Financial Tales Of Terror!

In this edition of The Loonie Bin, I thought some tales of terror from a financial perspective would set the mood for Halloween. So turn off the lights, and make sure you are not alone

Read on if you DARE!

The Tale Of The Credit Card Princess

Alison liked to shop whenever she had the chance. She worked in a department store and didn't make very much money. Every weekend she would go clubbing with her friends, and she loved being the center of attention. When you crave the limelight like she did, it costs a lot of money to keep up with trends and fashion. Alison spent a lot of money on clothing, hair styles, spa treatments and makeup; a total of 75% of her income! So how could she afford to pay for all this things, plus the basic needs of food and a roof over head? Credit Cards! *cue Thunder and lightning*

Alison owes $2465 on her credit card and is happy paying the minimum $50 each month. She thinks she is getting a sweet deal by buying what she wants, and only paying a small amount of her 19.5% interest. But what she doesn't realize is that it will take her 21 years to pay off $2465 and will end up costing her an additional $9938 in interest! Now the people who own the credit card company could afford to buy nice clothes and new shoes, thanks to Alison...

Did that frighten you? I know it scared me. This next tale is even more frightening. I call it:

The Tale Of The House Of Interest

There once was a young couple named Dan and Kim who dreamed of owning a home together since they met 6 years ago. They both had expensive taste yet they both had modest incomes. All of their friends lived in expensive neighborhoods and they too wanted to live in a nice area as well. They wanted a big house to impress their friends so they looked at places that were way too big and that they could never afford. One Saturday they were driving around and they found the perfect house for sale. They never saved much for a down payment, but they really wanted that house and would do anything to get it. They called the bank to set up a mortgage but with their lack of a down payment, they would have to get a 35 year mortgage and have CMHC insure their mortgage! *Thunder and lightning*

Dan and Kim thought they had found their dream home, but what they had found was a house of fees and interest. They though that they were paying $350,000 for their home, but in reality they are paying much, much more. Since they didn't have over 20% for a down payment, they had to pay a large fee to insure their mortgage to the tune of $10,000; And that's just the beginning! Since they can only afford to pay the base monthly  mortgage payment, they will be forced to take 35 years to pay off the entire mortgage. They had a mortgage rate of 5% on a fixed 5 year term and paid their mortgage monthly. After their first 5 years of paying the mortgage, they would have paid $84,000 in interest alone. Over the course of 35 years, they will pay over $380,000 in interest and that is only with an average interest rate of 5%, just think if interest rates hit 10 or 15% like they have in the past. I sure hope they like eating Kraft dinner...

Oh my that was a terrifying story! All that money being flushed down the toilet to impress a few friends....it sends chills down my spine. I don't know If I can continue... alright, maybe one more story of investment horror. I call this one:

The Tale of the Disappearing Nest Egg

It was a dark and stormy night. After a long day at work, Kevin sat down and begin reading his mail. He sorted through piles of bills and leaflets ; 5% off Ming's authentic Chinese cuisine and steak house, laser hair removal, and his investment statements. Kevin carefully opened up the envelope from his investment advisor and saw how much money he made these last few months. The stock market was down this last quarter and he knew that his return would be lower then normal and it was. He was actually making a return of -3% from his mutual fund investment. *Thunder and lightning...... I SAID thunder and Lightning.......oh forget it*

Kevin remembered back when he began working and moved out on his own. He thought about his future and that he should start saving for his retirement. He decided to invest $100 every month in mutual funds and every month he saw his nest egg start to slowly grow. He knew that nothing in life was free, and that he paid a certain percentage to have someone manage his mutual fund investment. Eventually Kevin began working for a company that matched his mutual fund contribution and so he was automatically making 50% on his contribution. This made Kevin very happy and it allowed him to focus on his life and not have to worry about investing. Little did he know, that something dark and very scary was lurking under the surface of his investment portfolio...

After many years of having fun and eventually settling down, Kevin began thinking about his future again since he was responsible for himself, and his new bride. He starting paying more attention to what he invested in, and where his money was going. After looking at how much money he had, and how much money he invested over the years, he thought there should have been more money in his portfolio. What Kevin learned next was so shocking it made his stomach turn. His mutual fund charged him a MER of 2.65% each year. Having an investment of $65,000, that meant that each year his fund manager was charging him $1722, no matter how well his mutual funds did. His current return of -3% was less then his managers expense ratio. His nest egg would never keep up to inflation and over the years the only thing that increased was Kevin's blood pressure.

Kevin had to cut corners in his retirement and he and his wife were forced to live in a sketchy retirement home where the food was bland and they had to eat frozen vegetable medley every night. The arts and crafts program was a borderline sweat shop and all his crafts were shipped to foreign countries. When they wanted tea, they had to use tea bags over and over and any attempts at escape were met with a week with no shuffle board privileges. They lived horribly ever after.

Ohhh so very scary. Did I scare you with these terrifying tales of financial horror? No!? Well maybe next year, until then have a Happy Halloween and good bye...for now.

Nonsense Investing

If you've been following the markets the last few days, you might have noticed the slight slide in the markets. My Own Advisor must be getting excited, because I know I am. If you own mutual funds, there's a good chance your "Units" are worth a little less then at the beginning of October. And if your units are worth less, then your return on your investment has gone down as well. A mutual fund supplier or "pusher" would tell you this is a great time to buy more units while the markets are down. After reading a mutual fund investors strategy in the Globe and Mail's Me and My Money article from two weeks ago, I had to read it twice before I believed it.

To quote the article, " Mr. Flynn, who lives in Peterborough, Ont., sticks to very conservative mutual funds. He counts it as a bit of a victory that he’s down between 11 and 15 per cent since 2009. “I’d have to say that’s not that bad. Lots of folks I’m talking to are down 25 per cent.”

He is happy that he's making -13%. In case your reading this post on an Iphone,  that's a negative 13%, and he's happy because his friends are doing worse. That's like installing a $10,000 car stereo in a $1000 Dodge Neon; It makes no sense!

I'm making over 5% now with my dividend investment. Notice I said making because I know exactly what my return will be this year. My portfolio could drop 25% and I'd still make over 5% from the dividend income. In fact I would be very eager to buy more common shares if my portfolio dropped that much and I would make even more then a 5% return. If a mutual fund investor's portfolio dropped 25%, panic would ensue but they will feel better knowing their friends did even worse. We need to stop the madness of nonsense investing. I can see the commercial now...

For just two minutes of your time, you too can change the life of a mutual fund investor. Explain to them the theory of dividend investing, and that a negative return is not ok. Save the retirement savings of someone you care about, today.

Do you know someone afflicted with mutual fund investitus? 

Investing Hodge Podge

 Hodge Podge: a confused or disorderly mass or collection of things.

I was very excited to find out this weekend that on November 4th, TD Waterhouse is allowing $9.99 trades for individuals with $50,000 in household assets. This means more money working for me and you, over the long term. It is also proof that the big banks are starting to wake up and make their services more competitive which could lead to even cheaper fees in the future. Nothing like healthy competition!

Speaking of competition, I eagerly await the results of the votes from CREA members on Monday whether individuals wishing to sell their homes can list using the ever popular MLS website without selling their house exclusively through an agent. This will allow many new levels of service to customers who might want to sell on their own house and still have the exposure that an MLS listing would offer. I will be putting my condo on the market soon and would rather list my dwelling at a competitive price to sell it quickly, rather then bump up the price to compensate for an outrageous realtor fee. Comfree must also be eagerly awaiting the results more then I am.

And now for the updated dividend list. Emera is back in the green at 4.26% with it's recent dividend increase and SHAW is very close at 3.98% with it's surprising loss on Friday.

Hope everyone had a good weekend!

Early Retirement

For as long as I can remember, I've always had this picture in my mind of working merrily till I'm 65. I thought being retired would be boring so I would try and keep working for as long as possible. That and the thought of having coffee at the local coffee shop day after day would drive me nuts. I've been working steadily since I was fourteen and recently I've realized something;  I had it all wrong.

My family thinks I have become obsessed with money since I've started investing on my own, but I think subconsciously I'm looking for a way to speed up the process of getting out of the rat race. I'm tired of being artificially woken up every morning at 5:30am with an annoying buzzer just to get to a job where I'm just a number and at any given  moment I could be laid off. "Why don't you change your job?" is the obvious response, but it's not that simple. Due to living in one of the most expensive countries in the world, I have become dependent on the amount of money I make each year; especially for only going to a secondary school for a total of nine months. If I were to quit work, and go to school for 4 years, I would end up making half of what I currently make plus I would be in more debt with student loans; if I even qualify for them.

If I were to find a career I'd love doing each day, the novelty would wear off and eventually it would become a job once more. My only escape would to retire as early as possible, but I would need to save an absurd amount of my net income each month. If I were to eat beans and lentils, trade my car for a bicycle, and go on staycations at West Edmonton Mall, I might be able to pull off early retirement. I might also end up being divorced! My wife on the other hand  likes to plan expensive vacations, would rather starve then eat luncheon meat, and has consistently brought up the subject of hiring a maid for our new house. She even refers to this fictitious maid as Rosa. I've talked her out of getting a maid, but it seems almost every night she ambushes me with some new vacation plan and how it will only costs $6000 dollars.

My only chance now at retiring early would be quitting my job and becoming a stay at home dad. I figure I could do a little day trading in the morning right before Regis and Kelly and I'll have all the household chores done in time to catch Days of our Lives. Then each night I would have a gourmet meal ready for my wife when she walked in the door. It's nice how plans always work out in your head, isn't it? I guess I'll stick to dividend investing and think about the dividends piling up while I'm slaving away.

To my dozens and dozens of readers:  When do you plan on retiring?

Emera, I Forgive You

I had to fly to Nova Scotia in early September for a family emergency. I was lucky to have witnessed my first hurricane while I was there and learned how much I take electricity for granted. When the power first went out, I wasn't very worried. When we learned the water pump wasn't working, then the panic set in. I'll never forget fighting gale force winds to collect some lake water in an antique jug just to flush the toilet. It took two days to get the power back on because we were in such a  remote location, but eventually Emera fixed the problem. While there was no power, I might have thought poorly of Emera a few times but I got over it.

Later that month, the board of directors of Emera increased the dividend by a whopping 15% and now all is forgiven!


"We have committed to grow our common dividend as our earnings increase," said Chris Huskilson, President and Chief Executive Officer of Emera Inc. "This 17 cent annual increase in our common dividend reflects the continuing success of our strategy. We know our dividend is important to our shareholders, and we are pleased to be able to provide for this 15% increase."
 
Emera was paying a dividend of  $1.112 per share, but after the increase, the dividend will be $1.30 per share. This is exactly what I am after in my dividend growth strategy. If the dividends keep growing every year, then my return on my investment will rise accordingly. I bought Emera back in February at $23.90 per share and my yield was 4.65% , and now after the dividend increase the shares are up to $30.35 and my yield is now is 5.44%. My total return on my Emera investment right now is 27% which is pretty darn good, but since markets always fluctuate, I don't really focus on that figure.When was the last time you saw a mutual fund promise to pay you an increasing return each year? I'll be ready to buy more shares of Emera after the market corrects, that's for sure!

Just imagine if all of the stocks I own increase their dividend each year; I'll be one happy camper who can retire early. Until then, I'll be thinking about my retirement one dividend at a time. Have a great weekend.

Dividend Update

Tuesday was another positive day for trading on the S&P/TSX. It's up 40.05 points and is sitting at 12575.64. Not a huge increase, but my portfolio was green across the board except for Enbridge.
Here is the updated dividend list with TransCanada added due to popular demand.

Stock prices are rising which means our beloved yields are slowly decreasing below 4%.  It's not the best time to be buying, but there are a few good buys still out there like Bell, TransAlta  and SunLife (Bell would be my first choice. It is an excellent company and would be a great start or addition to any portfolio). I might be adding a few hundred shares of SLF to my portfolio in the next few weeks depending on my dividend payments. I'll keep you posted.

I will also be updating the information pages from the menu near the top of this blog with some much needed graphics and examples. Hope everyone had a good Thanksgiving/Columbus Day. Until next time, here's to early retirement!

Long Weekend? Up Goes The Price Of Gas!

 "Attention fuel consumers, unfortunately we are all out of the  
Disney collector cups. Have a nice day!"

Have you ever noticed that the Wednesday before every long weekend, gasoline prices always seem to increase? Well here in Alberta it happens all the time and this time it wasn't a penny or two;  it was a seven cent increase in one day. Oil companies say that summer time sees an increase in fuel consumption on long weekends, so gasoline prices are adjusted accordingly. Well this is Fall, it's getting colder and we are clearly out of summer vacation mode, yet the price still increased.

I read on a Petro-Canada website that "Consumers may pay closer attention to gasoline prices when they fill up before or during a long weekend trip, however industry data shows no such pre-long weekend price increase trend." (Shell has the same information on their website, almost word for word) . I think whoever wrote that has a company gas card and never bothers to look at the prices at the pump when they fill up. Anyone that doesn't have a oil company logo on their pay stub will tell you that this is a load of *rap! Out of the fifteen years I've been driving, I've only seen prices not go up on a long weekend once. Perhaps the guy who changes the price on the sign at one gas station called in hungover, and the other stations just matched them; who knows.

What I do know is that it's wrong to increase the price; it's borderline profiteering. Everyone uses gasoline in one way or another and the oil companies know that. There is very little we can do to stop these insane increases every long weekend. No amount of protesting, or boycotting will ever amount to any changes. If you boycott one gas station, only the people employed by that station will suffer. All we can do is pay the piper and get our precious gasoline. You might as well sign up for points cards and get something overly priced for "free?". It could be worse; we could be fighting off bandits for "juice" in the wastelands and having Mel Gibson as our only source of hope for the future...yeesh.

Readers:
Do gas prices increase on long weekends in your neck of the woods?

Historical Patterns

I was hoping September would bring some good buying opportunities, but alas I learned my lesson about following historical patterns. John Heinzl from the Globe and Mail had an interesting video on the subject. Here's the Link.

Emotions run wild.
Human beings are the most unpredictable creatures on the planet. We change our minds so often, it's no surprise that we effect so many things on so many levels. If the stock markets were controlled by robots, then I'm sure we would be able to predict where the markets were headed and when the most opportune time to buy and sell would be. When the markets were up, stocks would be sold. When markets are down, stocks would be bought. Transactions would occur with mind blowing accuracy and profits would be made with 100% efficiency. But when human beings are thrown in the mix, emotions and gut feelings throw everyone for a loop. When stock prices drop, people scream "Sell! Sell!" to minimize their losses and end up selling at a loss.. When they see a stock taking off, they scream "Buy! Buy!" only to see it lower the following day and miss out on a bigger profit.

Life is evolving, and so is investing. If you were to show an investor from the 1920's an Ipad and purchased stocks with a few clicks from a magic "Internet", I'm pretty sure they would collapse right in front of you into their pile of ticker tape. Investing used to be only for the wealthy who could afford the expensive broker fees, but now it's cheaper and easier then ever before thanks to online discount brokerages. With more unpredictable humans investing over the decades, how can any trends remain the same? As technology evolves, and society adapts to these new changes, investment analysts have their work work cut out for them.

I've heard a lot theories like "Sell in May and go away" and "Stocks always go down on Fridays", but it's all a bunch of hogwash. If you follow whacked out theories, you might end up getting burned and take a hit on your return. That's why I like dividend investing so much. Tried and true with no gimmicks, and no confusing philosophies. By quality Stocks at low prices, hold till the dividend is cut. Although I was looking forward to some lower priced stock to buy, I'll just keep counting my dividends and wait patiently for the right time.

Here's the updated list for the beginning of October. This is just a rough list of some key Canadian dividend stocks to get your portfolio started. Stocks with green yields are above a 4% threshold. Enjoy.

Have a good Monday, if that's possible.

The Added Costs Of A New House

Back in March my wife and I signed the papers for our new house. We were told that our house would be ready in March of 2011. That gave us plenty of time to come up with decent down payment. A month later we were told it would be ready this October. From that moment, I decided to curb my spending and go on a saving spree. No more bought lunches. No more beers with the boys after work. No new Iphone or Ipad.  If there was anything I wanted and didn't need, I would just think of our new house and how big our mortgage will be, and my desire to spend money would be eliminated.


We were told this week that our tentative possession date this December/January. What a gong show! I wish the builder would make up their mind, because it feels like we're on a yo-yo. At least we have a better idea of when it will be ready, and it allows me to save up more money over the next few months. Part of me wants to put all my saved money on the mortgage, so we pay less interest over time. But part of me knows moving into a bigger house has a lot of added costs involved with furnishings and appliances.

When building a house through a builder,  I've learned to not accept any appliances that they include in the price of the home. They are the bottom of the barrel and are very basic pieces that they get a deal on by buying in bulk. Our home was fully upgraded compared to what other builders offered for the price, but the only appliances they included were the dishwasher and microwave. After seeing them at the supplier, we decided to upgrade because they were both entry level appliances. You get what you pay for these days and we wanted nice appliances for our nice house. Besides, I'd rather spend an extra $500-$600 on something that's going to last 10 years longer then it's cheaper counterpart.

We will have two living rooms to furnish, and my wife doesn't want my navy blue palliser leather couch and love seat to stick out like sore thumbs in the new sitting area, so we will have to buy a new couch and love seat that matches our color choices. We never upgraded our other living room furniture because we knew living in our condo would be temporary(plus they would get in the way of many Wii events we held), so now we have to buy end tables and a coffee table to match the new color choices.

The new master bedroom is huge, and a queen sized bed would not fill it up enough and would leave large areas of useless space, so we decided to splurge and get a king size bed. Our Ikea nightstands are going to be used in the spare bedrooms so we will need new ones as well. New dressers to match the new nightstands and head board are a must, so the old ones will be used in the spare rooms as well. I asked sales person about purchasing extra lumpy beds for the spare rooms to ensure short visits, but it was only met with a smack from my wife.

Then there is the yard. We have one year to sod the front yard and plant one tree. We got off pretty easy as some neighborhoods require multiple hedges and bushes as well. Since we built on a pie lot we have a smaller front yard, so to sod my front lawn, it will only require a few midnight visits to my new neighbors freshly sodded lawn. I'm sure they won't notice... We will also have to build a fence, but hopefully my new neighbors are not cheap bastards and will split the cost AND help me build it. All I need is someone with a pulse to hold the level and help me with the power auger.

We used the builders lawyer so we avoided any legal fees which is a bonus, and the bank is more then happy to lend us the money knowing we will pay an extra $100,000 for the mortgage. I'll be paying myself with each dividend cheque,  so it won't hurt as bad. I'm sure there's going to be a lot of small costs for things needed like area rugs, window coverings, new towels and linens; but that's a given.

We don't have to buy all new furniture and upgraded appliances, but we both have good jobs and for the last three years we lived like semi bachelors so we could buy nice things for our new house. And for my wife living with me through my saving spree and all my money saving exploits this year, I think she deserves it.


Have a good weekend, everyone.