May 132019
 



Step 1 – Open Account

Ready to buy ETFs? Great! First you’ll need a brokerage account. I recommend Questrade. Any brokerage will do but a low cost online brokerage is going to be the easiest and cheapest for most people. Go ahead and open that account now and come back when you’re done.

Step 2 – Fund Account

Your account is open now? Good. Time to deposit some money, or transfer your account from another financial institution. Did you know that you can have multiple TFSAs and RRSPs? As long as you don’t go over your total contribution limit between all your accounts you’re good. If you’re transferring your registered account (i.e. TFSA, RRSP, RESP etc.) make sure you first contact your NEW brokerage(like Questrade). They will send a form to your old brokerage to transfer your funds.

DO NOT withdraw money from your RRSP to your bank account and redeposit it. If you do you’ll pay taxes and early withdrawal fees. If you withdraw money from your TFSA you’ll have to wait till next year to get that contribution room back (i.e. maxed out TFSA, withdraw $50k on January 2nd 2019, you can’t redeposit that till January 1st 2020 and it just sits). Not as bad as the RRSP fees and taxes but still a problem for you money bags with your maxed out TFSAs.

Does your account have money yet? No? Don’t worry it takes a few days for a deposit and a few weeks for a transfer. Come back when you’re ready.

Step 3 – Invest

Ok your account is finally funded! You’re ready to buy! But wow this interface is a lot more confusing than you thought….

Continue reading »

Apr 062019
 



There are too many bills. It’s time to eliminate one of them. If you are savvy with dividends you know what I’m about to go over:

What’s a dividend?

A dividend is an cash payout to all shareholders. The money for dividends comes from company profit. Thus Bell will pay you some of their profits. As long as Bell exists and offers the dividend they’ll keep paying. Theoretically you could get lifetime payments from Bell (or any other company that offers dividends).

The actual payments will seem small – a good dividend is typically 4% of the share price. On an investment of $1000 you’ll get $40 per year. But keep in mind you’ll get that 4% every year for your entire life (potentially). And the more shares you own, the higher your payout will be. 4% of $10,000 is a lot more than 4% of $100.

Make Bell Work For You

Lets say your cell phone bill is $50/month ($600/year). Bell currently pays a dividend of $0.7925/share/quarter (or $3.17/year, or $0.264/month).

-Only a quarter per month???-

Yea a quarter per month is not much but bear with me. If one share will pay 25 cents per month, how many shares are needed for a payment of $50/month?

$50/$0.264 = 189.39 (round up to 190)

You need to own 190 shares to earn $50/month. Okay….. how much is one share? $59.34 (as of this writing). Thus 190 shares will cost:

$59.34 x 190 = $11,274.60

Thus for the small investment of $11k Bell will pay you $150.58 every three months!

Geez $11,274 is a lot

Yes.

But keep in mind that unlike your bill payment you don’t LOSE the $11k. You can sell your shares at any time and get some amount back. Bell has been around for a while. And people like cell phones. A lot. And there’s no reason to believe Bell won’t continue to be around for a long while. Here’s the chart of their stock since 1996:

Should've bought in the 90s

Should’ve bought in the 90s

Even during the dot com crash and the 2008 crash they maintained a considerable amount of value. I’m sure in the upcoming crash (date TBD) they’ll drop 20-30% but recover the value within 1-2 years. They probably won’t even cut the dividend!

But I could just pay the $50 bill for 225 years with that $11,274!

Well yes, but again, in that scenario you’ll LOSE the money. If you buy the stock instead your $11k will (probably) increase with time. I get that not many people have $11k lying around, but even a small contribution of say $2000 could get you about $10/month in dividends. That’s enough for Bell to buy you a sandwich every month!

 

 

For nerds – Other factors to consider

TAX – Dividends are taxable income. If you hold Bell stock in a TFSA there’s no problem, but in a taxable account you’ll be paying. Luckily dividend tax is cheap. Especially when it comes from qualified Canadian companies like Bell.

The actual dividend tax rate depends on your total income for the year. Let’s assume you make less than $95,259, that means your federal dividend tax is 7.56%. Less than 8%!!

Let’s make Bell pay your tax bill as well. To make up for that 7.56% tax you’ll need to own an additional 15 shares, or 205 shares total which will cost you roughly $12,164.70.

In summary if you want to hold your Bell stock in a taxable account you’ll need to pony up an additional $891 to cover the dividend tax bill (assuming you earn less than $95k/year)

TRANSACTION FEES – Most brokerages charge a commission to buy and sell stock. There’s no fee for collecting dividends though. So if you’re with Questrade budget an extra $5 to buy all these shares and another $5 to sell. Other brokerages might charge you upwards of $10 or $20.

LOGISTICS – Bell pays a quarterly dividend (i.e. you’ll get paid on the 15th of January, April, July, and October). Your cell phone bill is due every month. You’ll want to withdraw the dividend as you get it and use it to pay the next 3 months of bills. WARNING – Depending on your brokerage they may charge a withdrawal fee…….. hmmmm…… The big banks make it hard to find their withdrawal fees. Some offer free withdrawals but it looks like TD charges $1.50 for withdrawals from TFSAs and non-registered accounts. Questrade offers free withdrawals from all their accounts as long as you use an EFT to your bank account and not a cheque or wire transfer.

Let’s say you have to pay $5 to withdraw your quarterly dividend. That’s another $20 per year, or two sandwiches!

SEEMS LIKE GAMBLING – No it’s not, I go into that here. But yes there is a risk the stock will permanently go down or they’ll cut the dividend. But it’s a risk you’ll have to accept. Bell has been around for a long time and there’s nothing to suggest they will be going away soon. Nothing ventured, nothing gained!

Conclusion

You can apply this principle to any bill and any company. Why not get Fortis to pay your power bill? or TD to pay your car insurance? or Canadian tire to pay for your BBQ and propane? Why not get the stock market to pay all your bills? If your annual spending is around $40,000 and your average dividend rate is 4% you’ll be covered with $1,000,000 invested. Seems like a lot but it’s entirely possible with a lifetime of contributions. – Isn’t that just retirement? – Sort of. If you amassed $1 million and only lived off the dividends you’d still have the $1 million when you die. With a typical retirement you’d be withdrawing from the $1 million over the years.

Anywho… Dividends seem to be the next step on the investment ladder when you want to move past index funds. If this post confused you stick with the index funds and you’ll do fine.



Oct 212018
 

 

Perhaps you’ve heard about the Canadian Pension Plan, but have you also heard about Old Age Security and the Guaranteed Income Supplement? The average Canadian probably doesn’t know what they are, how they works, and what else is available. Some people assume the government will cover them, and often these people don’t bother with retirement savings. Is this a good idea? Lets dig in and investigate:

Continue reading »

May 242018
 

Starting with the goods if you want to skip the article: Use the promo code below with Questrade to get your first $50 in trades for free after opening an account:

PROMO CODE: jqzswtbb

 

So you are ready to start investing in Exchange Traded Funds (ETFs). You understand how mutual funds are costing you tens of thousands of dollars and it’s time to take control of your own future. Or maybe you are a crazy gambler and want to try your hand in the stock market. Either way it’s time to actually open an account. But where should you start?

Continue reading »

Feb 082018
 

So you’ve decided to move back to Canada eh? Maybe you didn’t like your new country, or maybe Canada lured you back through family, friends, access to nature, relative political stability, employment, universal healthcare, politeness, excessive skiing…. should I keep going?….. beavers, mild summers, few natural disasters, legal cannabis (pending July 2018), funny accents (or lack thereof), hockey, poutine, flannel shirts, immigrants, subsidized education, and of course the majestic moose.

Regardless of your motives for returning you’ll need to figure out how to re-establish your financial life to maple country. It’s not going to be simple, but it can be relatively cheap.

The information here will also be relevant to new immigrants. If you are a new immigrant or refugee there are additional government services to help with your transition that us former residents don’t get.

PICK A RE-ENTRY DATE

It’s very important that you pick a firm date to regain Canadian residency. Both countries will be after your precious taxable income and this date determines who gets first dibs. Typically it’s the day you physically arrive in Canada. The CRA will use this date to determine when to start taxing you. Here’s some things to do before and after that date:

ORGANIZE YOUR INTERNATIONAL FINANCES BEFORE YOU RETURN

You’ll need to decide what to do with your foreign financial accounts. This decision will mostly depend on your plans for the future and how the other country deals with non-residents.

If you’ve spent a significant amount of time abroad you’ve probably established some roots in your new country. Maybe you found a beautiful spouse who will want to visit their family back home every year. If you expect to be making repeat visits you’ll probably want to keep a bank account open for spending money. First check to see if the foreign bank allows non-residents to hold accounts, and check what you need to do to avoid monthly fees. The money will be just sitting there for months at a time and you wouldn’t want it to get eaten by fees.

Depending on your country you might want to keep some of the currency anyways. USD have always been valuable and should continue to be in the future. The downside is that the money will be just sitting there losing value to inflation. I’d advise against holding your overseas money in a savings account that earns interest. Chances are you’ll be earning 0.1% which might be a few dollars per year and you’ll have to deal with more complex foreign taxes.

REASONS TO KEEP A FOREIGN BANK ACCOUNT

  • Frequent visits to said country
  • Currency diversification
  • Easy purchases in foreign currency
  • Bank diversification

REASONS TO NOT KEEP A FOREIGN BANK ACCOUNT

  • No plans to return to said country
  • Avoiding losing money to inflation
  • Avoiding losing money to bank fees
  • Avoiding foreign taxes on bank interest
  • Simplicity of financial account consolidation

What’s that? you got fired and your visa is void and you’re returning to Canada tonight? Bummer. Most reasonable banks should let you transfer your money and close your account remotely. Probably best not to mention that you got deported till after your money is safely back in Canada.

Continue reading »

Sep 072017
 

Whoa, climate change? On a finance blog? Yep it’s come to this. First, lets get this out of the way. Is climate change real? Maybe, maybe not… Just kidding. It’s totally real and anyone who says otherwise has been reading too many blogs. I mean… well… this blog is fine.

Don’t believe in climate change? You are free to believe in whatever you want but the objective truth doesn’t change based on what you believe.

Anyway this article isn’t for climate science it’s about profiting from the inevidible!

 

You’re saying I can make an unethical buck profiting off the suffering of others?

Not exactly, we aren’t buying stock in cigarettes or leaded gasoline here. Based on my own research into climate change and seeing this emerging denialist attitude, it’s my opinion that the future planet is going to be warmer and there is nothing that you as an individual can do about it. Might as well watch the world turn to hell with a few extra bucks in your pocket.

Alright, I’m listening…

Before I start blindly listing energy stocks we need to define how the world will change as the climate warms. First, lets think of the worst case scenario where average temperature increase dramatically:

  • Hotter summers
  • Warmer Canadian winters (yay!)
  • Stronger storms
  • Rising sea levels
  • Water shortages (fewer glacial sources)
  • Crop failures/famine
  • Mass human migration away from the coast
  • Extinctions
  • Increased vegetation (from higher CO2)
  • Cats and dogs living together, mass hysteria!

Well that’s a scary list, except for #2. What kind of products and services might be in more demand in this new world?

  • Air Conditioners
  • Storm resiliency planning/construction
  • Storm recovery
  • Sunscreen
  • Moving/immigration services
  • Construction
  • GMO crops (resistant to climate changes)
  • Desalination
  • Energy efficiency
  • Green energy
  • Higher elevation land
  • Short shorts

As an engineer this list makes me excited. Lots of investment opportunity here. Finally lets rank them in terms of the greatest potential for short-medium term gain:

  1. Storm resiliency planning/construction
  2. Storm recovery
  3. Energy efficiency *
  4. Construction
  5. Green energy *
  6. Air Conditioners
  7. Sunscreen/short shorts
  8. Moving/immigration services
  9. GMO crops (resistant to climate changes) **
  10. Desalination *
  11. Higher elevation land

*These ones might have fantastic potential if a bright young person comes up with a miracle invention. Unfortunately we can’t rely on that for investing.

**If people weren’t so scared by GMOs this would be higher (especially those that don’t even know what GMO means)

Finally lets go through the points and identify some companies that provide these services:


1, 2, 4 – Storm resiliency planning/recovery/construction

 

Storms and flooding damaging coastal cities is one of the first things we’ll start noticing in the coming decades. Already Hurricane Harvey has flooded Houston and Irma is on its way. Lets find some companies involved in rebuilding and resilience:

Tetra Tech – TTEK – Consulting and Engineering services with lots of disaster planning and recovery services. Up about 19% in the past year

Ch2m (now Jacobs) – JAC – Also consulting and engineering with lots of resiliency work.

Continue reading »

Mar 212017
 

I’ve been getting a lot of similar questions lately. What are bonds? Why should I care? Why are you wasting your time on this silly moose website?

I’ll answer some of those questions. Turn on the thinking part of your brain…. now… and here we go with bonds!

Not that kind of bond

Not that kind of bond

What is a bond?

A debt issued to some entity where YOU act as the issuer and collect interest. (You loan money and they eventually give it back plus some extra)

 

Wait what?

You give the government or a corporation some money, say $1000, and they promise to pay you interest, say 6%, over a specified time frame, say two years. At the end of the two years you’ll get your $1000 back plus $60 interest for a total of $1060.

Bonds are issued by governments and corporations to gain access to cold hard cash for various long term projects like World War II. Corporations prefer bonds over direct bank loans because bonds offer more flexibility. Banks are strict on what you spend their money on and won’t give you anything more till you pay back the first loan.

Governments typically don’t take loans from banks and thus will normally issue bonds to raise cash or cover a deficit. Alternatively the government can just print more money but that’ll weaken the currency on the open market and thus weaken the country.

 

How is this different from a GIC? Also, what’s a GIC?

A Guaranteed Investment Certificate(GIC) is an investment sold by a bank that provides a guaranteed return over a specified time frame.

GICs are normally issued by banks, not corporations or governments, and as the name implies is guaranteed. The word guarantee is a strong statement, but these banks have been pretty reliable these past few centuries. Bond values can change over time(more on that later) and thus their value is not guaranteed. A bond can also be SOLD at any time whereas a GIC is completely locked up for its duration.

 

Why should I buy bonds?

You’ve probably heard that people need 30% bonds and 70% stocks. There are reasons for that:

  1. Diversification – During wild market fluctuations bonds will normally do the opposite of stocks and owning both will make your portfolio less volatile. Some bond funds during the 2008 crash gained 11% while stocks fell 20%
  2. Stability – Bond prices may rise and fall slightly but they are seriously more stable than stocks. Check out the graph below.
  3. Income – Cash payouts from bonds remain fairly constant even if the bond price dances all over the place. Most bonds payout twice a year and can be used as a reliable source of passive retirement income.
Stocks vs Bonds

Stocks in Red vs Bonds in Blue. Bonds are low risk low reward which is a good thing

Ok I’m convinced, how do I buy bonds?

The easiest way to buy individual bonds is through your brokerage. Questrade offers zero commissions on bond trades. You will normally call the bond department of the brokerage to place an order. Government bonds can be purchased through the Government of Canada website. They’ll even mail you a fancy bond certificate! (Update: Canada Savings Bonds are being discontinued in November 2017. Dangit)

 

How else do I buy bonds?

ETFs – You guessed it, bonds also come in ETFs! With a bond ETF you can buy a small fraction of 1000 different bonds at once rather than a single bond. You can buy them just like a stock through your brokerage and can easily target a bond market, like government or corporate.

Vanguard’s Canadian Aggregate Bond ETF holds 770 different bonds, mostly government, it has an annual dividend (or distribution as they call it with bonds) of 3.3% which is paid monthly.

 

What else should I know?

  • Relationship between bonds and interest rates – Maybe you’ve heard that such a relationship exists. Well it does. And to put it simply, if the government reduces interest rates, bond prices go up, and vice versa. It’s an INVERSE relationship and one of the main reasons bond prices fluctuate.
  • Relationship between bonds and stocks – You should know this already, typically bonds will fall (slightly) when stocks rise and vice versa. Another INVERSE relationship.
  • Bond strategy – Infiltrate the Russian compound and steal the intel without alerting the guards…. wait…. wrong Bond again.
  • Bond strategy – Bonds are your safety net. A conservative profile will be mostly bonds. If you’re under 30 you should hold about 15% in bonds, gradually increasing that to at least 60% at the start of retirement. Thus if the market crashes you’ll at least retain some of your capital within the bonds.

 

Why would interest rates matter?

It will make sense with an example. Let’s say you buy a bond at $1000 paying 5%. You will eventually get back a total of $1050. But the next day interest rates rise to 10%. You decide to sell your first bond and buy a new one that gives 10%. Unfortunately you can’t find a chump to buy your sissy 5% bond when they can just as easily walk across the street and get 10%. The only solution is to lower your selling price to artificially give a 10% return.

You manage to sell your $1000 bond for $954.55. Had you kept it you would have earned $50, but the new owner will earn $95.45 ($50 plus your discount of $45.45) which is 10% of $954.55. Summarized below:

5% interest 10% interest (new owner) Difference
Value at purchase $1000 $954.55  -$45.45
Value at maturity $1050 $1050
Total interest $50 $95.45 +$45.45

 

Whoever issued the bond pays the exact same no matter who owns it. But as you can see the $45 was transferred between owners because of the interest rate change.

There! You’re now smarter! You can smugly talk about interest rates affecting your investments!

 

Oct 152016
 

 

Be sure to read Part 1 before continuing

What to hold in a frozen investment account:

Remember that in your frozen account there is no rebalancing, no buying, no selling, no withdraw. You can take no action until you return to Canada and unfreeze. Good thing you are read this before you leave Canada and it’s not too late! Your ideal frozen funds should have these characteristics:

  • No dividends
  • No re-balancing required
  • Steady, reliable growth
  • Low fees
  • Allocations: 15% Canadian equity, 40% US equity,  25% International equity, and 20% bonds

If you are under thirty I’d normally suggest 10% in bonds, but since you can’t re-balance it’s best to give your slower growing bonds a head start. In a few years your entire portfolio will be higher(probably), but the bonds will have grown at a slower pace, reducing their share of the total. Ideally that 20% will be closer to 10% or 15% where it belongs. (and yes that will keep shrinking, but there’s really nothing we can do about it if your account is frozen for ten years or longer).

I’ve come up with two options: One single balanced fund, or a set of three or four stable ETFs. Amix of both will also work well:

Continue reading »

Sep 152016
 

So you’ve finally decided it’s too cold here, or you’re sick of Tim Hortons coffee, or some beautiful person has stolen your heart and keeping it hostage in another country. Whatever the circumstance you’re exiting Canada for an unspecified amount of time. But what do you do with your massive swollen nest egg all tucked away in the Toronto Stock Exchange?

Option 1: Don’t Change Anything, Freeze Your Account

If your brokerage allows it you can keep your investment accounts as-is when you leave and potentially avoid:

  • Transaction fees
  • Account closing fees
  • Wire transfer fees (Assuming you don’t use Transferwise)
  • Currency conversion fees
  • Realized gains/loses from selling your investments
  • Lost growth during the lag time between selling in Canada and re-investing in your new country

That’s a lot of fees that can be avoided. But they might be pennies compared to the financial disadvantages. Normally if you leave your account it will become FROZEN, meaning you can’t do anything except watch what happens. Some of the implications of a frozen account include:

  • No rebalancing
  • Dividends sit as cash
  • Complex cross-border taxes
  • No access to funds if they’re needed

Icing your account is one thing, but what about selling everything and closing the account?

Option 2: Liquidate Accounts and Re-invest in Your New Country

Depending on your brokerage, selling might be your only option (Questrade, for example, does not allow non-residents to hold a margin account). Taking your money with you has some benefits:

  • Lower taxes (maybe)
  • Access to better investments (maybe)
  • Simplified tax reporting (probably)
  • Avoidance of jail time and/or $10,000+ fines (your Canadian investments might be considered offshore tax evasion)

Of course the tax benefit won’t matter if Canada is still taxing your worldwide income, and that’s the next thing you need to check:

Continue reading »