Thursday, July 31, 2008

Income from blogging

In addition to the enjoyment I get out of writing, Loonies And Sense has actually generated a (very) small amount of money for me, by way of advertising income. The idea of generating alternative income was one factor that motivated me to set up the blog last year, and I'm hoping for more opportunities in the future for the site to make me some cash.

A recent post at The Shark Investor has got me thinking about exactly what I'm expecting in terms of blogging income. The gist of this article is that, if the reason your blog exists is to make money, then
  1. your blog will be boring, and

  2. you won't make much money from your blog.
However, if you develop your blog out of your passion for the subject matter and a joy of writing, then you will have a more interesting blog that has the potential to earn more money.

These are great points, and I like this idea of growing an audience "organically", with income as a secondary bonus rather than the primary motivation. With over 250 posts and one advertiser, I think it's safe to say that I'm not blogging "for the money". Granted, I'm not going to turn down any reasonable advertising offers, and I have some kooky money-making ideas from time to time, but the main thing pushing me to keep writing is a desire to learn (and share) as much as I can about personal finance.

It's a nice surprise when something makes you question your motivation, and you end up happy with the answer.

To close, let me just share the best advice I've read on how to make money blogging.

Being honest with yourself

Over at The Simple Dollar, Trent has a great post today on how to stop lying to yourself about money. I think this is a really astute observation about how people get into financial trouble: if people were really honest with themselves about the state of their finances, would they continue to take on debt and spend more than they earn? I doubt it.

I've been guilty of this in the past. I wrote recently about the bad advice I've given myself in the past, and this really amounts to lying to myself about where I stand financially. I've committed many of the warning signs Trent describes:
If you don’t recognize a problem, you’re going to go on deceiving yourself and digging yourself into a deeper and deeper financial hole. Here are some of the big warning signs to look for:
  • Do you often feel like you have to "justify" purchases because your brain tells you you can’t afford them?

  • Do you avoid looking at bills and financial statements?

  • Do you tell yourself that your "future self" will take care of this bill?

  • Do you try to block thoughts of your debts and budgeting out of your mind when you want something?

  • Are you often "surprised" by your credit card bills, but you don’t even think about the bills when you bust out the plastic?

  • Do you tend to believe you’re more well off than you are when you’re out in public buying stuff than when you’re looking at your bills?
If any number of those are true, you’re either directly or indirectly misleading yourself when it comes to your financial state, and that directly leads to financial trouble.
In particular, I've avoided opening bills, I've rationalized purchases while knowing deep down that I couldn't afford them, and I've left bills for my successful, affluent "future self" to pay (when is that guy going to show up, anyway?).

During my days of keeping myself in the dark, not only did I carry around an overwhelming sense of guilt any time I thought of my finances, but I was also consistently caught unprepared when it came time to pay my credit card bill: "The bill is how much??" When I started my turnaround last year, one of my biggest steps was to draw a line in the sand, and say, "This is my debt." I identified my $27,610.94 in revolving debt, and started to pay it down. By knowing how much I was starting with, and committing to not creating any new debt (by sticking to cash-only spending), I was able to make good progress in reducing the size of my revolving debt.

There are still months when I don't knock down my debt by as much as I'd like, and I don't always come in under budget, but I'm making steady progress toward my goal of eliminating my revolving debt, and perhaps more importantly, I know exactly how far I've come and how far I have to go.

Until "future me" swoops in to clean up the rest of this mess, that will keep me moving forward.

Wednesday, July 30, 2008

Well that's embarrassing.

Last Monday, I posted that I had finally contacted Equifax to correct my postal code (a matter of replacing a "6" with a "5"), after four straight months of meaning to get around to it.

Once I finally looked at the paperwork in detail, it turned out to be as simple as faxing them a form with some supporting documentation. No stamp for snail mail, no waiting on hold with their customer service department. Just filling out a form, photocopying some statements and identification, and sending a fax.

Today I received an updated copy of my credit report in the mail, and my postal code has been correted.

For those keeping score, consider the following:
  • Loonies And Sense's turnaround time: five months from receiving initial Equifax report to sending fax with updated information

  • Equifax's turnaround time: three days from receiving fax to updating records and sending out new copy of report

  • Canada Post's turnaround time: six days to deliver updated credit report
My math may be off, but I think I might just be the weak link in that chain.

As embarrassed as I may be, at least it's something I can officially check off my goals for the month. That's got to count for something.

Tuesday, July 29, 2008

The Loonie Portfolio: Asset allocation and half-year performance

The bloggers over at TheMoneyWriters have been posting their investment portfolio performance for the first half of 2008, in many cases including their asset allocation as well. I thought I'd throw together my own data, to share my own performance over the last six months.


My entire investment portfolio is in RRSP accounts, one self-directed account at my discount brokerage and a group RRSP through my employer. These accounts have the following asset allocation:

Self-Directed RSP
  • Canadian Equity Fund (S&P/TSX Composite): ~50%
  • US Equity Fund (S&P 500): ~10%
  • International Equity Fund (MSCI EAFE ND): ~20%
  • NASDAQ Fund (NASDAQ 100): ~10%
  • Canadian Bond Index Fund: ~10%
Employer Group RRSP
  • Employer Stock: 100%
I contribute to the employer group RRSP on a bi-weekly basis through payroll deduction. Note that my employer's stock is not factored into the percentages in the self-directed account.


I started the year with a portfolio value of $42,266.23, and the following asset allocation:
  • Canadian Equity Fund (S&P/TSX Composite): 47.1%
  • US Equity Fund (S&P 500): 9.0%
  • International Equity Fund (MSCI EAFE ND): 18.4%
  • NASDAQ Fund (NASDAQ 100): 9.5%
  • Canadian Bond Index Fund: 9.7%
  • Employer Stock: 6.3%
In the last six months, I have contributed $10,478.82 to my RRSPs, including direct contributions, employer matching contributions, and DRIP payments. Excluding these contributions, the "organic" current value of my portfolio is $40,991.66 (the June 30 value of the shares I held on December 31). This represents a loss of $1,274.57 (3.02%), due to an across-the-board decline in the value of my investments.

When I include my recent contributions, my portfolio value increases to $51,799.51, with the following asset allocation:
  • Canadian Equity Fund (S&P/TSX Composite): 45.8%
  • US Equity Fund (S&P 500): 8.0%
  • International Equity Fund (MSCI EAFE ND): 16.6%
  • NASDAQ Fund (NASDAQ 100): 8.7%
  • Canadian Bond Index Fund: 8.1%
  • Employer Stock: 12.9%
My employer's stock now makes up 12.9% of my total investment portfolio, so I'll have to keep an eye on how high this proportion gets. Overall, I'm down $945.54 from where I would be by adding my $10,478.82 in contributions to my starting balance of $42,266.23. If I take $47,505.64 = $42,266.23 + $10,478.82 / 2 as a proxy for my starting balance (basically assuming that half my contributions were invested for the full six months), then this represents a negative annualized growth of -3.94%.


4% negative annual returns aren't too great, but there are a few mitigating factors here:
  • Only $8,803.48 of the $10,478.82 in contributions was actually out-of-pocket money on my part; the other $1,675.34 came from employer matching and DRIPs, so that makes me feel a little better about the $945.54 loss.

  • When I compare my current portfolio to where I would be if I had kept my concentrated position in my employer's stock, I'm up by over $2,500. This alone is enough to make me feel better; I'm a lot better off than I could be, and it's as a result of a conscious choice I made.

  • All the markets are down. In fact, the S&P/TSX Composite has dropped nearly 4%, and the Dow Jones, S&P 500 and NASDAQ are all down more than 10% over the last 6 months. My 2% loss over the same period doesn't look too shabby.

  • I'm still buying. By continuing my bi-weekly contributions, I'm getting some great dollar-cost-averaging going on, so I'm picking up some great bargains on stocks.
How are your investments doing so far this year?

Comparisons in the air

Over at Four Pillars, there have been a couple of great posts recently comparing Canadian and American investment accounts. So far, the following comparisons are available:
The next post will compare Canada's new TFSA to the American Roth IRA.

This sort of cross-border comparison is exactly the kind of content I was looking for when I decided to start this blog. In fact, I've posted similar comparisons in my own lexicon series, as well as a post dedicated to comparing retirement and education accounts. Although I didn't go into as much detail with specific rules on the accounts, it's nice to see that I at least got my general facts straight (not surprising, considering I pulled a number of my RESP facts from Four Pillars' series on RESPs).

I have to hand it to the folks at Four Pillars for posting the content in a more Google-friendly format than my own comparisons; I'm frankly a little embarrassed to see my "Loonies And Savings Plans" title next to the likes of "Canadian RRSP Vs. U.S. 401(k) Retirement Account Comparison" and "Education Investment Accounts: Canadian RESP Vs. American 529 Comparison". Which do you think is more likely to come up in a Google search?

It's great to see this sort of analysis being posted. I think it's useful for people on both sides of the border to see how the other side has structured things. Knowing the similarities and differences between the two systems helps to understand how to get the most benefit out of your own investments.

Lease no more?

The decision of whether to buy or lease an automobile just got a lot simpler for Canadians, as GM Canada announced yesterday that it is getting out of the leasing business effective August 1. This is in response to the fall in resale values of SUVs and pickup trucks with the recent surge in oil prices: off-lease vehicles are becoming a hot potato, and GM doesn't want to be the one that gets burned. So far, Chrysler Canada will continue to offer leasing, although their U.S. counterpart announced on Friday that they are exiting the leasing market.

An interesting aspect of GM's announcement involves the alternatives that they are suggesting:
Instead, the sales leader in the Canadian market will offer alternatives such as interest-free loans for as long as six years in hopes of keeping monthly payments on vehicles purchased with loans close to what monthly payments would have been if the vehicles were leased.
This represents a major change in the way consumers "buy" vehicles. My thoughts on GM's product offering aside, taking away the option of a low monthly payment will likely keep a lot of potential customers out of the new-car market. I think this is a good thing, in the long run, if it gets people out of the monthly payment mindset and forces us to rethink what we can really afford, but this benefit won't come without some initial pain.

Like the rest of the easy-credit business that has been blowing up recently, we have some rocky times ahead of us before we get past the consequences of our poor choices.

The SUV's latest victim: Leasing

Monday, July 28, 2008

The ETF dilemma

One of my goals for this month was to decide whether to switch my retirement investments from the index funds I currently hold to an ETF-based portfolio. For the uninitiated, here's a quick rundown of the two types of funds:
  • Index Funds - These are mutual funds that track a specified stock index. You can purchase these funds either directly from the company that manages the fund, or through a broker, and the price of the fund is updated at the end of each day. Since these funds have fairly low turnover, their management expense ratio (MER) is lower than for actively managed funds. Index funds are not usually subject to loads or trading commissions, although they often have a minimum purchase amount. Because there are no transactional costs to purchase these funds, they are popular for dollar-cost-averaging.

  • Exchange Traded Funds - Like index funds, ETFs track a stock index, but the funds are traded directly on the stock exchange, and must be purchased through a broker. The price of an ETF fluctuates with its associated index throughout the trading day. These funds have even lower MERs than index funds, but they are subject to the broker's trading commissions, so there is a cost to buy or sell the funds. As a result, ETFs are more popular for lump sum investing, since they save money when transactions are less frequent.
It's taken me a while to get my head around the index fund vs. ETF debate, and I've got a few factors to consider:
  • Cost - This really gets to the heart of the difference between the two investment vehicles. The index funds I currently hold are reasonably low-cost, with a blended MER of 0.39% for my whole portfolio. However, if I were to switch into the ETF equivalents of these funds, I could reduce this further to 0.19%. On a portfolio of $50,000, that difference translates to a savings of $100 per year. In order to switch over to ETFs, however, I will have to pay the commission for each fund that I buy. At the current size of my portfolio, it will take 1-2 years for the reduced MER to offset the trading commissions.

  • Tracking - The price of my current index funds remains fixed throughout the trading day, but ETFs have intra-day fluctuations as they track changes in their associated index. This means that ETFs would facilitate a more real-time tracking of my portfolio's value. While this appeals to me from a dataholic perspective, it scares me a bit to be able to track to-the-minute variations in my long-term investment value.

  • Timing - Although I use the innocuous word "switching" to describe what I'm contemplating here, what I'm really considering is cashing in all my investments, and then immediately buying back into the market. This exposes me to market fluctuations between when I sell and when I buy. I know that the difference is not likely to be significant, and you can never guarantee that your timing will be perfect, but I'm uneasy with the prospect of performing this switch on my entire portfolio, especially in our current market conditions.

  • Choice - The decision of whether to switch aside, I also need to decide which ETFs I'll buy if I make this change. Fortunately, there's lots of discussion on this topic, and a handful of Vanguard and iShares (for Canadian indices) funds should work just fine.
My portfolio is right on the verge of making this change worthwhile from a cost perspective. With the MER savings paying back my commissions within 2 years, it seems like the right time to make the switch. However, I just rebalanced my portfolio a few months ago, and given the volatility in the market at the moment, I really don't want to "cash out" with this much uncertainty.

I think the best thing to do is to hold off until early 2009, and make the switch then. This will put me on an annual rebalancing schedule, and will also allow me to incorporate my year-end bonus (if any) into the transaction. Of course, I'm making the assumption that I'll be more confident about my decision six months from now, but by committing to this plan today, I have time to research my choices, and a deadline to complete the transaction.

So, in the interest of checking off another goal this month, my decision is to switch my retirement investments to an ETF-based portfolio by February 28, 2009.

On an unrelated note, I'd like to apologise in advance to the author of next February's Loonies And Sense posts for any stress he may feel over the next several months.

Friday, July 25, 2008

How do you think of the stock market?

The first time I heard of the stock market was while reading Gordon Korman's novel Go Jump In The Pool when I was eight years old. The story is about students at a boys' boarding school trying to raise money to install their own swimming pool. The students <SPOILER> finally make it happen when "George Wexford-Smyth III", the token rich boy, uses his stock market wizardry to grow their meager earnings to the $64,469.64 they need for the pool</SPOILER>.

This resolution to the plot confused the heck out of my young mind. Where did all this extra money come from? What's a stock? What does a silver mining company have to do with building an olympic pool?

I asked my parents about this, and they gave me a brief explanation of the stock market: you buy part of a company, and when people get excited about that company, the part you own gets more valuable, so you can sell it for more than you bought it for, and that means you've earned extra money. They also focused pretty heavily on the downside: if people lose confidence in the company you own, you might lose money if you have to sell for less than you paid for it. The message I took from this (reinforced by the fictional headmaster in the book) was that stock market investing is basically gambling, and you shouldn't invest money that you can't afford to lose.

It's amazing how truths you learn as a child can stick with you: this is how I thought of investing all through my university years. While I was in university, cell phones really started to become popular, and Qualcomm was a rising star of the NASDAQ. My roommate at the time was watching this stock with a keen eye, and explained to me the concept of a stock split (Qualcomm split 16:1 between 1994 and 2000). He discussed his plans to invest in the stock, and I asked what he would do if the stock went down after he bought it (in my mind, this scenario meant that you sold your investment at a loss to stop the bleeding).

He countered that he would simply buy more of the stock at the lower price. This concept was completely foreign to me: why would you buy something when it was dropping in value? He explained that when the stock rebounded, he would make an even bigger return on his investment, since he had acquired additional shares so cheaply.

That conversation with my roommate was my first practical exposure to how to buy low and sell high. Granted, he was loading up heavily with a single stock, which was amplifying his risk considerably. While you don't expect every piece of a diversified portfolio to collapse completely, a concentrated position in a single stock can quite conceivably lose most or all of its value in a matter of months or even days. Still, where I had always seen the "buy low, sell high" strategy as a total crapshoot, here was an approach to at least managing the buying side of the plan.

Qualcomm has gone from under $4 to nearly $50 in the last ten years (a 29% annual return). My roommate was right about this stock, and although his strategy was very risky in its lack of diversification, he introduced me to the idea of dollar cost averaging.

I think that an investor's ability to ride out an uncertain market depends on how they see the market. Is it all a house of cards that could come crashing down at any moment, or is it a robust, ever growing system that can be expected to provide consistent positive returns over the long run?

I happen to believe the latter, and I owe it all to Gordon Korman.

The worst financial advice I ever gave

I have a confession to make.

I have a blogging man-crush on Big Cajun Man. When I started thinking about creating my own personal finance blog, his was the first site I found while investigating the niche of personal finance blogs with a Canadian focus. Reading his blog (and its companion site) really inspired me to find my own voice on the internet, and he was one of the first bloggers to add me to his blogroll. I'll always think of him as a sort of big-blog-brother.

(On a side note, I believe the above paragraph holds the world record for most occurrences of the word "blog")

So when he e-mailed me with a challenge to post the worst piece of financial advice I've ever given, I was excited to get on board. I immediately started racking my brain for that one disastrous piece of advice that I've inflicted on a friend or loved one. Surely there was a shining example that would stand out as a beacon to all other bad advice.

It wasn't as easy as I thought. It turns out that I haven't given a lot of financial advice (good or bad) in my day. I'm sure I've hinted and nudged from time to time, but rarely in the form of active or formal advice. I'm quite new to this personal finance thing, and haven't had the opportunity or confidence to dole out a lot of financial wisdom. Fortunately for me (and my friends), this means I haven't created disasters in many financial lives.

Except my own.

I've written before about my financial fall from grace, and a major theme of this blog is my climb out of the financial hole I've dug for myself. Well, I couldn't have got to where I was a year ago without lots of lousy advice from yours truly. Here are a few of the gems I've come up with over the years:
  • "You can afford it." - Ah, the old standby. Close cousin of "It's only $20", "You'll get paid on Thursday" and "The sale ends tomorrow!", this one alone must account for a third of my revolving debt. Small moves add up and make a huge difference over time; it's up to me which direction I want them to take me.

  • "Lots of people are in debt; it's normal." - The sad thing about this one is that it's not untrue. Still, justifying my situation to myself in this way really showed a lack of maturity and ambition. Now that I've set a goal to get out of debt, I feel like I'm expecting more of myself, and that encourages me to rise to the task.

  • "You deserve it." - Yes, I've also consistently fallen into the entitlement trap. Why shouldn't I drive a brand new car? Of course I should buy the latest season of The Simpsons! What do you mean, I shouldn't go out for dinner again? I can't say I've put this completely behind me, but I have developed some patience and learned to set priorities.
There you have it: the worst financial advice I've given myself over the years, and the lessons I've learned from it.

What's the worst financial advice you've ever given?

Thursday, July 24, 2008

Knowing your limits

I recently received a piece of unaddressed mail from a new BMO branch that just opened in our neighbourhood. The gist of the piece was a welcome bonus of $100 for new chequing customers who open an account at this branch, upon completion of their first payroll deposit or pre-authorized debit.

I looked into the accounts offered by BMO, and was strongly considering taking them up on the offer. My plan was to open the account, and set up our bi-monthly hydro bill as a pre-authorized debit. Then, after the next hydro bill gets processed in September, I would switch the debit back to my primary bank account. The deal requires the account to stay open for six months, so at the end of January I would close down the account. At the lowest level banking plan of $4/month, I would be out $24, for a net income of $76. Not bad for an hour's effort.

I started thinking hard about this, however, and realized that the whole idea of starting a new banking relationship (with a monthly fee) just for the purpose of gaming the company out of $76 feels like a bit of a stretch. This feels to me like the idea of running credit card arbitrage on a low-rate offer rather than a 0% offer: true, you come out ahead, but the margin is pretty slim, and with the possibility of something going wrong, not exactly a no-risk proposition.

I'm going to pass on this offer. I don't want or need a new chequing account, and that's really a showstopper for me. If I were in the market for a new account, this would probably sway me to BMO, but I'm not going to let this offer create the need for a new banking product.

This might very well be worthwhile for someone else, but it falls outside my own comfort zone, and doesn't seem worth the effort or the risk.

Where do you draw the line when it comes to bonus offers and arbitrage strategies?

Payday update

Money isn't everything, but it's sure nice to get paid. After allocating my paycheque to savings and debt reduction, I've updated my progress bars and NCN Network chart with the current totals. I'm making some decent headway with my goals this month, so let's take a quick look at how I'm doing:
  • Reduce my revolving debt to $18,500 - I'm currently sitting at $18,586.45, which puts me a bit short of my target. However, this does still put me at more than 50% of the way to my year-end goal of $14,000, and with 12 out of 26 paycheques still to come, I'm pretty confident I can hit this mark by December.

  • Grow my Emergency Fund to $1,450 - Take a gander at the progress bars off to the right, and you'll see that my Emergency Fund is at 118.8% of my 2008 target. Huh? Well, with Ms. Loonie's new job and modified pay schedule, I'm beefing up my Emergency Fund to provide a buffer in between my paycheque and hers. The Emergency Fund currently sits at $1,563.28, and I'm aiming to get it up around $2,000 over the next couple of months. This focus on expanding our cash cushion is part of the reason I'm falling short of my debt reduction target this month.

  • Decide whether I will convert my retirement portfolio to ETF versions of the index funds I currently hold - I'm still working on this one. The recent market volatility has given me pause, and I'm leaning toward leaving things where they lie for the next couple of months.

  • Update my Equifax credit file with my correct postal code - Good news, everybody! You won't be hearing any more moaning about this one, because I've finally faxed the form! Thanks to the commenter who provided the much-needed kick in the pants that got me from talking about this to actually doing it.

  • Continue to walk to and from work every day, and pack my lunch at least 20 days this month - Going strong so far. I'm on track to meet both of these goals.

  • Blog 31 times in July - I'm a bit behind the curve on this one. I'm well ahead of the last few months' posting frequency, but I don't know if I'll hit the 31-post mark. We'll see what happens...
It's actually shaping up to be a pretty strong month. Taken as a whole, my debt reduction and savings goals are being met, and I've made good headway on the other tasks I set for myself.

Here's to keeping on track, and having a good news story to tell next Friday.

Monday, July 21, 2008

Keeping Things Undone

An anonymous commenter pointed out last week how much I've been prattling on about updating my address with Equifax to reflect my correct postal code, something I've been planning to do since April. This task seems to have found a permanent home in my monthly goals, without ever really being addressed.

There are a few of reasons I've been slow to act on this:
  • The impact of the change is minimal. Other than the postal code, all the information in my report is accurate. Not only that, but the report was successfully (and promptly) delivered to my home address in spite of the incorrect postal code, so this is really having very little effect on me.

  • The mechanism for making the change is unclear. The last page of the report is a "Consumer Credit Report Update Form", but the layout of this form seems more geared toward disputing incorrect items (such as judgments, invalid trade lines, etc.) in your report than updating personal information.

  • Credit bureaus have a reputation for being difficult to work with. I really don't know how much resistance I'll encounter when I make the request, and this uncertainty is making me procrastinate.
These three factors have been keeping me from biting the bullet and getting this thing done. However, thanks to Anonymous' comment, I have decided to suck it up and make the change.

This afternoon, I faxed the update form to Equifax, along with copies of two credit statements with my current address, and a photocopy of my driver's licence and credit card. We'll see how smoothly the process goes from here.

This is a small, small, small victory, but it's an item that I can finally cross off my to-do list.

Welcome to KTU: productivity, the Loonies And Sense way!

Thursday, July 17, 2008

Hats off to my brave colleagues

As I mentioned last week, Jeremy at Generation X Finance has a new series of posts called "From The Front Lines", in which he chronicles his first-hand experiences with investors' reaction to our current market conditions. So far, he has two posts in the series:
  1. From the Front Lines: Investors Selling Stocks in Favor of Fixed Accounts

  2. From the Front Lines: Changing Your Risk Tolerance Based on a Bear Market
A lot is being written these days about this being a buying opportunity, but I've recently heard a lot of talk from a few of my colleagues about aggressively timing the market.

I'm sure that, with all the ups-and-downs we've had recently, there is a lot of money to be made (and lost), but I just don't have the courage or recklessness to keep getting in and out and making big wagers with my retirement savings (which currently form the vast majority of my investable assets). I won't go quite so far as to call this a stupid move on my colleagues' part; they're all in their late-20s or early 30s, and have time on their side if they make a misstep. However, I personally can't handle the stress of day trading, whether in a bear or bull market, and I don't have the energy to track stock prices as closely as they do.

No, I think buy-and-hold index investing is right for me. I'm happy with my asset allocation, and I'll keep paying off my debts and dollar-cost-averaging my RRSP contributions.

I wish my colleagues well with their investing adventures, and look forward to some vicarious thrills over the next few months.

Friday, July 11, 2008

When did I become a Luddite?

The iPhone came to Canada today.

Canadians are now getting their first (legal) taste of Apple's iPhone, with the release of the new iPhone 3G through Rogers Communications.

Walking to work this morning, I passed a long line of early adopters crowding the entrance to a Rogers store waiting to sate their techno-lust. Watching these people mill around in anticipation, I couldn't help but wonder when I became such a Luddite. I'm only 32; I should be trembling with excitement over the release of a new technological marvel, not shaking my head in exasperation at all this ruckus over a cell phone.

I have to admit, part of my lack of excitement is financial. According to, Rogers is offering the world's second-most expensive iPhone, with a three-year cost of $2,176 for early adopters, or $2,572 if you wait until after August 31 to sign up. has an interactive map of the participating countries' iPhone costs, if you're interested in comparing.

The prospect of surfing the web on my phone just doesn't do that much for me. Some of the "location-aware" features are pretty cool, like searching for restaurants in your vicinity, but my cell phone is still very much a "when needed" tool, and I have no interest in making it such a core part of my day-to-day life.

Call me old-fashioned, but I think I'll be hanging onto my perfectly serviceable 4G iPod and Samsung D807 a while longer.

Now get off my lawn, you kids!

ING leads the pack, yet again

Well, after Wednesday's announcement of changes to mortgage insurance in Canada, ING has already changed their rules. Although the tighter requirements don't take effect nationwide until October 15, ING's mortgage glossary currently indicates the following:
Amortization Period

The amount of time it would take to repay a loan in full based on the payment amount at the selected payment frequency and current interest rate. At ING DIRECT, you may choose mortgage amortizations from 1 to 35 years. Remember: the longer the amortization, the less each payment will be but the more interest you will pay overall.


Down Payment

An amount of money you put towards the purchase of your home, which influences the mortgage amount you require. A down payment of 20% or more will determine whether your mortgage needs mortgage default insurance. If your down payment is less than 20% of your purchase price, your mortgage is high-ratio and needs mortgage default insurance. If your down payment is 20% or more of the purchase price, your mortgage is conventional and does not need mortgage default insurance. At ING DIRECT we require a minimum down payment of 5% from non-borrowed funds.
ING was the first bank to acknowledge the TFSA, and they're out front again on this new development.

Whatever else you may think of the company and its practices, they are outstanding at differentiating themselves from the competition.

Thursday, July 10, 2008

Changes coming to Canadian mortgages

The Finance Department announced yesterday that it would shorten the maximum amortization on government-backed mortgages from 40 to 35 years, in an effort to prevent a housing bubble in Canada. The maximum was raised in 2006 from 25 to 40 years, in response to the boom in demand for Canadian real estate. In addition to shorter amortizations, the minimum down payment required will be raised from 0% to 5%.

These changes come into effect on October 15, which means we can likely expect an uptick in home purchases over the next few months, as buyers look to sneak in under the wire with the old lending rules. After that, things may cool off a bit with the tighter rules.

I think this is a good idea in principle, but I wonder a bit if it's too little, too late. We've essentially had two years of relaxed lending rules to rack up a lot of long-term, high-ratio mortgages, and drive up housing prices. Will this change really work to make buyers think twice about the costs of homeownership? Also, although the new rules will be tighter, they still allow a 35-year, 95% mortgage, which is still a pretty highly leveraged position.

In Canada, the saving grace of our real-estate situation is the near absence of sub-prime lending (the Finance Department pegs this at about 5%). Most of the people who take out a mortgage to buy a home in Canada actually meet prescribed lending criteria, and they know the terms of their mortgage (as opposed to ARMs and negative-amortization loans). So we're likely not looking at the same default and foreclosure situation that we've seen in the U.S. over the past year.

The future of real estate prices in Canada, however, is far from certain. It should be an interesting ride.

Payday update

Well, I got paid today. Ms. Loonie has switched to a twice-a-month pay schedule, which means that her next paycheque will come on July 15. At that point, we'll finally know for sure what her net income looks like, and we can modify our automatic funds transfers as needed.

I've updated my goal bars and NCN Network chart, with my revolving debt finally breaking the $19,000 barrier. It looks like I'm roughly on-track to hit $14,000 by year-end, although the April 2009 target that I set last summer to eliminate the debt completely is looking less and less likely. I knew this was an ambitious goal when I started, so let's see how close I can actually come.

With the bear market we find ourselves in these days, the only way I can maintain forward progress is to keep chipping away at my debts, and keep socking away cash in my Freedom Account and Emergency Fund. Along with continuing my bi-weekly contributions to my RRSP, these are the elements of my financial picture that I can control directly.

Intestinal fortitude: living with a bear market

Jeremy at Generation X Finance has started a mini-series of posts detailing his first-hand experience with investors' reactions to current market conditions (Jeremy's a retirement planning specialist). His first post is on investors fleeing stocks in favour of bonds. He points out the well-worn truth of how much this can hurt your portfolio's long-term performance.

There's no denying how painful it is to watch your investment returns seemingly evaporate as the market takes a dive. It's understandable to want to do something to "stop the bleeding." However, the strategy of dumping your stocks and moving into bonds to ride out the slump is exactly the opposite of "buy low, sell high." Meg at The World Of Wealth illustrated this in a post about her grandparents selling some bonds to help her finance the closing on her new investment property without cashing out her investments at the bottom of the market.

It's still early days, but so far I seem to be able to follow this advice of staying the course. I'm anxious about what the next several months have in store for my investments, but I'm fortunate enough to have decades to recoup any "losses" during this and other down periods. As much as I hate to see my balances drop, the thought of cashing out and moving into "safe" investments at this point makes me physically ill. So I'll be hanging on by my fingertips, and doing my best to enjoy the ride.

On a lighter note, The Consumerist posted this advice today on surviving a bear market:
Investopedia says the best thing to do when you see a bear in the market is the same as when you see one in the woods: "Tuck in your arms and play dead!" In other words, don't go crazy selling stocks at a loss. In both cases, fighting back can leave you bleeding, although toughing it out won't be a pleasant experience either. And if you have money leftover after filling up your car, it's actually a buying opportunity. Which I guess is like playing dead in front of the momma bear while your buddy gathers up all the cubs while mamma is occupied and then later you and your buddy train them to harvest honeycombs for you.
I couldn't have said it better myself.

Tuesday, July 8, 2008

My financial vice

Five Cent Nickel recently wrote a post identifying his biggest financial vice, and several bloggers have taken the challenge and posted their own vices.

Being in the midst of my debt elimination process, it's a bit hard to narrow down the habits and purchases that hold me back the most. I know I've managed to rein in a lot of bad habits over the past year, and my spending on things like lunch at work has dropped dramatically. I think there are really two "vices" that are tied for the number one spot:
  • Collecting - I am a rampant completist when it comes to music, movies and books. Once I have a few albums by a given artist, it becomes a mission for me to pick up their entire catalogue. Similarly, I've filled my bookshelves over the last few years with dozens of graphic novels, and hundreds of comic books (I'm sure J.D. can relate). I've managed to get myself on a strict budget for this sort of thing, but the urge is most definitely still there.

  • Tracking my investments - I confess that I keep Google Finance open in my web browser throughout the work day, and I check my investment account balances at least once a day. This is unhealthy, and dangerous, especially with respect to my retirement accounts. The more closely I watch these investments, the bigger the chance that I'll react emotionally to a market jump, and make a stupid decision that affects my long-term outlook. One of the differences between index funds and ETFs is that index fund prices only change once a day, whereas ETFs fluctuate throughout the day. To me, the real-time tracking of ETFs is one of the most appealing things about switching to an ETF portfolio, but it's also one of the dangers that's keeping me on the fence.
There you go. One spending problem, and one risky behaviour.

What's your biggest financial vice?

Monday, July 7, 2008

Taking the road less optimized

I'm a numbers guy.

I love numbers. I actually enjoy working with spreadsheets, and I love the challenge of working out the mathematically optimal way of doing things. Flexo at Consumerism Commentary has a great post today on the power of a "mathematically correct" solution, and I have to say I agree with his logic.

That doesn't mean, however, that I always use the optimal solution.

Take my bi-weekly cash flow, for example:
  1. Money comes into our joint chequing account on payday

  2. Fixed expenses, including mortgage payment, student loan payment and line of credit payment, come out of chequing

  3. Emergency Fund and Freedom Account contributions are transferred from chequing to online savings

  4. Leftover cash gets transferred into my secondary chequing account, as my spending money for the next two weeks

  5. As I spend money on groceries, entertainment, etc., I either pay cash, or use my credit card and immediately transfer the corresponding amount from chequing to my line of credit

  6. When my credit card payment is due, I pay the bill with my line of credit
Steps 5 and 6 are my attempt to perform small-scale credit card arbitrage with my monthly spending. Because the credit card is paid in full every month, each purchase essentially represents an interest-free loan until the next payment due date. By making a corresponding interim payment to my line of credit, I'm actually using my credit card to defer interest accrual on the LOC, and saving myself some money.

I'm pretty proud of having devised this system, but I can't ignore the fact that, if I skipped steps 4 and 5, and instead just transferred all my leftover cash onto my LOC on payday, I would save even more interest. Even though this might be the "right" way to structure my cash flow, I've learned from experience that it's much easier to lose track this way than it is with the method described above. I find that transferring funds every time I make a purchase gives me a much more concrete feel for how much I've spent, and how much I have left before the next payday. The extra interest that I accrue by leaving that money sitting in the chequing account ends up being the "fee" that I pay for having a system that works for me.

True, I could be paying less interest, but I could also be paying a lot more, and I'm happy to find some middle ground.

This is partly about having training wheels on our financial bicycle, but it's also about priorities. I keep $200 of my Emergency Fund in physical $20 bills, earning no interest, so that we have cash immediately available in an emergency. Both Ms. Loonie and I have income tax withheld by our employer so that we don't have to worry about making up a shortfall at the end of the year, and also to keep us thinking of our income in net, rather than gross terms.

As the size of our Emergency Fund grows, it will become more important to optimize the vehicles we use for these savings. Similarly, as the gap between income and expenses grows, the impact of where I keep my "in-flight" cash will become more significant. However, for now, I think the small dollar amount we give up in order to have a convenient, manageable system is worth it.

Friday, July 4, 2008

Starting a new career: changes for Ms. Loonie

I've mentioned a few times that Ms. Loonie has a new job. Today is her third day at her new employer, and so far she is very happy with her decision. She's in a very collaborative environment, and the work seems, even at this early stage, to be engaging and challenging.

There's also the minor matter of a 67% pay increase, but let's not dwell on small details.

With the new job, there are a few changes that have to be managed:
  • Transportation - Her office is a half-hour subway ride away. Previously, we were both able to walk to work, so this represents an added monthly expense, in addition to the extra time spent commuting. We've budgeted for a monthly TTC Metropass, which is cheaper than purchasing the equivalent number of tokens, and also provides a tax credit.

  • Clothing - The dress code in her new office is more professional than what she is used to. This means that, for the first time, she needs to have a selection of "work" clothes to wear. She and I may not quite see eye-to-eye on whether this is a pro or a con, but either way, we have a new expense to maintain her business wardrobe.

  • Pay schedule - As I mentioned previously, her new employer is on a twice-a-month pay schedule, as opposed to her previous bi-weekly system. This means that each paycheque represents 1/24 of her annual take-home pay, so she ends up being paid slightly more per pay, but on a less frequent basis. We need to make sure that we can cover our fixed bi-weekly expenses during mis-matched pay periods. On July 10, our mortgage and student loan payments will be debited from our joint account five days before her July payday, so this will be our first trial.

  • New payroll deductions - Not only has her salary increased, but the type of income she earns has changed. She was previously paid from a variety of research fellowships, and she is now earning employment income. This means that she will have income tax withheld, in addition to paying CPP contributions and EI premiums. She's actually quite excited to start paying into CPP and EI "like a grown-up".

  • Better benefits - Her new employer has a good defined-benefit pension plan in addition to strong health benefits. We'll have to have a long look at our respective benefit plans in order to determine how to allocate our coverage.

  • Tax withholding - although her new employer withholds income tax, her previous income was not taxed at source, so she will likely have a tax bill to pay come April 2009. After that, however, she should be able to enjoy some nice tax refunds in future years.
We're both very excited about this career change. It's an exciting opportunity, and has a number of strong financial benefits. I can't wait to see how we navigate the transition period, and what sort of long-term change this represents for the Loonie household.

Happy Independence Day to our neighbours to the south

To those of you south of the border, I hope you enjoy your nation's birthday. Today the American markets and blogging community will be taking the day off, just like we did up here on Tuesday. There are only a handful of days during the year when the Canadian and American financial systems find themselves at odds with each other, and it's always interesting to see how one market moves when the other is closed for business.

Light up the sky, enjoy time with family and friends, and don't let any bloody-minded Canadians get to you with their stubborn insistence on spelling neighbor with a "u".

Happy Fourth Of July.

Thursday, July 3, 2008

How cool am I?

So yesterday morning, I demonstrated to the world at large just how cool I am in the face of punishing market drops. My take? The recent slide is nothing to worry about, and we're still in line with long-term forward movement.

Then the S&P/TSX Composite index drops 3% in one day, and I watch my retirement savings shed another $1,300 in market value.


Feeling some property tax relief

Both Paid Twice and Make Your Nut posted recently about changes to their property tax payments. Like many new homeowners, they make escrow payments to their mortgage lender in order to cover their periodic property tax expenses, and like many new homeowners, they started off with an escrow shortage, and subsequently saw their payments jump to cover the shortfall.

Ms. Loonie and I have been in a very similar situation. We make a property tax payment to our bank every two weeks along with our mortgage payment, and this is meant to cover our property tax bill when it arrives. Because we had a tax bill to pay shortly after closing on our condo, we initially found ourselves behind on our tax payments, and the bank hiked our bi-weekly contribution as a result. Now that we've got two years of payments under our belt, however, we're finally getting caught up on our initial shortfall, and I've been thinking of talking to the bank to get the payments adjusted back down.

Well, it turns out the adjustment letter we received last summer was just part of an automatic review the bank does on the account every year, as we received an almost identical letter from them this year. The only difference is, this time around the payments are being reduced rather than increased.

It's nice to see that the bank is actually proactive with managing the property tax account. I'd still prefer to pay the taxes ourselves (and I think we'll look into this when we renegotiate next summer), but it was a nice surprise to see the lender adjust our payments down without having to ask.

Like Paid Twice and Make Your Nut, we'll have a bit of extra cash injected into the budget once the payments readjust (effective August 21). It amounts to about $100 per month for us, which is certainly welcome. This was a nice instance of seeing something I read on a couple of American blogs relate directly to my own situation here in Canada. Another illustration that, although the terminology may differ, our financial systems operate in very similar ways on either side of the border.

Wednesday, July 2, 2008

Goals for July 2008

On the first business day of every month, I post my update for the previous month's progress, and set goals for the month to come.

I got side-tracked from my blogging duties in June, and didn't end up posting monthly goals, so let's see what I've got in mind for July:
  • Reduce my revolving debt to $18,500 (currently at $19,236.45) - This is not a big reach; I'm just trying to keep my progress strong, and avoid any delays to my debt elimination.

  • Grow my Emergency Fund to $1,450 (currently at $1,405.76) - I'm getting close to my year-end goal of $1,500, so I think a little pressure is in order to accelerate this one. $1,500 would cover our fixed expenses for one pay period, and although that only represents two weeks, it's still a very significant milestone in the climb off the treadmill. If I hit $1,450 this month, I should be able to make $1,500 by the end of the summer.

  • Decide whether I will convert my retirement portfolio to ETF versions of the index funds I currently hold. My portfolio is pretty much at the point where lower MERs would offset the commissions from buying ETFs, so I need to come to a decision on whether this is the time to re-configure my investments.

  • Update my Equifax credit file with my correct postal code - This one is nagging at me, so let's just put it to bed.

  • Continue to walk to and from work every day, and pack my lunch at least 20 days this month. This month has 22 business days (including today), so I'm basically giving myself a little leeway, and allowing myself two days of buying lunch. This will allow me a couple of social lunches out with colleagues, which is a good step in maintaining the social side of my career development.

  • Blog 31 times in July - With a grand total of 12 posts in May and June, I have some ground to make up. Let's get back to an average of one post a day.
This looks a lot like my May goals, but I'm trying to get back on track, so I have to start somewhere. A month of housekeeping should put me in a good position to try some new challenges in August.

Some perspective on a month of -38% returns

From May 31 to June 30, the market value of my retirement savings dropped from $53,547.77 to $51,463.61. That's a decrease of $2,084.16, or 3.9%, which represents an annualized rate of return of -37.8%. Let's ignore, for a moment, the fallacy of predicting annual returns based on one month's performance. Let's also overlook the fact that I added $642.10 in contributions to my RRSP during this period, which actually makes this an even larger negative return.

The point is, June was not a great month for someone invested in the stock market.

When I look at a chart of my retirement savings over time, however, I see something interesting:

I have already commented on the fluctuations in my retirement and liquid savings, but this past month's performance is worth singling out.

The straight line approximation of my retirement savings growth over time goes right through the middle of the June 2008 point. That means that, based on data starting in April 2007, last month's performance was entirely consistent with the rate of growth I've seen over the past year.

This view is a bit simplistic, since I've really only got just over a year of history on which to base my rate of growth. However, it does serve as a good illustration of the fact that my savings growth is dependent on both contributions and investment growth. I need to manage both of these factors in order to stay on track.

Make no mistake: June still sucked from an investment return point of view. However, it was not nearly the deathblow that the -3.9% monthly growth would suggest.

June update

Well, I hope everyone had an enjoyable Canada Day, and that those of you south of the border are gearing up for Independence Day on Friday. Let's see how the month of June treated us.

First off, you may have noticed that I didn't post any goals for June. This was an oversight, as I was lapsing pretty badly in my posting schedule. By the time I hit mid-month, I figured it was too late to post meaningful goals, so I figured I'd wait for July to come. However, I did accomplish a few things last month, so I'll give a quick run-down:
  • Reduced my revolving debt to $19,236.45 - This was a drop of $586.62 from May 31, which is fairly typical for a two-pay month.

  • Grew my Emergency Fund to $1,405.76 - I'm still slowly chipping away at the goal of a substantial emergency savings cushion, and with bi-weekly contributions of $15, I'm on track to beat my $1,500 goal by year-end. The Emergency Fund currently consists of $1,021.75 at HSBC Direct (with debit card access), $84.01 in other online savings accounts, $100 in a separate account at my primary bank, and $200 in cash hidden at home.

  • Walked to and from work every day - I've thoroughly beaten the habit of taking the TTC to work in the morning. A ride on the subway costs $2.25, and the cars are always so packed that the ride is really miserable in the summer heat. That, plus the fact that it cuts less than ten minutes off my travel time, has made me a dedicated foot commuter.

  • Brought my lunch to work almost every day in May - I had two days this month where I needed to buy lunch at work. Other than that, I either brought my own lunch from home, or had a work lunch that was provided for me. I do have to admit that I've been frequenting Tim Hortons a little more often during the workday this month, so that's something to keep an eye on.
Nothing really out of the ordinary here. I'll be posting some goals for July sometime this afternoon.

Now, on to my month-end financial update:

Online Savings - $2,550.93
Self-Directed RSP - $45,102.86
Employer Group RSP - $6,360.75

Credit Cards - $17,988.59
Line of Credit - $1,247.86
Student Loans - $26,536.76

Net Investable Assets: $8,241.33
Net Liquid Assets: ($43,222.28)

This month, in spite of a trip to the U.S., my cash savings increased. However, my retirement savings got positively hammered by the slide in the stock markets. Despite over $400 in RRSP contributions, my retirement balance decreased by over $2,000. This is the first time since last November that my retirement savings actually dropped from one month to the next.

Overall, my net investable assets decreased by $1,213.96, although my net liquid assets increased by $870.20. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). Despite the slide in my retirement investments, I'm happy to see my net investable assets stay positive.

Tuesday, July 1, 2008

Happy Canada Day!

Unlike last year's rather tardy Canada Day greeting (which also happened to be the first echo of my "Hello World" post), this year I thought I'd offer my wishes for the nation's birthday in a timely fashion.

Happy Canada Day, everyone. Be safe, have fun, and I'll see you back at work on Wednesday.