I'm in a rut

I'm in a bit of a professional rut. Thanks to the temporary nature of employment in the dead-tree medium, I changed jobs two months ago and I must admit, I haven't quite settled in yet. Part of it stems from the fact that I never wanted my last job to end. I enjoyed the work and my colleagues, so was left with a bit of a bad taste in my mouth for how it all ended -- with me not being given a full-time position after being assured for more than a year that it would all work out.

So, much like the romantic who's reluctant to open up his heart again, I've been remaining purposefully guarded at my new job, for fear of becoming attached to a positive situation because I'm convinced it's going to be snatched away from me at some point. I hesitate to say I've been "mailing it in" because I've been applying myself, but that sort of emotional detachment from work can't be good for long-term career advancement.

I've also found myself missing writing quite a bit. When I launched this blog, I didn't really see it as an opportunity to write, since I had a job where my everyday duties consisted of writing. But lately, my subsequent jobs have tended toward the editing side, and I'm increasingly finding this little corner of the Interwebs to be my only writing outlet. And no offense to the blogosphere, but that's just not going to cut it. I went into the media because it was the closest thing I could think of to having someone pay me to read newspapers all day, and it was one of the few gigs that involved writing in a meaningful way. I still freelance enough to keep the juices flowing, but I'm starting to miss doing it everyday. I worry I've sold myself short for the relative stability of something more buttoned down.

I guess this is all a convoluted way of saying I'm looking (passively, at this point) for a change. Maybe all I need is more responsibility at my current gig. Maybe finding new ways to keep myself engaged outside my 9-to-5 is called for. Maybe something more drastic -- I hear Australia's lovely, and I bet I'd be quite content working at this old rag.

Couple that with talk of scary adult stuff like mortgages and marriage, and part of me wants to screw it all, turn my condo downpayment into a travel fund and go on an adventure somewhere. But I'm sure it'll pass.

It usually does.

Going against the flow

Considering their impressive track record as profit-making, dividend-paying machines, it's rare to hear people bearish on Canadian bank stocks (especially during the multi-year run they've been on of late) but there's an interesting contrarian view in the Toronto Star this week.

Consider that shares in all five major Canadian banks are worth less today than they were at the start of the year -- some by double-digits. When was the last time we were able to say that?

An eye-opening excerpt from the selected article:

David Tiley, who works with a team of value seekers at Mackenzie Cundill Investment Management in Vancouver, said this week “we don’t own Canadian banks, and have not for a couple of years.” “It’s related first and foremost to valuation,” said Tiley. “Earnings are closer to a peak than a trough, so you are taking a risk.

I always like analysis that throws "conventional wisdom" out the window. Food for thought.

(DISCLOSURE: I own shares of BMO)

Presented without comment

Some fascinating details yesterday in Statistics Canada's always-insightful The Daily.

A study on home ownership among young Canadians reveal interesting data on housing landscape for first-time buyers across the country. I'd quibble with classing everyone in the age range of 25-39 as a "young adult" but in general, the study paints an undeniable picture -- fewer and fewer people starting out in their independent lives own their own homes.

Nationally, 6 out of every 10 young people not living at home owned their place of residence, but the numbers showed a clear bias from rural to urban environments. 71% of rural young people owned their homes, while in the city of Toronto, the number was barely over half, at 53%.

Perhaps unsurprisingly, the chasm got greater the lower down the socioeconomic spectrum. 40% of rural young adults making less than $30,000 a year managed to own their own homes, whereas only 16% of urban dwellers making that much managed the same feat (and all I can say is, I'd like to meet them...)

The study similarly found that the probability of home ownership was even less for children of immigrants.

I thought this might be representative of some sort of shifting cultural attitude -- perhaps that home ownership is not as important to today's young people as it was to their parents -- but the study also found that three-quarters of respondents said home ownership was "very important" to them.

And surprises in there for anyone?

Back to school

Mr. Cheap tagged me in Wooly Woman's meme about what courses I'd love to take if they were offered.

I'm always game for a good memeing, so here goes. But first, a few caveats. In his selections, Mr. Cheap listed three courses he'd like to teach, as opposed to take as a student. Good on him, I say, so I'd likewise elect to be the teacher of one of my selections. Secondly, one of these courses actually exists, so it's not like I'm dealing in theoreticals here.

Choice No. 1: Introduction to personal finance for high school students.
The fact that my generation, as a collective, knows and cares diddly squat for things like investing and financial planning is a constant bee in my bonnet. As such, I'd like to get it into the heads of the next generation that this sort of thing doesn't have to be boring. Money isn't important or interesting in and of itself, but having enough of it opens doors for you to do things that do matter to you. That's sort of -- as the kids say -- "how I roll."

The way I'd imagine this playing out is maybe 1 hour a week at my old high school, doing Q&A with students about the basics of finance -- everything from interest rates to what exactly a "stock" is. There will be no stupid questions. The earlier someone learns about RRSPs and why credit cards are not your best friend, the better. Maybe other high schools teach this stuff, but I know mine didn't. That needs to change.

I suppose in the end, my desire to start this class is just a part of a larger charitable plan I have to set up a scholarship for high school students that demonstrate a desire to be more engaged in planning their finances -- and not just because they're greedy bastards...:) But that plan involves setting up a trust filled with dividend stocks, where the dividend cheques would act as the payout to help cover university tuition every year, and let's face it, I'm a long way off from that. Teaching a class would be a step toward that ultimate goal.

Choice No. 2: The Canadian Securities Course
This is the one I came very close to actually taking one year, but I changed my mind when my then-employer balked at the idea of helping me to pay for it. I'd still love to take this grueling financial course one day, both for my own personal benefit, but also because it would make me a much better journalist, I think. We'll see.

Choice No. 3: How to sell yourself
I'm in a creative field, and I'm something of a walking cliche in that I have a natural distaste for the concept of having to "sell" my skills to either employers or media consumers. But the older I get, the more I realize I have to. No one is going to come along and give me a book deal, a raise, or a column one day unless I'm out there convincing them every day why I'm worth it, and why my skills are worth their time and investment. That needs to change. I go to "networking" events frequently and usually find them horribly insincere. But I'm starting to learn that the best person to look out for my interests is myself. If I'm not out there banging my own drum, I know nobody else will. I don't want to turn into some reprehensible egomaniac overnight or anything, but being a little proactive in the marketing miliey would do me a world of good.

I won't tag anyone directly, but if you're reading this and you have a pfblog, consider yourself tagged.

Paying it forward

A big fat karma dividend cheque should go to Canadian Dream for the good turn he did me last week.

In a comment on my post on switching over to PC Financial, CD wondered why I was still paying bank fees with RBC since the bank has a fee rebate program for people with multiple accounts within the same bank, such as he and I do.

A 20-minute call to RBC later, I'm now the proud owner of a free chequing account. I have a chequing account, a Visa card, an unregistered investment account with RBC Direct Investing and a registered one there too. Strictly speaking, the latter two don't qualify me for the rebate since apparently they're from a "different division" within RBC.

But I ended up qualifying for the rebate after I explained two things: No. 1, I actually have four accounts with the Royal Bank of Canada -- one more than the required three. And No. 2, not counting online investment accounts is asinine, since they all put money into RBC's pocket at one point, even if it is a different division than the commercial banking one that's launched he promotion

The best part? The woman I was bumped up to who ended up helping me actually listened to reason. I explained my views about why I deserve the credit, and she agreed. I didn't even have to play the "this is ridiculous, I'm closing my account" card.

So the $48 a year I'm saving on bank fees makes me feel a lot better about the extra cash I spend by investing with RBC.

The lesson? As always, free money = good.

Thanks again, CD

Cliches become cliches for a reason

It seems Moneyrelations tagged me, a while back, in Moolanomy's My One Money Advice (MOMA) Meme challenge (although really, for simplicity's sale, you may as well call it the "what's your favourite financial cliche?)

Since I'm uninspired to write about anything else today, let's give'r a go.

Of all the platitudes that get tossed around ("buy low, sell high" ; "penny-wise, pound foolish" and the like) I'd have to say the one that I really keep close to my heart is "pay yourself first."

People who wait until the end of the month, until every other demand has been paid first before slipping the remainder into the piggy bank are, in my experience, likely to save far less money than people that reverse the order.

My automatic savings program grabs 25% of my paycheque every week about 2 hours after it comes into my chequing account. So right away, when I'm budgeting how I'm going to pay for everything else this month, that money doesn't enter into it. If belts need to be tightened and something needs to be temporarily suspended, money I tuck away for my future isn't the first thing to get the axe. Maybe there'll be one less beer after the game that week, but that sum I ferret away is sacrosanct.

What can I say, the system works for me. Try it for yourself.

Can debt be a safety net?

Normally, I dismiss the countless unsolicited financial products I get in the mail every month out of hand, but I'm tempted to bite on a particularly persistent one. In the deluge of pitches I receive from my bank, Royal Bank, every month, one of the recurring items is an offer of an unsecured line of credit. They're offering $10,000 at a rate close to prime, if I recall correctly.

I currently have a high-interest savings account that doubles as an emergency fund and condo downpayment fund. If something like a job loss were to happen now, that's what I'd be dipping into to tide me over. But when I eventually come around to buying a place of my own, I'll probably be inclined to empty the entire thing (so as to maximize my downpayment) and knowing myself, I know I'll be tempted to pour every spare cent I have into paying off the mortgage after that -- at least for the first year or so, until I've convinced myself I'm not actually about to get fired on a daily basis.

The long and the short of it is, when I liquidate the fund to buy real estate, I'll find myself in the position of not having an emergency fund, at least in the short term, to pay for those unexpected emergencies. (I'm told having three months' expenses is a good guideline.)

What I'm thinking of doing at the moment is to sign up for this unsecured line of credit as a sort of insurance policy. It doesn't cost anything on a monthly basis unless I take money out of it (which I wouldn't do as long as I had that $10K in savings I currently have) at which point I'd pay interest on the withdrawals. That way, should the need ever arise, I'd dip into the line of credit, as opposed to the emergency cash that's I'd already have wisely invested into minimizing my mortgage.

I suppose this is all moot until I actually need it, but I'm tempted to sign up for it now. I'm sure the rates offered by banks on unsecured loans start to change once you've borrowed six figures to buy a house, so my reasoning was to sign up now while I'm an excellent credit candidate.

Any thoughts on this? You don't have to remind me of all people that, as a general rule, debt = bad, but is it not better for my long-term financial wellness to not have 5K or more sitting around in a savings account when that money could be put toward paying down a future mortgage? I suppose there might be some negatives in terms of credit rating to consider, but the thought of having several grand sitting in a bank account while I have a six-figure debt to pay off doesn't sit right with me -- and I haven't even taken the plunge yet. It just seems a waste to hoard cash for a rainy day that might never come.

Is this not a situation where debt is actually the smart financial decision?

Flying south

As the Canadian dollar maintains its value above the U.S. dollar, I've turned my thoughts toward how I can use this to my advantage in my investment portfolio.

The easiest, most direct way is to buy U.S.-listed securities. The way I manage my investments, I make two large lump-sum purchases per year in my RRSP, and it's time for my second purchase of the year. (BMO being the first, if you were wondering.) I should have the money moved around by the end of the month. The question is, what am I going to buy with it.

In general, I'm a big fan of indexing to achieve the sort of long-term value I'm looking for, but I'm not averse to placing my bets on individual stocks here and there if I think they're particularly undervalued -- especially when they have a nice fat dividend for me while I wait for the rebound.

As such, I'm basically looking at three options at the moment. Each have their individual plusses and minuses:

Option A -- Buy another Berkshire Hathaway B share. (BRK.B)
I bought my initial Baby Berk share about 18 months ago, and it's fair to say it's outdone all of my expectations thus far. People told me at the time that Berkshire was too big. That Buffett's typical way of investing wouldn't work anymore because the company had too much money, and was hamstrung by having to make billion-dollar purchases that would yield less diamonds in the rough. Berkshire was a great company to buy -- in the 1980s -- I was told. 18 months later, my stake has increased by nearly 30% (in U.S. dollar terms, anyway) and the stock has reeled off a few impressive quarters in a row. Safe to say, I'm not selling my baby berk any time soon. But that's not to say I'm leaning toward buying another. Much as I hate to admit it, Warren Buffett's going to die one day, and when he does, people will panic and I'm convinced the stock will take a significant haircut. But they'll still have the same rock-solid assets, and new management isn't going to change course. All that will really happen is that people who jumped in on the dip will be rewarded down the line when the market realizes Berkshire's the same awesome company it always was. If and when that happens, that's when I'll probably buy more. Besides, buying more shares in that company right now would look a lot like chasing a winner -- usually a big no-no. And the more diverisification, the better. Why increase my stake in one company when there are plenty of equally-appealing different ones out there to hedge my bets?

Option B -- Vanguard's Total Stock Market ETF. (VTI)
Vanguard deserves credit for being the absolute gold standard of low-fee investing. They have a wide selection of products more targeted to specific sectors and styles, but this huge ETF is their broad U.S. market-indexing offering. It's the easy, idiot-proof option here, giving me exposure to the entire U.S. stock market. The downside? Very little, really. There's not much of a dividend and it gives exposure to some companies that won't do very well in the next little while (all this rate cutting and the subprime mess just looks like a house of cards to me) but really, VTI is the safe, secure bet. I just find it hard to get excited about it. Not when there's options like this one lying around...

Option C -- American Capital Strategies. (ACAS)
There are times when I simply adore MoneySense magazine. The time that their recent issue directed my attention to this little beauty's existence was one of those times. ACAS is an asset manager with more than $16-billion under management. Their core business appears to be selling debt and financing instruments to fund private equity buyouts and the like. All in all, sounds like a profoundly boring company -- which I like in my investments. So what has me so excited? Some of the numbers. ACAS has a tantalizing dividend yield of nearly 10%. That's pretty hard to find, unless you're dealing with a stock that's been hammered or had some disastrous short-term event befall it (There are visions of Biovail dancing in my head as I write this....) But ACAS doesn't seem to qualify on those fronts. All they do is lend money out to businesses and private equity groups, and bring it back in at an advantageous interest rate. They don't have any significant subprime exposure, which is the 600-pound gorilla threatening all financial firms in the U.S. at the moment, and they have a consistent history of growing earnings steadily in up and down markets. I like that. The company has a simply ridiculous P/E of under 5. P/E is not a number I normally pay particular attention to, but my general rule of thumb is the lower, the better. Canadian banks have P/Es in the low teens, for example, so 5 classifies as quite good. So basically, I'm looking at a company that, even if the stock flatlines, will pay me back 10% of my investment for every year I own it, and the market is only asking me to pay 5 times its annual earnings for the privilege. If there's a catch, I ain't seeing it.

Thoughts, questions, criticisms and haikus welcome as always in the comments. It should be obvious which option I'm leaning toward, but unlike George W. Bush, I'm always looking for dissenting opinions on my boneheaded moves.

Decision time

Just a quick note to Ontario readers to remind them to get out and vote today.

It's often said that in investing, you're better off to ignore emotions and trust your head.

But I'm urging you today to get out there and vote with your heart. Vote for the party who most represents the kind of place you want to live in. Canadian Capitalist took some unwarranted heat recently for taking a political side in this election, so I'm not going to do that -- not that it should influence your own views even if I did. I don't care who you vote for, as long as you do it. And while you're in that booth (or preferably before!) consider how you want democracy to play out in this province, and vote accordingly in the MMP referendum.

I know people are pretty politically cynical these days, but despite ample evidence to the contrary, it does matter. And it's a privilege, not a right.

Vote.

More bank notes

Since my experience with PC Financial's high-interest savings account has been largely positive, I've been mulling over switching to their no-fee daily bank account for my everyday chequing account.

I currently have a chequing account with RBC, a Visa card there too, and I keep my investments in an RBC Directinvesting account. That didn't really happen by design, but over the years I've grown to appreciate the convenience of having all my accounts in one place and being able to transfer money easily. I'm certainly not with RBC because they're the cheapest. I pay $4 per month to maintain my chequing account there, and $0 for the Visa because I pay my bill on time in full every month. In the past few years I've moved from about 20-30 debit transactions per month to less than 5 as I've been very diligent about putting absolutely everything I can on Visa for the points.

I usually say savings trump other factors , but part of me appreciates that I benefit from their size and heft when it comes to things like customer service when something goes wrong or having to find a bank machine somewhere nearby. If I were to count the advantages of keeping my everyday cash with RBC, I'd have to say they are the proximity to bank machines, ability to make same-day transactions (for paying off Visa or moving money into my investment account when an opportunity presents itself. Taking money out of my PC Financial savings, for example, would currently take at least two business days while I transfer it online to RBC and then find a bank machine to get it out.)

To me, $4 a month ($48 a year) seems a reasonable price for that. But let's do a little more detailed cost-benefit analysis here.

The obvious advantage of the no-fee chequing account at PC Financial? As the name implies, it's the 'no fee' part. That's a $48 annual savings right off the bat. But there's more. PC Financial offers 250 PC points every month for keeping $1000 in the account. Assuming I moved $1000 float from savings into the account to get that reward, I'd accrue 3000 PC points per year -- assuming I didn't use the account at all for things like buying groceries, which would boost my points. How much is 3000 PC points worth? As far as I can tell, about $3 worth of groceries. So my total savings in this scenario are now $48 worth of annual fees saved, plus $3 in benefits. I'm going to assume that things like customer service and prevalence of CIBC bank machines (who run PC's finance division) are a wash, so they don't enter into it.

Is $51 enough to make the switch? Honestly, I don't think so, but there are a few more factors to consider. Like the interest I lose from moving that $1000 out of my 4.25% savings and into effectively, an account that pays me 0% interest. That's $42.50 a year on the other side of the ledger. The benefits are getting smaller.

From where I sit, the only way this makes sense financially is if I play for keeps -- don't use the PC account merely as a "points-generating" mechanism, but actually use if for everyday use. I'd really start racking up some grocery points then. But I really like my RBC Visa card and would want to keep it. My plan to get free rewards from it is working perfectly. If that were the case, and I was going to use a PC account for things like my paycheque and debit transactions, but keep my RBC Visa and investment accounts open, I'd be well-served to keep the RBC chequing account open in some manner as an intermediary to them. Maybe converting it into a pay-as-you-go account would be best, where I'd pay $0 in principle, but a nominal fee (I think it's 50 cents) every time I made a transaction like paying my Visa bill or moving money into savings.

Forgive the jumbled structure of my thoughts on this one, but it's an insight into how my brain works. I'd love any insights from people who've done what I'm thinking of doing.

Essentially, my concerns boil down to this: Can you actually function without in some way being a customer of the big banks, and only use the fringe discount products? Or is that getting too cute by half?

I'd hate to go to the hassle of switching all those accounts over only to figure out the savings I accrued were nowhere near the cost in hassle I paid to get them.

Bank Notes

In a move that clearly demonstrates they're on the cutting edge of the 19th Century, Royal Bank manned up this week and announced they were lowering their online investing commissions to a more reasonable $9.95 for users with $100,000 in their account or who make more than 30 trades in a quarter.

That's some nice window dressing, but I see this as largely a symbolic act. Cutting prices for customers who A) already have the most assets and B) are more likely to recompense your losses by using the service far more frequently is not what I'd call forward-thinking customer service. The discount for active traders is particularly irksome to me because it really looks like RBC is trying to rope people into being day-traders by offering them 'savings'. But I digress. RBC and the other big banks can get away with doing stuff like this because Canada's banking system is an oligopoly, and people like me will more often than not keep our business with them -- especially when I hear about the headaches people have have with the actual discount players like Questrade, Etrade and Credential Direct. As a Big Bank shareholder, bring on the screw-job, I say.

On the opposite end of the spectrum, PC Financial, where I keep my emergency fund/condo downpayment, has very quietly raised their rate on their savings account. It's now at 4.25% for people with more than $1,000 in the account, like me. By my count, this keeps them a full 0.5% ahead of the granddaddy of them all, ING Direct.

What can I say, besides, "I'm glad I made the switch." I'm tempted to open up a no-fee chequing account there and keeping $1,000 in it just to rack up some free grocery points, but I haven't crunched the numbers to see if the money I'd lose in interest would be replaced by the amount of free groceries that would buy me.