I'm $697.83 richer thanks to pfblogs.org

Sat down this week to crunch some numbers I've been meaning to tabulate for a little while now.

Considering my relatively young age, I've had my toe dipped in the water of the investing pool for some time already, although I'd say I only truly got serious about investing in the last two years or so, once I finished school and got a real job with real money.

The biggest thing that inspired me to turn my investing style on its head and really start doing some homework before jumping into or out of a stock was the inspirational, educational and helpful stories I found out there on something called the pfblogosphere -- most of whom I'm pleased to say I stumbled across while sifting through pfblogs.org. Some of my favourites are linked on my sidebar to the right, but I really do find great new pfblogs on an almost daily basis -- far too many to list here.

Anyway, if it weren't for the lessons I learned through pfblogs, I would never have learned the magical power of value investing -- and perhaps more importantly, of the sheer majesty of dividends. The aforementioned number I crunched is my annual dividend and distribution income-- currently up to an impressive $697.83 per year.

I know it's not much to some people, but considering where I started from, that's an absolutely astounding number to me. Six hundred bucks is a lot of money. It's a sum that's even more amazing to me considering it's passive money. It just flows into my account, sometimes reinvested into more shares, but sometimes not, without me having to lift a finger or open an analyst report. And that doesn't even include the capital gains I've made this year.

I guess what I'm trying to say is, thanks.

I'm still early on my journey. But $697.83 is a nice reminder to me of why it pays to keep on my current path.

Free money? Good. Unexpected free money? Better

When I set up my automated savings program at ING Direct to automatically deduct a chunk of every paycheque back in September, I liked the idea mainly because it would force me to save. It wasn’t too difficult to get myself to live off of about 3/4 of my usual paycheque. And the balance would be socked away, working for me at a generous 3.5% rate, making my eventual downpayment on a house as big as it could be.

Sure, an added bonus was the possibility that I’d win one of the bank’s quarterly draws for $10,000, but I wasn’t really counting on it.

But when I checked my account today, there was great little bit of news for me:

11-Dec-2006  ASP Setup Bonus - $20

Apparently ING has been good enough to front me an extra $20, just for setting up the automated payment program. Sure it’s only 20 bucks, but it really brought a smile to my face. Especially since I didn’t know that was part of the deal when I set up the process.

What a great bank.

Mandatory retirement

I’m of two minds about the news that Ontario has moved to ban mandatory retirement of workers at age 65.

On the one hand, I support the move because the leftist in me thinks it’s wrong to discriminate against people for any reason. It’s wrong to deny someone an opportunity they deserve based on their race or gender, so why shouldn’t it be illegal to discriminate against that same person because of their age.

And on a more pragmatic level, I buy into the theory that the over-65 set are blessed with years of experience and knowledge that the Canadian economy can use to get better and more efficient. To an extent, anyway. On that level, forcing sharp-minded people out the door when they arbitrarily hit a certain age doesn’t make sense from an economic point of view.

But part of me doesn’t like this new law. As a young worker myself, I have first-hand experience that a glut of older workers hanging on to high-paying jobs when they’re clearly past their prime is a direct cause of why it’s so hard for a lot of young people to get their start. I think we’ve all worked at places that were top-heavy with older, unfireable workers who were clearly just mailing it in on a daily basis. My university faculty was full of them, for example. The best profs I had were under 40, but they all ended of leaving because the tenured profs above them blocked their access to the upper levels. Leaving aside the injustice of that, I think we all can agree that just as it’s foolish to cast off useful workers solely for age reasons, it’s likewise stupid to not allow innovative new thinkers into the economy.

Maybe this is just a tempest in a tea-pot anyway. The government’s own numbers estimate that only about 4,000 of the 100,000 Canadians who turn 65 every year will take advantage of this new law. I mean, most people I know would rather spend their retirement enjoying themselves than being a wage slave. So hopefully they’ll be more useful seniors who stick around than less productive ones, as most of the pundits are predicting, and the new law will be a net gain for everybody.

My dad, for example, semi-retired when he turned 60 largely for health reasons. He soon got bored with all the free time on his hands, so he now works part-time as a consultant in his industry. His income is about a third of what it was at his peak, but he likes his lifestyle, it keeps him busy for a few days out of every week, and his health is better too.

I don’t think he really did it for the money -- I’d ballpark my parents’ net worth at in excess of a million dollars. But I like his choice. He’s healthy, he enjoys his life, and he apparently still has a skill-set in demand in his industry.

If this new law makes more people like that, I’d guess it’s a good thing. But if it becomes another obstacle to getting healthy turnover in the Canadian economy, we’ll all be worse-off for it. Time will tell I suppose.

As always, I love hearing disagreeing viewpoints in the comments section.

I hate fees -- and you should too

Yet another worthwhile issue of MoneySense magazine plunked into my mailbox this week. I highly recommend getting yourself a subscription -- it's easily the best $20 I ever spent for my personal finance education.

A highlight for me was Duncan Hood's column on page 16, entitled Do fees really matter?

It's not available online yet, I don't think, and while I highly recommend buying yourself a copy, I'm going to excerpt a particularly enlightening passage here because it provides mathematical ammunition for why investing fees are the surest, quickest way of eating into your investment returns.

If you invest $100,000 in a standard portfolio of stocks and bonds for 25 years, history suggests you might get an average return of 7%. At that rate, your money would grow to more than $540,000.

But taxes takes the first bite out of that.. If you keep you portfolio outside an RRSP and you earn $75,000 a year or more, you will end up paying taxes on your investment returns of at least 20%, reducing your rate of return to 5.5% a year and leaving you with a portfolio worth just under $400,000.

Once we factor in inflation, which has been running at about 2.5% a year, your return drops to 3%, leaving you with a portfolio worth $200,000 in today's dollars.

The average Canadian mutual fund charges 2.5% per year in fees. That won't take a full 2.5% off yoru returns as fees are deducted before taxes and inflation, but it will do some serious damage, Fees reduce your return to 1%, leaving a portfolio worth $130,000 in today's dollars

At the end of our experiment, the sample portfolio has been knocked down from 7% growth a year to 1% a year. That bleeds the hypothetical $540,000 portfolio into an actual $130,000 one.

$30,000 profit to show for a quarter-century of diligent, diversified investing?

Fees matter. Anything you can do to reduce the amount that is trickled out of your portfolio every year, do it. It all adds up.

If you're paying a financial advisor 2% of your money each and every year to buy you a Canadian index fund, stop. And say it with me: ETFs! ETFs ETFs!

Biovail does it again

Holy Crap! Just when I'm thinking of dumping my Biovail shares since the company's growth prospects are so dim, they go and pull something like this:

Effective immediately, Biovail's Board of Directors has adopted a new dividend policy that contemplates the payment of an annual dividend of $1.50 per common share, a 200% increase relative to the Company's former policy.

In addition, the Company's Board of Directors has today declared the payment of a special cash dividend of $0.50 per share payable on January 22, 2007, to shareholders of record at the close of business on January 10, 2007.

Sweet! Beyond the extra cash, what really pleases me about this is that Biovail wouldn't have boosted the dividend unless they were confident they could maintain the payments. Only a complete gong-show of a company would up their dividend and then slash it shortly thereafter.

This way, I can enjoy the coveted double-whammy -- extra dividend money, coupled with steady capital gains as Mr. Market realizes that Biovail is now a decent income-producing equity. The Dividend Guy would be proud.

I still have no idea what Biovail is going to do on any given day, but considering the amount of nasty surprises I took during the first few years I held the shares, I'm happy to ride this current wave of pleasant surprises.

The rich get richer

News in this morning's Globe about how the richest 2% of people in the world own more than half of the world's assets doesn't really come as much of a surprise to me, although some of the specific numbers did give me pause.

In the world's first ever exhaustive survey on the subject, the UN found that the gap between the super-rich and the desperately poor is indeed widening at an astonishing rate. Compared to their elite counterparts, for example, the poorest 50% of the world's population control less than 1% of the world's wealth. And the gulf has widened sharply over the last 50 years.

Some other findings:

• Assets of $2,200 (U.S., I presume) would place you among top half of the world's wealth distribution
• Assets of $61,000 would place you in the top 1%. That's just an astoundingly low threshold to me. Essentially, if you have a net worth of $61,000, you're among the richest 1% of people on earth
• The vast majority of the super-wealthy live in North America, Europe and the Pacific Rim.

Still wondering how you stack up? Check out this interactive How Rich are You? calculator to see where you rank among the world's wealthiest. It certainly provided some sobering food for thought to me this holiday season. Brings my little petty obsession with my own net worth calculator really into perspective.

Carnival of Self-Indulgence

I must confess I've largely stopped paying attention to all the various personal-finance related carnivals out there (Carnival of Investing and Carnival of Personal Finance being the biggest) precisely because they've been too large and cumbersome to be useful.

They used to be small, manageable affairs that drew readers' attention to pertinent information they might have missed out there in the blogosphere. Particularly creative hosts would often weave different blog posts into a single narrative to really draw you in. Ones like this, in particular, were great in my opinion. I really did click and read every single entry, just because of the innovative way they were packaged to me.

But now? This is what the Carnival has devolved into.

No particular disrespect intended to David, as I think his offering is merely the latest, extreme example in the growing trend of what's happening to these things. I don't blame him for inventing a new revenue-generating idea for himself. But really -- embedding Google ads into the body of the Carnival's text to make them look like legitimate entries? He's being lauded in the comments section for his innovative and creative presentation ideas. But let's call a spade a spade here, people: the only reason this was done is to jack up the google adsense clicks on the site.

More power to him, or anyone else, who tries to squeeze a little extra income out of their blog. It figures that we financially-inclined pfbloggers would try industrious ideas like this to generate revenue. But as a reader, I don't have to like it.

I work in the dead-tree business. We have a word for when ads try to match their fonts and typeface with the newspaper's look to try to dupe people into thinking the content is legitimate. It's called advertorial, and most journalists -- and readers -- hate it. It benefits no one but the publisher's pocket.

I will continue to read carnivals of all varieties in the future, because there are always interesting things to extract from them. But strategies like this (coupled by the fact that a lot of the entries only seem to be tangentially-related to personal finance and are submitted by people just looking to bring more eyeballs to their page) take away from the Carnival's original intention: to foster a collaborative atmosphere by sharing personal financial knowledge to people who want and need some insight. Doing stuff like this makes it harder and harder to mine the carnival's for useful and interesting personal finance advice and writing.

Indeed, I'm sure I'll even submit once in a while when I feel I have something useful to add to the discussion. But I just don't think tactics like this one are something that needs to be encouraged. In short, I don't like what's become of the Carnival I onced enjoyed so thoroughly.

How much blogger does $25,465 get you these days?

Apparently, this much.

Just a note to say I've started one of those handy NetworthIQ graphics on the sidebar of this page to help me track my long-term progress.

After entering my data, I see I'm currently worth $25,465 -- a 1.77% increase from last month.

Let's hope that little line keeps pointing up.