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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!

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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 🙂

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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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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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