Author: Mike Holman

Categories
Investing

2008 Portfolio Returns

I know this is a bit late but I finally got around to calculating my 2008 portfolio return. For some reason this year I was not as motivated to know how much money I made..lost.

Given that most markets went down at least 30% we did quite well with only a 17% drop.

Canadian Capitalist has listed all the 2008 asset class returns for comparison.

My asset allocation at the beginning of the year was as follows:

  • Bonds – 20%
  • Real return bonds 5%
  • Canadian equity – 19%
  • US equity – 27%
  • International equity 29%

Part way through the year I converted about 5% of the bonds to REITS which was not a good move!  🙂

You might be wondering how I only had a 17% drop with this allocation – I’d like to claim some sort of market timing skill but the reality is that a good part of our equity was out of the market for most of September and October (ie the bad months) because they were being moved to RBC.  Once at RBC, we took our sweet time buying back in.  This probably added about 5% to our return for the year.

Does anyone else have any “lucky” investment stories from last year?

Here are some returns from other bloggers

Pinyo from Moolanomy.com was down about 35% – his portfolio is pretty close to the S&P500.

Canadian Capitalist was down 22% for the year.

Categories
Personal Finance

GE Cuts Dividend – First Time Since 1938

General Electric (GE) announced today that they will be cutting their dividend from 31 cents per share down to 10 cents per share which is a whopping 68% drop.

This is significant because GE is considered to be the proxy of the American economy as it covers a number of different industries and is the 10th largest company in the world.  Cutting a dividend is not the worst thing in the world however since it indicates that management is in cost-cutting mode and willing to do whatever it takes to make the company profitable again.  Companies that hang on to their high dividend too long for public relations reasons could very well end up suffering for it.

Of course, not all companies are cutting dividends – so don’t go and sell all your dividend stocks just yet!

Categories
Announcements

Linkstuff Feb 27

The weight

I was brave this week and weighed myself – 182.5 which is down a bit from the last couple of weigh-ins.  I need to keep working at it however.  I’ve been doing a lot of running lately (3-4 times per week) so I’m doing very well on the exercise side but the diet needs a bit more discipline (as always).

The links

Moolanomy wrote a very entertaining post about a bad car buying experience – all I can say is that I’m glad he ended up walking away from those crooks!

The Wisdom Journal says you should stick your strengths.  Excellent post.

Canadian Capitalist warns us about The Danger in Chasing Yield. Good thing I’ve never done that!!

Michael James discusses the Canadian Auto Bailout. Like me, he doesn’t think it’s a great idea.

Financial Blogger has an interesting take on predictions in The Danger of Rationality.

The Oblivious Investor asks Have You Run the Numbers?

Million Dollar Journey talks about Holding a Mortgage Within an RRSP. Sounds like too much hassle.

Money Ning challenges us with What Would Happen If You Plan and Budget for All Spending?

Good Financial Cents asks Are You Vested?

The Consumer Boomer follows up on his rant about a certain credit card company.

Blunt Money tells us that Fear is a Stronger Motivator than Greed.

Preet discovers How the Pros are Investing Their Money.

The Intelligent Speculator looks at When Investing Becomes a Big Giant Gamble.

Investing School gives us The First Guide on dividend Yields.

ABCs of Investing wrote about  Taxable Vs Non-Taxable Investment Accounts and Market Orders.

Carnivals

Carnival of personal finance was held at Broke Grad Student.

The Skilled Investor hosted the Carnival of Financial Planning.

Categories
Personal Finance

TFSA Institution Transfer Strategies

You know you are a financial keener if you set up a new TFSA and after 2 months, are thinking about transferring to a different financial institution.  Reader Kim commented on a recent TFSA post that he is thinking of doing exactly that.
Here is his comment:

Great information…and I have $5000 in an ING TFSA.
I was wondering if there are consequences of taking some of the money out of my ING TFSA and opening another TFSA at a different institution that allows Stock purchases in the account rather than just cash? As I understand it, any increase in the value of the stock is tax free which COULD be quite substantial.

This brings up a number of very interesting issues and a couple of possible strategies for transferring TFSA money from one institution to another.

First of all he mentions having $5,000 in his TFSA – since that the annual contribution limit and the TFSA program is in its first year – obviously he doesn’t have any contribution room left for 2009.

TFSA transfer to new financial institution

TFSAs are similar to any other kind of account such as an RRSP – you can do a transfer to a new institution without having to withdraw from the TFSA.  You can either transfer-in-kind which means that any investments in the TFSA get moved over to the new institution – for example if you own shares in the TFSA, they will be moved without having to be sold and then bought again.  Transfer-in-cash means that the investments are sold and only the cash amount is moved to the new institution.

In this case the transfer will be in cash.   As a result of this transfer there will be no withdrawal or contribution to the TFSA.  One thing to be aware of is the transfer fee.  Most institutions charge this fee which is generally $100 to $150.  If you are transferring to a discount brokerage and have sufficient assets then you might be able to get them to cover this transfer fee.  Given that the TFSA only has $5,000 of contribution room, it is unlikely that anyone has enough in their TFSA to get a free transfer (unless of course they have made some incredible trades).  Of course you should check if your institution charges this fee and how much it is.

TFSA withdrawal and contribution strategy – aka “The December Strategy”

Another strategy to think about if you are looking at a steep transfer fee is to just withdraw the TFSA money from the existing account and then contribute it to the new TFSA account.  The TFSA rules state that any withdrawal will result in an increase of the available contribution room by the same amount in the following calendar year.  Assuming that withdrawals are not charged fees (or less fees than the transfer) then someone could do this strategy with the only problem being that they can’t recontribute the money in the same calendar year unless they have enough unused TFSA room which is not the situation in Kim’s case.  This is a valid strategy in December (preferably the end of December) because then you can take the money out, wait a couple of weeks and then recontribute it at the new company.

In a few years, most Canadians will probably end up with a lot of unused TFSA contribution room.  Let’s face it – between mortgages and the RRSP – there is only so much money available for the TFSA.   For those people, there won’t be an issue if they want to move their TFSA – they will be able to just withdraw and recontribute in the same year by using their unused contribution room.

What kind of investments are suitable for the TFSA?

And finally on to the point that I think Kim was actually asking about – should he invest in stocks vs high-interest savings account in a TFSA account for tax reasons?

First of all – the tax considerations should not be the driver of your asset allocation.  The first step should be determining what type of investment (cash, stocks, bonds) you want this money to be in.  The next step is to figure out what type of account (TFSA, open, RRSP) it should be in.

As far as the potential tax savings – it’s hard to estimate without being able to predict the future but here are a couple things to think about:

  • You can’t claim a loss inside a TFSA.
  • 3% interest on $5k at 40% marginal rate will save $60 of income tax per year.  To have an equivalent capital gains tax benefit you would need a 6% return.  Because capital gains tax applies to half of the profit – the rate of return has to be twice the interest rate to break even.  6% stock appreciation is not unreasonable over the long term but will interest rates stay at 3%?
  • Transaction fees for the stocks.  I didn’t include these in my break-even analysis but they would be a factor.  Kim mentioned buying stocks with “some” of the TFSA money – less than $5k is not a lot of money to buy individual stocks with so maybe an index mutual fund would be better.  He should look into TD e-funds for that.

If you are looking for more information on mutual funds, index funds and ETFs then sign up for a Morningstar free account.  Morningstar is the industry leader in investment information.


Categories
Money

COBRA Insurance Subsidy Details – 2009 Economic Stimulus Package

COBRA insurance is temporary health care insurance for people who have just lost their job and their health insurance coverage.  It is also used by recent retirees and commonly covers spouses and children as well.  Typically it is used by workers who are between jobs that provide health care and is provided by the previous employer’s medical plan.

Previously, the unemployed person had to pay 100% of the COBRA insurance premium in order to be covered which can be quite expensive.

65% subsidy to COBRA insurance costs

In the new 2009 economic stimulus package – the government will cover 65% of the COBRA premiums for 9 months – given that these costs can be $1,000 per month for a family – this is a significant saving for someone who has just lost their job.

Who is eligible for this?

Anyone who:

  • Was laid off between Sept 1, 2008 and before Dec 31, 2009.
  • Income is less than $125,000 for single personal and $250,000 for couples.

Longer window to apply for COBRA

Another change is that workers who were laid off after September 1, 2008 have another 60 days added to the window where they can apply for COBRA.  This is on top of the traditional 62 day window.

Did you know?

COBRA is short for Consolidated Omnibus Budget Reconciliation Act.   This act was passed in 1986.

Categories
Money

Economic Stimulus Bill 2009 – $8,000 Home Buyer Tax Credit

As part of the recent economic stimulus bill of 2009 – an $8,000 home buyer tax credit was created.  This credit will apply to home buyers who buy a home this year.  Clearly this is an effort to try to keep up house values and given how much they have fallen, perhaps it is a good time to buy.  The important thing to note is that this credit is not a loan – it does not have to be paid back.

[edit July 8, 2010 – closing deadline extended for first time home buyers tax credit to Sept 30, 2010]

[edit Sept 20  $8,000 first time home buyer credit extended.]

Who is eligible for the $8,000 home buyer tax credit?

Any one who buys a home between January 1, 2009 and November 30, 2009 and meets the following conditions:

  • You must not have owned a house in the past 3 years.  This is the “first time” homeowner condition.
  • Your income must be less than $75,000 for singles or $150,000 for married couples.  Keep in mind that singles who make up to $95k and couples who make up to $170k can get a partial credit.

Is this credit a loan?

No, this credit does not have to be paid back.

Are there any strings attached?

Yup – you have to stay in the house for 3 years otherwise the credit has to be paid back.

What is a “first time home buyer”?

A first time home buyer is someone who hasn’t owned a house in the past 3 years or has never owned a house.  For couples – this applies to both spouses.  It is important that if you sold your last house in 2006 that you don’t close on the new house within 3 years of the previous selling date or you won’t get the credit.  For example if you sold your last house on June 1, 2006 then don’t close on a new house before June 1, 2009.

Is the tax credit $8,000 for everyone?

No, the actual credit is $8,000 or 10% of the house value – whichever is less.  For example if your house is worth $200,000 then you would get $8,000.  If the house is only worth $70,000 then you would only get 10% of $70k which is $7,000.

This is a refundable tax credit

The $8,000 credit means that anyone who is eligible for this credit can subtract $8,000 from the amount of tax owed to the IRS.  If you don’t owe $8,000 in taxes then you will get a refund for the difference.

For example if Bob owes $30,000 in taxes and is eligible for the $8,000 credit then he will deduct $8,000 from $30,000 and will owe only $22,000 in taxes.  Steven only owes $5,000 in taxes so if he qualifies for the credit then he will not pay any taxes and will get a refund of $3,000.

Categories
Money

New Car Buyer Tax Deduction In 2009 Economic Stimulus Package

One of the more interesting aspects of the recent economic stimulus bill was the introduction of a federal income tax deduction on any taxes and excise taxes paid on a new vehicle.  This was introduced because of the poor condition of the big 3 car companies since this deduction will help encourage some people to buy cars.

What kind of vehicles are eligible?

To be eligible for this deduction – it must meet the following criteria:

  • Vehicle has to be purchased between February 17, 2009 and December 31, 2009.
  • Vehicle has to be a new.  Used or leased vehicles don’t qualify.
  • Foreign or domestic makes are eligible.
  • Purchase cost has to be less than $49,500.
  • Weigh has to be less than 8500 pounds.  This would include SUVs and light pickup trucks.
  • The buyer has to have an income of  less than $125,000 if single and $250,000 for families.
  • Must be a car, light truck, recreational vehicle or motorcycle.

Please note that a partial deduction is available to single buyers with incomes up to $135,000 and families with incomes up to $260,000.

What about hybrid cars?

Plug-in hybrid cars are eligible for a larger tax credit of  up to $7,500.  The credits will range from $2,500 to $7,500 based on the size of the battery.

How does it work?

Basically you can use the sales tax and excise taxes paid on the new vehicle to reduce your taxable income.  This isn’t going to be a large benefit but it’s worth thinking about if you need to buy a new vehicle in 2009.

Find out about more available tax incentives in the 2009 stimulus package.

Categories
Money

Unemployment Benefits Extended In 2009 Economic Stimulus Package

The recent 2009 economic stimulus bill was recently passed and it features a number of changes to unemployment benefits.  Unemployment benefits are being extended which should come in handy given the large number of layoffs in recent months.

Unemployment benefits extended in the 2009 economic stimulus plan

Previously, unemployed workers were eligible for 26 weeks of unemployment benefits.  As as result of this bill, unemployment benefits will be extended by 20 weeks regardless of which state they live in.  In some higher-unemployment states such as California, there will be another 13 weeks of unemployment benefits available as well.

Total weeks of unemployment available:

  • Low-unemployment state – eligible for 46 weeks of benefits.
  • High-unemployment state – eligible for 59 weeks of benefits.

Increased unemployment benefits by $25 per week.

Although it varies from from state to state, the average unemployment benefit payout will be increased by $25 to about $325 per week.

Increased coverage to part-time workers

This stimulus package will also provide money to encourage the states to give employment benefits to part-time workers and more low-wage workers.

Tax change for unemployment benefits

Another change was that the first $2,400 of unemployment benefits will be tax-free which was not the case before.