Came across this post http://www.punchdebtintheface.com/2010/11/emergency-fun.html and wrote up a nice long comment, but in the end decided to be a little more modest. Seemed like a shame to throw it away though, so here it is.
I was just browsing around for blogs to read and came across this. I must say, I love that first commenter's style. Similarly:
1) I don't exactly have an emergency fund, but I do have a general consolidated car/house/wedding/emergency/retirement/small-business-startup/baby/education fund. I've been keeping my costs down to a bare minimum and once I position the latest piece that I want, investment income will be larger than living expenses. Then it becomes a toss up between volatility, security, growth and inflation.
2) About four years ago. I was able to save up so much because I was foolish/lucky/brave/stupid enough to be dumping virtually all my earnings into the stock market when it was pretty close to the bottom
3) Haven't had an "emergency" yet. My life depends on very little and I wouldn't have been able to do the above if I didn't feel remarkably comfortable in terms of job security. While looking into insurance options, I realised that my place could burn down and counting lost work time and security deposits on a new place, I could be going again for about $2k. Usually, I have that much money or more sitting around waiting to get into my general fund. Maybe I can cross the word emergency off that list. Though maybe it would be a good idea to cross baby off the list till there is a wedding and now that I think of it perhaps a wedding doesn't make sense without a partner.
4) Where does it start? Where does it end? Money moves fluidly to me. It's just there. I have a central hub that everything passes through, a savings account, a back-up hub, two investment accounts, and two retirement accounts, which I started before I realised that I could retire a few decades before I'll be able to touch that money. None of these are particularly set aside for emergencies. I run my hubs down to the dollar, the savings account just runs up and down. Flow into the investment accounts have been strictly one way. I guess that would be a no.
Showing posts with label finance. Show all posts
Showing posts with label finance. Show all posts
Saturday, November 20, 2010
Saturday, June 28, 2008
How Much Can I Draw From My Investment Portfolio
I was thinking about this question and somewhere I got an idea and decided to start searching mutual fund data.
Assumption 1: Index funds out perform most actively managed funds
Assumption 2: Index funds in general have much lower management expense ratios (MER) than actively managed funds
Therefore if I simply tossed all my money into index funds, I should be able to remove at least the difference in management fees to pay my own bills.
So I started by getting the top 10 balanced funds from morningstar's data. After removing funds that I didn't have MER data for and outliers, I was left with 7 funds. The remaining funds had an average annual rate of return over 5 years of 14% with an average MER of 2.086%, then my connection started having trouble.
Assumption 1: Index funds out perform most actively managed funds
Assumption 2: Index funds in general have much lower management expense ratios (MER) than actively managed funds
Therefore if I simply tossed all my money into index funds, I should be able to remove at least the difference in management fees to pay my own bills.
So I started by getting the top 10 balanced funds from morningstar's data. After removing funds that I didn't have MER data for and outliers, I was left with 7 funds. The remaining funds had an average annual rate of return over 5 years of 14% with an average MER of 2.086%, then my connection started having trouble.
Saturday, June 21, 2008
REIT Selection PT 1
Well, lets see what I can come up with before reading the REIT guide that I found. So, how do I pick what a good investment will be? Well, it's got to provide a good sustainable return. I guess that breaks things down into two main points, sustainability and return. I don't decide what to buy based of geographical and sector concentrations, but that might weigh in on how much I buy.
What can harm sustainability? From what I've seen REITs are always issuing new units, so dilution is a factor. Then there's how well properties are maintained and whether or not there's new ones in the works. So I guess acquisitions is another thing that I would look at. Another thing that hurts sustainability is that some REITs seem preoccupied with paying out a certain rate. While they're obligated to pay out a certain amount of taxable revenues to unit holders, nothing prohibits them from paying out more. So pay out ratio is another big one. I guess if something is sustainable, it's probably also growing. If it were unsustainable, it would be shrinking and hitting the exact point where it isn't doing either sounds like something that's unlikely to occur.
I suppose value is best summarized in some variation of PEG ratios. They tend to use some slightly different terminology when talking about REITs.
So bit of a summary:
Sustainability and growth
-units issued
-recent acquisitions
-payout ratio
Value
-PEGish thing
Now to read the guide and see if I can refine my ideas further and possibly come up with a comparison table It's a bit of a long document.
Also note, while typing on this laptop, part of me wonders how much smaller the keyboard can get before I have to learn to type again. That shouldn't be much of a concern for someone who can do like 30WPM on a graphing calculator, but relearning typing is an inconvenience. My old machines should probably hold out till there's more competition in the sub notebook market and I can find something that'll suit my style. Hopefully there won't be so much of a trade off too.
What can harm sustainability? From what I've seen REITs are always issuing new units, so dilution is a factor. Then there's how well properties are maintained and whether or not there's new ones in the works. So I guess acquisitions is another thing that I would look at. Another thing that hurts sustainability is that some REITs seem preoccupied with paying out a certain rate. While they're obligated to pay out a certain amount of taxable revenues to unit holders, nothing prohibits them from paying out more. So pay out ratio is another big one. I guess if something is sustainable, it's probably also growing. If it were unsustainable, it would be shrinking and hitting the exact point where it isn't doing either sounds like something that's unlikely to occur.
I suppose value is best summarized in some variation of PEG ratios. They tend to use some slightly different terminology when talking about REITs.
So bit of a summary:
Sustainability and growth
-units issued
-recent acquisitions
-payout ratio
Value
-PEGish thing
Now to read the guide and see if I can refine my ideas further and possibly come up with a comparison table It's a bit of a long document.
Also note, while typing on this laptop, part of me wonders how much smaller the keyboard can get before I have to learn to type again. That shouldn't be much of a concern for someone who can do like 30WPM on a graphing calculator, but relearning typing is an inconvenience. My old machines should probably hold out till there's more competition in the sub notebook market and I can find something that'll suit my style. Hopefully there won't be so much of a trade off too.
Tuesday, April 15, 2008
Picking a Discount Brokerage
I started my quest for a discount brokerage by finding a list of them to go through. To do that, I started with CIPF, the Canadian Investor Protection Fund. It basically ensures a basic level of security. Basically, if the brokerage firm goes under, I still have my investments. So, onward to the list of members and their websites. It was quite a long arduous process involving to a lot of websites. There were a lot of private wealth management firms and few people offering self-directed brokerage. After having narrowed down the choices, I made a decision on what was important to me. I already have one account, which has some analyst coverage, so that wasn't too high on my list of priorities. The main reason, I was looking for a new place to try was the cost, I felt that I could get a better deal. Previously, I had decided that I was going to be a buy and hold investor rather than an active day trader. So, speed isn't critical, it can take an hour to execute a trade for all I care. It also means that monthly fees were going to be a deal breaker. I also didn't see myself getting a large sum of money any time soon, or trading more than once or twice a month. Using that, I kind of priced out my options and then searched for what kind of reputation the places had.
One option wound up being cheaper than the rest and the reputation seemed decent enough. Most of the complaints seemed to be from people who didn't know what they were doing whining about the same thing over and over again everywhere. The deal breaker for me was the lack of an unregistered cash account. Why this is a deal breaker is another discussion.
So, do I want a margin account? For many of the discount brokerages that I've been eyeing, the interest rate is prime+1%, which is 1.5% better than my student loans, which are prime+2.5%. Both are tax deductible as long as I use the money to invest in something that generates income other than capital gains. So this means no forex, no futures, no precious metals and no options. I seem to be ok with carrying my student loans. This brings forth a number of possible courses of action. Paying off my debts of course remains a possibility.
1) Pay off debts and staying debt free - I ruled this out earlier because I felt that I could get a better return than the interest rate on my loans
2) Pay off debts and buy on margin - Well, this would cause a bit of a delay in my plans, but overall it's not going to be all that long of a delay. I'd probably wind up borrowing very small amounts for quite a while.
3) Carry the loans and buy on margin - Part of the reason I'm ok with my student loans is because I know there's an end to it. I'm not too sure I want to borrow all that much
4) Carry the loans and don't buy on margin - More or less what I had originally intended to do
5) Carry the loans and use a margin account but keep borrowing limited - This is also something I'm fairly comfortable with. Though margin is kind of new to me.
6) Carry the loans, keep most of my investments in cash accounts and use a margin account sparingly or revisiting whether or not I want to use a margin account at a later date - This feels like the best course of action for now. See if I happen to have any trouble with a company before taking on more risk with them. I seem to have bad luck with CIBC related firms, such as the people who handle student loans, and their grocery store shell. Hopefully I won't have any trouble, but lets prevent the headaches.
So yeah, I went to the next one on the list, trade freedom. They're owned by the Bank of Nova Scotia, which I tend to have good luck with. At present, I'm not really expecting much trouble.
One option wound up being cheaper than the rest and the reputation seemed decent enough. Most of the complaints seemed to be from people who didn't know what they were doing whining about the same thing over and over again everywhere. The deal breaker for me was the lack of an unregistered cash account. Why this is a deal breaker is another discussion.
So, do I want a margin account? For many of the discount brokerages that I've been eyeing, the interest rate is prime+1%, which is 1.5% better than my student loans, which are prime+2.5%. Both are tax deductible as long as I use the money to invest in something that generates income other than capital gains. So this means no forex, no futures, no precious metals and no options. I seem to be ok with carrying my student loans. This brings forth a number of possible courses of action. Paying off my debts of course remains a possibility.
1) Pay off debts and staying debt free - I ruled this out earlier because I felt that I could get a better return than the interest rate on my loans
2) Pay off debts and buy on margin - Well, this would cause a bit of a delay in my plans, but overall it's not going to be all that long of a delay. I'd probably wind up borrowing very small amounts for quite a while.
3) Carry the loans and buy on margin - Part of the reason I'm ok with my student loans is because I know there's an end to it. I'm not too sure I want to borrow all that much
4) Carry the loans and don't buy on margin - More or less what I had originally intended to do
5) Carry the loans and use a margin account but keep borrowing limited - This is also something I'm fairly comfortable with. Though margin is kind of new to me.
6) Carry the loans, keep most of my investments in cash accounts and use a margin account sparingly or revisiting whether or not I want to use a margin account at a later date - This feels like the best course of action for now. See if I happen to have any trouble with a company before taking on more risk with them. I seem to have bad luck with CIBC related firms, such as the people who handle student loans, and their grocery store shell. Hopefully I won't have any trouble, but lets prevent the headaches.
So yeah, I went to the next one on the list, trade freedom. They're owned by the Bank of Nova Scotia, which I tend to have good luck with. At present, I'm not really expecting much trouble.
Monday, April 14, 2008
Data Loss
I lost my pda data again. This used to be a very regular event. It's been ages since I restored this thing. Anyway, has me wondering if it's time to upgrade to something with non-volatile memory and physical buttons. The proliferation of touch screens is something that really annoys me. Does nobody try to use portable devices in moving vehicles anymore? The loss of tactile response also makes things like touch typing impossible, not that the buttons are big enough. This brings me to another annoyance about portable electronics, the qwerty keyboard. It's a familiar horizontal layout, but the device feels most comfortable held vertically. A vertical keyboard layout seems to make the most sense for quick and accurate data entry. I don't expect to find something with a vertical keyboard outside of graphing calculators and those tend to be a tad on the large side.
Ramblings aside this seems to be a good time to reconsider my accounting practises since I now have a gap in my records. Other than that, I can't think of anything too important that's been lost. Pretty much everything else hasn't changed since last backup, but I'm sure I've bought a few things and got paid at least once between then. I'm going to try not tracking every penny for a while. I'm sure life will go on without being able to view my account balances in three taps of the stylus.
Do I want to associate sales tax with the item purchased and group it in with the price?
I'm not sure if it's really useful to keep a running tally of how much I spent on sales tax. Though it is a pain to split taxes so that they fit in the appropriate categories.
It seems to make sense starting with gross pay and recording my payroll deductions rather than starting with net pay. That's not going to change.
One change I think I'll make is start classifying expenses as either being essential, could be cheaper and non-essential.
While I'm pretty happy with the software on the PDA, I also want to start recording things on my computer as well. So time to try some different software, figure out exactly how I want to do things, then go back to tracking my income and expenses.
Ramblings aside this seems to be a good time to reconsider my accounting practises since I now have a gap in my records. Other than that, I can't think of anything too important that's been lost. Pretty much everything else hasn't changed since last backup, but I'm sure I've bought a few things and got paid at least once between then. I'm going to try not tracking every penny for a while. I'm sure life will go on without being able to view my account balances in three taps of the stylus.
Do I want to associate sales tax with the item purchased and group it in with the price?
I'm not sure if it's really useful to keep a running tally of how much I spent on sales tax. Though it is a pain to split taxes so that they fit in the appropriate categories.
It seems to make sense starting with gross pay and recording my payroll deductions rather than starting with net pay. That's not going to change.
One change I think I'll make is start classifying expenses as either being essential, could be cheaper and non-essential.
While I'm pretty happy with the software on the PDA, I also want to start recording things on my computer as well. So time to try some different software, figure out exactly how I want to do things, then go back to tracking my income and expenses.
Thursday, April 3, 2008
Weekend review
I do my weekend review a little early because I work the weekend shift. We're at it Friday, Saturday and Sunday, so this a natural transition in my week. Anyway, I got a portion of my room cleaned. Lack the drive to do it all at once. Did not open a new brokerage account like I had wanted. Still need to do that. Didn't file my tax return yet. Though I have assembled a shopping list of what I'd like to be in my long term holdings. It's a roughly $30K shopping list right now and it'll be nice. It should take me roughly 17% closer to the red line, for a total of 19% or so. Umm, where is the green line again? I think that need stamp that on my desktop wall paper, or perhaps round it to something. Anyway, that'll be 10.4%. It makes things look so quick when I look at it like that, though I'd still need to get the $30K to buy all of it.
I've also tentatively scheduled a location scouting trip into the USA. I've got a friend there who I think will give me all the help he can relocating. However there is still a border there and it'll be pesky. I'm guessing E-2 might be the easiest visa for me to get, though I'm going to be very reluctant to empty my investment portfolio to focus on one thing. That'll make things take a little longer. I'll also need to bump my lines a bit to cover health insurance. Maybe I can take that trip to China while I wait for funds to build up.
Also for location scouting, it seems the bank has given me a little gift. I'll be surprised if this doesn't brutally murder the formatting...
I've also tentatively scheduled a location scouting trip into the USA. I've got a friend there who I think will give me all the help he can relocating. However there is still a border there and it'll be pesky. I'm guessing E-2 might be the easiest visa for me to get, though I'm going to be very reluctant to empty my investment portfolio to focus on one thing. That'll make things take a little longer. I'll also need to bump my lines a bit to cover health insurance. Maybe I can take that trip to China while I wait for funds to build up.
Also for location scouting, it seems the bank has given me a little gift. I'll be surprised if this doesn't brutally murder the formatting...
Real Housing RetailI've highlighted the two provinces in this country I've been seriously considering in purple. Green is one that I've had someone ask me to consider, possibly jokingly. Those last figures also highly the dangers of not building up enough money. If I've got a return of 6% on my fixed income investments, and inflation reaches say, 5%, which it was for Alberta in 2007, 5/6ths of my income needs to be reinvested to keep up with inflation and I only have a 1% return to cover my expenses. Dividends from common shares, however, are typically linked to corporate profits, which typically increase with inflation. Anyway, enough rambling, I need food, then food shopping. Adjusting for inflation though are for goals I set after I've cleared the yellow line and need to start setting new goals.
GDP starts sales
Thousands
07 08 09 07 08 09 07 08 09
-- -- -- -- -- -- -- -- --
NFLD. 9.0 0.5 1.0 2.6 2.5 2.0 9.5 5.5 2.0
P.E.I 1.9 1.2 1.4 0.8 0.7 0.6 8.2 4.4 3.7
N.S. 2.4 2.5 2.8 4.8 4.6 4.0 4.0 4.7 6.5
N.B. 2.5 2.4 2.5 4.2 4.0 3.4 6.2 4.4 4.0
QUE. 2.1 1.1 2.2 48.6 47.1 40.0 4.4 4.1 4.4
ONT. 1.8 0.8 1.9 68.1 66.8 59.4 3.9 3.8 4.5
MAN. 3.5 2.8 2.9 5.7 5.6 4.5 9.5 8.1 7.6
SASK. 4.6 3.6 3.2 6.0 6.1 4.5 12.7 9.0 8.0
ALTA. 4.3 3.3 3.0 48.3 41.6 35.3 9.0 7.4 7.0
B.C. 3.1 2.3 2.8 39.2 37.2 30.5 7.1 6.2 7.5
CANADA 2.7 1.6 2.3 228 216 184 5.8 5.1 5.5
Employment CPI
07 08 09 07 08 09
-- -- -- -- -- --
NFLD. 0.6 0.2 0.3 1.5 1.0 1.3
P.E.I 1.0 0.5 0.2 1.8 1.3 1.6
N.S. 1.3 2.0 2.0 1.9 1.1 2.0
N.B. 2.1 1.9 0.9 1.9 1.2 1.7
QUE. 2.3 1.1 1.1 1.6 1.2 1.8
ONT. 1.6 0.9 1.0 1.8 1.4 1.8
MAN. 1.6 2.1 1.7 2.0 1.8 2.1
SASK. 2.1 2.4 1.9 2.8 3.3 2.9
ALTA. 4.7 2.2 1.8 5.0 2.9 2.8
B.C. 3.2 2.0 2.2 1.8 1.1 1.6
CANADA 2.3 1.4 1.4 2.1 1.4 1.9
Wednesday, April 2, 2008
Easy Money
I probably should have posted this yesterday, but it's not every day I finish a bottle of antidepressants. Anyway, I love the start of new months. Got an hour's worth of pay in account interest. That's easy money. I didn't have to work for it or make any important decisions.
Monday, March 31, 2008
An Income Investment Perspective of Money
I've never had a budget before. As a student, I had a simple goal of conserving every dollar. Nothing was ever purchased on impulse. I also got into the habit of tracking prices. I knew what I would need and when, and I could use my price database to tell me where to go and how much money I'd need.
Now that money is not as limited, I still run fairly conservatively. A dollar is never thought of in terms of how much work I had to do to get it. Nor is it simply just something that comes in on the regular basis.
So, how do I think about money? Well, I'm looking at a new laptop. It's priced at $400. $400 at a 6% yield is $24/year. That's .24% towards the red line, or about 1/417th. That's very significant to me. Even $10, $0.6/year gets me that much closer. Likewise, I view my typical pay cheque as being roughly $55/year towards my goal. That's a little over half a percent there. As long as I'm trading time for money to make ends meet, I've got to be careful how much money I deem expendable. My time is not disposable, ergo, income obtained from time is not disposable income.
If all goes well, one of my big personal loans should get repaid on Friday. I'm really looking forward to that. Though I've had the lingering feeling that I've got too much cash sitting around for a while now, so I've got to find a place to put that stuff. I also want to open up a new discount brokerage account.
To do list for the week:
Clean room
Decide on specific preferred shares to go after
Revisit asset allocation-dividend yielding common stock is very attractive right now too
Figure out REIT financial statements-My knowledge of these are largely conceptual, but they look like a good way to start off my fledgling source of non-employment income
Estimate time to the red line-I'm not sure if I really want to do that at this point
Now that money is not as limited, I still run fairly conservatively. A dollar is never thought of in terms of how much work I had to do to get it. Nor is it simply just something that comes in on the regular basis.
So, how do I think about money? Well, I'm looking at a new laptop. It's priced at $400. $400 at a 6% yield is $24/year. That's .24% towards the red line, or about 1/417th. That's very significant to me. Even $10, $0.6/year gets me that much closer. Likewise, I view my typical pay cheque as being roughly $55/year towards my goal. That's a little over half a percent there. As long as I'm trading time for money to make ends meet, I've got to be careful how much money I deem expendable. My time is not disposable, ergo, income obtained from time is not disposable income.
If all goes well, one of my big personal loans should get repaid on Friday. I'm really looking forward to that. Though I've had the lingering feeling that I've got too much cash sitting around for a while now, so I've got to find a place to put that stuff. I also want to open up a new discount brokerage account.
To do list for the week:
Clean room
Decide on specific preferred shares to go after
Revisit asset allocation-dividend yielding common stock is very attractive right now too
Figure out REIT financial statements-My knowledge of these are largely conceptual, but they look like a good way to start off my fledgling source of non-employment income
Estimate time to the red line-I'm not sure if I really want to do that at this point
Thursday, March 27, 2008
Quick Glance at Preferred Shares
As I calculated earlier, I found that I should be looking for 7.75% return on ordinary income, 6.64% on capital gains and 5.64% on eligible dividends. So, how realistic are these figures in the short term? Well, I figure with things like the latest BMO offering at 5.8% is a decent indicator. The question is, do I want to incur the risk associated with preferred shares. As I understand it, the company could decide not to declare dividends, perceived risk of the company could increase and result in a capital loss, when interest rates go up, current issues will appear less desirable and the price will fall. Of course, the thing is, that when interest rates start going up, economic outlook should be somewhat improved and there'll be less perceived risk in the issuers, maybe those two effects will balance out. So take a chance and roll the dice?
Before I gamble, I always check the odds. There's trying to predict the weather and trying to predict the seasons. The information that I have available to me include the company's credit rating, the financial statements, performance of the common stock, and adviser commentary.
My potential losses at worst, I loose what I invest. I feel that the likelihood of this happening is rather small given the tools that are available to me. However, the Bear Stears collapse was pretty much a surprise to everyone. The effect of an event like this can also be reduced by spreading the risk around so that if one goes under, it isn't too significant of a portion of my investments.
A next step up from that, dividends are suspended. The company can then die a slow death and people won't notice for a while, or it can be just temporary. As I understand it, suspending dividends on preferred shares isn't something a company does lightly. They're usually in trouble at that point. If this happens, I suspect that the result will be largely the same as the above scenario, only a portion of my investment will be recoverable instead of the whole thing. The whole thing could also blow over and see dividends resume with a battered share price.
Share prices could fall. A portion of my capital will be unrecoverable, but income will continue. It might scare me in the short term if the drop is significant, but odds are, I'll be ok with things once the price stabilizes.
This feels like quite a bit of risk to take on for 0.16%. If this were all I was looking at, I'd step away. Though the story of my life isn't about avoiding risk. Anyone who's tried playing blackjack or poker seriously knows that it's about evaluating risk and making safe bets, not avoiding it. Maybe if the bank makes another 0.25% drop in interest rates, it'll make things more attractive. I see the real possibility for another drop in interest rates. Before making blanket decisions based on one issue, what else is out there? Not that I'm questioning the stability of the Bank of Montreal or anything like that.
Hymas put together a pretty good information table at www.prefinfo.com, Hymas also maintains a commentary at www.prefblog.com. I can also hunt down what else is out there using the Dominion Bond Rating Service, and it'll rate the financial health of the company for me too. Newspaper stock listings also seem to be a good place to look for just figuring out what's out there. I'm going to refrain from commenting on specific issues.
Before I gamble, I always check the odds. There's trying to predict the weather and trying to predict the seasons. The information that I have available to me include the company's credit rating, the financial statements, performance of the common stock, and adviser commentary.
My potential losses at worst, I loose what I invest. I feel that the likelihood of this happening is rather small given the tools that are available to me. However, the Bear Stears collapse was pretty much a surprise to everyone. The effect of an event like this can also be reduced by spreading the risk around so that if one goes under, it isn't too significant of a portion of my investments.
A next step up from that, dividends are suspended. The company can then die a slow death and people won't notice for a while, or it can be just temporary. As I understand it, suspending dividends on preferred shares isn't something a company does lightly. They're usually in trouble at that point. If this happens, I suspect that the result will be largely the same as the above scenario, only a portion of my investment will be recoverable instead of the whole thing. The whole thing could also blow over and see dividends resume with a battered share price.
Share prices could fall. A portion of my capital will be unrecoverable, but income will continue. It might scare me in the short term if the drop is significant, but odds are, I'll be ok with things once the price stabilizes.
This feels like quite a bit of risk to take on for 0.16%. If this were all I was looking at, I'd step away. Though the story of my life isn't about avoiding risk. Anyone who's tried playing blackjack or poker seriously knows that it's about evaluating risk and making safe bets, not avoiding it. Maybe if the bank makes another 0.25% drop in interest rates, it'll make things more attractive. I see the real possibility for another drop in interest rates. Before making blanket decisions based on one issue, what else is out there? Not that I'm questioning the stability of the Bank of Montreal or anything like that.
Hymas put together a pretty good information table at www.prefinfo.com, Hymas also maintains a commentary at www.prefblog.com. I can also hunt down what else is out there using the Dominion Bond Rating Service, and it'll rate the financial health of the company for me too. Newspaper stock listings also seem to be a good place to look for just figuring out what's out there. I'm going to refrain from commenting on specific issues.
Tuesday, March 25, 2008
Sorting the mess
Before sitting down to figure things out, I went to one of those online asset mix things that try to advise you on where you should keep your money. It spat this out at me.
I'm not sure what I really want to do with this, but I'll keep it in the back of my mind somewhere. Rather than try to stick to some ratios, I'm going to just take a sort of grocery shopping approach and pick up what seems to be a good idea at the moment.
At the moment, I'm kind of happy with this. 15% cash feels a tad high for my liking, but right now, my pie is rather small and equities generally like to move in board lots so having a high percentage of cash is unavoidable. Other than that, I guess it kind of represents my general sentiment.
I came up with a kind of different breakdown for things. It just works better for my thinking. What I've got here at the moment is the amount, then bellow that pre-tax and expected after tax income.Starting from the top right, if I can't can't really count on it, I'm not going to think of it as being part of my main investments.
My loans also need some attention. Right now, they dictate my minimally acceptable rate of return. They're at a rate of prime+2.5, paid with pre-tax dollars. With a current prime rate of 5.25%, that's 7.75%. If I stick in the lowest tax bracket, that'll be 5.8125% and 5.27% if I slide up to the next bracket. For now, I think I'll assume I stay in the lowest tax bracket. Using marginal tax rates from http://www.morningstar.ca/globalhome/MarginalTaxCalculator/index.asp I'll need a return of 7.75% on ordinary income, 5.64% on dividends, and 6.64% on capital gains. Off hand, that feels a wee bit optimistic in the short term, and overall not too bad. Though I'm still young and I have little experience in these things, so I could find out the hard way that I'm wrong. For me, things will probably be a mix of dividends and unrealized capital gains. Granted, those aren't exactly too spendable. Just what sort of a return I'll need when splitting the two is spread sheet time. For what it's worth, if it were any type of non-tax deductible loan, I'd need an ordinary income return of 9.69%, which is pushing it.
A sense of macro economics helps or planning. Right now, I feel that I can count on the USA keeping interest rates pinned down for the rest of us. Then there's the slowing economy and lower inflation due to valuation on the dollar. There's also a bit of a sentiment that the dollar is too high and should be pushed lower to help struggling manufacturers. In the short run, I think trying to generate a better return is an idea that should be considered. In the longer term, if it starts becoming a better idea to pay off my loan first, I can always pay it off at a later date
I generally don't think of cash as being an investment. I kind of view it as a waiting spot for when I'm deciding on an investment. Generally, I've seen it recommended as allowing for flexibility to take advantage of opportunities as they arise. So it kind of sits outside for now.
Instead of having a conventional pie graph, my short term goal is to be able to make ends meet without needing to work in a rather minimalist sense. It would make me feel a lot more secure and give me the flexibility I want to explore a bit. Granted, I could just save money for that. However, I'd feel a lot more free and secure if I could get an income stream off my investments. For the ease of mental arithmetic, I've decided on an initial goal of $10,000/year total income plus enough cash to pay off my loans. I'll dub that mark, the red line. The minimum wage+vacation pay+stat holiday mark shall be referred to as the green line and I suppose somewhere in between should be a yellow line, so lets call that $10,000+loan payments = $12,710.
So, now the question is, since this is a give me some lee way to be unemployed for a while, do I want to presume that I am unemployed in this presently fictitious scenario? Do I want to calculate as if it's on top of something that's already pushed me into the lowest tax bracket? For that matter, do I want to calculate for other parts of Canada as well since I want to relocate. It's an arbitrary choice, and I'm split between calculating as if I'm in the lowest tax bracket already and calculating pre-tax. For now, I suppose lowest tax bracket works. I'm 3.5% towards the red line, and 2.75% towards the yellow line. I have trouble remembering where the green line is off-hand, but it's still a long ways to go for that, so I'll think about it when I'm a bit closer.
Why you need health to have healthy finances
I know I said no more bail outs, but one of my friends took a bit of sick time lately and as a result couldn't afford food and was five days away from pay day. It's just a small amount, but I suppose that's how things add up. We overlook just how frequently these small amounts happen. If employment income is important, then you gotta make sure you're in a condition to show up for work when you're scheduled.
I'm glad I seldom get sick. Hopefully it stays that way. I try to look after my health. I don't get much fast food, though my diet lacks dairy as well as fruits and vegetables. I'm also staying physically fit, don't smoke, no drugs or alcohol. Well, room for improvement, I should try for a more balanced diet.
I'm glad I seldom get sick. Hopefully it stays that way. I try to look after my health. I don't get much fast food, though my diet lacks dairy as well as fruits and vegetables. I'm also staying physically fit, don't smoke, no drugs or alcohol. Well, room for improvement, I should try for a more balanced diet.
Friday, March 21, 2008
Taking Inventory
Where do I sit right now? At the start of the year, I had two student loans at an interest rate of prime +2.5% for roughly $4.6K and $9.3K. Now that it's nearly a third of the way through the year, the amount has gone down a tad. Between the two of them, there's $2710.92 in payments to be made this year. I'll estimate that about $1000 of that will be interest and that's tax deductible, so I should get about $250 of it back on my tax return.
Besides that, I should be getting about $2000 back on my income tax. I'm going to be getting $4000 back for a personal bail out loan that I made earlier and I'm not sure if I'll be getting all of another $2000 I loaned out back this year. I'm determined not to make any more personal loans for a while. $6K tied up in loans with another $2K in tax refunds is quite a significant portion of my net worth at the moment.
I'm purposefully ignoring the amount I have in my RRSP at the moment, because my goals are more short term than when I turn 65. Though off the top of my head, I'd guess there's about $7.5K in there.
Then there's about $5K in common stock and $1.5K in income trusts, with a combined yield of about $300/year right now. Then there's about $6K in cash getting 3.35%.
Umm, this is a seriously disorganized mess. First order of business should be categorizing things. Second order of business, I've been running under the assumption that I can get a better after tax return investing my money than paying off my loans, I should revisit that.
Money aside, I also have decent health. I seldom get sick and seldom stay sick for long. I do however worry about my health. My family has a history of autoimmune disease and I worry that I might be affected too. I'm also decently fit. Currently I've got a decent amount of employment income coming in. I'll have to say that my job sucks, I hate it and it really tears me apart. I also have a couple good friends. Moral support can't be neglected at a time like this. Granted, I seem to be the only one of them trying to build a financial safety net. See above regarding ~$6k of bail outs. I will get to a point where I feel I have some security before making any more personal loans.
Besides that, I should be getting about $2000 back on my income tax. I'm going to be getting $4000 back for a personal bail out loan that I made earlier and I'm not sure if I'll be getting all of another $2000 I loaned out back this year. I'm determined not to make any more personal loans for a while. $6K tied up in loans with another $2K in tax refunds is quite a significant portion of my net worth at the moment.
I'm purposefully ignoring the amount I have in my RRSP at the moment, because my goals are more short term than when I turn 65. Though off the top of my head, I'd guess there's about $7.5K in there.
Then there's about $5K in common stock and $1.5K in income trusts, with a combined yield of about $300/year right now. Then there's about $6K in cash getting 3.35%.
Umm, this is a seriously disorganized mess. First order of business should be categorizing things. Second order of business, I've been running under the assumption that I can get a better after tax return investing my money than paying off my loans, I should revisit that.
Money aside, I also have decent health. I seldom get sick and seldom stay sick for long. I do however worry about my health. My family has a history of autoimmune disease and I worry that I might be affected too. I'm also decently fit. Currently I've got a decent amount of employment income coming in. I'll have to say that my job sucks, I hate it and it really tears me apart. I also have a couple good friends. Moral support can't be neglected at a time like this. Granted, I seem to be the only one of them trying to build a financial safety net. See above regarding ~$6k of bail outs. I will get to a point where I feel I have some security before making any more personal loans.
Tuesday, March 18, 2008
About the Gravitation Sling Shot
The gravitational sling shot can very simplistically be described as the art of plummeting towards something that'll kindly step out of the way for you. Since the point you're falling towards is shifting, you effortlessly change speed and direction.
It seems to be a better analogy for what I want to do than hitting rock bottom and bouncing back. Things might be falling apart right now, but I'm going to try to keep things controlled and avoid a total shattering.
A variation on this is the Oberth effect, where you want to hit the engines where you've got your highest speed. You get the same amount of speed increase for the amount of fuel you burn, but you get more energy out of it and hence go further.
With my sister getting ready to go off to school, I can't stay here for too long. My parents want to sell the house soon. I'm not sure if they're going towards selling when she starts or waiting till its over.
That's going to be another thing just waiting to crumble. I haven't heard anything about any plans to pay for her schooling. They've been telling me that I should go back to school too while they have money saved up. There's about $20K saved up. I wonder if they know that if they had actually met their expectations instead of having me lie to get loans and grants, all that would have been gone half way through third year. I sure hope that some of the money from downsizing housing goes towards covering her schooling.
Well, getting back to me, my expenses are going up when she leaves, so I'm hunting down investments to augment my income. I'm going to need a lot of extra income to start my life over again.
It seems to be a better analogy for what I want to do than hitting rock bottom and bouncing back. Things might be falling apart right now, but I'm going to try to keep things controlled and avoid a total shattering.
A variation on this is the Oberth effect, where you want to hit the engines where you've got your highest speed. You get the same amount of speed increase for the amount of fuel you burn, but you get more energy out of it and hence go further.
With my sister getting ready to go off to school, I can't stay here for too long. My parents want to sell the house soon. I'm not sure if they're going towards selling when she starts or waiting till its over.
That's going to be another thing just waiting to crumble. I haven't heard anything about any plans to pay for her schooling. They've been telling me that I should go back to school too while they have money saved up. There's about $20K saved up. I wonder if they know that if they had actually met their expectations instead of having me lie to get loans and grants, all that would have been gone half way through third year. I sure hope that some of the money from downsizing housing goes towards covering her schooling.
Well, getting back to me, my expenses are going up when she leaves, so I'm hunting down investments to augment my income. I'm going to need a lot of extra income to start my life over again.
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