Million Dollar Journey

When is it Time to Find a New Job?

Clark — Tue, 22 May 2012 11:30:10 +0000

When the economy is in the doldrums, many of us look at the silver lining, i.e., to have a job and overlook the negatives associated with the job we hold. When times are better, moving from one job to another becomes a relatively common activity. People change jobs for different reasons; this post will look at some of the primary drivers of such a decision (I am not counting people leaving a job to start their own business).

Lack of Career Advancement

There are some jobs that could be classified as dead-end ones. This is probably common in small firms (say, <50 employees). As an example, someone hired as an administrative assistant or accountant can continue for decades in that position, assuming the company is still around. A small firm is unlikely to have an administrative supervisor or accounts manager position on their payroll. So, it becomes difficult for the person employed in the role of administrative assistant or accountant to rise up the corporate ladder in that company despite several years’ experience. Boosting one’s qualifications may help but chances are good that the employee can get a better offer elsewhere with their newly-attained degree/diploma.

Some people may prefer to stay despite lack of career growth for several reasons such as an extremely likable work culture, friendly co-workers, no corporate games, proximity to home, decent wage/salary and benefits package, etc. Of course, I am overlooking certain extraordinary cases where an accountant in a small firm could get an MBA and be/become good enough to lead the company.

Lack of Mental Stimulation

This one is probably related to lack of career advancement but sometimes, getting a promotion may still not throw up enough challenges and some people need them to thrive. Doing routine tasks without any hope for something new to stimulate the brain cells can drive some people to their breaking point and such employees are liable to jump ships in search of more challenging work.

Changing Professions

Sometimes, people may realize that they do not like their area of expertise and want to shift tracks (think a chemist with an aptitude for sales). However, the present company may not need a new salesperson or be willing to let go of a good employee from his present (chemist’s) role. In such a scenario, the employee is left with no choice but to seek employment elsewhere.

The path of changing professions would be made easier for the employee if he can train in his desired field at the present company, as it is harder, though not impossible (with transferable skills), to land a job in a new field of expertise with past experience in a different one.

Unhealthy (to the body and mind) Work Environment

Certain jobs can be taxing physically – people with knee problems can find it a struggle if their job involves climbing a set of stairs multiple times every day. There are other jobs where the mental stress can push people to the edge – constantly attending (mostly useless) meetings, unending lineup of project deadlines, having to fire people, dealing with obnoxious co-workers and backstabbing, etc. could all be contributors. Such work environments are not worth the physical and/or mental stress and employees typically bolt before they do irreparable damage to themselves or someone else.

Personal/Family Reasons

A spouse getting transferred or having to move cities to be close to a newly-found loved one are also common instigators of a job change.

Irrespective of the cause, employees looking to change jobs would do well to line a new one up before giving in their notice and leave without burning bridges.

How has your career journey been? Did you change jobs for one of the reasons mentioned above or did I miss any other common causes? Did your new job take the same path as the old one giving you a sense of deja vu?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Young Investors, Covered Calls, Stock Market Volatility and More!

FrugalTrader — Fri, 18 May 2012 11:30:33 +0000

Young investors strategy @ Canadian Money Forum

How to Write Covered Call Options – A Step by Step Guide @ The Archives

The Cost of Stock Market Volatility @ Michael James on Money

My struggle with GDSR and TDSR @ My Own Advisor

JP Morgan’s $2 billion blunder re-ignites debate on regulation @ Where Does All My Money Go

Sector Breakdown of Diversified Portfolios @ Canadian Capitalist

Three ways to buy bonds @ Retire Happy

Time of Use Meter or “Smart” Meter – What is it? @ Sustainable Personal Finance

Financially Supporting Charities @ Canadian Finance Blog

Save Big Money with These Easy Homemade Skin Care Recipes @ Financial Highway

Should You Sell Your House And Avoid The Market Crash? @ Money Smarts Blog

The Purpose and the Pessimism of No @ Balance Junkie

How Young Adults Can Still Thrive Financially @ Boomer and Echo

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Top 5 Smartphone Apps to Save Money

Guest Blogger — Wed, 16 May 2012 11:30:34 +0000

Smartphone usage in Canada has increased exponentially in recent years. According to a September 2011 report released by comScore, there are 20.1 million mobile phone subscribers in Canada, 8 million of which own a smartphone. With nearly 1 million apps available for iPhone and Android smartphones, there are apps for just about everything, including saving money. Let’s take a look at the top money-saving apps for frugal shoppers.

1.ShopCatch

Website: http://www.shopcatch.com/
Free, Torstar Digital
Phones: Android, BlackBerry, iPhone

Searching flyers for the best deals can be a drag – wouldn’t it be nice if retailers offered their best deals directly to you? With ShopCatch you’ll save money and time – this handy app uses your phone’s GPS to determine your location and offers the best deals nearby. There are plenty of features to save you money – follow your favourite store to see the latest offers, share deals with friends through Facebook and Twitter, and receive exclusive offers. ShopCatch started as an app exclusively for Toronto, but is now available nationwide.

2. ShopSavvy

Website: http://shopsavvy.com/
Free, ShopSavvy Inc.
Phones: Android, iPhone, Windows Mobile

Have you ever bought an item, only to find out you could have gotten a better deal elsewhere? Worry no more with ShopSavvy – simply scan the barcode of the product you’re interested in and you’ll instantly find out which nearby retailer offers the best deal. No barcode? No problem. Search for keywords of the product you’d like to buy and save money. ShopSavvy doesn’t just work with traditional brick-and-mortar retailers – you can find the best deals online as well and share them with friends via Facebook and Twitter.

3. Groupon

Website: http://www.groupon.ca/
Free, Groupon Inc.
Phones: Android, BlackBerry, iPhone, Windows Mobile

Groupon instantly delivers the best coupons and deals to your smartphone for over 500 cities worldwide. If you’re new to Groupon here’s how it works: Groupon negotiates exclusive deals for its registered users – typically 50-90% off retail – and delivers them daily. With Groupon you receive exclusive offers and discover great new stores and restaurants. Groupon works seamlessly with your smartphone – purchase and redeem deals instantly. If you’re going on vacation there’s even a feature called Groupon Getaway that allows you to plan your spending and to give your credit card a vacation as well. Here is a Groupon review.

4. DealLeak

Website: http://www.dealleak.com/
Free, DealLeak
Phones: Android

With so many deal websites out there, keeping track of daily deals can be a real chore. DealLeak brings the best deals from online deal-of-the-day websites like Groupon, iCouponOnline, HalfOffDepot and Google, directly to your smartphone. You can further customize DealLeak by entering your postal code and location, so you only receive deals of interest to you. Plus, you can share the best deals with friends via Facebook and Twitter.

5. Craigslist

Website: http://www.craigslist.ca/
Free, Escargot Studios, LLC
Phones: Android, BlackBerry, iPhone, Windows Mobile

Craigslist is similar to eBay. It allows users to post stuff they’d like to sell – anything from basketball hoops to computers can be sold. If you’re constantly on the go and don’t a PC nearby, Craigslist app is a must-have for bargain hunting. Receive instant notifications when new stuff is posted in your area – notifications can be customized based on search criteria and price range. If you’re looking to sell your slightly used Mazda Protégé you can do that too – this handy app allows you to post ads quickly and easily. Never miss out on a great deal again with Craigslist app.

Final Thoughts

Smartphones have revolutionized the way companies market to potential customers. With smartphone apps like ShopCatch and ShopSavvy, shoppers are able to find the deals they’re looking for. As the usage of smartphone continue to increase, it will be interesting to see creative new ways retailers come up with to market to customers. Do you use smartphone apps to find deals? Which apps do you like best? Please let us know.

Smartphone usage statistics: http://www.comscore.com/Press_Events/Press_Releases/2011/11/Smartphone_Adoption_Reaches_40_Percent_in_Canada

About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University.

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Smith Manoeuvre Portfolio – May 2012

FrugalTrader — Mon, 14 May 2012 11:30:12 +0000

For those of you just joining us, below is my portfolio that is leveraged with money borrowed from my home equity line of credit (HELOC). As the money borrowed is used to invest, the interest charged is tax deductible. I write an update every so often to show new positions added along with any market gains/losses. For more details on the strategy and procedure, check out my modified smith manoeuvre strategy and my comparison of online stock brokers.

It’s been almost half a year since the last update (Dec 2011) with a bit of activity in the leveraged portfolio. We have added to a couple of our existing positions, and added a couple more new positions. With the TSX in negative territory year to date, it’s a tough time to write this report as everything is down! But despite the market volatility, I’m happy to report that several of our picks have increased their dividend in the first half half of 2012.

So which dividend paying companies increased their distributions thus far in the year? In my portfolio, I have Royal Bank, Scotia Bank, TransCanada Corp, TD Bank, Canadian Utilities, Rogers Communications, Pason Systems, Corus Entertainment, Thompson Reuters, Canadian Pacific Railway, and Canadian Oil Sands.

What did I buy over the past few months? I added to a couple of my existing holdings, namely, Pason Systems and Leons Furniture. New positions include Encana and Transcontinental which has already increased their dividend since purchasing.

My dividend watch list remains similar where I am looking to increase my position in BMO, TD, ENB, FCR and possibly add new positions in TMX Group (X), Bonterra Energy (BNE), Canadian National Railway (CNR) and Bell Aliant (BA) when their valuations become attractive.

The Smith Manoeuvre Portfolio as of May 14, 2012 (prior to open):

Stock	Symbol	Shares	Avg Buy Price	Total	Div/Share	Yield
Royal Bank	RY.T	100	$48.39	$4,838.99	$2.28	4.71%
CIBC	CM.T	45	$67.14	$3,021.25	$3.60	5.36%
Power Financial	PWF.T	105	$35.14	$3,689.65	$1.40	3.98%
Scotia Bank	BNS.T	105	$41.91	$4,400.52	$2.20	5.25%
Manulife Financial	MFC.T	125	$33.12	$4,139.48	$0.52	1.57%
Fortis Properties	FTS.T	150	$25.63	$3,843.98	$1.20	4.68%
TransCanada Corp	TRP.T	100	$33.50	$3,349.74	$1.76	5.25%
AGF Management Limited	AGF.B.T	50	$22.71	$1,135.49	$1.08	4.76%
Bank of Montreal	BMO.T	25	$44.17	$1,104.24	$2.80	6.34%
Husky Energy	HSE.T	135	$32.53	$4,391.27	$1.20	3.69%
TD Bank	TD.T	50	$48.24	$2,412.23	$2.88	5.97%
Enbridge	ENB.T	80	$18.43	$1,494.39	$1.13	6.05%
TransAlta	TA.T	50	$21.47	$1073.49	$1.16	5.40%
First Capital Realty	FCR.T	160	$9.71	$1,555.20	$0.80	8.24%
Canadian Utilities	CU.T	50	$36.40	$1,819.99	$1.77	4.86%
Ensign Energy Services	ESI.T	200	$14.98	$2,995.98	$0.42	2.80%
Mullen Group	MTL.T	100	$14.54	$1,453.98	$1.00	6.88%
Rogers Communications	RCI.B.T	100	$34.39	$3,439.48	$1.58	4.59%
George Westin Ltd	WN.T	50	$68.64	$3,441.99	$1.44	2.09%
Pason Systems	PSI.T	200	$13.97	$2,793.98	$0.44	3.15%
Corus Entertainment	CJR.B.T	100	$19.87	$1,996.99	$0.96	4.81%
Thompson Reuters	TRI.T	90	$33.40	$3,006.18	$1.28	3.83%
Brookfield Properties	BPO.T	150	$16.01	$2,401.23	$0.56	3.50%
Canadian Pacific Railway	CP.T	30	$53.90	$1,626.99	$1.40	2.58%
Canadian Oil Sands	COS.T	150	$19.14	$2,871.48	$1.25	6.53%
Leons Furniture	LNF.T	200	$12.06	$2,412.98	$0.40	3.32%
Encana	ECA.T	100	$18.82	$1,881.99	$0.80	4.25%
Transcontinental	TCL.B.T	100	$12.72	$1,217.99	$0.58	4.56%

More Stats

Total Cost Base of Equities (inc. fees): $73,865.15 (vs. $68,093.19)
Market Value of Equities (Closing May 11, 2012 – not including dividends or cash): $81,099.70 (vs. $73,429.05)
Total Dividends / Year: $3,195.23 (vs. $2,897.03)
Portfolio Dividend Yield: 4.33% (vs. 4.25%)

Sector Allocation (based on market value)

Financials: 30.48% (vs. 32.22%)
Utilities: 11.73% (vs. 12.38%)
Energy: 29.40% (vs. 28.01%)
Resources: 0.00% (vs. 0.00%)
Real Estate: 7.05% (vs. 7.12%)
Consumer/Telecom: 13.99% (vs. 14.27%)
Other: 7.36% (vs. 6.01%)

With regards to sector allocation, you may notice that this portfolio is fairly concentrated in financials and energy. Note though that this is one of my accounts where I treat all of my accounts as one big portfolio. In other words, my international and other sector equity exposure are in other accounts.

Disclaimer: There have been a lot of readers who have mentioned that they are interested in a leveraged portfolio. Over the long term it may be lucrative. However, over the short term, equities are volatile and can put the portfolio deep in the red. My portfolio during 2008 is a prime example of what can happen. If you can’t stomach losing 20-30% in the portfolio in any given year, then your risk tolerance isn’t suited for leveraged investing. Here is an article I wrote answering a reader question “Should I Start the Smith Manoeuvre?” Finally, the securities mentioned in this post are not recommendations to buy or sell.

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$500k for Retirement, Top Financial Products for Canadians and More!

FrugalTrader — Fri, 11 May 2012 11:30:27 +0000

Follow Us!

For the recent new readers joining us from mainstream media, here are some ways that can follow Million Dollar Journey:

Email - Get the latest blog posts delivered to your inbox.
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Weekend Links

Can a person retire with $500,000? @ Canadian Money Forum

Top Financial Products For Canadians @ One Year Ago in the Archives

Is Buying In Bulk Always The Cheapest Option? @ Digerati Life

Pyramid Scheme Questions Cause Herbalife to Lose 3 Billion Dollars @ Lazy man and Money

Frugal Foodie: 6 Alternatives to Dining Out @ My Dollar Plan

Control Your Financial Destiny – Be Your Own Boss @ brip blap

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Are you Ready to be a Homeowner?

Clark — Wed, 09 May 2012 11:30:55 +0000

Most of us would probably buy at least one house during our lifetime. For some, buying a home is a dream; for some, it is a definition of their success in society; for some, it is simply a shelter where they don’t have to pay rent.

No matter the justification, when a person starts to think about buying a home, it is prudent to conduct a self-evaluation to see if they are financially ready to get their feet wet in home ownership. This post looks at some of the key aspects that may be worth considering before taking the leap.

Consumer debt

If a person is riding the debt wave well by having outstanding credit card bills at the end of the month, then the time to buy a home may not have arrived yet. Simply being able to make the minimum payments on credit cards or paying all balances in full at the end of the month with no money left over does not mean that finances are close to being in order. Contemplating to buy a home involves more groundwork than simply replacing the rent payment with a mortgage payment. If credit is funding regular fixed expenses (groceries, Internet, phone, etc.), then all is not well.

Absence of an Emergency Fund

Whether the emergency fund lasts for 6 months or more depends on the individual’s situation and comfort level but the lack of a substantial emergency fund is a big red flag for a future homeowner.

Such a fund is critical to cover unexpected maintenance work in the new home, job loss, illness, etc. The essence of keeping financial reserves is to avoid missing mortgage payments, at least for a few months, due to certain incidents and/or accidents. In the event of other mishaps like a broken appliance, inability to purchase a replacement could lead to hassle and discord among family members.

Stability of Income

People who have not held a job for a while (say, at least a year) are better off refraining from house-shopping. Conventionally, once a young adult gets a good job after college, s/he is ready to buy a house soon after, especially if there is no other debt.

Even if the person graduated without any student loans, their spending habits determine the readiness. Living paycheck-to-paycheck despite the absence of any loan payments means that there are certain basic finance lessons such as “spend less than you learn” (or “earn more than you spend”) that need to be imbibed before thinking about buying a home. Evidently, not buying too much home is critical.

Credit History

Knowing the credit score is a primary step before approaching lenders, as maintaining a good score is essential to obtain a low interest rate on a mortgage or any other loan. Keeping debt levels low, while not missing monthly payments on the amounts owed will go a long way toward maintaining, if not improving, a good credit report.

Home Ownership Costs

Some tenants have a single payment in the form of rent, while others may pay a separate amount for utilities. But, a home owner may have to include property taxes, maintenance expenses, utility bills, insurance payments, and probably Home Owners’ Association (HOA) fees in their budget to evaluate their readiness.

Time

Evidently having the skills, interest, and time to fix problems in a new home will save money that could have been shelled out to repair companies. Being handy by nature would help but having the time and willingness to learn are big money-savers.

Can you think of other aspects that one would have to evaluate before committing to buy a home? Did you repent for not thinking it through before buying a home? Any stories that could be shared?

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How to Get the Best Price on Car Rentals

FrugalTrader — Mon, 07 May 2012 11:30:40 +0000

With the summer right around the corner, we decided to plan a short vacation with the kids to visit friends and family. This particular vacation involves a short flight, a relatively long drive (car rental) for an infant and toddler (3.5 hrs), and a house rental for the week. As I’m the “research to death” type person to get the best deal, I thought I would share a method of getting a good price on a car rental.

When I started the search, I went directly car rental company websites and googled coupons. While I found coupons helpful for reducing overall cost, it didn’t get me the “deal” that I wanted before pulling the trigger. Here’s what I did to get the best price possible on a car rental.

1. Research Market Value

To get a deal, the first step is to figure out the market value. In this case, I had to figure out the going rate for car rentals on a particular date and specific car size. Since we are bringing the two kids, we wanted something with a bit of luggage space. In my experience, Expedia usually has very reasonable car rental rates, so it’s a good place to start. After that, I typically cross check the prices with the car rental company websites. It usually works out that Expedia is cheaper than the direct website.

2. Get Auction Prices

As mentioned, we were looking for a particular size vehicle and in the city that we were looking, it meant only a couple of vehicle types to choose from. As we were comfortable with both vehicles (ie. luggage capacity with decent gas mileage) choices, auction sites like Hotwire and Priceline can work well in this situation.

Hotwire works by offering the user a low price, but the user can not choose the company, just the vehicle size. I assume that the car rental companies bid their lowest rate to Hotwire on a daily basis. Knowing that, it’s best to watch the vehicle rental price over a period of time as it will likely fluctuate daily. Before moving onto the next step, I usually wait until the car rental price has plateaued for at least a week.

3. Bid your Price!

Now that you know the going rate, and the lowest price that car rental companies are willing to accept via Hotwire, it’s time to use that information to your advantage. This leads to Priceline, where you can bid what you are willing to pay. You can bid any price on a particular car size, but Priceline has the option to reject your bid which means that you won’t be able to bid again for 24 hours.

For me, I would have been perfectly happy with the Hotwire price, but the idea of getting a better deal was too enticing. With my first attempt, I bid 37% below the lowest Hotwire price. Rejected. The next day, I bid 21% below and rejected again. Then I decided to give it one more shot with a bid 12% below my lowest researched price – bingo, it was a done deal.

In total, with a bit of due diligence, the price I paid for the car rental was 44% lower than the best Expedia price for the same car size. As an added savings tip, don’t forget to book with a credit card with car rental insurance coverage.

Do you have any tips on getting a deal on a car rentals?

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New Favorite Credit Cards, Making a Fortune, Mothers Day Gift Ideas and More!

FrugalTrader — Fri, 04 May 2012 11:30:58 +0000

Recently, I edited my top cash back credit cards in canada article to include a new contender, the Capital One Aspire Cash World card. It used to have an annual fee, but now it has been eliminated.

What are the benefits? 1.5% cash back, no tiers and world benefits (trip cancellation/interruption, price protection, extended warranty, car rental insurance, baggage delay/theft insurance and more). But what about the Smart Cash Card? It’s still my favorite, but the ultimate combination is to use the Smart Cash for gas and groceries (3% return) and the Aspire Cash World cash for everything else. More details in my best credit cards in Canada post.

Back to regular programming, the weekend links!

how’d you make your fortune? @ Canadian Money Forum

10 Unique and Frugal Mother’s Day Gift Ideas @ Financial Highway

RBC Direct Investing Simplifies Administration Fees @ Canadian Capitalist

The Shocking Truth About Tenants Who Become Landlords @ Landlord Rescue

Financial Stages of Life @ Retire Happy

Are You Planning for Your Retirement Lifestyle? @ Canadian Finance Blog

Market Secure GICs Not as Good as They Look @ Michael James on Money

How To Win A House Bidding War @ Money Smarts Blog

The Gundlach Effect @ Balance Junkie

Risk Taking: Intelligent vs Non-Intelligent @ Young and Thrifty

Our Fast Track To Financial Freedom @ Boomer and Echo

Why we want a $10,000 emergency fund @ My Own Advisor

Public Service Compensation – Really So Bad? @ Sustainable Personal Finance

Money is more about your mind than your math @ Where Does All My Money Go

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What is Venture Capital?

Clark — Wed, 02 May 2012 11:30:23 +0000

There are numerous big companies listed on the stock exchanges today. However, it is likely that some of these million/billion dollar corporations that we see today were helped by investments from third-parties to get started. For an early-stage business, basic expenses such as rent, equipments needed for their operation, furniture, etc. can be a burden. Despite using personal funds and obtaining bank loans, there could be times when a supporting arm to stabilize their business may become essential. This is where venture capital (similar to angel investing) plays an important role to prop up companies needing high initial capital or seeking fast growth.

What is Venture Capital?

Venture capital (VC) refers to investments made to fund a fledgling business. Generally, VC is used to aid start-up companies but it is also possible for a growing company to use VC. Typically, a VC firm will obtain money from cash-rich individuals, companies, pension funds, etc. to form a fund. Once the VC firm has accumulated a significant amount (say, $10 million), it will identify a few companies whose sector and business plans fit their investment profile. For example, in the 1990s, many software companies were helped by investments from VC firms. Those VC firms were partial to the tech world, while in today’s market, alternative energy firms may be the focus.

Usually, there are several rounds of seed funding and growth funding involved. Upon investment, a VC firm will get a certain number of shares in the venture that they could cash out at a later date. They may also get some say in the new company’s management decisions including the ability to have their representative as a member on the board of directors.

How does a VC Firm Profit

VC is made available to start-up ventures with the hope that their capital will yield a profit in the next few years. If the start-up company offers an IPO within a few years, then the VC firm can cash out by selling its shares. The same sale can also occur if the fledgling venture is sold to an established corporation (think mining companies). After cashing out, a VC firm will hope to have more cash on hand than they invested (started out with).

As may be evident, not all ventures chosen by a VC firm will become successful enough to offer an IPO or be acquired. There are bound to be companies that turn out to be damp squibs. Typically, if a VC firm selects 5 companies to invest their $10 million fund, then they only look for an overall net profit at the end of a certain period. Needless to say, VC firms are in a high potential, high risk line of business.

The Pros and Cons of VC

Pros. Evidently, the access to cash for initial expenses is very beneficial to fledgling businesses. Once personal funds and bank loans have been exhausted and the business still needs capital, VC firms are the saviors. For many start-up businesses, VC firms also offer networking benefits. The VC firm may have contacts in that specific industry or experts on its own payroll that a newcomer could tap.

Cons. One of the possible stumbling blocks is the degree of control given to a VC firm in return for its investment. The ability to have a say in management decisions may lead to discord between the business owners and the VC firm.

Have you been part of a start-up company that used VC? Have you worked for a VC firm? Do you have any stories to share from either side?

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Net Worth Update April 2012 (+0.25%)

FrugalTrader — Mon, 30 Apr 2012 11:30:10 +0000

Welcome to the Million Dollar Journey March 2012 Net Worth Update. For those of you new to Million Dollar Journey, a monthly net worth update is typically posted near the end of the month (or beginning of the next) to track the progress of my journey to one million in net worth, hopefully by the time I’m 35 years old (end of 2014). If you would like to follow my journey, you can get my updates sent directly to your email or you can sign up for the Money Tips Newsletter..

Before we start, just a quick reminder that today is the income tax deadline for those who owe taxes to CRA. However, if you are expecting a refund there is no rush to file as CRA is more than happy to hold onto the interest free loan from you. Strange as it sounds, tax strategies are one of my favorite personal finance topics. Those who are interested in planning for the coming year, check out some of my tax minimization articles.

In addition to tax, the stock market is another topic of interest but, unfortunately, this past month was another tough one for investors. With the TSX returning -2.5% and S&P500 -1.5% in April, it has resulted in 1% paper losses in my RRSP and leveraged dividend portfolio. As the losses were relatively small, cash flow and resulting savings keep our heads above water.

With greater time and effort spent on online projects, a couple of them are starting to produce dividends which hopefully will increase cash flow further going forward.

Question for you, a reader suggested that I create a way for others to track their net worth alongside mine so that they can track their own journey. Would you have an interest in using a tool like that?

On to the numbers:

Assets: $699,400 (+0.25%)

Cash: $4,500 (+0.00%)
Savings: $70,000 (+6.06%)
Registered/Retirement Investment Accounts (RRSP): $122,000(-1.05%)
Tax Free Savings Accounts (TFSA): $40,400 (-0.49%)
Defined Benefit Pension: $38,400 (+0.79%)
Non-Registered Investment Accounts: $32,600 (-0.16%)
Smith Manoeuvre Investment Account: $91,000 (-1.09%)
Principal Residence: $300,500 (+0.00%) (purchase price adjusted for inflation annually)

Liabilities: $82,600 (+0.24%)

Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
Investment LOC balance: $82,600 (+0.24%)

Total Net Worth: ~$616,800 (+0.25%)

Started 2012 with Net Worth: $585,228
Year to Date Gain/Loss: +5.39%

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments – ie. our credit card bill). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker has proven useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair. We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans. I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis. The commuted value of the pensions are not included in the statements as they are difficult to estimate.

Stock Broker Accounts

Another common question is which discount broker do I use? We actually have accounts with multiple institutions. I’m hoping to reduce the number of accounts that we hold in the near future. Here is a review of some of the more popular online stock brokers.

Cut the Cable: Watch TV for Less

Guest Blogger — Wed, 25 Apr 2012 11:30:53 +0000

Are you tired of writing cheques your cable provider in perpetuity? Although cable may seem like a small expense, it can really add up over a lifetime – $75 a month on cable over 50 years amounts to $45,000 (this doesn’t account for yearly cable increases and opportunity cost). A lot of people consider TV a necessity like food and shelter. Instead of putting your cable technician’s kids through university, lets look at cable alternatives to save you money.

TV Series on DVD and Blu-Ray

Depending on your TV watching habits, TV series on DVD and Blu-Ray can be a great cable alternative. Start by examining your TV viewing habits – do you have a few favourite shows or do you prefer to channel surf and watch a different show every evening? If you selected the former, you should consider TV shows on DVD and Blu-Ray. You can buy a season of a TV series for $30-$50 at most retailers (they often go on sale). There are two downsides – they can get quite pricey – for example, Law & Order: The Complete Series is listed at $489.99 on Amazon.ca. Also, only the most popular TV series are available on DVD and Blu-Ray.

To save even more you should definitely check out the collection available at your local public library – you can even put in requests to order DVDs and Blu-Rays at your local branch. Sharing with friends is also a great way to save money and expand your home collection.

Streaming TV Shows from the Internet

High speed Internet is ubiquitous today – why not take advantage and stream your favourite shows? There are a host of fantastic free and paid services available for Canadians. Major Canadian networks like Global, CBC and CTV allow you to stream the latest episodes of your favourite shows from their websites for free. Episodes are posted a couple days after airing (unlike Rogers on Demand, which sometimes takes over a week). One major downside is there is a limited selection – only the most recent episodes are offered.

If you’re a fan of older TV series or you’re looking for a wider variety, for $7.99 a month you can subscribe to Netflix. Netflix offers thousands of TV shows and movies for download. The selection is decent, although you won’t likely find the most recent TV seasons for download. You can sign up for a free 1-month trial and try before you subscribe. Watching Netflix is convenient and easy – stream Netflix directly to your TV through your video game console or purchase an HDMI cable and use your HDTV set as a second display (please note you may require a new video card).

Watching TV on your iPad

If you’re constantly on the run, the iPad is a great cable alternative. You can watch TV shows and movies in two ways – iTunes or apps. iTunes offers an excellent selection of the both latest TV shows and past seasons. However, iTunes can get quite pricey – high definition episodes cost $2.99, while standard definition episodes cost $1.99.

If you’re looking for free content, most major Canadian and U.S. TV networks have free apps for download. Some apps even offer an enhanced experience, allowing you to live chat with fellow fans and answer trivia questions. If you’re tired of watching TV shows on the small screen of the iPad, you can purchase the Apple VGA Adapter cable and connect your iPad to your TV for the whole family to enjoy.

Apple TV

If you have an Apple computer you can purchase Apple TV for $149 and wirelessly stream TV shows to your HDTV. Apple TV lets you play 1080p HD videos from iTunes, Netflix and watch YouTube videos from the comfort of your couch. The selection of shows is impressive – it’s probably better to subscribe to Netflix because downloading episodes from iTunes can get quite expensive. YouTube is best if you subscribe to official channels from your favourite shows, as exclusive video clips and complete episodes are sometimes posted.

Antenna and Over the Air (OTA)

A while back MDJ did an excellent article on getting free HDTV over the air (OTA) . If you’re located near the U.S. border, you should be able to get a decent number of TV channels with an antenna. Antennas are great if just want to turn on your TV and start watching without using your computer or your iPad. For $40 you can purchase a decent antenna, then mount it on your roof, and purchase 100 feet of cable and you’re good to go. Be sure to check out the channels available in your area before setup – most basic cable channels like Global, CBC, CTV, NBC and Fox are available.

Final Thoughts

As you can see, there are plenty of decent cable alternatives. Keep in mind none of these cable alternatives are mutually exclusive – you can use a combination of any to catch your favourite shows. Why pay $75 a month for 500 channels when you don’t have to?

Do you think cable is still worth the hefty price? Do you have your own cable alternatives? Please share with us in the comments.

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Forex Scams

Clark — Mon, 23 Apr 2012 11:30:35 +0000

A previous post on MDJ had looked at forex trading. This week, we will touch upon some of the scams prevalent in the forex market.

The Predator and the Prey

As mentioned in the scams of the modern world post, greed and gullibility shown by the prey is essential for a con to take place. Typically, most forex predators follow the sales tactics of legitimate forex firms (e.g. phone calls, emails, newsletters, brochures, websites, etc.). The bait is usually in the form of an “exciting opportunity” or “scheme reserved for elite members” using one of the channels mentioned above.

The scammer may purchase a mailing list from a legitimate business or concentrate on traders who have previously responded to get started on the con. Once the trader shows interest, the fraudulent firm has stellar sales people on its payroll who know how to close the deal (read: swindle). An underlying theme to most of these scams is the short life of the offer, i.e., there may be an urgency to the scheme on display.

High-yield Investment Programs

High-yield investment programs thrive by promising a high return for traders who are willing to part with their money temporarily (on the surface). These programs are Ponzi schemes where the investment from the second investor is used to pay dividend/interest to the first investor and so on. The scheme inevitably collapses when the fund management runs out of prey or a few of the earlier investors want to redeem their principal at the same time. At such a time, the scammer will disappear with the funds on hand.

Signal Selling

Another typical scam is the signal service offered by a fraudulent investment firm, asset manager or independent trader. The prey is enticed by the offer of a signal service that will issue recommendations on the right trades to make at opportune times. The service seller may claim to have extensive experience and even have references and testimonies.

References may be obtained by actually offering a profit to a few of the initial investors who would then be willing to say a few nice words about the company’s service. Testimonies displayed on the firm’s website may be statements made by these references or entirely fabricated. Evidently, the seller will charge a periodic fee for their service. The con can take two forms once the money starts flowing in: some cons end when the defrauder collects the fees from traders and vanishes, while other cons may involve providing a few profitable signals to gain trust and then disappear with the accumulated fee amounts.

Trading Systems

Another method used to swindle forex traders involves offering trading systems or software that can conduct automatic trades. In theory, for a fee, a trader can purchase the magic software and then sit back and watch as the robot does the trading to bring in the benefits. However, the reality is that most of these software packages are not built on any solid foundation; the system may generate random buy and sell signals. The gullible trader may live with the assumption that they will make money but the con is soon revealed when the trades do not generate the profits that they were promised to.

Are you a forex trader? Have you fallen prey to one of the scams mentioned above? Are there other forex scams that a trader should be aware of?

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Making a Million Bucks, Tax Fallacy, Life Balance and More

FrugalTrader — Fri, 20 Apr 2012 11:30:42 +0000

How to MAKE a million bucks! @ Canadian Money Forum

Is Personal Income Tax Planning a Fallacy for most Canadians? @ The Blunt Bean Counter

My Ideal Work Life: Striking A Balance Between Family & Work @ Digerati Life

Owning too much real estate may not be prudent @ Canadian Capitalist

25 Uses for Baking Soda Around the House @ Generation X Finance

Attention: Landlord Cash Cow Is Dying @ Landlord Rescue

How to Host Out-of-Town Guests Without Breaking the Bank @ My Dollar Plan

Are you protected from financial disaster? @ Retire Happy

Does Long-Term Care Insurance Make Sense? @ Lazy man and Money

What Games Taught me About Life and Finances @ Sustainable Personal Finance

Will Being Generous Help Your Finances? @ Canadian Finance Blog

to be a billionaire @ brip blap

Claymore Brings Managed Futures to Canadian Retail Investors @ Financial Highway

Adjusting Portfolios to Account for Investor Behaviour @ Michael James on Money

Bulls vs. Bears: Does the Economy Matter? @ Balance Junkie

Is a Diploma Necessary for Financial Success? @ Young and Thrifty

Why Baby Boomers Aren’t Prepared For Retirement @ Boomer and Echo

How we spent our tax refund this year @ My Own Advisor

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A Primer on Rental Lease Agreements

Clark — Wed, 18 Apr 2012 11:30:33 +0000

Most, if not all, renters have to sign a (rental) lease agreement for a specified period. Generally, leases are renewable at the end of the lease period depending on the willingness of both parties (landlord and tenant). Rental agreements may vary depending on the province or state but they are similar for the most part. Certain conditions such as managing sublets, giving notice, rent increases, etc. could differ across provinces or states. This post will touch upon some of the basics of such lease agreements and points to remember when signing one.

The Agreement

Irrespective of the presence of a written lease, tenants and landlords will still retain their rights and duties. However, as would be obvious, having a written agreement explains such matters clearly and avoids disambiguation. Typically, a rental lease agreement should cover items such as due date for rent payment, name of bearer of utility and other costs if applicable, and details about parking, pets, smoking, and who is responsible for maintaining the property. To elaborate, an agreement should include the following:

Names of both parties (landlord and tenant)
Location of the rental property
Rent amount, stating clearly whether other expenses such as utilities, parking, Internet, etc. are included
Rent due date
Lease term
Security deposit amount
Termination notice period
Restrictions such as no pets, no smoking, no parties after 11.00PM, no more than a certain number of residents, etc.
Details about subletting, if applicable
Conditions for termination
Emergency contact details of both parties

Province-specific rental lease agreement forms can be obtained through the links on this CMHC page.

Some points to remember

Money matters. Ensure that details about late payments are included and check to see if conditions for security deposit deductions are mentioned. The agreement should mention what situations enable the landlord to withhold a portion (or all) of the deposit amount (such as damaged wall or appliance, accommodation not cleaned on date of termination, etc.). Normal wear and tear does not entail a deduction of the deposit amount but negligence (to maintain) by the tenant will do so. In addition, verify if there is a reparation (e.g. the tenant may have to pay the landlord for breaking a lease) clause and if so, determine if the amount is reasonable.

Pets. Even if pets are allowed, ask if there is a restriction on the number or size. There could be an additional damage deposit to cover for pets.

Maintenance. Usually, landlords take care of property maintenance and it is better to have it that way. Major maintenance work could be an expensive endeavor and the landlord could argue that the tenant, if responsible, did not maintain the property to the level expected. Even if the tenant is made responsible for some minor repairs, it is necessary to have the kinds of work defined clearly in the lease agreement to avoid problems later.

Subletting. If subletting is allowed, ask if the landlord will have to approve the next tenant. Finding a new tenant who satisfies both parties (present tenant and landlord) may be an arduous task; so, an agreement without such a stipulation may help.

Dispute Resolution

Both parties have obligations under rental legislation. Withholding rent or locking a tenant out for any reason are not ways to solve a dispute. The provincial pages linked above will provide more insight.

Do you have any stories to share (as a landlord or tenant)? Do you think the lease agreement used was fair? If not, what do you think was unfair?

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Preparing for the Income Tax Deadline (2011-2012): Personal Taxes

FrugalTrader — Sun, 15 Apr 2012 11:30:32 +0000

Income Tax Deadline

With the income tax deadline just around the corner for tax year 2011, which is April 30, 2012, it’s time to start thinking about what’s required to file. If you are a small business owner, you have until June 15th to file, but any taxes owning must be paid by April 30th. If you are entitled to a tax refund, although the deadline is at the end of April, the sooner you file, the sooner you get your tax refund

When preparing to file, there is various paperwork required to be collected for information purposes, or even to be submitted to CRA. For me, I use a filing cabinet and separate receipts and other paperwork by category, then use a spreadsheet to summarize everything. I typically organize the spreadsheet by income, claimable expenses, small business, rental properties well before the income tax deadline. This article will focus on preparing to file personal taxes with future articles explaining small business and rental properties.

Income

The first step in organizing your taxes is adding up all taxable income for the year.

T4 – These are all sources of “other income” such as salary income, employment insurance, pension etc. The T4 slip will be provided by your employer/government.
T5 – This slip usually comes in the mail from your investment brokerage and covers your dividend and interest income.
Capital Gains/Losses – This will need to be tracked yourself and is a result of buying/selling investments within a non-registered account (or real estate). Here is an article on how capital gains tax works. As well, if you buy and sell the same security multiple times, here is how to calculate the adjusted cost base.
Universal Child Care Benefit – If eligible for this program, you’ll get a statement from the government as to the amount received for the year. This amount can be claimed under the lower income spouse.

Claimable Expenses

After figuring out the income, it’s time to get to the good stuff. That is, the tax deductible expenses to reduce income reported and tax credits to reduce income tax payable. They include:

RRSP Contributions – The RRSP contribution slip(s) that you’ll receive from your bank/brokerage are important as they may need to be submitted to CRA with your return. RRSP contributions are perhaps the largest tax deduction/deferral available for salaried workers.
Charitable Donations – Usually when you make an online donation you’ll get an email tax receipt shortly afterward. If you are a monthly contributor, then they’ll most likely send you a large donation receipt at the end of the year. Note that if you paper file, you’ll need to include donation receipts with your return. Here is more info on how the donation tax credit works.
Medical Expenses – For 2011 tax year, you’ll get the 15% tax credit for qualified medical expenses in excess of $2052 or 3% of income (lower income spouse) whichever is less. Note that health insurance premiums paid by an employee can be counted as a medical expense. For example, if the lowest income spouse makes $40k per year, then medical expenses in excess of $1,200 will receive the tax credit.
First Time Home Buyer Tax Credit – This is a tax credit that was introduced in a few years ago for new home buyers. New home buyers are given a non-refundable tax credit on the first $5,000 in expenses related to purchasing the home ($750 value). More details here.
Education Expenses – If you had education expenses such as tuition, then you may be eligible for the tuition tax credit. As well, text books, student loan interest and an education amount might be applicable. Check out this article on education tax credits for more info.
Child Care Expenses – If you have children, there are a few child care tax deductions available. If you have a spouse who stays at home, a spousal amount is transferable to the higher income partner, daycare expenses (up to $7,000), children fitness programs, as well as a $2,131 per child per family tax credit (worth about $320).
Investment Loan – For those of you who have the risk tolerance to leverage your investments, then providing that the funds were used for eligible investments, you will be able to claim the interest on the loan. Here are some key considerations with an investment loan.
Transit Pass Tax Credit – For those of you who use the public transit system, you may be eligible to claim your transit expenses as a tax credit. For example, if you paid $1200 in transit expenses for 2011, you would receive a tax credit of $180. I’ve never claimed this one (public transit where I live isn’t ideal), so make sure to do your own due diligence.

After preparing all your paperwork prior to the income tax deadline, there are a few options. You can DIY via tax online software like UFile ,TurboTax, or Studiotax. Other options include doing an old school paper return, or using an accountant.

Even if you have an accountant, you’ll save them time, therefore save you money if you have everything organized before submitting to them. Personally, I think that if it’s a fairly simple return with regular salary and perhaps some investment income, then a online program would be just fine. However, as the tax situation gets more complicated (your own business etc), then it may warrant paying for professional advice.

Note that I’m not an accountant so this article should be used for informational purposes only.

3 Keys to Building Wealth Video

Ed Rempel — Fri, 13 Apr 2012 11:30:17 +0000

Do you ever find yourself unsure about what to do with an investment decision? Should you buy now or wait? Is this a good time? Should I buy something safe or invest for growth?

You are not alone. Most people struggle with investment decisions because they think short term and do not have faith in the market.

This leads them to make the single most common investing error – investing conservatively near the bottom of the market and aggressively near the top.

We see this everywhere today. The markets are extremely cheap and will not always be this cheap, yet investors are focused on fear of another decline or what might happen in Europe. Most investors are conservative today and focused on income investments, thinking they will be able to buy investments with more growth after the uncertainty clears up. When that happens, the markets will almost definitely already be much higher.

This video explains how to have the right mindset for investing and how to avoid the single most common investment error. It is the second in a video series.

You can find more detailed articles on this topic by reading:

This issue speaks directly to the difficulties most people have with investing. Even people not interested in finance need to understand this message.

The video is a bit small on this page, so hit the “full screen” button on the bottom right.

Watch this video on YouTube.

If you prefer, you can read the transcript here:

You have planned retirements for thousands of people. What you have learned?

The attitude you need to build wealth is: Think long term & have faith.

If you find it difficult to make smart financial decisions, it’s probably because you’re thinking short term. When you think long term, investment decisions can be easy.

One of the most common mistakes is to invest too conservatively to be able to have the retirement you want. Our experience is that most people need a decent return, like a long term average of 8% or more to have the retirement they want. This means you’ll need to invest in the stock market. To invest effectively in the stock market you need to think long term and have faith.

How do you deal with fear of losing your money?

We find that most people believe the stock market is far more risky than it actually is. Quite simply – They have a short term outlook. They focus on the short term ups and downs, not the long term growth.

You need to take a 20-year view, not a 1-year view.

We analyzed the S&P500 in-depth since 1871. The facts are: The stock market consistently rewards long term, patient investors.

Fact: the worst 25-year period ever was a gain of 5% per year. Which means you will more than triple your money.
Fact: the longest it has ever taken to recover your money is only 7 years not decades. This was right after 1929.

The key is having faith. When the markets are low, you need to be confident and see it as a buying opportunity. Long term, the stock market always goes up.

Question: With the investors I have talked with, whenever they invest, it seems to crash. Why is that?

The problem is that they don’t have faith. They only are confident enough to invest after the markets have been gone up for a few years. They only invest after they have been hearing & reading good news about the stock market from the media and their friends. But that’s usually near the end of the bull market. If you have faith all the time, then you see the buying opportunities.

Here is how you do it; let’s say that you went into the future with a time machine and learned one fact – 25 years from now, your investments will be worth 10 times what they are today. Until then – who knows?

But 25 years from now you will have 10 times as much money, as long as you stay invested. If you knew that, what would you do during a market crash? You would see it as a buying opportunity.

For example at the bottom of the market crash in March 2009, I published an article called “Irrational Pessimism”. If you sold then, you lost many years of growth. That’s the mistake you have to avoid. If you maintained faith or bought more, you’ve done very well.

What’s the message?

Faith gives you an optimistic outlook. Investors that have faith in the markets, tend to usually have good experiences. It is their outlook that is different. Because they always are confident that it will go up long term, down markets are not scary – they are buying opportunities.

Question: In short, what have our viewers learned about investing?

The key to building wealth and having the retirement that you want is to invest with a long term, optimistic outlook, and most importantly, to always have faith that it will go up over time.

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Opinions expressed are the personal opinion of Ed Rempel. Opinions expressed in this video are the opinions of Ed Rempel & not necessarily the opinion of Armstrong & Quaile

About the Author: Ed Rempel is a Certified Financial Planner (CFP) and Certified Management Accountant (CMA) who built his practice by providing his clients solid, comprehensive financial plans and personal coaching. If you would like to contact Ed, you can leave a comment in this post, or visit his website EdRempel.com. You can read his other articles here.

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Use Your Business to Pay for Personal Tax Deductible Expenses

FrugalTrader — Wed, 11 Apr 2012 11:30:12 +0000

During my last net worth update, I wrote a little bit about our strategy on getting cash out of a privately owned corporation in a tax efficient manner. While it’s tax efficient to have retained earnings within a corporation, the goal is to extract cash by the most tax efficient means possible. One way to do this is to pay personal tax deductible expenses with dividends from the corporation.

I’ve actually touched on this topic before on using your business to pay for charity donations with the idea that non-eligible dividends are taxed less than the actual tax deduction. The strategy is to arbitrage the income tax rate on the dividends, with the tax deduction on the personal expense. The end result is that the shareholder can withdraw more in dividends than what’s required to pay the expense, and pay no tax on the withdrawal from the company.

Charity Donation Example

There’s no better way to show this than an example. Say that Mr. Owner, from NL, typically donates $10,000 annually to his favorite charity. Instead of using his own cash flow, he can pay himself a dividend from his company, then use the dividend cash to pay for his donation.

The donation tax credit will more than offset any income tax payable on the dividend received. In this case, since the donation tax credit is calculated at the top marginal rate (on amounts greater than $200), there is a significant spread between the donation tax credit and the tax rate on the dividend. This simply means that Mr. Owner is able to withdraw more out of his company via dividends than what he will pay the charity, keep the difference, all while paying no additional income tax.

How much more can he withdraw? It depends on his overall income after the dividend withdrawal. On the conservative side, the worst case scenario is that he is already in the top marginal tax bracket which means that that his non-eligible dividend rate is 29.96% (via taxtips).

Ready for some numbers? With the dividend tax credit calculated at the top tax rate (42.3% ) which is about 41.2% greater than the dividend tax of 29.96%, it means that the dividend withdrawn can be 41.2% greater than the charity contribution. In this case, Mr. Owner can withdraw $14,230 from his company via dividend, donate $10,000 to his favorite charity, and keep the difference tax free.

To simplify,

Approximate dividend withdrawn from company = (Charity Donation Amount * Top marginal rate)/dividend tax rate

For charity donations, the lower the dividend tax rate/marginal tax bracket, the more effective this strategy becomes as the spread between the donation tax credit and the non eligible dividend tax increases.

RRSPs and Other Tax Deductions

For regular RRSP contributions or other tax deductible expenses, the tax refund is approximately the contribution * marginal tax rate. In this case, the formula is:

Approximate dividend withdrawn from company = (Tax Deductible Expense * Marginal tax rate)/dividend tax rate

So say Mrs. Owner (in NL) makes an RRSP contribution of $5,000 with a marginal tax rate of 27.5% and a non-eligible dividend tax rate of 11.46%. Using the formula, she could withdraw almost $12,000 from the corporation, deposit $5,000 into her RRSP, and keep the remaining $7,000 without paying any additional personal tax.

Note that the formulas above are an approximation as the dividend withdrawn, depending on how large, can bump the shareholder into the next bracket. This post is more of an illustration rather than a recommendation on how much to withdraw per tax deductible cost. Best bet would be to use an online tax calculator to figure out your overall picture and determine how much in dividends that you can take out after counting all deductions.

For you business owners out there, what strategies do you use to get cash out of the corp?

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Canadian Tax Deductions and Tax Credits

Clark — Mon, 09 Apr 2012 11:30:49 +0000

With it being tax season, lets look at some of the tax deductions and tax credits that are available to to Canadians. Please note that I have only picked the ones that are likely to be missed. For a backgrounder, check out an earlier post on the difference between a non-refundable tax credit and a tax deduction.

Childcare Expenses

Money spent on a child in the form of daycare, summer camp and/or extra curricular activities such as hockey and baseball camps can be deducted from the income of one or both parents. Generally, up to $7,000 can be claimed for daycare per child, but it must be claimed by the lower income spouse. For more reading, here’s a detailed post on other childcare benefits. Full childcare deduction details can be obtained at this Line 214 page on the CRA website.

Medical Expenses

Medical expenses incurred that are not reimbursed by an employer’s group plan can be claimed as a non-refundable tax credit. In addition, some expenses incurred on behalf of dependents other than a spouse or common-law partner can also be claimed. These expenses could include, but not limited to, full-time or part-time attendant care for a disabled person, expenses incurred in renovating a home to accommodate such a person, medical devices to assist with sight or hearing, and/or travel to obtain medical services. The Line 330 page provides exhaustive information on the topic. Don’t forget that you can count health insurance premiums as a Medical Expense.

Disability Expenses

People with a prolonged physical or mental disability can use this deduction. To become eligible to apply, a Canadian medical doctor will have to certify on Form T2201. However, depending on the disability, a professional such as a psychologist or optometrist may suffice. This tax credit was addressed in the little-known Canadian benefit programs series not so long ago.

Self-employment Expenses

There are many tax considerations for self employed people . For example, if a homeowner uses their residence to conduct business, a portion of the mortgage interest, property tax, utilities, and insurance payment can be claimed. Similarly, a renter can claim a portion of their rent. The portion is determined by the percentage of the home (owned or rented) that is allocated for business use. More information here on how to claim a home office.

Moving Expenses

CRA allows a taxpayer to claim moving expenses within Canada, if a person moves to be employed or conduct business at a new work location. Students are also eligible if they move to pursue a course full-time at a university, college, or another educational institution. The important criterion to note is that the new home must be at least 40 km closer to the new place of work or school (by the shortest usual public route).

Charitable Donations

Donations and gifts made during the year can be claimed on Line 349. Spouses are allowed to combine their donations to maximize the tax break. The carry forward option enables the taxpayer to claim these contributions in any year within the next five years, if s/he will be in a higher income bracket at that time. Here is more information on the donation tax credit.

Carrying Charges

Carrying charges such as interest paid on investment loans, fees paid to manage investments or get advice about investments, and legal fees paid in relation to support payments are eligible. There are a few restrictions under this section; so, please refer to the link above.

Eligible Dependent Amount

A taxpayer can claim the amount spent on an eligible dependent if s/he met certain conditions at any time in the year.

If you can think of other deductions that should have been included, please point them out in the comments. Have you used any of the above deductions? Did you face any inquiries about one of them?

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A Primer on the Pension Benefits Guarantee Fund

Guest Blogger — Wed, 04 Apr 2012 11:30:26 +0000

In pension administration this is a question I hear quite often from plan members and with good reason. Private sector defined benefit pension plans are becoming increasingly underfunded. A lot of this can be attributed to external market conditions – low interest rates, changing demographics and rising cost of plan administration to name a few.

In a previous article I looked at metrics you can use to tell if your pension plan could be in trouble. While no pension I’m aware of is fully guaranteed, workers in Ontario with Defined Benefit (DB) pension plans have added protection – the Pension Benefits Guarantee Fund (PBGF). Let’s take a look at the fund’s history and the role it plays in protecting your pension.

What is the Pension Benefits Guarantee Fund (PBGF)?

The PBGF was established by the Ontario government to provide protection to Ontario members of private sector DB pensions plans if their pension were lost due to severe underfunding or employer insolvency. Similar to workers’ compensation, employers are required to pay mandatory premiums to guarantee their members’ pension plans. This fund is exclusive to Ontario – no other province in Canada has a fund like this. Members outside Ontario with DB pension plans unfortunately don’t have their pension guaranteed by the government. The government guaranteeing pensions isn’t exclusive to Canada – G8 countries like the US and the UK have their own government agencies that guarantee pensions: the US Pension Benefit Guarantee and the UK’s Pension Protection Fund.

What does the Pension Benefits Guarantee Fund (PBGF) not cover?

There are certain instances where your pension isn’t fully covered by the fund. The fund only covers the first $1,000 per month of your pension – anything in excess is not covered. While required employer premiums continue to rise, the $1,000 per month guarantee has remained the same since 1988. There are several further instances where you won’t be covered: benefit improvements that came into effect three years prior to the wind up date of your pension plan, pensions from federally-registered pension plans (industries like airlines and transportation) and any pension plan indexing that place plan wind ups. The fund is exclusive to DB pension plans – Defined Contribution (DC) pension plans are not covered.

Is the Pension Benefits Guarantee Fund (PBGF) sufficient to protect my company’s pension plan?

Canadians like their financial investments guaranteed by the government. Canada Deposit Insurance Corporation (CDIC) guarantees the first $100,000 in the event of a bank’s failure – the PBGF plays a similar role. The PBGF, however, has been criticized for its lack of funding. With the exception of 2010, the fund has run a deficit, as high as $274.2 million in 2006, every year. The deficit currently sits at 6.2 million in 2011. While the fund can handle the insolvency of a small pension plan, a large pension plan is a different story.

For example in 2009, after tech giant Nortel filed for bankruptcy, the Ontario government had to transfer $500 million to the fund to cover Nortel’s pension plan. The US Pension Benefit Guarantee Corporation is in far worse shape – it ran a deficit of $26 billion in 2011. The Ontario government has been criticized for being the only province to use taxpayer dollars to fund the PBGF. With the role of DB pension plans continues to fall – only 15% of Canadian in the private sector were covered by a DB pension plan in 2010 – and with the federal government’s proposal to introduce Pooled Registered Pension Plans, it will be interesting to see if the fund will continue to exist in the coming years or will be phased out.

Final Thoughts

If you’re a pension plan member of a DB pension plan in Ontario you’re most likely covered by the PBGF. Despite the coverage, it’s still a good idea to pay close attention to the financial health of your employer. Although the likelihood of your employer becoming completely insolvent and not able to pay out any pension benefits is very low (your employer is more likely to cut your pension by a certain percentage, such as 30%, in a worst case scenario), it at least provides some peace of mind knowing that at least a portion of your pension is guaranteed by the government.

Data source links: http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/articles/getting-ontario-taxpayers-off-the-hook-private-pension-liabilities.pdf

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Top Stock Picks 2012 – Q1 Results

FrugalTrader — Mon, 02 Apr 2012 11:30:15 +0000

Over the past few years, a group of bloggers have enlisted in a friendly competition as to who can pick the best stocks for the year. As per tradition, we all report quarterly results to see how we are doing relative to each other, and more importantly, the market.

This year, I picked a financial stock (BNS.TO), a big US consumer stock (MMM), a large Canadian minerals company (TCK-B.TO), and a well known Canadian oil company (SU.TO).

Bank of Nova Scotia (BNS.TO) – With Canadian banks retreating from their highs in late 2011, their dividend yields have reached an attractive range. Scotia Bank, with a current yield of approximately 4%, is known for their international operations and I believe has some upside coming in 2012. That is providing that we don’t have a global financial meltdown. :) Trading price as of closing Dec 30, 2011: $50.83. Disclaimer: I own shares of BNS.TO.

As I suspected, Canadian financials were oversold at the beginning of the year and most have made a recovery. Trading price as of March 31, 2012: $55.88. Combined with a $0.55 dividend equates to a return of 11.02% for Q1 2012. Disclaimer: I own shares of BNS.TO.

3M Co. (MMM) - This company is a great example of a Dividend Achiever where it has increased their dividend for 53 consecutive years with a current yield of 2.69% and P/E ratio of 13.74. Who is 3M? They are a large diversified technology company with seven large divisions. However, they are likely most well known as the inventor of the Post-It note. 3M shares sold off in late 2011 but it looks like the stock has already started its recovery. Trading price as of closing Dec 30, 2011: $81.73. Disclaimer: I own shares of MMM.

I picked this one to get exposure to the US market and that it appeared oversold at the beginning of the year. While it hasn’t kept up with the SP500, it has appreciated almost 10%. Trading price as of March 31, 2012: $89.21. Combined with a $0.59 dividend equates to a return of 9.87% for Q1 2012. Disclaimer: I own shares of MMM.

Teck Resources (TCK.B.TO) - Teck Resources is my mineral play where the company is engaged in the exploration, development and production of copper, coal, gold and zinc. It faced a steep decline in 2011 and I believe will start climbing again once confidence in the economy thus commodities returns. Teck currently yields 2.23% with a P/E ratio of 8.92. Trading price as of closing Dec 30, 2011: $35.91. Disclaimer: I own shares of TCK.B.

The most volatile stock in the portfolio brought the lowest return. Trading price as of March 31, 2012: $35.61 equates to a return of -0.84% for Q1 2012. Disclaimer: I own shares of TCK-B.TO.

Suncor Energy (SU.TO) - Suncor Energy is Canada’s largest integrated energy company. It has a large stake in the oil sands and is involved in numerous other energy plays across the country. While this is not a huge dividend stock with a yield of 1.50%, I believe that the energy sector is oversold and has a large upside should the buyers return. Trading price as of closing Dec 30, 2011: $29.38.Disclaimer: I own shares of SU.TO.

Even with the recent pull back of Canadian oil stocks, the energy sector remains strong thus far in the year. Trading price as of March 31, 2012: $32.59. Combined with a $0.11 dividend equates to a return of 11.30% for Q1 2012. Disclaimer: I own shares of SU.TO.

Overall, the portfolio returned 7.84% for the quarter. Under normal circumstances, that is a pretty darn good return, but it’s all relative! The portfolio managed to beat the TSX which returned approximately 5.4% (via XIU.TO). However, the portfolio was no match for the mighty S&P500 that has been on a tear lately with a return of 12.4% (via XSP.TO). It appears that some of the other bloggers have had more luck!

Here are the the picks and results from the other bloggers:

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