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Archive for January, 2011

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.

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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?

 

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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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Rare Earth Elements, as defined by the IUPAC, are a collection of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides plus scandium and yttrium (source: Wikipedia). As any good geologist would tell you, REEs are in fact not that rare at all. The earths crust is abundant with these minerals and they can be found in all regions of the globe. What makes them rare is their abundance in concentration, most Rare Earth deposits are highly disseminated, or dispersed, within the crust. Therefore, finding and locating an economical concentration of these elements can be highly profitable.

TVs, laptops, cell phones, ipads. All of these hot tech devices require REEs. Moreover, Rare Earths actually play a fundamental role in the development of renewable energy, hybrid vehicles, clean air and carbon emissions control. We utilize these elements in the development of batteries, motor magnets, hydrogen storage, infrared lasers, computer memory, ceramic materials, and countless other applications. Up until now, China has largely controlled the distribution of these elements.

I find it ironic that REEs are what is driving the renewable energy movement. In essence, we must mine the surface of the earth to develop more efficient motors and electric lights. Wind turbines, solar panels, hybrid car batteries and fiber optics all seem “green” to the consumer but the reality is all of these technologies require an increase in mining for REEs.

What’s important about all this is that just this week China announced that it will be limiting its Rare Earth exports to the US and Europe and thereby setting off alarms in the manufacturing sector, an industry that heavily relies on REEs.  (See also: China to Tighten Limits on Rare Earth Exports).

In light of this news, this week I have chosen to highlight a Canadian Rare Earth company that I believe has some excellent prospects and the potential to do very well in 2011.

Canadian International Minerals (TSX.V:CIN) is a mineral exploration company focused on the development of Rare Earth Elements (REEs) primarily in British Columbia but also in other regions across Canada.

Some things I like about CIN:

  • Canadian International Minerals is awaiting rare earth assay results for the recently completed drilling on its Carbo Property in British Columbia.
  • Trenching is underway on the Dead Horse Creek rare earth property in Ontario.
  • The Copper Mountain property is in a copper camp that produced 1.42 billion pounds of copper, 8.5 million ounces of silver and 499.5 thousand ounces of gold between the years 1908 to 1996.

Right now Michael Schuss, President and CEO of CIN is in Norway discussing a deal with a major silicon producer called Elkem. Look for news in the next few weeks on assay results, likely to be out before the 21st of January, just in time for the next major mineral symposium in Canada: Roundup.

Disclaimer: I hold shares in CIN.

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The explosion and subsequent fire at Canadian Natural Resources Limited’s (TSE:CNQ) Horizon oil sands operation this week was sensationalized by the Alberta and the Canadian press, but look around the US and international news networks and you will find little if any information about this.  Even CBC tried to make a story out of this.

But does this really come as a surprise to anyone? Before the accident CNRLs Horizon Oil Sands was producing around 90,000 bbl/d, roughly 6% of the surface minable oil sands in the region and about 10% of the countries synthetic crude oil.  Since news of this explosion oil has risen by about 1.2%, a change that many in the Canadian press attributed to this disaster. Is it possible though that oil merely rose because of a leak in the Trans-Alaska Pipeline? Or because Obama is continuing to push offshore drilling reform?

Oil is going up. At the time of writing this article oil is $91.20. While I don’t believe oil will reach $150 by late 2012, I do think we will see strong growth from the energy sector this year. As one of my favorite bloggers, Mitch at BeatingTheIndex, puts it: “oil is on the path of growth for the next decade” and I just so happen to agree.

Today CNRL released a statement indicating its upgrader may work at half capacity by operating two of its four coke drums.

So…did you get in at $40? Even now CNRL (TSE:CNQ) is trading at $42.25, still a bargain in my opinion.  CNRL is a diversified oil company with operations throughout AB and BC as well as strong assets in the North Sea and offshore Africa. I would consider CNRL a strong buy and I would not be surprised to see it topple $50 by the end of the year.

Disclaimer: I do not own shares of CNQ.

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I read alot of financial blogs and I see that many of the bloggers like to have a friendly competition in picking top performing stocks for the year. I’m new to the world of blogging so I certainly don’t expect to be included in the challenge, but I thought that I might make some predictions for my own sake, something to look back on a year from now.

My top stocks for 2011 are as follows:

1. Canadian International Minerals (TSX.V:CIN) – Canadian REE play
2. Powertech Uranium Corp. (TSX.V:PWE) – USA Uranium play
3. Fortune Minerals Ltd. (TSX:FT) – Canadian Gold (and Coal) play
4. Reliable Energy Ltd. (TSX.V:REL)  – Canadian Oil play

Yes these are all small cap stocks. Yes they are in the resources sector. It is my belief that we will experience huge growth in these industries in 2011, specifically in the energy sector. I will expand more on these companies individually over the next week.

Some other bloggers picks to keep an eye on:

Intelligent Speculator
The Wild Investor
Million Dollar Journey
Beating The Index
Dividend Growth Investor

…and many many others that I encourage my readers to explore through the links above.

May it be a prosperous year for us all.

Disclaimer: I own shares in CIN, PWE, FT and REL.

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Calgary, AB

Home to some of the worlds largest and most productive energy companies in the world.

As a young industry professional living in cowtown, I am here to give my two cents, or maybe just ramble, about our economic outlook, possibly provide some insight on new investment opportunities, and to discuss any non-sense related to how things are done in this beautiful city and country of ours.

Feel free to check out my About Me section to learn more.  Happy reading.

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