WhereDoesAllMyMoneyGo.com

Podcast Episode 3: Top real estate analyst weighs in on Canadian housing. And Darth Vader.

Preet — Thu, 10 May 2012 22:50:18 +0000

If you follow me on twitter (@preetbanerjee), you’ll know that I decided to start a new podcast. I was trying to find some Canadian-content personal finance and business news podcasts but either I didn’t look hard enough, or most have stopped production because I couldn’t find anything. So I decided to start one up (again).

Mostly Money Mostly Canadian Episode 3

Remember: This is an R-rated podcast. You’ve been warned! ;)

This week’s episode is now available on iTunes (Click here to subscribe). You can also just use the embedded player or MP3 download below.

This week:

MBA and eMBA program return on investment
Do kids have it tougher now than their parents?
NEW SEGMENT: Fortune cookie wisdom with a Sith Lord. Yep: Darth Vader weighs in on first time home buying.
INTERVIEW: Ben Rabidoux (www.TheEconomicAnalyst.com) is a top real estate analyst who pulls no punches about what’s what in Canadian housing today
Did you work for free on the Leap Day this year?

Ratings on iTunes are appreciated :)

If you enjoy the podcast, please use the iTunes link to give it a rating (or even a review) if you have an iTunes account. The first two episodes both hit #1 in Business as well as in Investing – thank you!

Interested in being a guest?

If you would like to be a guest on the show, drop me a line at preet@preetbanerjee.com. Investors, advisors, fund managers, bloggers, whomever. Remember, it’s “mostly money” which means sometimes it won’t be about money.

Eurozone elections. Fandiddlytastic.

Tusk Trader — Thu, 10 May 2012 12:30:25 +0000

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Voters rarely trust politicians. Neither do markets, and for good reason.

Politicians as a whole are not always the most predictable group. They can often be predictable in what they might say, but unpredictable in what gets actually accomplished.

Some answers to complex problems seem obvious to markets and yet not so obvious (or desired) to the political set. Two major elections occurred this past week, one in Greece and one in France. Both countries now have new leaders (Greece has a coalition of sorts) and they have both swung to the left of where they stood a week ago. It is not just the swinging that is causing the markets grief, but it is the uncertainty of the swing. Markets can price in bad news but uncertainty and potential chaos is what creates market turmoil.

France’s new leader, Hollande, says he will halt the austerity momentum in France and “grow” his way out of the problem. The markets heard his comments and have very little faith in his ability to follow through on his plan or any faith his plan will work. Hollande seems proud of how much he disagrees with other European leaders; a very unsettling point for the markets as the European Union attempts to cling to fiscal solvency. Greece has added a great deal of political uncertainty to it’s already heightened problem of running out of money in 5 weeks time. The new Greek leader, Tsipras, says he opposes the strict austerity imposed as a condition of the European handouts. Fairly elected leaders have a right to attempt to make changes, but I have yet to hear about his plan to pay the bills in 5 weeks when the well will run dry. The market is truly sitting at attention, straining in an attempt to figure out what this guy’s plan is.

Saying no to austerity is not a plan. With a fiscal ticking time bomb occurring in that country, saying no to austerity is nothing more than a political bumper sticker.

Politicians create market uncertainty for two reasons. Firstly, market participants spend their time trying to decipher if the politician in question will attempt to do what he or she has promised and secondly, will the politician be able to achieve what he or she has promised? Failure can happen both in the area of lack of intent and in lack of achievement. European leaders big (Lagarde) and small (Tsipras) need to work together to bring certainty back to the markets.

With the antics occurring this week, that seems unlikely.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Stop smoking or blow up a Porsche?

Preet — Wed, 09 May 2012 12:45:28 +0000

As a teenager, I remember seeing a commercial which showed a smoker blowing up a Porsche 911 cabriolet as a high-impact visualization of the opportunity cost of smoking from an economic point of view. What a bunch of hog wash. They should have blown up a few more Porsches to make it realistic.

According to the Smoking and Health Action Foundation, the average carton of cigarettes costs between $70.18 and $106.09 depending on the province or territory you live in. If we average those extremes, we end up with a cost approaching 45 cents per cigarette since a carton contains 200 cigarettes.

I’ll make some simple assumptions for my own high-impact analysis: our smoker starts smoking a pack a day at 15, pays $9.00 for a pack, and the long term, after-inflation rate of return of a moderately aggressive portfolio that they could have directed their money to is 3%. That works out to over $375,000 of opportunity cost in today’s dollars by the time he or she reaches 65.

If you want to play with the variables, you can download a copy of the “cost of smoking calculator” here. If you want to figure out the value with today’s purchasing power of a dollar, just subtract an estimate of the long term inflation rate from the portfolio’s annualized rate of return.

But even this analysis is too simple. What other costs do you incur as a smoker that you wouldn’t if you were smoke-free? How about insurance premiums. Not only does life insurance cost more because your risk of dying is higher, even your home insurance costs more because you are more likely to set your house on fire.

Your home value can be affected too. Either you take a hit on the home’s value for smelling like smoke, or you spend money getting rid of the smell for when you put it on the market. Ditto for your car. We haven’t even discussed health costs which not only affect you financially, but more importantly, physically.

They say quitting smoking is harder than quitting heroin. Well, I say blowing up a flat-six powered German automobile is sacrilege, and you could effectively being blowing up a small fleet of them the longer you smoke.

Mostly Money, Mostly Canadian Episode 2 featuring CanadianCouchPotato.com

Preet — Fri, 04 May 2012 02:25:58 +0000

Episode 2 of the new podcast is now up on iTunes.

*If you like the podcast, I would appreciate a rating and/or a review in iTunes! :)

For those who don’t have an iTunes account, you can use the flash player below to stream the episode on any flash-enabled computer.

This week’s guest was Dan Bortolotti, writer of CanadianCouchPotato.com. We discussed how he became to be an index investing guru and how investors have a hard time calculating their personal rates of return.

Amateur technical analysis mistake

Tusk Trader — Thu, 03 May 2012 12:00:46 +0000

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Technical analysis is great tool to be aware of when trading or investing your own account. There are, however, right ways and wrong ways to use technical analysis. Here is a wrong way I continue to hear explained to me by the at home investor:

‘Hey, ABC has great support at $5.10. It used to trade around $8 but has been dropping a lot lately. I am looking for a good spot to buy. The chart is telling me there is support at $5.10, so I am putting my bid in there and seeing if I get filled in the next few days or weeks.”

Why is this wrong? Support and resistance points are not barriers that prevent a stock from trading through a price. The stronger the support or resistance point, the more volume or push it might need to get through, but it can still easily trade to the other side of the critical point you have located.

When a stock is getting close to a price you want to execute a trade at, see if the support or resistance actually does what you think it will before jumping in. There is no advantage to getting in at $5.10 when the stock blows through that support like butter and continues to fall down to $4. You should not be saying, ‘I want to be long at the support.” You should be saying, “ If the support holds, I want to get long.”

Some people I explain this concept to respond with, “But then I will have to pay up.” It is true; you could have to pay up from 5 cents to 25 cents (or more depending on the stock). A trader would rather pay up for a winner than get a “great price” on a loser.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Podcast is ready: “Mostly Money Mostly Canadian” now on iTunes

Preet — Mon, 30 Apr 2012 15:46:11 +0000

Mostly Money Mostly Canadian

After consulting the twittersphere, I decided on the title of Mostly Money Mostly Canadian. The format is still evolving, but it will include personal finance and business news issues in a light manner, interviews, and off topic content as well.

Here’s the description from iTunes:

Mostly Money, Mostly Canadian is a personal finance and light business news podcast for average Canadians. It’s a light hearted look into what is important about managing your personal finances and what some of the business headlines really mean. Interviews, jokes, education, and no intimidation. It’s mostly about money, and mostly Canadian, but sometimes things get off topic. Like fast cars, fatty foods, movies, science, and more. Basically it’ll cover whatever random thoughts are going through Preet’s head. This podcast is rated R for occasional foul language and as a pre-emptive warning to those with pickles up their ass.

The first episode came in a bit longer (27 minutes) than I had targeted. I’m hoping to keep it at 15 – 20 minutes per week on average. I’ll need a few weeks to get into a good rhythm and to tweak the format of the show, same as any new endeavour. :)

Interested in being a guest?

Subscribe to the podcast on iTunes (free)

You can subscribe to the podcast on iTunes here: http://itunes.apple.com/ca/podcast/mostly-money-mostly-canadian/id523360095

(You can also just listen by using the flash player at the bottom of this post.)

Clowns to the left of me (real estate), Jokers to the right (bonds), here I am stuck in the middle with you (equities)

Tusk Trader — Thu, 26 Apr 2012 13:45:09 +0000

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Hello Reader, I would like to introduce you to the equity markets. Equity markets, this is Reader.

There has been a lot of chatter from some Canadian financial leaders about the high probability of a cooling housing market. Real estate has been a solid performer for many Canadian investors over the last 20 years, but with it’s outlook cooling, homes are likely to return to being just a roof over our heads and not the pension plan some Canadians have been banking on.

The bond market has had decades of overall favor in the falling interest rate environment. The bond market has not been just a place for investors to hide from a volatile stock market, but a place to thrive over the long term. This bond market success for many will soon be changing as well.

A shift in investing and asset mixes is slowly underway. Rates are rising soon and the housing market is more than due for a pause. I think it is time that investors focus on getting reacquainted with the equity markets. This re-acquaintance process is not about finding the next big stock that will run up in a week or about putting all of your retirement savings in the stock market and praying it only goes up.

It is about actually learning about how the markets function, why they exist and what the moving parts are. The equity markets are not about 50% returns and huge risk. Many people trade their at-home investing account without basic capital market knowledge. Being able to trade should not be confused with a properly managed equity portfolio.

Another pitfall I hear of are investors who fill themselves to the brim with mutual funds for equity exposure because they don’t want to deal with learning more about the stock market. It can be a very costly decision long term and one I consider very risky overall. Being uninformed about an investment is always very risky.

It truly isn’t hard to learn more about the equity markets and learning more does not have anything to do with trading stocks from home. The more you know, the more investing options you will have to choose from and the more educated your decisions will become. Knowledge starts with the basics and that is where the reader seeking knowledge should begin. Whether you have been interested about the equity markets and have just not gotten around to learning more, or if you have avoided the equity markets like the plague out of fear, just start. Start tomorrow.

Or if you need to, start on May 1^st. Finish your taxes first.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Central banker avoiding answering any questions about rate hikes (Comedic Video)

Preet — Wed, 25 Apr 2012 13:45:52 +0000

I love the Aussie comedy duo of Clarke and Dawe. Here’s a 2 minute video of them hamming up a pretend interview of Australia’s central banker (like Canada’s Mark Carney) being asked about interest rate hikes. Enjoy!

(If you can’t see the video, click here)

The Lifelong Learning Plan (LLP)

Preet — Tue, 24 Apr 2012 12:30:23 +0000

A victim of a company layoff asked me if she should use the Lifelong Learning Plan provision of RRSPs to pay for tuition when going back to school on a full time basis. I immediately responded that few people use that program, and she might not want to either.

The Lifelong Learning Plan is very similar to the much more popular Home Buyer’s Plan. Instead of taking an interest free loan from your RRSP to assist in purchasing your first home, the Lifelong Learning Plan, or LLP, is used to assist you in going to (or going back to) school. You can also use it to finance the education of a spouse or common-law partner.

Under the LLP program, you can withdraw up to $10,000 from your RRSP per year if you meet the following conditions:

You are enrolled, or have received an offer to enrol before March of the following year, at a designated educational institution.
The program you are taking is a “qualifying education program”.
You are enrolled on a full-time basis.

If you meet these conditions, then you do not have to pay tax on these withdrawals under the LLP program. As long as you pay the funds back to your RRSP over a period of ten years following eligibility of the program, you will never have paid interest or tax to access this money.

Normally, any money taken from your RRSP is treated as ordinary income and taxed at your Marginal Tax Rate. So for example, if you earn $150,000 in 2012 then you fall into the highest tax bracket and according to Ernst & Young’s 2012 personal tax calculator that means you are paying anywhere between 39 and 48.22 cents per dollar withdrawn depending on which province you live in. But how many people earn $150,000 per year when enrolled in school on a full time basis?

If you’ve lost your job, your income is very low. Let’s assume you have absolutely no income, not even employment insurance benefits. If you took out $10,000 from your RRSP you would have virtually no tax to pay. When making the RRSP withdrawal from your financial institution they would withhold tax and remit it to the Canada Revenue Agency (CRA) on your behalf, but once you filed your taxes for that year you would get back whatever was withheld.

By simply deregistering funds from your RRSP in a low income year, you could end up paying very little in tax because you are in a low tax bracket. (“Deregistering” means making a withdrawal that is treated like ordinary income.) You would not need to qualify the withdrawal by checking on the status of the education institution or program, and you could study part-time if you wanted to as well. You have much more flexibility.

Even better news: once you graduate and hopefully start earning more money, you can catch up on your RRSP contributions and perhaps collect some sizable refunds. In contrast, you wouldn’t receive any tax savings for repayments under the LLP program.

If you are considering the LLP program, run through a forecast of your income and taxes before making any decisions. Everyone’s situation is different, but few end up using the Lifelong Learning Plan*.

*Statistics Canada reports that from 1992 (program inception) to 2004, 1.4 million Canadians aged 25 to 64 withdrew $14.2 billion under the Home Buyer’s Plan compared to 49,000 Canadians aged 25 to 64 who withdrew $363 million under the Lifelong Learning Plan from 1999 (program inception) to 2004.

This content originally appeared in my Globe and Mail column.

Money is more about your mind than your math

Preet — Fri, 20 Apr 2012 12:30:36 +0000

I was speaking to a portfolio manager one day and he mentioned that after 40 years in the industry, a Chartered Financial Analyst designation, and after having managed hundreds of millions of dollars he was convinced that investing success basically all came down to psychology. I’m slightly less draconian, and cast a larger net, as I’ve always said that personal financial success is 90% psychology and about 8% math.

A few years ago Michael Shermer wrote an op-ed piece titled, “Why people believe strange things about money” and he lead that piece with a citation of research that indicated that more people would prefer to earn $50,000 per year when everyone else earned $25,000 as opposed to earning $100,000 per year when everyone else earned $250,000. We are asked to believe that the general prices of goods are the same in both possible scenarios, although this may be a bit of a stretch. That being said, essentially people would rather be relatively better off as opposed to absolutely better off. The math is simple. $100,000 is more than $50,000. But the psychological drivers at work guide the ultimate decision.

The field of behavioural finance is not new, but it is certainly expanding at a rapid pace. We learn all the math skills we need for our personal finances well before high school, but few of us ever really examine our decision making protocols coupled with the psychological influences we fall victim to. Luckily, we can start now and it won’t cost you a dime if you have an internet connection. Click here to watch all the lectures from “Introduction to Psychology” courtesy of Yale University on Academic Earth. Academic Earth is an aggregator of higher education courses and seminars that are made freely available to anyone who wants to “cyber-audit” them. No cost, but no credit either.

p.s. The missing 2% from the first paragraph is a testament to the relative unimportance of the math.

This content originally appeared in my Globe & Mail column