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It’s not like I thought it was going to be easy, but when you live a busy lifestyle and barely have time for yourself I don’t know how you find time for your blog!

OK, so my goal is to make 2 posts per week for the next 3 months. I appreciate the positive comments I’ve received and I hope those of you who are¬†considering following what I post realize that this is a work in progress. I’m not out to make any money, I’m an avid reader of personal finance and I am only looking to contribute to the fantastic world of financial blogging!

Cheers ūüôā

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Some (finance related) stuff I enjoyed reading this week:

Introduction to Short Selling – Realized Returns
How to Find a Good Financial Advisor – Young and Thrifty
Finding an Index Friendly Advisor – Canadian Couch Potato
Coles Notes version of our retirement plan – My Own Advisor
TFSA vs RRSP – which account is best for your retirement funds – Money Smarts
Living without a TV – Million Dollar Journey
A Dozen Ways to Save Money Around the House – Broke Professionals

As I’m sure my blog¬†alludes¬†to, I am a huge fan of Canadian penny mining stocks, so this two-part series posted by 101 Centavos was a great read for me:

Penny Mining Stocks – By Fred Carach (Part 1)
Penny Mining Stocks – By Fred Carach (Part 2)


Because this is hilarious…Andy and Pee-Wee’s Night out:

Do it. The rewards of this program offered by the government are astounding. As a twenty-something investor this is where you should hold your more aggressive positions.  Unfortunately, most Canadians think the TFSA is simply a savings account (probably because of its horrible name) and have their money tied up in high interest savings such as ING or Ally where they are getting around 2% in return on their savings. This is crap.

While this message is more geared towards the young investor, this is something everyone should know; the TFSA is another tool the Canadian government has provided us with in order to avoid tax on capital gains.  In contrast, the RRSP is a tax deferral strategy.  In my opinion, every avid twenty-something investor/saver should be attempting to max out their TFSA before contributing to an RRSP. Additionally, your TFSA should be made up of 3-4 holdings in highly aggressive stocks (remember this is for the twenty-somethings) because at this age you are capable of sustaining short-term loss for long-term gain.

Your first step is to open a TFSA trading account with a company that offers low commission trades such as Questrade or Q-trade. Right now, you are allowed to contribute up to $15,000 to your TFSA for 2011 (or $30,000 per couple).

Next, do some research and purchase some stocks or ETFs that you are comfortable with, ideally in an industry/sector in which you have the most exposure.  This is an excellent way to start learning how to trade.

If you don’t have $15,000 to contribute yet, as I’m sure most of us don’t, then you should deposit as much as you can and make fewer trades, a good starting point might be in high-yield¬†dividend stocks. ¬†Remember, your objective here is to obtain the best return possible (within your level of risk¬†tolerance), so if you were to purchase 5+ stocks with less than $5000 you could easily see a large percentage of your gains get eaten up by commissions and fees.

Another tip. If you are capable of making continuous contributions each month then you should borrow the money from your parents now and pay them back each month instead. This is an excellent strategy to maximizing your TFSA at the start of the year so that you can complete your trades now. You can then repay this money month to month interest free (I should hope).  As a side note, when money is borrowed to contribute to a TFSA the interest is not tax deductible.  Therefore, if your parents are willing to support your in this manner, then take advantage of it now.

This strategy has worked for me for several years, it introduced me to trading and saved me a lot of money in commissions by being able to make fewer trades throughout the year.

And remember, if you do need to withdraw money from your TFSA, you are allowed to recontribute that amount the following year in addition to your increased $5000 contribution allowance.  For example, if you contribute $15,000 this year, you are a great investor and make $5000, you can could withdraw $5000 in December for your Christmas holiday and would then be allowed to contribute $10,000 in 2012.

For more information on the TFSA, Realized Returns recently made an excellent post: 10 Facts on Tax Free Savings Accounts.

Happy investing!

A quick update on my 2011 stock picks.

Proud Member of Yakezie

I increased my position mid-month in both REL and CIN. Assay results have been expected from CIN for quite some time now and rumors are starting to fly that we should see them this week. Should these results be positive (and I think they will be) CIN should move up nicely. This week a neighboring property, Bolero Resources (BRU), released some excellent results and of course their other neighbor, Spectrum Mining Corp, has already proved to be a major REE discovery.

As of market close February 1, 2011:

1. Canadian International Minerals (TSX.V:CIN):  0.00%

2. Powertech Uranium Corp. (TSX.V:PWE):  +73.77%

3. Fortune Minerals Ltd. (TSX:FT):  -6.98%

4. Reliable Energy Ltd. (TSX.V:REL):  +20.59%

Of course I am very happy thus far but all things considered, these results don’t mean much as it’s only been a month. I don’t have alot of confidence in our market at the moment so with 11 months to go anything could happen.

Always to your own research and do diligence ūüôā

So the topic of high interest savings accounts has been beaten to death in the financial blogging world. I’m not about to regurgitate some great work by other bloggers, if you’re looking for information on high interest savings accounts start with the link at the bottom of this post.

Last week I read a blog post from Twenty Something Money where he stated a few reasons why he doesn’t need an emergency fund.¬†I completely agree with him, as long as you have your TFSA it can serve as an emergency fund, however I would be wary of having to sell some of my investments in my TFSA to cover an emergency cost.

This is where my checking account can be a useful tool. I complete my day-to-day banking with TD Canada Trust. I utilize their Select Service Account as my primary checking account for a few reasons:

  • No monthly fee if you maintain a¬†minimum¬†balance of $5000
  • No transaction limit
  • No fees on ATM withdraws in Canada and Internationally
  • Many other extras I don’t take advantage of because I don’t use paper!

To me this account is invaluable because I travel to the US 3-5 times a year for fun and to check in on my folks. I also love to travel abroad so this saves me a ton of money when withdrawing cash at international ATMs.

Another option is the Infinity checking¬†account; maintain a minimum of $3000 and they will waive your bank fees but you are still on the hook for using other bank’s ATMs both in Canada and abroad.

So this bring me back to Twenty Something Money’s post about not needing an emergency fund. My $5000 minimum balance in my Select Service Account is my emergency fund. Should I need cash asap I can dip below my $5000. Of course the bank will then charge me the monthly fee of $24.95 until I return my balance to $5k. If I¬†foresee¬†this being a long term problem, I would obviously change my account type. And as TSM said; if I lose my job and I’m in dire straights, then it may come down to poaching the TFSA.

If $24.95 seems too steep to you should you slip up (and it kind of is), then maybe the Infinity account is a better option at $12.95.

Above all, the only way to really save money is to assume your $5k (or $3k) is zero and never dip even a single dollar below this balance in your checking account!

Otherwise, I stash my travel savings into a money market fund and my TFSA and RRSP are made up of investments with Questrade. I use to be a big advocate of ING but this method of maintaining a minimum balance at TD has saved me more money in the long run. Should I begin to amass a larger savings, I will then be using a high interest savings account again.

Compare all the TD accounts here.

See also: Million Dollar Journey’s take on high¬†interest¬†savings accounts.

What is it about young people and real estate these days? I don’t freakin get it! I am in my 20s, good job, steady pay, could probably put a decent amount of cash down on a house.

But here’s the thing: I would never buy a stock at a high point so why on earth would I do this with a house? And yet there are literally hundreds of young couples buying up real estate every day. This is nuts! And they aren’t just buying what they can reasonably afford. No, they are purchasing the most expensive property the bank will let them have! I can’t say I really blame banks or brokers for pushing them to their limit (they get paid more) but I’m really amazed that none of these people have any sense of financial responsibility.

Seriously, ask these people if they would put 80% of their money into a single stock and they would laugh at you. So why the heck would you do it with a house?

I guess it’s pretty obvious how I feel about it…but I know this: these people will be in¬†a whole heap of trouble once¬†interest¬†rates start going up.

But tell this to someone who has recently purchased property and you will get rude and unfounded remarks.

Real estate always goes up!’
‘Canada didn’t create sub-prime mortgages so our market won’t crash!’
‘Who cares if interest rates go up? I will be making more by then!’

Ya right…like we’ve never had a real estate crash in Canada before. Sub-prime mortgages? I seem to remember the Canadian government allowing 40 year no money down just a couple years ago.

As for the last statement…well, if you think your salary will pace the rise in interest on a 400k+ mortgage I advise you to look at current job futures and our unemployment rate.

OK, let’s have a quick look at some numbers.

Assumptions:

– Purchase $400,000 single family home
– 5% down over 35 years (the most common¬†amortization¬†in Canada right now…yes I know this is changing, too little too late, don’t get me started)
– Current 5 year fixed mortgage rate: 3.99%

Current monthly payment: $1672

If interest rates rise a mere 1% in 5 years (highly unlikely) your monthly payment will now be $1903
A 2% increase and your monthly payment will be $2145
A 3% increase: $2398
A 4% increase: $2660

It is a fair assumption that we will begin to see interest rates rise in the middle of 2011. If the central bank were to raise it at only 0.25% per quarter, you would still be looking at an increase of 4-5% over the next 5 years.

Now tell me, in 5 years do you see your¬†household¬†income being $1000+ per month more than it is now? That’s a $12000 salary increase (or $6000 each). Not outrageous, but not guaranteed either. And what if you have kids in the next 5 years? A car loan? Medical problems? And if there’s one thing I know about my 20 something housing obsessed friends, they will certainly have some huge reno loan payments from useless granite¬†counter-tops¬†they purchased.

What’s more, on a mortgage amortized over 35 years you pay almost nothing towards the principle! So let’s say your house does go down in value, now you still owe the entire principle plus the difference in equity loss to the bank just to close on the sale! Let’s not forget about closing costs, that’ll tack on a few thousand as well. And you think it will be easy to sell a house in a negative market? Just ask an American, I think the average time a house sits on the market right now is greater than a year. Compare that to your average investment; if you get nervous you can press the sell button and have all that money back tomorrow.

Call me a tight wad (I prefer a realist), but I wouldn’t touch real estate with a 10 foot pole right now.

‘So what, you’re just gonna rent and pay someone else’s mortgage forever?’

Comments like this are such a joke…Ya, I am gonna rent, for the next 5-7 years anyway. If I can rent a 2 bedroom condo in downtown Calgary for $1100/month with heated underground parking, a gym, a grocery store 4 blocks away and my work a mere 20 mins on foot, ya, I’ll stay here until I need the space…ie. children, 5+ years at least!

So while these young couples are living house poor, putting every last dime into their mortgage, renos, repairs, utility bills, property taxes, maintenance/strata fees, I will be putting 30% or more of my income into my liquid investments.

Housing in Canada will go down. I am as sure of this as I am that $100 oil will be a reality by the end of 2011.

But alas, I could be wrong. Maybe I should be purchasing a Crack Shack (or Mansion). Maybe the real estate pumpers are right and I will be ‘priced out forever’. But if you believe anything most financial analysts have to say, or the likes of Garth Turner for that matter, I will be coming out ahead.

Take home points:

  • Like it or not, interest rates are going up.
  • In five years you will have paid virtually nothing towards the principle on a 35 year mortgage.
  • Real estate is not liquid.
  • There is nothing wrong with renting.

Did you honestly imagine the first house you would buy would be bigger than the one you grew up in?

 

The weather has been, shall we say, somewhat poor here in Calgary this year and I have certainly seen my fair share of accidents and near misses on the roads. Like most people it seems, I was always under the impression that all season tires were good enough, especially because I have a crossover SUV with AWD.

However, this year, while drinking way too much wine with my fellow urban dwellers, we got onto the discussion of snow tires and their benefits for city driving. After some long debates (and someone intoxicated online research) we came across a series of youtube videos that showed a winter tire demonstration by Transport Canada. There is a series of videos, you can find them here.

While nursing my red wine hangover the next morning, I began to do some research on the differences between summer and winter tires, their benefits, and of course, the cost.

I think the most important detail I learned was that winter tires are made of a completely different type of rubber, one that is much softer and designed to grip in the snow. The most simplistic and informative article I found on this was from 1010tire.com: The Complete Winter Tire Guide. You should note that industry standards have been created to brand winter tires with a snowflake indicating they are approved for severe snow standards.

So after an hour of cruising the net and from my previous nights discussions, I had convinced myself I wanted some. Next up was to find the best deal.

To save you the headache, the cheapest tires you can find anywhere are on tirerack.com. Really, I am an extreme bargain shopper, I spent hours searching and I’m not even going to detail the other sites I found because nothing came close to the discount you can get at Tire Rack (no I’m not getting paid for this!). So I chose a top rated and affordable winter tire: General Grabber Altimax Arctic. I researched the heck out of my tires and found the price point, rating and reviews to be exactly what I was looking for. Including shipping, the total cost was more than 20% cheaper than I could find anywhere in Calgary and the surrounding area. Shipping was wicked fast too, UPS direct in less than 5 days from Nevada.

Next up, I needed to get these installed on my vehicle.

Most people who have winter tires use a spare set of rims to save them the cost of having to take the tire off the rim and put the second set on (which would require balancing). This makes alot of financial sense, winter rims cost around $60-100 per rim depending on what size you require, and you would need four of course. In my case, the best price I could find was $84.99/rim. Unfortunately, tire rack didn’t sell any ultra cheap winter rims but if they did I would have definitely purchased them as well as they would have installed and balanced the tire to the rim before shipping.

So, to compare these options: the average cost to swap and balance your tires is around $80 (the dealership wanted $120) so if you were to remove, install and balance your tires twice per year (summer and winter) you would be paying $160 per year. Now that I am only using my tires 6 months a year on average, I expect each set to last around 4 years. This means that $160/year x 4 years is $640 in swapping fees, $300 more than the cost of the rims, which should last you the life of your vehicle or more.

But there is one problem with this¬†scenario; black steel winter rims are SUPER ugly. Call me vain, but I don’t want my vehicle to look ugly for 6 months of the year. Is this ugliness worth the $160/year in swapping fees though? Hellll no! So what did I do? I started calling up some of the auto wreckers in the city to see if they had the same model of my vehicle. In most cases, these vehicles have been written off in an accident and they buy them from that person and sell them out for parts. I managed to locate my car and wouldn’t you know it, all four rims were still on the vehicle, they wanted $300 for all four.

When I swung by the shop to check them out, I found that they still had tires on them, an amazing set of tires actually: Goodyear Wrangler Silent Armour with more than 80% of the tread remaining. In doing my research, I had come across these tires and learned that they are one of the few all-season tires that actually carries the winter snowflake as well. So I had to ask…$500 all in. Wow, what a deal. Turns out, a friend of mine was looking for some tires for his SUV as well and just as luck would have it, the tires fit his vehicle perfectly. Using my superior bargaining skills, I managed to walk out of there with all four rims and tires for $425. We split in down the middle, a great deal for both of us!

More bargain hunting. I needed to get these tires off the rims and my new winter tires installed on them. Ahh Kijiji. Ambitious people with skilled trades who are looking to make a little extra cash always post their services on Kijiji. I found an add for tire swapping: $15/tire to swap and balance. Awesome. Swung by the shop, found it to be a small father and son operation; desk, shop, tires. Simple. If you live in Calgary and want details I will 100% recommend these guys, they were fast, efficient and cheap. In fact, they even had dozens of used tires for sale. Go figure. It totally makes me happy to support a local business rather than the big dealer or tire giants.

I now have my winter tires on an identical set of rims installed on my vehicle for more than 25% cheaper than I could have found in Calgary. Here is the breakdown for comparison:

Local ‘tire’ spot
Winter tires: $683.69 + tax
Steel rims: $84.99 x 4 = $339.69 + tax
Installation: $100
Total: $1123.38 + tax

Tire rack + auto wreckers
Winter tires: $372.00 + tax
Shipping: $147.70 + tax
Provincial Fee: $16.00 (something Tire Rack charges)
Brokerage Fee: $20.00 (another Tire Rack add-on)
Used alloy rims: $212.25 + tax
Installation: $60 (included tax)
Total: $827.95 + tax

So all in I saved 26.3%. A little research and leg work can go a long way!

I hope this story inspires you to save some money and research some skilled labour that you can find locally instead of going to the big business service shops!

And in case you’re wondering…the new tires are AMAZING! I had no idea how much different driving with¬†proper¬†winter tires could be! This is a great purchase for the safety of not only yourself but your passengers and those on the road around you.

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