Trillion Dollar Charge - Inflation= High Postal Fees?

I just watched this and thought it was pretty funny and worth sharing. “A Tennessee woman mistakenly received a four-trillion-dollar charge on her bank card from the U.S. Postal Service.”

I can understand that bank errors do happen...but...would it not be logical to think that there would be some sort of safeguard or verification for transactions worth over...I don’t know 1 trillion dollars.

To watch the entire story click here.

High Yield Bond Risk

Although I don’t plan on making fixed income part of my retirement plan I thought that I’d highlight some interesting facts from an article I read recently by Neil Reynolds on www.globeinvestor.com

In his article Mr. Reynolds makes the case for investing in a basket of high-yield non-investment grade bonds instead of investing in a single triple A rated bond. He states in his article “it is a fact that most high-risk borrowers make their mortgage payments. Therefore you can achieve - depending on the bundle of mortgages you buy - a risk not much greater than a triple-A security. A portfolio of non-investment-grade bonds offers risk-adjusted returns greater than that of an investment-grade portfolio.”

Just something to think about before you buy your next AAA rated 5% government bond.

Hybrid Vehicle Rebates

For those of you looking to buy a new environmentally friendly vehicle and love that new car smell (which they have found is a carcinogen) here is a summary list of environmentally friendly hybrid vehicles and the amount of money you’ll be eligible to receive as a rebate from the federal government.

Toyota Prius hybrid 4dr hatchback $2,000
Honda Civic hybrid 4dr sedan $2,000
Toyota Camry hybrid 4dr sedan $1,500
Nissan Altima hybrid 4dr FWD sedan $1,500
Toyota Yaris 2dr hatchback CE $1,000
Toyota Yaris 2dr hatchback RS $1,000
Toyota Yaris 4dr hatchback LE $1,000
Toyota Yaris 4dr hatchback RS $1,000
Toyota Yaris 4dr sedan $1,000
Toyota Corolla 4dr sedan CE $1,000
Toyota Corolla 4dr sedan sport $1,000
Ford Escape hybrid 4dr FWD $2,000
Ford Escape hybrid 4dr 4x4 $2,000
Toyota Lexus RX 400h hybrid 4dr AWD $1,500
Toyota Highlander hybrid 4dr AWD base $1,000
Toyota Highlander hybrid 4dr AWD 7-passenger limited $1,000
Chrysler Jeep Compass 4dr FWD sport/north $1,000
Chrysler Jeep Compass 4dr FWD limited $1,000
Chrysler Jeep Patriot 4dr FWD sport/north 1,000
Chrysler Jeep Patriot 4dr FWD limited $1,000
Toyota Lexus GS 450h hybrid 4dr sedan $1,000

Canadian vs. US Dollar

The recent and rapid rise of the Canadian dollar versus the US dollar has left many investors (myself included)watching the share price of their US holding appreciate while the value of those same holdings are depreciating. This has left many investors wondering what’s next for the Canadian dollar...are we at an all time high? will it continue to rise? Are we going to par? Etc... Obviously, I don’t know the future and am not employed or trained as an economist but I do have some general views of the Canada vs. US dollar situation and a prediction of where the Canadian currency is headed (please take my opinion as one of many various opinions and certainly do not base your own financial decisions on my opinion)

Basically, I don’t see the CDN dollar staying at these levels for an extended period of time. I think that any significant increase above our current level will be unsustainable for the Canadian economy and here are my reasons why:

•About 80% of Canada’s trade is with the US.

•We are basically a petro-currency. If/when the demand for oil/gas decelerates so will the demand for our dollar.

•Exports to the United States account for approximately 40% of Canada’s GDP.

•The high CDN dollar is starting to discourage Americans from vacationing and shopping in Canada.

•If the dollar increases substantially more it has the potential to decimate our manufacturing and exporting sectors (particularly in Ontario and Quebec).

I believe that the CDN government cannot afford to let the CDN dollar appreciate too much more against the US dollar (unless Canada as a nation can start to develop large, sustainable exporting relationships with a country/countries other than the US). That being said I’m not encouraging everyone to go out and load up on US dollars or securities. However, if you were contemplating adding some US positions to your portfolio right now may not be a bad time. Although I’ve recently increased my holdings in JNJ only about 30% of my portfolio is invested in American companies and I don’t plan in increasing it much beyond that level.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

JNJ (again)

With the CDN pushing against 30 year highs I decided to increase my position in JNJ. I’ve posted these reasons before but here they are again:

-44 years of consistent dividend growth.
-Dividends issued to shareowners every quarter since 1944.
-Dividend raised each year for 44 consecutive years.
-Sales have increased each year for 73 consecutive years.
-Double digit Earnings increases for 21 consecutive years.
-Current yield of 2.50%
-44% of sales outside of North America
-ROE levels of above 21% for the past 10 years
-Current P/E – 16.18
-Projected 2007 P/E – 15.3
-Projected 2008 P/E – 13.44
-4 Star rating from S&P - $74 one year target
-Argus rates it a buy with a $76 one year target

I like their diversified holdings within the healthcare sector particularly their consumer products.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

Stock Splits

I’ve got a great deal for you…..you give me a one 100 dollar bill and I’ll give you ten 10 dollar bills. Sound like a good deal? Interested? Of course your not interested...it’s not a good deal. Well this is exactly what happens when a stock splits. Essentially, you’re left with the exact same amount of pie…it’s just cut into more pieces.

So if stock splits don’t effect the overall valuation of a company why do they bother to split their stock?

• Make shares seem more affordable to small investors (although the intrinsic value of the company remains the same)
• Could increase the liquidity of the stock as there are more shares available on the market (thus making it easier to trade)
• Could split as a signal to the market that the company's share price has been increasing (the resulting attention could increase demand for the name)

I know many of you that read this blog completely understand what happens when a stock splits, but I just thought that I should go over it for those of you that don’t as I find it really frustrating listening to “water cooler” talk speculating about the potential of stocks to split.

Garage Sale Follow Up & Lessons Learned

Well I held my garage sale this weekend from 8am to 2pm and after advertising and beer expense I made a total of ...80 bucks. Certainly not a fortune but a lot better than nothing.

Other than getting rid of some extra junk I actually learned a few lessons from my first garage sale experience.

1. Your garbage is truly another man’s treasure.
2. Active selling works.
3. People will usually pay more than you think something’s worth (I ended up taking my price tags off half way through)
4. Tax free money sure is sweet.

GO.A – Galleon Energy

I purchased Galleon Energy (GO.A - TSX) yesterday and here are the reasons why:

-It is primarily a play on natural gas and as a result has dropped dramatically along with the price of gas.
-Have a very large land base 8 million acres.
-Assuming 7.32 Alberta spot prices
-Have a history of exploration success.
-Have the potential for good production growth
-They had some production delays in the past however (according my favorite energy analyst Joseph Schachter) they are expecting increased production by the end of the year.
-Current P/E 63.2
-Projected 2007 P/E 26.19
-Projected 2008 P/E 11
-Located in politically stable environment

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Don’t Retire Early? – My View on the Subject

Before I begin I have to admit I’m envious of anyone who “loves” their job so much they’d do for free. Now don’t get me wrong I do like my job, but I don’t love it. However, even if I did love it I still wouldn’t want to do it for 40hrs a week, every week for the next 30 years. Actually, I don’t think there is a single thing that I’d “love” to do every day for the next 30 years. I love doing lot’s of things, fishing, reading, investing, watching movies etc... but like working I wouldn’t want to “have” to do them for 40 hours a week for the next 30 years.

Early retirement is a risk to your future earnings - what if you retire at 45 then decide 5 years into your retirement hiatus that you want to work? Will you be happy with that Wal-Mart greeter job? ;) You greatly risk your future earnings potential.

I disagree that the only jobs available to young early retirees out of the work force for 5 years is Wal-Mart greeter type jobs. Using the same logic the only jobs available to professional working women who take 5 years off to raise their children are Wal-Mart greeter type jobs. With the exception of some high-tech jobs most people could re-enter the work force in their previous profession after a five year hiatus.

Early retirement likely means a decrease in your disposible income both in retirement and today

I agree. That’s why it’s important to determine how much you’re going to need before retiring early. Of course you’re going to have less disposable income but the trade off is you’re going to have lots of time…what's your time worth?

Think about yourself today! What does it mean to work at something that you don't enjoy?

I’m like many people I talk to, I like my job however I don’t want to have to do it for 8 hours a day everyday. In fact there’s probably nothing (hobby or job) that I’d like to do for 8 hours a day, every day, for the next 30 years. If anyone out there has anything they would “love” to do rain or shine for 8 hours a day, everyday for the next 30 years please post it in the comments section.

Why sacrifice a possibly a lower quality of life / enriching life today for the purpose of a possibly lower quality of life / enriching early retirement life?

I think “quality of life” is a term that is very subjective. For many the quality of their life would be elevated by having more time instead of more money. The only thing you can’t buy in this world is time and for most the freedom of retirement will allow them to spend more time pursuing their hobbies and visiting with friends and family.

Don’t Retire Early?

I was recently reading a post on Savings Journey’s website entitled “Don’t Retire Early”. I was going to leave a comment on his blog but instead I’m going to dedicate today’s and tomorrows entire posts to respond to the questions posed by Savings Journey in his post. Before I do I just wanted to let you know that I have contacted Savings Journey and he welcomes my responses and has given me permission to post his original entry.

ORIGINAL POST BY SAVINGS JOURNEY

“A lot of people aspire to retire early - age 40, 45, 50, whatever it may be. In the blogosphere, the phenomenon is pervasive - the dream of so many people! Everyone has their own justifications for their obsession with wanting to retire early - "write a book", "do things that I want to do that I can't now", yada yada.

Personally, I find that my work is enthralling and rewarding. I am very passionate about what I do and I keep very abreast in my industry. I participate in conferences, and I basically look forward to the work that I do nearly each and every day. I've always enjoyed my work for the 10 or so years that I've been doing it. So why the heck would I want to retire early? Consider this:

•Early retirement is a risk to your future earnings - what if you retire at 45 then decide 5 years into your retirement hiatus that you want to work? Will you be happy with that Wal-Mart greeter job? ;) You greatly risk your future earnings potential
•Early retirement likely means a decrease in your disposible income both in retirement and today

This is just one side of the coin obviously. Some people don't like their jobs, and some people don't make a million bucks a year. But if you're already planning for early retirement because you don't enjoy what you do today, and look forward to all that free time you'll have when you retire, you better think long and hard about things. Think about yourself today! What does it mean to work at something that you don't enjoy? Well for starters, you're not necessarily getting paid a lot because you're not passionate about it. You're also preparing yourself for a more mediocre future. I LOVE WHAT I DO TODAY! Do you? If you don't, then why don't you find something that you love doing?

Why sacrifice a possibly a lower quality of life / enriching life today for the purpose of a possibly lower quality of life / enriching early retirement life? Find out what your are passionate about today and pursue that today! If you're finding that your job is not something that you're passionate about, find a job that you will be!

Maybe then your life perspective will be different, and you won't want to retire so young, and as a result the overall quality of life that you will have today until you die may be higher.”

Tomorrow I’ll provide my take on the subject and answer the questions he poses in his post.

Pay Down the Mortgage or Invest?

What should you do with your extra cash? Pay down the mortgage or invest? This is a common dilemma that many people have and I think the right answer depends on the individual and their unique situation, lifestyle, investing strategy etc... So I’m not going to say one is better than the other…instead I’ve gone over my own situation and here is what works for me.

Personally, I pay the minimum amount on my mortgage and take all of my extra money and invest it in the market. I’ve chosen to do this because I currently have a low 5 year fixed interest rate (5%) and believe that over time I’ll be able to do better in the market. Part of my strategy is to pay the same in mortgage, maintenance and taxes as I would if I chose to rent. That has been my strategy since I bought my house and as such pay a few hundred dollars less a month than a friend who rents a similar sized house in a similar neighborhood. As rents go up in my city I intend to increase the amount that I’m contributing to my mortgage. This strategy would obviously not work for everyone. It took me quite a while to find a house that was both comfortable enough for my wife and would allow my monthly house expenses to be comparable to rent (I ended up buying a semi-attached home from a couple on the very brink of bankruptcy). Additionally, I don’t plan on adding any fixed income to my portfolio. However, if I did I would probably use the fixed income portion of my portfolio to pay down the mortgage as both the long and short term fixed income rates are so low.

Useless Junk = Garage Sale

Spring has sprung across most of country, the birds are chirping, the flowers are opening, the trees are starting to bud, and the piles and piles of useless crap stored in my basement has to be thrown out.

Being frugal by nature my first instinct when offered anything free has always been “sure I’ll take it, I know I’ll be able to find a use for it sometime”. Well...from years of experience (and encouraging from my wife) I’ve come to the realization that actually NO I probably won’t be finding a use for most of the antiquated junk in my basement (you never know when you’ll need 2 extra toasters and 4 VCRs...).Over the weekend I’ve come to the conclusion that even if an opportunity did arise that required one of the items I’ve accumulated over the years I wouldn’t be able to find it in a timely manner amongst all the other boxed “treasures”.

In order to reclaim some shelf space in the basement I basically have 3 options:

1.Take few trips to the dump (this requires a very long and frustrating wait in my city).
2.Donate all I can to second hand stores (won’t get rid of it all and will require a lot of trips)
3.Sell what I can – garage sale.

Well based on my frugal nature I think it’s obvious what I’m going to do...a garage sale. I’ve never had one before but I’ll give you an update on how much I make. My hopes aren’t really that high but to quote an experienced garage saler friend of mine “you’d be amazed at all the useless crap people will buy”.

Dividend Growing Stocks – III

JNJ

"Johnson & Johnson, through its operating companies, is the world's most comprehensive and broadly based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical, and medical devices and diagnostics markets. The more than 250 Johnson & Johnson operating companies employ approximately 121,000 men and women in 57 countries and sell products throughout the world."

- Dividends issued to shareowners every quarter since 1944.
- Dividend raised each year for 44 consecutive years.
- Sales have increased each year for 73 consecutive years.
- Double digit Earnings increases for 21 consecutive years.
- Current yield of 2.65%
- Estimated 2007 P/E of 15.4
- 44% of sales outside of North America

For more information on the company please follow the link to their website.

Questrade - Review

Well I used my Questrade account yesterday for the first time so…now that I’ve had a little field experience actually using it I think I’m ready to give it a proper review. However, I would just like to point out that there are four different trading platforms available but the only one I’ve used and thus the only one I’ll review is the WebTrader platform.

The WebTrader platform is similar to the online platforms of the big banks however it is not as slick or user friendly.

POSITIVES:
-has decent charting tools for those of you interesting in technical analysis
-CHEAP TRADES. I can’t really over emphasize this. This is the real positive of Questrade. When you sign up you can chose from 2 different accounts:

1. $0.01 a share (minimum fee of $4.95)
2. a flat fee of $9.95 a trade (unlimited shares)

I chose option 1. However, if you were a real day trader into penny stocks option #2 would save you a huge amount of money compared to the fees charged by the big banks.

NEGATIVES:
-No online help
-No research reports
-No online information on the fundamentals. Ie- P/E, P/B, revenue growth, earnings estimates etc...
-Screen layout is not as user friendly as the big banks
-Functionality is lacking compared to the big banks. ie- If you click on “positions” it shows you the securities that you own but you can’t click on them to get a quote, or click on them to sell them. The WebTrader does of course let you get real time quotes and sell securities but you can’t simply click on your positions. Instead you have to select “stocks” and then enter the information for the stock that you want to sell.
-Unlike the big banks you can’t just select “CDN” or “U.S” when buying securities you have to put in a period and the short form of the exchange that the security is listed on ie- Toronto = .TO Venture = .VN. I don’t really have a problem with this except that there is no online help outlining what the short forms are for the exchanges. However, if you do a symbol lookup it will display the security in the proper form ie-ZED.VN
-WebTrader does not catch errors on the fly. For example, when I put in my buy order for ZED I put in just "ZED" however, I should have put ZED.VN. I didn’t know my order wasn’t valid until I looked in my account history and beside my order status it said “rejected”
-Cannot built portfolios of stocks to create a watch list.

Despite all of the negatives I’ve mentioned above overall I’d say my Questrade WebTrader account is O.K but not great. What I would suggest to anyone thinking of switching over is don’t close your account at the big bank as Questrade literally offers no research or reports. I plan on using this account to buy securities that I don’t plan to hold forever (ie- any cyclicals) and will continue to use my big bank trading account to purchase securities that I plan on holding forever. In my mind $30 is a reasonable amount to pay for the features and security I get from trading with one of the big 5.

ZED

I tried out my Questrade account yesterday and bought a very small initial position (less than 1% of my port) in a small company (ZED) that trades on the Venture Exchange. For those of you unfamiliar with the company here is an excerpt from the “about us” section of their website:

"Zedi (TSX Venture: ZED) specializes in production operations management, delivering systems and services that help oil and gas producers to better manage people, assets and information. We help our clients to increase earnings from production, decrease operating costs, best utilize human, physical and fiscal assets and mitigate compliance risk."

Here are my reasons for buying:
-over 90% of their revenues are reoccurring
-their main market (small to intermediate oil/gas trusts) has been under pressure recently.
-projected 2007 P/E of 12
-projected 2008 P/E of 7.7
-top line growth of 35%-40% a year.
-very little debt – current ratio of around 5
-trading at 2X book (I think this is cheap considering they are primarily a software company)
-I like their core business.
-I like their technology.
-37.1 million in revenue and a market cap of only 91 million.
-For two years in a row, Zedi has ranked in Deloitte's Technology Fast 500: a ranking of the fastest growing technology, media, telecommunications and life sciences companies in North America, based on revenue growth.

I just want to point out that this is a very small company (91 million market cap) that trades on the venture exchange and as such is much higher risk than companies I usually invest in, so anyone considering buying it should first of all do their own research but also be aware that it is going to be quite volatile. If you would like to know more about the company here is a link to their website.

This was the first time I have used my Questrade account so I'll give you an update tomorrow on what I like/don't like about the account.

Compensation of Financial Advisors – A Middle Class Rant V

Here is my submissions for the Canadian Tour of Personal Finance Blogs:

There are many posts out there on the high commissions/fees charged by both financial advisors and mutual fund companies. Almost all of these posts slam the high fees charged with no mention of the benefits that financial advisors do offer for some. Personally, I have mixed feelings on the compensation of financial advisors. For knowledgeable amateur investors like you and me their fees do seem ridiculous. Many amateur investors (myself included) shudder at the thought of paying 2% annually to a financial advisor or mutual fund manager. However, I would argue that isn’t the case for the majority of society. We shudder at the 2% fees in the same way a plumber would shudder at paying $80 an hour for someone to replace his faucets. There are many, many people out there who have absolutely no interest in finance or investing and as a result don’t find 2% to be an unreasonable fee to pay for advice on a subject that they know nothing about and have no interest in learning. The mere mention of a P/E ratio or dividend yield is enough to make many peoples eyes instantly glaze over and roll back in their head. If you don’t believe me start talking about the fundamentals of the stocks on your watch list at your next social event or family dinner and see how many people are just sitting there trying their best to be polite and seem interested. As further proof many people I talk to think that an RSP is an actual product. When I’m talking to them I say “that’s great you’ve started an RSP what did you buy?” and in 99% of the cases they respond with a funny look on their face and say “what do you mean what did I buy? I bought an RSP” and most of the time they aren’t interested in hearing that an RSP is basically just a sheltered investing account.

I have friends with zero interest in investing and they think that the fees they pay on their mutual funds and to their advisors are very reasonable as their returns handily beat the savings rate of banks, which is where their money would be if it were not for the advisors. Many of my same friends find it absurd that I’d pay $30 for an oil change or $80 and hour for the services of a plumber. I think the fees argument can be made for almost every profession. If you are in a profession be it amateur or professional you are going to have a hard time paying for something you can do yourself.

Personally, I have the biggest problem with real estate fees... 5% commission to basically just get my house listed on MLS?! that’s $10,000 on an average $200,000 home. Most people that I know who have purchased a house in the last 5 years found it themselves on MLS and then called their agent to simply arrange the viewing. Upon purchase some generic stock forms are filled out at the real estate office and then the lawyers take if from there. Now that was $10,000 well spent...To me that’s absurd!

Disclosure - I’m not a Financial Advisor.

Cheers,
MCM

Canadian Tour of Personal Finance Blogs

I’ll be participating in the second Canadian Tour of Personal Finance Blogs on Monday May 7th. This time around the event has been generously hosted by The Money Diva. If you have a moment you might want to check out her blog as well as the other participants.

For this tour I’ll be ranting about the compensation of Financial Advisors. However, it’s not your usual "fees are too high" rant...it’s a rant with a twist...tune in Monday to find out.

Have a great weekend.

Retirement Nest Egg May 1 - 2007

Retirement Nest Egg at the close of May 1, 2007.

-Up 1.5% from last month
-Up 10% in 2007

TRP - 4.32%
ABX - 3.65%
CSH.UN - 3.56%
GWO - 4.77%
PFE - 4.28%
POW - 4.12%
BA.UN - 0.40%
L – 4.12%
UNS - 2.77%
GZ - 2.89%
TD – 12.65%
EIT.UN - 2.99%
JNJ - 3.58%
MMM – 4.04%
O'Shaughnessy’s Global Fund - 4.03%
American Growth Fund - 1.06%
CDN Value Fund - 3.85%
Small Cap Growth Fund – 4.09%
Chou Associates Fund - 10.84%
Health Science Fund - 0.91%
Bond (9% yield) - 5.45%
Money Market Fund - 11.64%

Basically there were no major changes in my portfolio composition this month. The 1.5% increase in my networth was due to dividends and share appreciation as no contributions were made this month.