Owner: wheredoesallmymoneygo.com URL:http://www.wheredoesallmymoneygo.com Join Date: Wed, 25 Jul 2007 20:37:01 -0500 Rating:0 Site Description: One of the premier personal finance blogs for Canadians. Written by a Bay Street professional. Site statistics:Click here
Churning: Sometimes constant contact from your advisor is a BAD thing... 2007-09-24 21:11:01 Most investors who are looking for the services of a financial advisor would expect a certain level of constant communication: Quarterly portfolio or market reviews, annual face to face meetings to update financial plans and the odd unscheduled phone call if market conditions warrant it.But there are some advisors out there who maybe call their clients too often and who are constantly suggesting changes to their clients' portfolios. If that is happening to you, you need to be looking out to see if your advisor may be "churning" your account.Churning is defined as the excessive trading in a client's account in order to increase the commissions generated to the advisor. Churning is mostly associated with stock-brokers who use a transactional fee model - which means they generate a commission when you buy OR sell a stock. Financial advisors who only use mutual funds (also known as Mutual Fund Sales Representatives) can also be guilty of churning if the Read more:Sometimes
, contact
Balanced Mutual Funds should be illegal 2007-10-03 21:00:21
I suppose that is a bold statement but once you understand the logic behind it you'll probably agree. A Balanced
fund is nothing more than a fund that invests in equities and fixed income all in one mandate - in order to reduce volatility. But the problem is the fees of balanced funds are usually anything BUT balanced. In addition perhaps a fund company might have great equity managers but less than stellar fixed income managers (or vice versa).Let me start by dissecting the fee dilemma. Generally speaking, the management fees of a mutual fund are directly correlated with the degree of time, research and ongoing monitoring that a fund requires. So for example, a bond fund is comparatively easier to manage and monitor than an equity fund - hence the management fees are on the lower end of the spectrum. Equity funds on the other hand tend to require much more of a fund company's resources and accordingly have higher Management Expense Ratios (MER's). To take it even Read more:Mutual
, Funds
, illegal
Doctors and Dentists: January 1st, 2006 was the best day of your financial life 2007-10-02 16:35:19 ...but perhaps you didn't know that because you are so busy - and I can't blame you. But for you, and the rest of us, here is what happened on that auspicious day. Brain drain should have officially ended with a new law that took effect that day with respect to the tax treatment of professional corporations set up by doctors and dentists.Doctors
and Dentists have been able to incorporate themselves since 2001 - but not many did because unless they had a habit of saving there was no real point. The corporate entity did not afford you any creditor protection or release you from any professional liability - all it did was provide you with the ability to pay 18% tax on corporate income up to $400,000 per year instead of paying about 45% tax on personal income. Since most doctors and dentists spend more than what they make for the first 10 years - it didn't really do what it was intended to: make it more attractive to stay in Canada by substantially lowering the taxes Read more:January
Best Articles From September 2007-10-01 09:43:45 I can't believe September
came and went so quickly! My girlfriend kidnapped me to Niagara-On-The-Lake for the weekend to celebrate my birthday and we took in two tours: One to the Peller Estates Winery and one to Inniskillin Wines. The material on both tours was almost exactly the same so I would suggest going for one tour and then just doing the tastings at other wineries... :) In any case, here are some picks for "best of breed" for September...The Mutual Fund Company That Might Change The World is about a relatively new fund company that gives you the ability to treat the interest income you earn from their bond funds like capital gains for tax purposes (actually you can choose what type of income you receive from almost all of their different funds). A must read.Flow Through Shares Strategies Part 1 talks about a 2 Year Flow Through Share Limited Partnership Ladder which gives you the ability to reduce taxes substantially on an ongoing basis. If y Read more:Articles
New Affiliate Sponsors for this website! 2007-09-30 19:33:38 I'm pleased to announce that I've opened up this website
to affiliate sponsors. The advertising you see currently and the affiliate sponsorship deals that have just been signed help cover the costs of running the website. I encourage you to check out the affiliate sponsors in the new section in the navigation menu on the right entitled "Deals for Readers".While I've got you here, I'd like to thank you for continuing to read this blog, passing out the link to your friends and helping create exposure for the blog. Traffic is up over 60% for the month of September versus August!Thanks everyone,Preet If you found this article of interest, please consider subscribing to my RSS Feed. If you want to learn more about what an RSS Feed is, click here.For special deals for readers of WhereDoesAllMyMoneyGo.com (that's you!), please visit the "Deals For Readers" section. Read more:Affiliate
, Sponsors
The Canadian Tax Bracket System 2007-10-15 13:02:27 You may or may not be aware that Canada's income tax system is set up in a "progressive" manner. Basically the more you earn, the more you are taxed. In fact you may have heard people referring to high-income earners losing half of what they make to the government. While it is true that a high income earner will pay a lot of money in tax, they don't normally pay HALF of their income to the income tax collectors. Allow me to explain...There is no 50% tax bracket in Canada. In Ontario, the highest tax bracket that exists is 46.41% for income over $120,888 (for the 2007 tax year). So right off the bat you can see that someone would not lose HALF their earnings to income tax. But there is more to this story than just that. Let's start with an example and then work backwards... If Bob earned $125,000 for 2007, he would have a combined total federal and provincial income tax of $40,179. That would leave him with a "take-home pay" of approximately $ Read more:Canadian
, Bracket
, System
An Advanced Investment Strategy: "The Option Straddle" 2007-10-12 16:35:04 This is an Advanced Level Topic.I received a lot of comments about a recent guest article I wrote on Convertible Bond Arbitrage - it seems that a lot of people are interested in learning more about advanced investment strategies - even if it's just for academic purposes, or in other words - they don't want to necessarily engage in these strategies but are curious about them and want to know more. ...what the people WANT, the people GET! :) This brings us to this article on "Straddling".The "Straddle" might get its name because one way to think about this strategy is to liken it to "sitting on the fence"... at least until something significant happens that could move stock's price one way or the other DRAMATICALLY. But don't confuse this with "sitting on the sidelines" per se, because you are invested to a certain degree before this "dramatic turn of events". Clear as mud? Okay, let's make up a hypothetical example:There is a Read more:Strategy
What are the different kinds of Financial Advisors out there? 2007-10-11 22:37:55 Unfortunately there is not much clarity on the different
types of financial advisors out there along with the pros and cons of each. So let me shed some light on the major types, since I believe most investors are completely in the dark in this respect.In-Branch Financial
Advisors: You will find these at bank branches. Generally speaking you need only be a client of the bank and whenever you have a question about starting to invest, a teller will refer you to one of these in-house financial advisors. They are normally restricted to selling mutual funds and GIC's and that's about it. In most cases they can only sell you their own bank's brand of mutual funds, but these days the product shelf is opening up to third-party mutual funds (which basically just means mutual funds offered by other banks and dedicated mutual fund companies). These advisors are paid a salary plus bonus based on the volume of business they generate. The mutual funds they offer are all "no-load"
If you believe in diversification, don't invest too much in Canada! 2007-10-10 22:28:06
The media and the financial services' marketing teams have done a good job preaching the virtues of "diversification" or, not putting all your eggs into one basket. By holding invest
ments across different asset classes, different countries and different investment styles you can reduce the volatility in your portfolio (volatility is just another word for "risk").But far too often I will see people's portfolios with large concentrations in the Canadian stock market. Now, this is a tricky subject to broach because as you know the Canadian stock market has been one of the best performing stock markets for the last 5 years globally.However, if you do believe
in diversification then you would have a tendency to spread your money around a little bit more. One fact that gets tossed around often is that the Canadian stock market represents approximately 3% of the world's total equity. So for people who ONLY invest in Canada
, but then tell me they have diversified
The Rule of 72! 2007-10-09 18:34:10 If you are new to investing you will come across a concept known as "The Rule of 72". What it boils down to is a quick reminder that investment performance, in terms of long term rate of return, is VERY IMPORTANT, but TIME invested is even more important...The rule of 72 states that 72 divided by your long term rate of return will give you the time in years for your investment to double. Conversely, if you need to figure out the rate of return you need to double your money in a known number of years, you can take 72 and divide it by the number of years.Example 1:You expect that your investments will earn an average rate of return of 10%.72 divided by 10% rate of return = 7.2 years to double your money.So if you had $10,000 and it earned 10% every year, you would have $20,000 after 7.2 years.Example 2:You have $250,000 in your retirement savings account and you would like to retire in 7 years. You have determined that you could comfortably retire if you had $500,0
5 New Book Recommendations 2007-10-06 23:58:07
I've finally gotten around to adding some more readings to the Recommended Books section - five to be exact! There are now six books in total that are on my list and I think once you have read the first four - you would be well on your way to selecting your own stocks - or at the very least have a much better idea about stock market investing overall.The newly added books are:One Up on Wall Street by Peter S LynchBeating the Street by Peter S LynchThe Warren Buffett Way by Robert G HagstromThe Intelligent Investor by Benjamin GrahamCommon Stocks and Uncommon Profits by Phillip FisherI read Lynch's books and Hagstrom's book every couple of years - if you are serious about investing then these books are REQUIRED READING. Full Stop.CLICK HERE TO READ THE REVIEWS ON ALL BOOKS I RECOMMEND
If you found this article of interest, please consider subscribing to my RSS Feed. If you want to learn more about what an RSS Feed is, click here.For special deals for readers of Where
Make sure to track when mutual fund managers move 2007-10-04 19:45:25
For those that invest in mutual funds I want to bring to your attention a point that often gets overlooked. You've often heard that you can't pick mutual funds based solely on their past performance - I'm not sure who said it, but to paraphrase: if that were the only selection criteria then librarians would be the richest people on earth!There are numerous reasons for not focusing on just the 10 year track record of a fund but the one I want to highlight today is that mutual fund managers, just like you and me, don't necessarily stay at the same job or employer for their whole career! Quite often they can be lured away by a higher paying offer at another fund company - or the promise of an ownership stake in a new fund company, etc. So perhaps that index-beating performance you've "bought in to" has walked out the door and the incoming mutual fund manager may not be as sharp! The information on your mutual fund's manager is readily available and Morningstar
Many Employers will MATCH your Charitable Contributions - all you have to do is apply... 2007-10-19 09:21:08 If you happen to work for a very large company, chances are they have a program where they will match employee contributions to charitable donations dollar for dollar. So in other words you could double the amount of money going to your favourite charities!It's one of those things where when you hear about it you think, "Hey, that's a great idea!" but then it gets filed away and forgotten. More often than not, when a company newsletter comes around reminding you of the program you think about the $20 or $50 you've given to charity and how you forgot to take advantage of the free-matching! You probably say to yourself, "I'll remember for next time!" and then next time comes, and you forget again? I certainly fall into that boat.So here's my suggestion: Send an email to your HR person to ask two things. 1) Is there a charitable donation employer-matching program available? (if you don't know) 2) Ask if you can get 2 copies of the form. Even if you don't
Riskless Profit through Pure Arbitrage 2007-10-18 12:32:14
The word "arbitrage" gets thrown around a little bit, but here follows the pure form of arbitrage which is defined as simultaneously being "long" AND "short" a security at the same time in order to make a riskless instant profit.First a few definitions:LONG - Means that you believe the security is going up so you own it (or indirectly own it, to be technical).SHORT - Means that you believe the security is going down, so you sell it. And really, shorting means you sell something you don't own - hoping to buy it at a lower price.Next, you'll probably be puzzled as to why you would be long and short a security at the same time - all else being equal you expect your gain on the stock you owned would exactly be offset by the loss on the short (or vice versa) - and you would be right.SO - the first thing you have to understand is that this strategy only applies in certain circumstances. Most often that circumstance would be when a stock is "i Read more:Arbitrage
RRSP Loan Strategy: Pay off high interest debt with a big RRSP contribution 2007-10-17 07:00:00
Another RRSP loan strategy that some people use who are behind on their RRSP contributions is to take a really big RRSP loan all at once and to use the big tax refund to reduce high interest debt.One of the reasons they would carry high interest debt is due to poor budgeting and you have to careful before contemplating a strategy like this that the "budgeting" problem has been fixed, but nonetheless I have seen many couples who have reached a fork in the road. They have either overspent so much that they have maxed a bunch of credit cards and department store cards and can't get anymore. They realize that they are in trouble, and the only reason they don't continue to overspend is that all their money goes into maintaining the payments on their mortgage and other debts.When this strategy is really good to look at is when you are trying to get back on track by making big monthly payments on your high-interest debt because you realize just how much money is being Read more:Strategy
We are approaching the 20th Anniversary of Black Monday on the Stock Markets 2007-10-15 19:48:27 I came across an article on the Wall Street Journal which gives a great insight into BlackMonday
. For those of us newer to the stock markets and investing, Black Monday occurred on Monday October 19th, 1987. The Dow Jones plummeted 22.6% on that day - taking everyone by surprise and sparking massive fear and uncertainty.Let me put that into perspective - The TSX would have to drop by 3,216 points tomorrow to match the performance of Black Monday! Remember, only just 2 months ago we had a huge panic about the TSX dropping 400 points in one day (it was actually about 600 points intraday, but gained 200 late afternoon) on August 24, 2007. If that happened on 8 consecutive days it would only then begin to match the single day drop of Black Monday...CLICK HERE TO READ THE ARTICLE ON THE WALL STREET JOURNAL ONLINE If you found this article of interest, please consider subscribing to my RSS Feed. If you want to learn more about what an RSS Feed is, click here.For special deal Read more:Anniversary
, Stock
, Markets
What is the "Beta" of a portfolio? 2007-10-23 13:22:07 Beta is a term used to measure the correlation of volatility of a portfolio against the index in which it resides. The market has a Beta of 1 since it IS the market. Your portfolio would be more volatile than the market if it had a Beta higher than 1. Conversely, if your portfolio had a Beta of less than 1, it means that you have less volatility than the market.As an example, let's say that you owned 20 stocks found in the S&P 500 and that the index (the S&P 500) returned 10% over the last 5 years. If your portfolio returned 10% but had a Beta of 0.5 than your portfolio (from a risk versus return point of view) was better than holding the index. This is because your portfolio had HALF the volatility of the index, yet produced similar returns.Beta is useful information (and widely available information) when looking at mutual funds. If you see a mutual fund that has the same 10 year return as the market but the Beta is 1 or higher, is it worth owning? If you can fin
Have you ever wondered where the word "Mortgage" came from? It's actually quite interesting! 2007-10-22 14:29:54
It's a strange word when you sit down and think about it - doesn't seem to have any apparent roots like most other words. Mind you, no one probably thinks about it being a strange word seeing as how it is so commonplace... :)But the word does have a very interesting
origination."Usury" which is "charging interest for a loan" was a SIN in the middle ages! Hence getting credit was pretty much impossible. But if you absolutely needed to borrow money, you could pledge your land for security of the loan. A "GAGE" is a pledge.The lender would actually take possession of the land back in those days and get their interest through the crop yields or rent collected on the property - this is as opposed to today where the lender does not take possession, but charges interest.When the person who pledged their land as security for the loan ultimately pays back the loan amount, then the GAGE became MORT (which means void). MORT and GAGE are words that originate Read more:Mortgage
, ever wondered
Mutual Funds: "Global" vs "International" funds - there is a difference! 2007-10-20 12:48:57 I remember the first time I looked at investing in mutual funds was when I was 15 years old. Upon getting my first job (McDonald's), my father made me setup an automatic contribution to a mutual fund - my small payment of $25 per 2 weeks would get sent to the mutual fund company the day after my pay cheque was deposited. I also remember looking at all the different booklets and informational brochures from that company and how there were about 50 different funds to choose from. At that point, I had no idea that some were high risk and some were low risk and some were somewhere in-between. I also remember seeing some really long names for these various funds. Most of all, I remember being confused!You can figure out a lot about a mutual fund based on the name it has. For example, a fund called the "U.S. Large Cap Value" fund will primarily invest in US companies with a large capitalization (meaning the companies are worth billions upon billions and hence ar Read more:Mutual
, Global
, International
, difference
, Mutual Funds
You Can Claim Donations to U.S. Charities in Certain Cases 2008-03-10 21:03:21
Normally if you want to claim a donation to charity and have that donation eligible for the charitable donation tax credit as an individual, the donation needs to be made to a registered Canadian charity or other qualified donee. However, there are a few exceptions in which you can receive tax advantages for donations made to U.S. charities.If you live and primarily work in Canada you can claim donations made to U.S. charities if that type of donation is recognized as a charitable donation in the United States and only to the extent that the donation represents no more than 75% of your U.S. income. So in other words, it would only be of use to you if you had income originating in the United States.If you live in Canada and work primarily in the United States (and most of your income Read more:Donations
, Charities
Public Foundations versus Private Foundations 2008-03-09 22:23:45
There are three types of designations registered charities may hold:1. Charitable Organization2. Private
Foundation3. Public
FoundationCharitable OrganizationsA charitable organization generally engages in charitable activities. An example of this would be a hospital.Private Foundations
A private foundation can carry out charitable activities, but it normally gives funds to another registered charity (or other qualified donee). The foundation will be classified as Private if more than 50% of its board of directors or trustees deal with each other in a NON arm's length manner (meaning there are close ties) OR if more than 50% of the money donated comes from people who are not dealing at arm's length with each other. Many private foundations are single family foundations.Public Foundatio Read more:versus
Receiving an "Advantage" Reduces Your Eligible Charitable Contribution 2008-03-07 22:12:11
When you make a donation to certain charitable organizations, it is possible that your entire contribution will not be eligible for the Charitable Donation Tax Credit. This is because you must subtract the value of any "advantage" you receive from the organization in return for your donation.For example, if you made a $500 contribution to a charitable organization and in turn they provided you with tickets to an event that were worth $100, the "advantage" you received was $100. Therefore, the amount of your donation that is eligible for the charitable donation tax credit is $500 - $100 = $400.The good news is that you don't have to keep track of this yourself as the tax receipt provided to you by the charity will indicate the amount of the advantage and the eligibl Read more:Advantage
, Contribution
Corporations Get a Deduction for Charitable Donations, Not a Credit 2008-03-07 14:02:44
Some of the biggest sources of charitable donations come from corporations. While a donation made by an individual receives a tax credit, a donation made by a corporation receives an income deduction. Tax credits are different from tax deductions.Let's explain the difference by looking at a few examples. Tax Deduction
Let's assume we have an individual who has a marginal tax rate of 40%. If they had a $100 tax deduction, this means they can write off $100 from their income. They would normally have paid $40 in tax on that $100 of income. By having written down their income by $100, they conversely have saved $40 of tax in this case. The value of tax deductions vary according to your marginal tax rate - so they are more valuable to higher income earners.Tax CreditIf this same perso Read more:Donations
Breaking News: RESP Contributions To Become Tax Deductible? 2008-03-06 21:16:36
Thanks to reader Nicolas for providing a gentle nudge to write a post on a private members' bill that was passed last night that would allow Canadians to deduct contributions to RESP plans (Registered Education Savings Plans). The bill (which is not final), proposes that contributions up to $5,000 per year (and up to a lifetime maximum of $50,000) be deductible from the contributor's income.I have not found anything that indicates whether the CESG (Canadian Education Savings Grant) would still be awarded but my guess is that since there is stiff opposition to this bill (from the Conservative Party), the grant would be eliminated. Fingers crossed for both though! :)For an Ontarian in the highest tax bracket, an annual $5,000 contribution to an RESP would yield $2,320.50 in tax sa Read more:Breaking
, Become
, Deductible
No Hype: The Straight Goods on Investing Your Money 2008-03-05 21:13:05 I had the pleasure of being contacted by self-published author Gail Bebee who recently launched the book 'No Hype Investing
: The Straight
Goods On Investing Your Money
'. We sat down for a coffee yesterday and chatted about our experiences with self-publishing. I have yet to read the copy she provided for me so I can't offer up a review just yet, but there have been many reviews published on the internet so far and they have all been predominantly favourable. I'll provide links to the reviews so that you can read for yourself, and the very last link will be to Gail's website where you can purchase the book if you so choose:Reviews:Jonathan Chevreau (National Post)Larry MacDonald (Canadian Business Online)Canadian Capitalist (A blog I read regularly)Canadian Financial DIY (Another blog
You Can Carry Forward Charitable Donations for 5 Years 2008-03-05 13:07:42 If you made a charitable donation to a registered Canadian charity (or other qualified donee) in the 2007 calendar year, you may claim it on your 2007 tax return OR you may defer claiming the donation on your tax return until one of the following 5 tax years (2008, 2009, 2010, 2011 or 2012 in this case).This is advantageous if you want to avoid the lower credit for donations up to the first $200 every year. For example, let's assume that our donor Rajiv makes charitable contributions of $200 per year and is domiciled in Ontario.Scenario 1: Rajiv claims the donations every yearEvery year Rajiv would claim $200 on his tax return and would receive a tax credit equal to the donation amount multiplied by the lowest marginal tax bracket for Ontario of 21.55%. Therefore, $200 x 21.55% = $43. Read more:Donations
, Carry
, Forward
, Years
Claim Charitable Donations On Only One Spouse's Tax Return 2008-03-04 16:15:34
The CRA allows you to pool together the charitable donations you and your spouse make and claim them on one tax return if you so desire. This is desirable since it would increase the tax savings for the household overall. For example, let's assume that a married couple John and Mary (living in Ontario) both make eligible charitable contributions of $200 to registered Canadian charities for the 2007 tax year. If they were to each claim the donations on their respective tax returns they would each generate a tax savings of $43.10 each for a total household savings of $86.20. If they were to instead claim the charitable donations on only one of their returns they would generate a total tax savings of $135.92. This is because the first $200 generates a non-refundable tax-credit equivalent Read more:Donations
, Spouse
, Return
, Tax Return
Charitable Donations Tax Credit 2008-03-03 14:16:26
You might have figured out by now that the Government incentivizes behaviour with tax treatment. In other words, if they want to encourage something they will reduce taxes associated with that behaviour (like saving for retirement). If they want to discourage something they might apply extra taxes (sin taxes like on cigarettes).Well, giving to charity is something that they would like to encourage so they provide a special Charitable Donation Tax Credit which can help to reduce your tax bill. The first $200 dollars receives a tax credit which is basically equivalent to the lowest combined marginal tax bracket in your province. Every dollar above that limit will generate a credit which is basically equivalent to the highest combined tax bracket for your province. There is a limit as t Read more:Donations
Convert your RRSP to a Defined Benefit Pension when you retire (?) 2008-02-28 21:52:17 I think that in the DIY investor world, the propensity to convert an RRSP to a RRIF is strong. The same is probably true for those who use an advisor as well. In fact, approximately 75% of RRSPs are eventually converted to RRIF (Registered Retirement Income Fund) accounts. The title of this post isn't entirely accurate (you can't actually convert your RRSP to a defined benefit pension plan per se), but you can convert your RRSP into a structure that mimics a Defined Benefit Pension
Plan through the use of a life annuity.Defined Benefit pensions are envied by some since you eliminate a lot of unknowns for your retire
ment income planning such as the risk of running out of money. The major counter argument is that with a RRIF account you can possibly increase the pot and potentially have Read more:Convert
Buying an Annuity from a Charity as way to Make a Donation 2008-03-12 19:29:03
This strategy was much more effective if you purchased the annuity on or before December 20th, 2002. The strategy is not as common now as the tax rules have changed, but you could still purchase an annuity from a charity now and receive some tax savings. A donation would be eligible for the tax credit if the amount you pay the charity for the annuity is more than what you would normally have paid for it from a financial institution offering annuities.For example, if you had gone to a life insurance company and asked for a quote for an annuity they might tell you that every $100,000 given to them will give you $1,000/month for the rest of your life (this is based on their actuarial estimation of your life expectancy, prevailing interest rates and interest rate forecasts, an added cushi Read more:Buying
, Annuity
, Charity
, Donation
Recommend Site To A Friend
