Sep 042021
 

I haven’t had many ideas for articles lately so I thought I’d just revisit some of the idea’s I’ve shared on this website. Specifically what has been working for me as of mid-2021. Disclaimer that these are my personal results and your mileage may vary. Lets get started in no particular order:

Broad ETFs and Index Funds

Rating: A

Index funds have been my bread and butter, and I’ve tried to keep at least 70-80% of my investments within them. They are simply the easiest way to consistently build up your portfolio. Your returns will never be amazing, but they’ll always be good. And if you string enough good investments together you’ll be doing great. Just look at VFV, one of my earliest ETFs that tracks the S&P 500. It has gained nearly 300% since 2013 with a consistent upward trend. Sure it’s been a bull market nearly that entire time, but even in major downturns the S&P 500 has recovered quickly.

I am completely confident in admitting that, if I had just stuck with broad market ETFs like VGRO or VEQT, I would be ahead of where I am now. Don’t be tempted by the siren call of Wall Street Bets YOLO tech investing.

Blue Chip Dividend Companies

Rating: B

A couple years ago I slowed down my contributions to ETFs and started investing mostly in Canadian blue-chip companies like Bell, Canadian Utilities, Fortis, Manulife, Brookfield, and the major 5 banks. These have largely performed well but have a few disadvantages.

  1. Dividends – If you hold these in a taxable account, you’ll be taxed on the dividends every year, which will reduce your overall gains compared to a swap ETF like HXS. Obviously if you hold these in your TFSA or RRSP you will avoid the tax, but any US dividends will be subject to US withholding tax as well. Although ETFs are not immune to these same issues. Also eligible Canadian dividends do have favorable taxation.
  2. Commission Fees – Unlike ETFs, buying an individual stock isn’t free. As a result it’s not worthwhile to purchase small amounts of shares. With ETFs you can buy a single share as soon as you have the funds to do so. In order to make up for the commissions you need to buy the stock in large blocks, normally $1000+, which leads into the next issue.
  3. Diversification Loss – Proper diversification requires you to buy many companies across many industries. As mentioned you’ll need to purchase in large blocks to avoid large commission fees. Thus you’ll need a lot of money to be properly diversified. Furthermore you’ll probably want to keep your money in CAD, so you’ll be buying mostly Canadian companies, and thus you’ll be overexposed to the Canadian market. Nothing can beat the diversification of ETFs. VCN will exposed you to the entire Canadian market and VUN will give you the entire American market and you can get a share of each for about $120 and no commissions.
  4. Complexity – Lets say you now own 20 companies and think you’re diversified enough. Now you have to keep an eye on those 20 companies. Sure, they’re blue chips and shouldn’t need to be watched, but your account will be clogged with many holdings, compared to just a few ETFs, or only one if you go for VGRO.

Conversely, individual stocks tend to have higher dividend payments than ETFs. You will also save on ETF management fees (MER). So is it worth it? Maybe. It’s up to you. It doesn’t hurt to have a few Canadian blue chips for companies you believe in, but if you also own an ETF you’re just increasing your exposure to some specific companies.

One more point about dividends – when a dividend is paid the stock will drop by the exact amount of the dividend (although in practice it’s difficult to see with the normal daily fluctuations). Thus a divided can be thought of as reducing the total share price by the amount of the dividend. If you are trying to build wealth it almost never makes sense to sacrifice share price for income. Especially if you will be taxed on that income in the current year.

Ultimately it’s very satisfying to see a real deposit enter your account, and despite my complaints above I’ll continue to own some dividend stocks.

REITS (Real Estate Investment Trusts)

Rating: C

I used to think REITs were amazing, and I still think they are a good idea in small amounts and specific scenarios. Ultimately they carry a lot of risk and are mainly good for generating income rather than generating wealth. The problem with REIT income is that it’s not subject to the favorable tax rates like eligible dividends from Canadian blue chips. Again, not an issue in your TFSA or RRSP but in a taxable account you shouldn’t even bother.

Furthermore, REITs tend to have very little, if any, capital appreciation. All the value comes out in the dividend, which will then be taxed. And let’s say you were as foolish as I was and you invested in Morguard. They specialize in retail and office space. Not a good industry to be in during a pandemic works and shops from home.

REITs are good for generating income in retirement and getting exposure to different real estate markets, but I would have been better off just buying VGRO.

Buying Stock Options

Rating: F

Yes I admit I dipped my toes in the world of options trading in the style of Wall Street Bets. I would buy put options if I thought a stock was going down and calls if I thought it would go up. I actually had a few successes where I tripled my investment. The problem was that every winner came with two losers.

Lets say that you think a stock will go up. Seems to be a pretty safe bet, stocks normally go up. But if you’re buying an option you need to correctly predict exactly how much it will go up and by when. Say XYZ stock is currently trading at $90 and you think it will reach $100 by next Friday. You purchase a call option for $5. One of three things will ultimately happen after the option expires:

  1. The stock goes up higher than $105 ($100 + the option premium). Congratulations you’ve made money!
  2. The stock just barely goes up and ends at $98. Sucks to be you! Your option slowly decayed and eventually expired worthless. Maybe XYZ stock eventually did go above $100 after your option expired. You were right on the direction but wrong on the timing. Too bad.
  3. The stock goes down to $90. Well that’s not good, your investment just dropped 50% overnight! You can sell at a massive loss, and if you don’t, you’ll likely get a 100% loss.

So if the chances are roughly equal for each of those results (stock goes up, down, or sideways) you’re going to lose 2/3 times. Don’t do it. Don’t listen to Wall Street Bets. Just go to the casino if you feel like gambling.

Selling Stock Options

Rating: B

Options are a zero sum game. For every buyer there is a seller, and for every winner there is a loser. Thus if I’m the loser 2/3 times when I buy options, then maybe I’ll be the winner 2/3 times when I sell options?

On paper, selling options sounds horrible. In the example above, as the seller the maximum I could make is $5/share, but if the stock ran up to $200 I would lose about $100/share. There is a fixed maximum profit, the premium, and near unlimited downside.

In exchange for this crappy deal the odds are in your favor. I normally only trade if the chance of success is above 70%. The winnings are small but consistent. And the losses are normally salvageable.

My options selling strategy is referred to as “the wheel”. I won’t get into it now but it involves selling cash secured puts and covered calls. I’ve been using it for about six months, which is longer than I was buying them. And so far I’ve been earning money on about 4/5 trades and completely made up for my losses from buying options.

“Wow that’s great” you’re thinking. Well not so fast. It’s still playing with options which tends to magnify your gains AND losses. The market has been on a very steady uptrend for the past 5 months, and when it eventually corrects I expect my losses to be magnified. Hopefully the gains I’ve made up to that point will make up for future losses.

I plan on continuing to sell options until someone or something convinces me otherwise. I do NOT recommend this as a casual trading strategy. It’s the most complex strategy I use and it’s difficult to learn. Literally every single person I’ve explained it to has not been able to comprehend it (which is maybe more my fault than theirs). This is not me patting myself on the back, it’s just my experience. If you’re still interested, you can search “the wheel”, “cash secured puts”, “covered calls”, or check out my attempt to explain it.

Conclusion

Just buy index funds. If you want to branch out, get some bank stocks. Maybe telecoms like Bell or Telus. If you’re restless you can look into options with a paper trading account. Don’t be tempted to buy options. Selling covered calls or cash secured puts is more reliable.

Mar 142021
 

In light of the recent Gamestop short squeeze the subreddit Wall Street Bets (WSB) has exploded in popularity. WSB generally focuses on buying options contracts in anticipation of a big move in a particular stock. Essentially a member will guess (educated or otherwise) that a stock will sharply increase or decrease. They’ll purchase an options contract that will reward them for predicting correctly, and due to the leverage of options contracts they can earn much higher returns compared to holding the underlying stock. It’s easy to make a 100% return or more overnight. Conversely it’s easy to lose 100% overnight.

I’ve been dabbling in trading options for nearly a year now and figured I’d report on my results and explain how options work. I’ve broken it down into 3 levels of complexity and detail

Continue reading »
 Posted by at 10:49 am
Dec 272020
 

The Big Short investor, Michael Burry, who predicted the 2008 financial crisis, is now predicting that passively managed ETFs are the next bubble. He’s comparing them to the Collateralized Debt Obligations (CDOs) which were the main cause of the market meltdown of 2008-2009. Should we be worried? Maybe….

How Are ETFs a Bubble Exactly?

Thanks mainly to the followers of this blog and my totally original idea of ETF investing, ETFs and passively managed index funds are exploding in popularity. People are recognizing the value of low cost, diversified investing. Even mutual funds can’t keep up with passively managed index funds.

So what’s the problem? Essentially Burry is saying that investment decisions are no longer based on the underlying stock fundamentals, but rather on their position within an index. In other words, your ETF picks stocks because of their size in the market, not because the business are necessarily profitable. (For clarification, they are picked based on their market cap, not price. Market cap being the value if you multiply the number of outstanding shares by their share price)

To Burry’s credit the situation he’s describing does somewhat resemble the CDOs in 2008. Everyone was buying these CDOs without realizing their contents were utter garbage. Today the garbage is businesses, rather than mortgages in 2008.

Is he right? Sort of, first lets consider the implications if he’s right:

Continue reading »

Oct 052020
 

We all had the pleasure of witnessing a market crash earlier this year. It wasn’t the biggest crash but everything did drop 30-40%. It wasn’t sustained and the market has mostly recovered, but some sectors have lagged behind, including some that I’ve recommended on this blog. Let’s take a look at a few.

Continue reading »
Dec 022018
 



I’ve been know to stray from the index path. When you are in full control of your investments it’s tough to resist that sweet siren call of the Netflix and Amazon stocks of the world. What normally happens when I pick stocks? This image sums it up nicely:

Credit: Carl Richards - The Behavior Gap

Credit: Carl Richards – The Behavior Gap

Maybe I don’t have the will power to hold on when I’m down 30%. And sometimes unforeseen external circumstances forced me to sell (Moving to USA). But at one point I realized:

I’ve made more money at the casino than I have picking “risky” stocks

Okay I’ve profited maybe $200 between all my visits to the blackjack table. It’s not much but I’ve lost more gambling with stocks. Luckily my solid foundation of index funds have completely insulated me from any big losses. I have healthy ETF gains over the past few years. And these risky picks are less than 5% of my total portfolio value.

If you truly want to gamble with your investments I’d recommend using no more than 10% of your total portfolio value. Or whatever you’re willing to lose.

Continue reading »

Jul 212018
 

So you’ve just finished reading The Four Hour Workweek (or any entrepreneurial self help book) and you’re all amped up to quit your job and automate your own business. Except you don’t have a business. And you don’t have the guts to quit your job. And the other suggestions in the book, like hiring an online assistant, are a frivolous use of your meager savings.

What If You Can Almost Retire?

Let’s entertain an exotic thought. Say you’re doing pretty well financially. You have a ton of money saved, and you want to retire. But you don’t have enough to cover all your expenses passively (i.e. earning 3-4% investment interest will not cover your yearly expenses).

As you may know I find reducing expenses more effective than attempting to earn more money(link, link, link). But what if you’re at your expense-cutting limit? Cutting any more expenses would force you onto the street, or stop you from eating.

The answer is creative and extreme savings ideas!

Using Inequality to Your Advantage

Taking a note from The Four Hour Workweek, you can stretch your money significantly if you earn in Dollars but spend in Pesos. Moving to a low cost of living country could enable you to retire years earlier. And lets face it. Your life in a foreign country is likely to be way more interesting than staying at home.

The cheapest countries tend to be equatorial countries for some reason. Maybe nice weather isn’t good for the economy because people are too hot to work. But that’s a good thing for retirement! Think about the benefits:

  • Good weather year round (assuming you like it stupid hot)
  • Delicious food (assuming you like it spicy and flavorful)
  • Nature (assuming you like beaches, mountains, and jungles)
  • History (assuming you like imperialism and genocide)

Central and South American countries will keep you close to the same time zone as Canada. They are friendly with delicious food and incredible nature. Southeast Asian countries are further away, but have similar benefits. Especially if you prefer fried rice to refried beans.

So how much cheaper are these places? And how can one decide where to go? Well let’s compare some typical expenses for a typical retiree lifestyle in some typical and non-typical destinations. For more detailed comparisons there are websites like Expatistan and Numbeo

CANADA, Penticton MEXICO, Cuernavaca COLOMBIA, Medellin
2 bdrm apartment $1,500 $900 $650
Food (Restaurant per person) $15-$25 $8-$12 $5-$10
Domestic Beer (store bought) $2.70 $1.70 $1.15
Transportation (public) $45 $30 $36
Transportation (gas price) $1.21/L $1.14/L $1.06/L

Now before you start yelling at me, I know there are other things to consider besides money. Language for one, if you don’t speak Spanish you’ll be restricted to English expat communities which typically are more expensive. But come on. Learning a second (or third) language is an excellent way to spend your free time.

And I know you have friends and family back in Canada. And I know you might have Canadian real estate, and gym memberships, and library cards. Well how about becoming a snow bird? Make a cheap country your wintertime destination. You can reap all the benefits of a cheaper lifestyle for half the year, and still maintain a lifestyle in Canada during the best months.

If you want to stay in your new country longer, many countries have retiree visas. Just prove that you have retirement income, no criminal record, and provide a health check. Speaking of health care, bring your medical records, and get health insurance, it’ll probably be $100/month.

Find more detailed info at Wikitravel and check out my post on how to leave Canada financially



Jun 192017
 

So you’ve read the articles, ETFs are getting saturated and you crave even more investment diversity. You want stability and a healthy return. Lets look at three investing alternatives. (Yes I am aware that #1 is available in ETF form. Shut up)

 

1 – Real Estate Investment Trusts (REITS) – riskiness: low

 

What is it?

A REIT is an entity that owns multiple investment properties and rents them for profit. About 90% of the income is passed directly to the investors, who own shares in the REIT just like any other company. To qualify as a REIT the company must have 75% of their assets tied up in real estate and pass 90% of their income onto the shareholders through a dividend.

Why would I want it?

High returns, real estate market exposure, and liquidity. A REIT is the easiest way to sort of own real estate. Their prices are tied to the housing market and not the stock market. Beyond that the dividend can range from 4% up to 10% with monthly payments. Steady income here we come!

Whats that? you don’t have $4 million to buy a commercial property? Well you can invest in a commercial REIT to get exposure to that market! Furthermore it can take months to actually purchase a rental property and fill it with tenants, but you could log into your brokerage account and buy shares in a REIT right now.

How do I buy into it?

Public REITs trade just like stocks. Log into your brokerage and buy shares.

What else should I know?

TAXES – this is a big one. Income from a REIT property is taxed when the income arrives at the shareholders instead of the company. What this means is your REIT dividend is taxed at your MARGINAL TAX RATE. You seriously need to keep this in mind because suddenly your 10% dividend is more of a 6.5% dividend after tax. But maybe you are thinking what I’m thinking… “What if I put this in a TFSA or RRSP?” Damn straight, it’s tax free! Use this to your advantage. Fill your tax havens with high-tax high-return investments like REITs to keep the high-return but negate the high-tax.

HOUSING MARKETS – Perhaps you’ve heard about the Canadian housing bubble. You may not own any real estate yourself but if you own REITs you will be affected by real estate prices; if this bubble pops your REITs are going to take a huge dump. Maybe this will never happen, maybe it will happen tomorrow, no one knows, but it’s something to be aware of.

 

 

2 – Peer to Peer lending – riskiness: medium

 

What is it?

You get to be the bank and loan money to a business! Lending Loop will let you can put up as little as $25 and you’ll be paid back with interest the duration of the contract. You take on the risk that they might not pay it back, but you collect interest based on the likelihood of that happening.

Why would I want it?

INTEREST. These loans range from 5% to 20%. As of this typing the highest yield is 18.4%, where else can you get an 18% yield? Nowhere, that’s where. Not even here, because you’ll still need to pay tax and Lending Loop will also take a cut. But after-tax yields of 10% are still very possible.

How do I buy into it?

Through their website. Similar to a brokerage you’ll need to sign up and fund your account before you can start issuing loans.

What else should I know?

TAXES – Much like REITs your interest income will be taxed at your marginal tax rate. Your 18% return will be closer to 10% after income tax and Lending Loop’s fees. To make matters worse, you can’t shelter these investments in a TFSA or RRSP (at least not yet).

RISK – Like anything, don’t put all your money into one loan, especially not one with a D rating, there’s a real chance you could lose your entire investment.

 

Continue reading »

 Posted by at 3:17 pm
May 272017
 

A penny saved is a penny earned? WRONG. A penny saved is MORE than a penny earned. The money in your pocket is post-tax, but if you (legally) earn another dollar it is pre-tax income. Assuming you get taxed 30% that means a dollar earned is actually 70 cents earned. Send your eyes to the informative chart below:

$1 SAVED $1 EARNED
Pre-Tax Value $1 $1
Post-Tax Value $1 $0.70

 

To put it another way, one dollar saved is $1.30 earned. So start being a cheap bastard and save your money whenever you can! I have a good idea to get you started. Learn some DO IT YOURSELF skills.

via GIPHY
I’m going to debunk a few myths related to DIY work:

  1. I don’t have time
    • Everyone has “time bandits” that can be removed or reduced and replaced with more productive work. Some examples:
      • TV/Movies – I hate the term “binge watching”. Are you really so boring you can’t find any better use of your time than the most passive activity besides sleep? Try to keep it under 1 hour per day, and understand that your TV hour is burned time.
      • Internet – Reddit, YouTube, Facebook, news, email. I’m guilty of most of these. Falling into a Reddit or YouTube wormhole that I come out of 2 hours later with nothing to show for it.
      • Commuting – Hard to get around this one sometimes, nut why not replace listening to music or news with self-improvement audiobooks? Or, if you take the train, regular books?
      • Family/friends – Forget those guys they’ve never done anything for you! (that was a joke, don’t forget those guys) But be aware that socializing with friends often involves spending lots of money and time.
      • Reading blogs – Blogs like this one are totally NOT a waste of time and you should read everything I write here because I’m awesome.
  2. I’m hopeless with tools
    • No you aren’t, you’re just unwilling to learn. Literally everyone started from zero skills. Some people are fortunate enough to have a teacher, but for the rest of us there’s the glorious internet! Here’s how to find out how to do almost anything:
  3. I don’t want to mess up my things
    • Start small. Don’t try to fix your car’s transmission without ever looking at an engine. A toilet, however, is not that expensive or complicated. If you do end up messing it up? That’s when it’s time to call the plumber/mechanic

And now for my list of reasons why you need to start fixing things yourself (besides saving money):

  1. Learn a practical, money saving skill
  2. Impress the opposite (and/or same) sex
  3. Social bonding with DIY-buddy
  4. Mental exercise and greater understanding of how your things work
  5. Personal satisfaction through achievement

The thing you fix yourself will seem more valuable than the thing you just paid someone to fix. Human psychology assigns more meaning to objects that were created with our own hands. If you appreciate your possessions more you’re less likely to purchase new possessions furthering the saving money cycle.

Feb 252017
 

In the game of building wealth you either earn more or spend less. Not everyone can easily earn more, but anyone can spend less. I’d wager that if you are reading this right now you eat food. Did you know you can make your own food? If you want to get serious about building wealth you’d better start. It might be the easiest and most effective way to save money.

20160130_102608

Gourmet homemade breakfast: Two fried eggs with onion and spinach, everything bagel with peanut butter and jam, and tomato juice. Total cost ~$1.50 Estimated restaurant cost $5

“But Mr ProfitMoose, I’m a terrible cook, I burn spaghetti!” Ignorance is a terrible reason to not do something. What you are saying is “I can’t follow basic instructions”. Whatever you want to cook, just type it into google with “recipe” and you’ll be inundated with cooking instructions. Other reasons NOT to cook:

  • Don’t know what to cook? – Cook what you normally get from restaurants, or search google for “easy recipes”
  • Don’t know what spices to add to make it good? – Follow the recipe
  • Always missing ingredients? – Go to the grocery store with a shopping list
  • Don’t have time? – You have time to read finance blogs
  • Don’t like washing dishes? – Get a dishwasher (the machine not a person). Or suck it up and just do them. You’re an adult (presumably)
  • Constantly burn food? – Set a timer on your phone
  • Scared of burning your house down? – Get a fire extinguisher and smoke detector
  • Someone does your cooking for you? – Well lah dee dah. But is this person going to be with you at every meal time your whole life?

“Whatever Mr ProfitMoose, I choose to ignore your fancy logic and reasons. I still don’t like cooking” You need someone to hold your hand. What about getting everything delivered right to you? The latest trend are companies like Chef’s Plate that will deliver everything you need to cook a specific meal in a refrigerated box right to your door(although it can be expensive). Why not learn how to make a few of these meals then buy the ingredients yourself?

Modified Kraft Dinner dinner: Kraft Dinner + Extra Macaroni + Italian Sausage + Frozen Mixed Vegetables + 2 Avocados + Pineapple + 1 can of Black Beans + Mustard Greens + Garlic + Random Spices = Delicious. Estimated cost per meal for 5-6 meals ~$3. Estimated restaurant equivalent cost ~$10

“Well Mr ProfitMoose, I’d rather put cooking time into things that make me MORE money” Cooking has so many benefits beyond saving money:

  • Learn a practical skill
  • Impress the opposite (and/or same) sex
  • Social bonding time with a cooking partner (see above point)
  • Know exactly what you’re eating (compared to more mysterious restaurant ingredients)
  • Custom flavours (add as much garlic as you want!)
  • Custom portion sizes
  • Supercharge your healthy eating
  • Personal satisfaction through creation

I see too many friends and colleagues eating out for every meal yet saying they don’t have time to cook. What if you spend 2-3 hours cooking meals for the next 6 days? (including buying groceries, cooking, and cleaning). Spread out over 6 days that’s about 25 minutes per day, and I’d guess that the time spent in a restaurant (including travel time) is more than 25 minutes (unless you only get delivery).

FINANCIALS OF COOKING

Lets make up some rough numbers for cooking and eating out, starting with eating out:

  • $9  – Breakfast sandwich + coffee/tea
  • $12 – Lunch
  • $3  – Afternoon snack
  • $15 – Dinner
  • $3  – Evening snack
  • $42  –  DAILY TOTAL

The average employers budgets a daily food allowance of $50 for travelling employees, so I’d say my estimate is good. What about cooking yourself? I’ll make up some numbers based on my typical meals:

  • $0.15/cup – home brewed coffee or tea
  • $1  – bagel with creamcheese and 2 eggs
  • $4  – two sandwiches (from $3 loaf of bread, $5 meat, $0.50 tomatoes, $1 lettuce that makes roughly seven sandwiches)
  • $1.50 – yogurt, fruit
  • $4  – dinner ($3 spaghetti, $3 sauce, $3 ground beef, $7 assorted vegetables and potatoes on the side that lasts four meals or more)
  • $2  – mixed nuts or toast/fruit
  • $12.65 DAILY TOTAL

DIFFERENCE: $29.35

So based on my estimates you can save an average of $30 per day by cooking everything yourself. Let’s be conservative and cut that in half to $15/day, or roughly $100/week. That’s $5,200 per year. That alone will nearly fill your TFSA! Now lets invest it at 7% return for 30 years:

  • $100/week
  • 7% return
  • 30 years
  • Result: ~$510,000

Half a million seems like a good enough reason as any to start cooking. And you’ll live longer to enjoy it if you are eating healthy.

 Posted by at 7:17 am
Apr 082016
 

Before upsetting anyone let’s define cheap:

CHEAP — Buying inexpensive or low quality despite being able to pay for the higher quality item.

Cheapness can be good or evil. The latter can damage reputations, friendships, the economy, and/or personal health. Good cheapness can lead to financial freedom.

Examples of evil cheapness:

  • Postponing preventative medical care
  • Eating low quality food
  • Wearing poor-fitting clothes
  • Bailing on social situations
  • Foregoing international travel

Examples of good cheapness:

  • Fixing things that break
  • Bringing bag lunches
  • Biking/walking instead of driving
  • Drinking water (instead of sugar drinks)
  • Using the library

You’ll notice that all the good cheapness examples have secondary benefits related mostly to health and/or personal satisfaction.  Now that we’ve defined cheapness let’s call it frugality. But why bother with it?

Continue reading »