with this? Most credit cards charge 19%. There is no guaranteed investment out there that yields 19% in one year;  well there are those  homemade posters stapled to poles on the side of the road, “Make 20% on your $$$$, Guaranteed!”. If you trust your money with creative people like that;  you should turn off your computer, sit in the corner and cry, because life has beaten you.

To fully understand the point I’m trying to make, take a look at the bigger picture. There are over 6 billion people on the planet.  If you can afford to eat three square meals a day, can afford simple clothing and have a roof over your head, you are among the richest people on earth which is about 10% of the world’s population.  The other 90% cannot afford the needs that we take for granted.  

Stop being sheep, or sheeples as I like to call them, and begin living life on your own terms. Buy houses that you can actually afford the mortgage payments on .  There are a lot of people with big houses and have cardboard boxes for furniture. Drive used vehicles that are lease buy backs; Imports are well built and fuel efficient . I laugh at the guys with a 3/4 ton truck that has no hitch, a pristine box liner and they spend $400 a month in gas. Buy clothing only when you need new clothing.  If you throw clothes out because your friends have seen you wear that outfit before, you fail. If your friends are that shallow, you may want to throw them in the garbage and keep the clothes.

Live within your means, not anyone else’s. Your desire to attain social status will backfire and you will be further behind financially. Remember, life was only a competition when we were in the middle of the food chain.

Mutual Fund? More like Commission Fund!

        I remember when I was 18 and started putting money into an RRSP. We had a family "friend?" who was an advisor and he came over one night to set everything up. I told him how much I was going to contribute each month and he entered the figures in his laptop. I had no idea about investments and thought that since he was a friend of my parents that I could totally trust him; hell I went to school with his daughter from K-12. I should have known better when he started messing around with the interest rates. "Here's how much you would have if you made 17% each year till you reached 60. I was blinded by ignorance and only saw the millions of dollars on the screen. I'm sure he made a lot of money from selling me junk funds.

Later on in my life I stopped paying the monthly contributions from my account and instead had them matched and deducted from my pay cheque by my employer. I was 23 and did not give and I quote, "two shits" about my retirement. I met with the advisor set up by my company and he put my money into some mutual fund that "Seemed to be doing well". I agreed and never thought twice about it. Every year I would buy more mutual funds near tax time from my bank. The dealer... I mean "Investment Consultant" would sit me down and show me 10 different mutual funds that were deemed appropriate for me. I would take their word and sign for mutual funds that, in the end, made them a decent commission. They had seen me coming from a mile away...and thinking back I probably could have smelled the plastic from their newly formed name tag.
(Words of wisdom; never go to a "Free" Advisor. They will only sell you what they want you to buy. Find a financial advisor that charges by the hour to get an honest, unbiased opinion.)

Fast forward 7 years and after getting married and buying my own place, I started actually opening statements and tracking my finances. I realized that after 12 years of investing, I should have way more money in my rrsp's then I did. I learned about MER's and how my mutual funds were being taken advantage of. These guys in suits were taking 2-3% of my hard earned retirement savings each year and all they had to do was make their measly quota. I read that it was as much as $1300 on a mutual fund with $55000 in it. That's when I said to myself, " I can do that for free and do a helluva a lot better job too!"

I started researching through the internet and found a few good blogs and sites chalk full of investment how-to. And then after clicking a link about dividend investing, my life took on a whole new meaning. I opened a discount trading account and started selling off all my mutual funds and started investing in the companies that were making money off of me all these years. Have at you!

I found something that I am passionate about. When I hear people talking about dividends I light up and chime right in. Although I am new to the whole investing world, I have learned so much in the past 6 months and everyday I learn something new. I'm like a sponge... an old, moldy sponge some would say. But a sponge non the less and I want to help others learn what I have learned. The hardest part is to get people to actually listen to me.

When I tell people that I started investing in dividend paying stocks the first thing they say is, "Sounds like a ponzi scheme to me!". Buying solid companies with solid dividend growth is a proven strategy that actually does work. No fancy gimmicks; no pay and pray techniques. It just takes patience.... lots of patience and a cool head when markets go south. It doesn't matter what the stock price is, it's all about the dividend that gets deposited every 3 months... money you can actually see for yourself. And with strong dividend growth, you can actually stay ahead of inflation. Try that with a bond or GIC.

I wasted 12 years of prime investing time and there's nothing that I can do about it. The only thing I can do is help others to help themselves and get the middleman out of their pockets.