Still alive

Apologies for the radio silence. Just a friendly note to say this isn't one of the countless blogs destined to become abandoned and overrun with weeds -- my personal and professional lives are just a little up in the air at the moment. It's all being sorted, and all will be well.

Thanks for the kind (albeit concerned) words. I will be fine, and back to regular posting soon.

In the meantime, strap yourself in and enjoy the most volatile stock market we've had in years.

If adding the $600 you made in financials today to the $700 you lost in commodities last week isn't enough fun for you, please enjoy the latest hilarious Biovail-related lawsuit. Now that I'm no longer an owner, it's a lot easier to shake my head and smile.

Earnings reports may come and go, but lawsuits related to egregious accounting malfeasance are forever, it seems. Nice to have something you can count on.

Marred by taxes

Talking about personal finance is all-too-often a sombre, serious pursuit. Which is why I'm relieved that the conventional media in which I work is slowly waking up to the potential of the web as a medium for telling stories in a different way.

Case in point? Marred by taxes.

Garry Marr, real estate reporter at the Financial Post (and former colleague of mine) has begun a weekly series of videos on FP's website in which he rants and raves about the myriad ways that Canadians are overtaxed. What really works about the series is that it's not an act -- Garry's just a curmudgeonly guy who does this all day long at his cubicle anyway. Somebody just had the brilliant idea of videotaping it.

Maybe it's because of the headaches I'm currently going through dealing with various utility companies while I extricate myself from my apartment, but I really loved Garry's thinking aloud about why, exactly, his gas, hydro and water bills seem to be intentionally obtuse and misleading.

A customer charge? Delivery charge? Gas supply charge? Debt retirement charge? Since when does making sure there's a free market for electricity in Ontario cost me $18.82 every month? What ever happened to the concept of billing me for the amount of electricity or gas that I use.

I tried to embed the video below, but in case it doesn't work, click here to be redirected.

Budget reaction -- Hooray for TFSA!

I really can't emphasize enough how pleased I am by the prospect of the tax-free savings accounts the Tories unveiled in the budget today.

The star's James Daw has an excellent recap here, and Canadian Capitalist offers his usual insightful analysis here. ROB's Rob Carrick chimes in here. I suspect the Canadian personal finance blogosphere will be all atwitter with TFSA-related posts in the very near future, but for those to lazy to click, here's the 10-cent version of what's happened. Starting in 2009, Canadians over the age of 18 will be able to deposit up to $5000 a year into these accounts, and will never have to pay any tax on interest or capital gains on assets within the account. There's no limitations on taking money out of the account, and in fact investors will be able to reuse contribution room after making withdrawals. As some astute readers on CC's thread have already pointed out, the TFSA will function a bit like a Canadian version of a Roth IRA -- albeit an even more flexible one.

There are a lot of things to like about this. I'm particularly impressed by the fact that there doesn't appear to be many restrictions on what the funds have to be used for -- as opposed to RESPs and RRSPs which can only be cashed in under certain conditions, and are subject to taxes and penalties for breaking those rules. Even if the upside doesn't end up coming in as advertised, at the very least this proposal is bereft of downside. Whether it's to save for a downpayment on a house, an emergency fund, or a conventional taxable investment account for stocks and ETFs, I can't see any reason why Canadians wouldn't use these new TFSAs as a potent wealth-building tool. I can assure you, time is running out for my taxable investment account once these little beauties see the light of day, although I do wonder what sort of tax implications there would be for transferring stocks out of a taxable account into TFSA. Would the CRA consider me to have sold them and repurchased them as they do when you transfer stocks into an RRSP? I suspect so, but time will tell.

The only "bad" thing (such as it is) is that unlike RRSP contributions which are tax deductible and thus give me a nice fat cheque every April, TFSA contributions aren't. So the government isn't paying me to save for my future, as they do with RRSPs. But on every other level, these accounts help make it more and more worthwhile for Canadians to start saving more -- unless I've missed something, 100% of every dollar you earn from an investment in one of these accounts goes into your pocket at the end of the day, a claim that can be made of very few things. You have to like that.

Fear trumps greed

Conventional wisdom has it that in our capitalist system, the best way to induce any particular event into happening is to provide an economic incentive for it's occurrence. In layman's terms, this means that no matter what we want to achieve or obtain (A nicer house? Improved customer service?) the most efficient way of making that happen is to offer cold, hard cash after the fact as a reward.

In macroeconomic terms, governments do things like this all the time -- dangle tax cuts for a particular industry that they're trying to stimulate investment in. And companies do the same, by, say, putting certain items on sale so we're more inclined to buy them. Even in our own quotidian lives, we use positive reinforcement to induce ourselves into certain actions -- we reward ourselves for sticking to a diet, or allow ourselves a treat after accomplishing some sort of savings target, to name but two examples.

It's not necessarily an irrational view to take. But the more I think about it, the more I'm convinced that taking the opposite tack might work just as well: instead of rewarding success, punishing failure can be a lot more effective.

Take my cousin. He's come up with a novel way of raising money for a charity he supports. He's planning on running the London Marathon in April, and rather take than the conventional strategy of soliciting for donations, he's put his money where his mouth is and basically betting with his friends on what his finishing time will be. He's never run a marathon, and he's shooting for a time of 3 hours, 30 minutes -- quite a good time, I'm told. He's trying to cull together a donation 1000 pounds (about $1970 Canadian) for a cancer hospice. If he hits his target time, his list of donors will have to come up with the 1000 quid. But if he goes over his target time, he'll donate the 1000 pounds out of his own pocket.

I think this is a novel approach, and one I'm happy to support as part of my own ongoing charity plans. The added bonus that will probably come out of this is that if he doesn't hit his ambitious target, he'll put up 1000 pounds of his own money, and his friends will pitch in an additional 1000 to support a good cause, so everybody ends up happy. So finish that cheeseburger and have that second beer, I say. :)

But to me, the really interesting thing about all of this is that rather than take the conventional view of setting a goal and rewarding himself for achieving it, my apparently overly-rationally-minded cousin is more motivated by actually losing money through failure than by the prospect of being rewarded for success.

I think deep down, a lot of us are like this even if we fail to realize it. Why else do we, as investors for example, have a tendency to sell our winners too quickly after we've pocketed a nice gain, but we'll painfully watch as our losers slide further and further into the red because we're unwilling to accept defeat? And why is it that the investing stories we obsess over for years aren't the times we pocketed a 60% gain in three months on some flash-in-the-pan tech start up, but rather, the thousands we lost because we tried to catch a falling knife named Nortel?

Because we hate failure a lot more than we like success.

Tragedy averted

More reminders pour in with every passing day to reinforce my conviction that PC Financial > Canada's Big Banks.

After switching to PC Financial from Royal for my everyday chequing account a few months ago, I was pleased to discover there's a CIBC bank machine in the lobby of my office. Since CIBC essentially runs PC's banking division, this ATM has essentially become the place where I do 90% of my banking.

On my way out of work on Friday, I hit up the ATM for some cash (the boys and I enjoy a few non-alcoholic beers from time to time....) I asked for $60 from the machine, thinking that would be enough to fuel my weekend. This seems like a good time to note that whenever presented with the option, I decline the option of getting a receipt from the ATM, as I don't use them to track my finances, they end up in the garbage a few hours later, so as such, they just seem like a waste of paper.

So after asking for $60 and declining a receipt of the transaction, the hamster in the wheel inside the machine starts making some very abnormal sounds. A few seconds pass, before the machine spits out my card and says "Your transaction has been processed -- don't forget to take your cash." One problem: it didn't spit out any cash.

I'm wracking my brain trying to decide how to proceed here. Essentially, this bank machine has just taken $60 out of my chequing account, not given me the cash, but debited my account for that amount. Since I don't know PC Financial's phone number offhand (and really, this seems like and error on CIBC's part anyway) I call the CIBC phone number printed on the ATM. After 10 minutes on hold, a very unhelpful man informs me, essentially, that I'm short out of luck. He confirms that the transaction went through and he sees no evidence that cash wasn't actually presented, so my beef is with PC Financial, not CIBC, I'm told. It seems I would be best served by calling them. Thanks for nothing.

At this point, I'm a good 20 minutes late and in a bit of a sour mood, so I decide to head to the bar opera house to meet my friends and resolve to put my tab on VISA and deal with this in the morning.

Next day, I log on bright and early to see that the good folks at PC have already taken the bull by the horns and reversed the transaction -- reinserting $60 into my account. I didn't even have to call them to get this entire fiasco fixed without my involvement. Good on them for that.

Now, technically, I have no idea how one of the conventional banks would respond to a situation like this. But based on my brief dealings with CIBC (and the 20 years before that sidestepping Royal Bank's nickeling and diming) I suspect it would have been nowhere near as painless.

What can I say? Make the switch. You'll be glad you did.

Confessional

The point of a blog, if not the characteristic that makes the good ones really special, is when bloggers feel truly free to write from their heart and aren't compelled to self-censor themselves or hold anything back. On that front, I haven't been the most open of bloggers of late, as there's been a fairly major change in my life that I haven't had the stomach or inclination to deal with here.

A few weeks ago, I made the difficult decision to pull the plug on my long-term relationship with my girlfriend. As is always the case with these things, the reasons are complicated and difficult to understand -- even to me. And even though I was the one who initiated it, it's still the most difficult thing I've ever had to do in my life. Typically, writing is a cathartic process for me whenever I undergo times of stress and difficulty, so one might imagine I'd take advantage or an outlet such as this one to sort through my thoughts. But in this instance, I don't really feel comfortable pouring my heart out on this subject, as this doesn't really seem like the ideal medium to do it in. Nor did the breakup have anything to do with money, for that matter.

Still, I felt like I owed it to myself, and my few readers, to come clean here. By ignoring the elephant in the room and prattling on about my personal finances, I just feel like I'm being dishonest somehow. And my posts of late, I think, have tended towards the superficial as a result.

So there you have it. I'm basically going through as close to a divorce as you can (without ever actually getting married, that is) and while it's as amicable as these things can be, it's safe to say this is a major life change for yours truly. Maybe I'll feel like hashing out my thoughts here some day, but that day's not here yet. In the meantime, expect numerous posts on how expensive this process is turning out to be. Even after we've finished splitting all our stuff and finding new places to live, I'd forgotten how expensive single life can be.

I hope you understand.

January net worth -- surveying the damage

I updated my net worth last night, and I was pleased to discover that it actually went up, albeit marginally, despite the stock market carnage that continued through most of the month. Click the chart in the right sidebar for the gory details. Proof positive that automatic savings programs work.

And as for the stocks, not that this really means anything in and of itself (since the only time one should care about the value of their stocks is when you want to sell) but it's nice for a little reassurance that I have indeed chosen solid firms that are better positioned than some to weather inevitable storms. I wasn't worried when the TSX lost 600 points in a day, and I'm not worried now.

Pot Pourri

A few finance-related things I've found of interest out there on the Internets:

1) Are we in a recession? A bear market? A correction? And is it over? I have no idea. But I do know that when Starbucks starts departing from their traditional strategy of selling overpriced coffee, the big guys must be worried. $1 coffee and free refills? What is this, my local coffee shop?

2) Beyond the shock value of a nice big round number, I couldn't put my finger on what exactly I found so troubling about the news that a french trader at Societe Generale racked up over $7-billion in stock market losses, until Eric Reguly nailed it for me:

What is astounding is the amount of money he would have had to invest to pile up losses of €4.9-billion. European indexes are down 15 per cent, give or take a couple of points, since the late autumn. This implies the face value of his positions must have been €30-billion or more. How could a single, young bank employee have built enormous positions without the risk gnomes knowing about it? The answer is obvious: There are serious flaws in SocGen's oversight and risk management departments.

And if it can happen there, what's stopping it from happening somewhere else?

3) I thought lowering interest rates was supposed to make currencies weaker, but today's news that the loonie gained nearly 2 cents bucks that logic. Just more evidence that all the rules are apparently out the window in our current, nervous and crazy markets.

4) Ink-stained wretches like me, take heart. People do indeed still like reading newspapers. They just don't like paying for it, and they're doing it online. Maybe this blog thing is going to pan out for me after all. Of course, I'd probably need more than my current 25 cents a day from Google Adsense to live off it...

Why I'm not worried

OK. Calm down. Breathe. You're going to get through this.

I'm not going to lie to you, it's not pretty. The TSX has been a ski-slope downwards all year, and all of 2007's gains have been wiped out in the first three weeks of 2008.  And today's 600-point loss is just the cherry on top -- although I suspect there's more to come.

If you're new to this game, you're probably cursing your rotten luck for jumping in at the worst possible time, or worse, blaming yourself and thinking you're the only dummy managing to lose money on the stock market. You're not -- we're all in this together.  And I promise you, there's a way out.  

The old me would have been right there with you. Whining, and wincing, and screaming about the injustice of being cheated out of money for doing the right thing and investing even while everyone else my age is blowing their cash on vacations, cars, and consumer debt.

But that's not me anymore. There's a new sheriff in town, and his hand is calm and steady when he's staring down the bad guys. I'm not worried. For a few simple reasons.

Thanks to the pruning I've done in recent weeks and months, when I look at my battered portfolio today, there isn't a single name that I don't think has the ability to weather this storm and be a thriving, growing business several years down the line. Not next week, or next month. But down the line. And I'm likewise sure that those beleaguered stock prices are one day going to be worth much more than they are today -- not to mention much more than what I paid for them -- at some point in the mid to distant future. Gone are the penny stocks, the poor-quality income trusts, and of course, the Biovails (down another 5% since I sold, not that I'm keeping track or anything  :)  ) that ordinarily made me worry because they were speculative flyers I bought out of greed. I'm down to the bedrock I'm building my future on.

I'm looking at the banks, large-cap ETFs, asset managers, REITs and of course, failed textile manufacturers that populate my portfolio and I like what I see. I don't necessarily like the numbers next to them at the moment, but I'm sure these are the companies I want to own for the long-term. That's how I'll sleep tonight.

Will you?

The great investing experiment

My sister, bless her heart, is not what you might call great with money. I've discussed this a few times on this site, but basically she's a textbook case of someone with a high income, but high expenses, who's always complaining that she never has any money left over at the end of the month. I've had a look at her cash flow and in truth, it's not as bad as it may seem. She's deep in debt, yes, but it's primarily "good debt" -- a mortgage and a $48,000 loan to put her through law school she's currently paying off. But still, that four-figure credit card balance she rolls over every month makes me wince -- as does her tendency to drive to work and pay $20 for the privilege (when the streetcar gets her there in 25 minutes, stress free).

I like to tease her about it, but truth be told, that's probably just my natural sibling tendency to play down how well she's turned out. She's a wickedly smart cookie, a success by any reasonable metric, albeit one with some shoddy financial habits she's been able to get away with because of a high income. Bottom line is, I'm really proud of her, which is why I'm particularly enthused by the plan she's concocted to help get her on the right financial path.

For Christmas, her partner's affluent father was amazingly generous and bought the two of them a brand new car, to replace the two clunkers they've each been driving since about the mid-1990s. She'd originally planned on driving her car under it literally died on her (as opposed to trading it in for a small head-start on an expensive new one) but this new development means she now has an unneeded asset she can sell. She's poked around and according to autotrader.ca, each of their two cars has a resale value of a little under $3000. So selling both would net a windfall of at least $5,000 in "found" money.

Her idea is to give this cash to her "investing nerd" of a brother, so he can use his dizzying valuation skills to make them both overnight millionaires, or something like it. I can already hear the clamour of voices screaming "DON'T INVEST -- PAY DOWN THAT DEBT FIRST" and believe me, I agree. But unfortunately, it's a non-starter for her. She refuses to do anything as "boring" as paying down debt with this windfall -- no matter how many times I assure her it's extremely unlikely I, of all people, can better, on the stock market, the 19% after-tax return that bringing Mr. Visa down to 0 would do. But she's insistent. I'm cautiously willing to go along, on certain conditions. She's assured me she'll pay down that debt out of different funds, but she really wants to "have a little fun" with this mini-windfall. It's an emotional reaction, but it's one I can understand I suppose. I think she can do it all if I keep working on her.

So the obvious question is, what investments am I going to buy for her? Ordinarily, if anyone in their 20s or 30s comes to me and asks "what should I invest in?" I say as long as it's for the long-term, stick it in a broad-based ETF like XIC or VTI and forget about it for a few decades. But it's not that simple, in her case at least. She has a bunch of underperforming mutual funds that, strangely enough, seem to do nothing but bleed out fees and commissions without giving her any paper gains of late. (Editor's note: Sound familiar?) So, buying her $5000 worth of XIC, for example, wouldn't give her any more exposure than she already has in her anemic balanced funds, and would only sour her views on investing even more. And I can't bring myself to tell her to give the $5000 to her adviser because I don't think she needs to be paying this person like, 2.5% per year, when an ETF could do pretty much the same thing for her.

As such, my aims for her are a little bit different. I can roll the dice and stick my lot in with one or two companies, with the knowledge that her balanced funds will at least track the stock market as a whole. I'm going to be very strategic with my picks, as I'm trying to convey two broad notions to her:

1) Investing is about the long term. It's great if she can look at my picks in six months and see that she's "up" or "made money" on them, but ultimately, that's not important. I want to pick a company she can buy and hold for years, that'll increase in value slowly over time, so the magic of compounding, and stock splits, and dividends, can get to work for her. I want to rid her of the notion that you can get rich quick, and show her how getting rich slowly is not only easier, but also actually attainable.

2) Dividends are cool. Capital gains can be fleeting, but companies that pay out any excess cash in the form of dividends to shareholders are the best in my book. The day I realized that essentially, these firms are paying me to own them was an eye-opening one for me. I want her to get that, too. Plus, the dividends can be like little rewards for her. It's cash she can take out of the account and spend as she sees fit, without having to sell or reduce her stake to monetize. Surely that will turn her into a buy-and-hold investor -- quarterly cheques she can spend as a reward for her patience.

One thing I should mention is that I'm going to be conducting this little experiment in an unregistered account (i.e. not in an RRSP) I'll set up for her with a low-fee online brokerage like Qtrade, Questrade or Etrade. My sister has a large income and puts relatively little into an RRSP at the moment, so she's got a lot of unused contribution room. One day, when she's figures all this stuff out, that contribution room is going to be worth a lot to her as a tax shelter, so I don't want something I screwed around with today to impact that. I'll keep it unregistered, and we'll worry about capital gains if and when they're up and we sell. If that happens, it'll have been a worthwhile lesson for her, so it's not a bad problem to have. And I should also add that I'm going to be including her, as much as she's willing, in the selection process. Because this is supposed to be a learning experience for her. I want her to understand the how and why of what I'm doing, as opposed to her just shooing me away and saying "you deal with this stuff," the way she does at the moment with anything regarding money.

As far as companies go, I've got a few contenders I'm currently researching based on my above-stated criteria, and I'll keep you updated on how this progresses. But I'm eager for feedback and suggestions on this. Feel free to try to convince me why she's better off paying off the Visa bill -- like I said, I agree with you. But it's a non-starter for her, so this seems like the next best thing.