Author: Mike Holman

Categories
Announcements

Saturday Weigh-In and Links

This morning I weighed 183 pounds for a loss of one pound. However I bought a new scale this and on the new scale I weighed 184.5 pounds. I’m going to be using the new scale only from now on which throws things off a bit but who cares? The important thing is that I’m watching my diet and the weight is going in the right direction.

Brip Blap had a great post this week about extraordinary jobs which certainly hit home for me. I’m one of those “boring” people who don’t think there is anything wrong with just working for a living. Even dream jobs get boring after a while – about five years in my case.  There’s a reason they call it work and Brip Blap’s point #3 “Take pride in your paycheck” made me feel better.

He also talks about how it’s ok to work a regular job while following your dreams at the same time – they don’t have to be mutually exclusive and the job doesn’t have to be an excuse not to follow your dream.

This Wall Street Journal article takes a look at the surprising number of borrowers in the US with good credit ratings who took out sub-prime mortgage because of their commissioned mortgage brokers.  Who would have thought that a commissioned salesperson would have led a borrower astray?

The Carnival of Personal Finance was hosted by Money Smart Life.

Categories
Investing

Reader Question – Buy Stock in Cdn$ or US$?

Recently I got an email from Ian who is a reader of the blog. One of the questions he asked about was whether he would be better off buying BMO (Bank of Montreal) on a Canadian exchange with Cdn$ or a US stock exchange using US$. He has cash in US$ and wants to buy the shares in an RRSP.

This brings up two interesting points:

1) When you buy stock in a company it doesn’t matter which exchange or currency you buy it in.

If you buy shares of a company on different exchanges in different currencies you are still buying the same portion of that company so it doesn’t matter where you buy it. The difference in price is the currency exchange rate.

As an example if we consider two investors, investor A and B both have $10,000 Cdn$ in cash. Investor A buys $10,000 of BMO on the Toronto stock exchange and investor B converts his $10,000 (with no fee) to US$ and then buys BMO on the NYSE. After four weeks they sell their positions and investor B converts his US$ proceeds back to Cdn$ (with no fees). Which investor does better?

I’ll use data from Jan 1 for the buy. Stock prices are from yahoo financial and exchange rates are from Bank of Canada site.

Buy side

On Jan 3, 2007 Investor A buys 144.3 shares of BMO.to at $69.29 Cdn$ and Investor B buys 144.5 shares of BMO (NYSE) at $59.60 US$.

Sell Side

On Nov 10, 2007 Investor A sells his shares at $60.22 Cdn$ to get $8691.00 Cdn$ and Investor B sells at $59.60 US$ to get $8636 Cdn$. The exchange rate is one Cdn$ = 0.9898 US$ (all values are at noon EST).

In my example investor B does slightly better however that is due to the fact that my stock prices are closing prices on Jan 3 whereas the exchange rate is at noon. The point is that the fact that the currency exchange rate had a huge swing this year did not affect the choice of buying the stock in either currency.

2) You can’t have US$ cash in a brokerage RRSP.

I’m really hoping this post gets outdated soon when all the brokerages start allowing US$ in their accounts but until then….

If you have US$ and you want to contribute to your RRSP then you will have to convert it to Cdn$ and pay an exchange fee. If you want to buy US$ securities with that money in the RRSP then you have to convert it to US$ once again (and pay another fee) to buy the stock. Unfortunately there is not much you can do about the currency exchange fees but in Ian’s case he should convert the US$ to Cdn$ and just buy the Canadian version of BMO in his RRSP.

Categories
Opinion

Shooting Down Goals

There seems to be a increase of goal-setting in the blogosphere recently. I think this is partly because we are approaching year end and a lot of people like to set goals for the next year. Patrick from CashMoneyLife even started a new carnival about financial goals. I think it’s a neat idea but I’m not really into setting short term financial goals and the long term ones don’t lend themselves all that well to carnivals if you want to enter more than once a decade. I did set a weight loss goal as part of Brip Brap’s public declaration challenge but other than that most of my goals are pretty long term and undefinable ie “save a lot”, “eventually pay off mortgage” etc.
I do have to take issue with some of the financial goals that I have read. In my opinion, a valid goal is when you set a target that you can measure and that you have a lot of control over the outcome. If your goal involves something that you don’t have any or much control over then I would call that more of a “wish” rather than a goal. For example saying that you want the weather to be nice tomorrow is a wish – not a goal.
One of my favourite bloggers, Canadian Dream likes to set goals and I decided to use his goals of examples of what I’m talking about – in no way am I trying to be critical of Tim because he’s a good guy and has a great blog however his goals from 2007 and 2008 provide perfect examples of what I’m talking about here.

Save $10k in 2007 – This is a perfectly valid goal because it’s almost entirely within Tim’s control as to whether he can achieve it or not (he did).

Investigate other streams of income – Another valid goal because again it’s success or failure is entirely determined by Tim.

Increase net worth by $30k in 2008 – The problem with this goal and one of the reasons I ignore net worth is that like a lot of us, a big chunk of Tim’s net worth is in his house. In his case he’s counting on about half of the net worth increase to come from events within his control (like contributions) however he’s also predicting a 4% increase in house value which will provide about 40% of this goal. I have no idea how the value of Tim’s house will change next year but what I do know is that Tim’s efforts won’t have much to do with it (unless he goes berserk and trashes the place 🙂 ). Another part of the net worth increase is to come from investment return which again, is out of Tim’s hands in my opinion.

Conclusion

While I don’t think there is anything wrong with setting goals, I think you have to draw the line between “goal” and “wish”. I wouldn’t say that anyone should rewrite their goals because of this post but they should recognize that some of the goals are out of their control and shouldn’t take too much credit if they are achieved and at the same time, don’t get to down if they fall short.

Categories
Book Review

Buy Buy Baby – Book Review

The post is part of the Baby Expenses Series. See the entire series here.

RESP Book
Buy The RESP Book on Amazon

I recently read a fascinating book called “Buy, Buy Baby” written by Susan Thomas. The book takes a look at the proliferation of marketing behind baby toys and children’s television shows. The book subtitle “How Consumer Culture Manipulates Parents and Harms Young Minds” should give you a pretty good idea of the author’s opinion of the topic.

 

One of the main topics of the book is the trend for Boomer generation and Gen X moms to want to buy “educational” toys for their children. In the case of the Boomer moms, Thomas says they wanted to buy educational toys and games for their children in the hopes that the children will be smarter. Gen X moms on the other hand say they don’t want to push their children too hard but they buy educational toys anyways.

Some of the specific products and trends that she covers are:

Mozart effect: The idea was that listening to Mozart would improve your intelligence. This idea was based on a very small study on college students which was later debunked but regardless a number of CDs featuring the connection between Mozart and kids were best sellers.

Baby Einstein: The name says it all. These videos were originally created by Julie Aigner-Clark and were turned into an extremely successful business that was sold to Disney. Thomas seems to think that parents buy these videos in the hope of adding a few IQs to little junior, but the message I’ve gotten from various parents I know who like these videos is that they are a great way to keep junior occupied for at least a few moments and who cares if they are educational or not?

She details how the toy industry tries to sell expensive products based on the idea that the toys are “good” or “educational” for your kids when in actual fact they have no extra benefit compared to old fashioned toys such as lego (one of my old favourites).

Another big topic she covers is television shows that are geared toward young children as well as toddlers. Her opinion is that children under the age of two shouldn’t be watching any television at all.

My opinion

I’m not a big fan of marketing and as far as toys go – I’m well aware that most toys are geared towards the parents not the children. We haven’t bought our son many gifts mainly because his relatives back a truck full of toys up to the house every time they visit. I did however convince my mom to buy some toys for him this summer at yard sales which saved a lot of money. As far as television goes, we haven’t let him watch very much tv but at his age (16 months) he doesn’t really have much interest in it. We’ll have to see what happens when he gets older and decide how much tv we want to let him watch.

Summary

A fantastic read if you have ever bought or thought about buying a toy for a child. The book is well researched and well written and I enjoyed it tremendously.

BusinessWeek had an excellent review on this book which is where I first heard about it.

Categories
Announcements

And The Winner Is…

For a copy of Derek Foster’s “The Lazy Investor”….Shevy! Congrats Shevy, I’ll be sending you an email to get your mailing address.

Now on to the usual Saturday LinkStuff & Weigh-In!

Weight – 184, down a pound from last week. I have to say that posting my weight each week is a real motivator for me during the week. I’m planning to buy an electronic scale this week so hopefully that won’t “reset” my weight.

Some Links:

Preet from “Where Does All My Money Go?” had a great series on leveraged investing this week. I did my own series on this topic a while back but he has a lot of detail and actually backs up his plans with facts!

This week we entered Mr. Cheap’s post about real estate agents in the Carnival of Personal Finance which was hosted by Cash Money Life. His post on Unified Theory of Everything Financial was entered in the Carnival of Financial Planning.

Some carnival posts I rather enjoyed:

  • An interesting look at Monopoly and real estate strategies on Two Wise Acres – a great real estate blog.
  • The BagLady had a very good post on the so called “American Dream” which also relates quite closely to real estate.
  • Million Dollar Journey had a post on tipping which inspired a tipping post of my own.
  • A Penny Closer talks about why he bought his first home – I liked this one because it so closely mirrored my own first house story. I also enjoyed his story about overpriced lobster. I can’t believe the waiter didn’t say anything.
  • Smart Money Daily has three banking stories – skip to the last one.
Categories
RESP

RESP – My Suggestion For A Better RESP Program

This is the last post of the Big RESP Series. See the previous post on Keeping It All In Perspective.

One of the problems with RESPs is the number of rules surrounding them. This creates a product that is very expensive to administer for the RESP providers and government and very hard to understand for the average parent. Since the rules in their current form (more or less) have been around since 1998 and the government and financial companies have already created their systems and processes for these accounts there is not much point in changing them now. However, I’d like to put forth my ideas on how the RESP program should have been done.

One of the complicating factors of RESPs is the lifetime and annual limit on contribution grants. Because of this, the financial companies and government have to keep track of all the contribution amounts and for family plans, the allocation between beneficiaries.

A better way to do RESPs might have been to just offer tax free accounts ie you make contributions [edit] with no tax rebate [edit] , the investments grow tax free and then upon withdrawal the money is taxed in the hands of the student or if the student doesn’t go to school then it’s taxed in the hands of the subscriber as normal income (no AIP) tax.

What about the grant money you ask? Good point – take the money that would have been paid out in contribution grants and just hand it out to children of a certain age which is similar to Alberta’s ACE program. For example the government might give $100/yr to every child under 10. These grants would have to be put into RESP accounts and would be subject to the normal withdrawal rules outlined above.

Another option with the grant money would be to just give it to students who are actually in or about to start school. That way there are no grants to track and no investments accounts.

One of the benefits of this new RESP would be that it would cost the government the same amount of grant money, both the government and investment companies would benefit from lower administrative costs and lower income people can participate more easily. Currently it’s more middle and higher class people who get the biggest benefit from the RESP program but they are not the ones who need it as much.

That’s it for the RESP series so hopefully you enjoyed reading and learning from it (I know I did) and can use it for reference in the future.

Categories
Real Estate

Anecdotes and Advice from a First Time Home Buyer Part 9 – A Reflection

My friend Christine has kindly agreed to write a series of posts on her experiences with buying a home for the first time which will be posted occasionally. See Part 8 – Condos and Taxes.

Several months into the Search

After a few months of searching for a house, what have we learned about ourselves and what compromises are we willing to make in our quest towards home ownership?

It has definitely been a learning experience as we grow more comfortable with the market and narrow down the neighbourhoods. We are only starting to accustom ourselves to the dizzying whirl by which houses are bought and sold downtown. The majority of houses are sold within a week of being listed. A day or two can mean losing out completely on a house. Oftentimes we were not quick enough to even visit a house before it was sold. Photos while useful, are not always accurate and do not replace an in-person visit. We also find it stressful having to decide on a house within just a couple of days of seeing it.

My intention of taking a practical approach to the house hunt seems to have flown out the door. Hubby and I have had strongly positive or negative reactions to the properties that we have seen. Other times, we have felt indifferent about a property which for us is not ideal considering the half million dollar price tag. Despite the quantity and variety of houses out there, we have not yet been able to match a house to our requirements and budget. I feel like picky Goldilocks trying to find a house that is just right instead of too small, too dark, too far, too much work, or too expensive.

While we recognize that it may be foolish, there are developing areas in large swathes of the city that my husband and I have discounted because they are too rough for our liking. Early evening “stroll tests” have helped us determine if we would be comfortable in a particular area. Some of the downtown areas undergoing transition are rather deserted in the evening and have rundown buildings popular with the homeless.

With our modest budget, is the search an exercise in futility? We are not ready to panic yet. Downtown is still realistic for our budget if we can imagine the potential of a fixer-upper. The trick is in finding the right house with an affordable amount of work. Our real estate agent has advised us to keep the neighbourhood in mind when considering renovations. In other words, don’t put more money into a house than the area is worth. Expensive finishes and renovations in some neighbourhoods will not be recouped when a house is resold, and thus should only be chosen for personal enjoyment.

Our friends have asked us if the over-inflated downtown prices are serving to change our minds about wanting to stay downtown. We have vacillated for months with the idea of moving farther out, but our forays out of the downtown core are showing us that a house is less important to us than staying downtown. Therefore we are definitely more open to condominium ownership than we were previously, but are not yet ready to take that route.

Categories
Announcements

The Lazy Investor Giveaway

We’ve decided to hold our first ever book give away here on Quest For Four Pillars and will be giving away Derek Foster’s latest book “The Lazy Investor” which we had originally won from Canadian Dream.

This will be a well travelled book by the time this contest is done so feel free to put your name in by leaving a comment – any comment will do. Make sure you enter a valid email so we can contact you if you end up winning. A note for the American readers, this book is strongly geared towards Canadian investors so I would suggest you wait until our next giveaway in January.

Free Shipping at chapters.indigo.caCheck out this review of “The Lazy Investor” which Mr. Cheap wrote a while back. As well here is a pretty good review of the Derek Foster’s first book “Stop Working”.

We don’t want to drag this out so the contest will close this Friday night at 8 pm. Results will be announced on Saturday.

This book will make a great Christmas gift so don’t be shy!

Free Shipping at chapters.indigo.ca