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Wednesday, January 28, 2015

Saving Contributions 2014

Posted by Tim Stobbs on January 23, 2015

So this week I should have finished maxing out one of our TFSA already.  If you recall in December’s net worth update I pointed out I put some of that money aside.  Then by Feb we should finish off the other TFSA account contribution for the other account.  So where do I put the money for the other 10 months of the year?

Well you see that is actually turning into a small issue as I’m running out contribution room on where to put it.  We made an effort last year to finish off as much as my RRSP contribution room as possible into my wife’s spousal RRSP.  Now the only tax sheltered account contribution room we will have left is about $20,000 in my wife’s name.  So I have to play around with the tax implications of her buying RRSP in her name as she doesn’t make much money per year so I’m not sure if the tax savings are really worth it.  After all if we drive her income to zero with RRSP contributions, I don’t know if her basic income deduction will transfer to me…I’ve literally never tried that before.  So if anyone knows, I would appreciate some advice.

So we will be back to non-registered investment accounts at some point in the year, which is just fine. Overall I expect by age 40 we should have approximately $100,000 in non-registered savings (give or take a bit). The longer term plan for the non-registered money is fairly simple, after I stop working at my day job I will drawing down the non-registered accounts first and also move what we can over to our TFSA accounts for anything that produces taxable income (like a GIC).  The idea is to keep our income tax bill as low as possible so we will likely keep dividend paying companies in the taxable accounts and any cash savings will eventually end up the TFSA (even if they don’t start there).

Perhaps the only thing I’m debating in my head is where do I open up the non-registered accounts?  On the one hand I like to keep our fees low and the other hand there is a certain ease of access if I put the accounts with our existing bank.  So I’m curious what other people have done and why did you pick that option?

How Isn’t Investing the Same as Gambling?

Posted by Dave on October 28, 2014

I like to bet on sports, mainly hockey and NFL football, which I also enjoy watching. Before I make a bet (my normal bet being somewhere between $2-$5), I do some basic research on the money I’m about to wager. I look at the piles of information available (for non sports fans, you would be amazed at the tomes of information compiled in support of a 60-minute game) and make my pick, laying money down and hoping that the hypothesis I had about the game was correct.

This past Sunday, I felt that the Indianapolis Colts would win at a margin higher than the posted “line” of 3.5 points. I played for higher odds and bet they would win by 7 points. If you were to look at the score of the game they played in, you would see that I was completely wrong with my bet (not only didn’t they win by 7, they lost by 17). A loss betting is not good, as you lose 100% of the wagered amount, which is the reason why I keep my bets small enough to make watching the game interesting to me, while minimizing the impact of the losses on my available betting money.

For me, Investing works the same – prior to investing – whether it’s in a house, individual stocks or bonds, or Exchange Traded Funds, I research thoroughly (there is actually less information on a lot of investments than there is on sports games). I filter through all of the information and make my investment decision based on what I’ve read. As I invest, similar to when I bet on a football game, I have a story of why I’m making the particular investment I’m making, as well as an expected outcome of the money I have laid down.

To me, the main difference between sports betting and investing is the amount of faith I put into the information available. While there have been cases of falsified information, management and the auditors hired by corporations have much more to lose when they make reports on companies than some guy who makes a living selling pageviews on a sports website. Another difference is the “soft” decline offered by stock investment, compared to a binary win or lose outcome of a football game. Any company I’m investing in at least has assets that can be sold off which I have a chance at receiving some money for if the company fails.

Both sports betting and investing depend on third parties acting out the hypothesis you have in place for them – whether it’s a projected 7 point win for the Indianapolis Colts, or by maintaining the current market share and profitability in the long-term for a company I’m investing in. I’m sure other people may see it differently, but I see both of these activities as somewhat risky, just in different ways. It’s for this reason I’m much more willing to sink thousands of dollars in the stock market and a very tiny fraction of this amount into sports betting.

When you “pull the trigger” on an investment, how do you convince yourself you’ve made the right decision out of the thousands of things you could invest in?

Now on Sale

Posted by Tim Stobbs on October 17, 2014

I was recently out of town for work and I happen to look up at TV in the lobby the other day and saw the headline “Stock market Plunges” with a big red number and a negative sign in front of it.  I typically don’ t follow the market day to day so I was sort of obvious to the fact this had been a several day event of dropping values.  But in my head I translated the headline to “Stocks Now on Sale.”

I’m amused that the panic that seems to seep into people when a market takes a correction, they all consider it a bad event but I’m nearly jumping up and down at the thought of picking up some quality companies on discount.  So when I got home my wife and I put together three trades in our accounts for about $13,000 and proceeded to become the proud owners of some Royal Bank shares, and Canadian Index ETFs.  Ironically the market rebounded yesterday after we put in the trades so the Royal Bank shares alone were already up $154 in value.

I really do believe all the negative media coverage on these corrections tend to fog people’s head about “Oh, I’m losing money I should do something.”  This of course results in panic selling and losing money.  The issue is on an emotional side we fear losses more than we enjoy gains, so at the time this feels like a good idea to stop the loses.  Yet we tend to ignore the somewhat obvious point of the stock market…you never lose or gain anything until we sell.  At that point you lock in what you sell for and determine your gain or loss.  Up until that point the stock market is nothing more than a overly excited neighbour trying to buy your kids swing set and offering you a new price every single day.  So like any reasonable person you should relax and ignore your overly excited neighbour most of the time…that is until they offer a huge price where you can sell the old one and take the profit to buy a new one and still pocket some extra money.

Another issue people tend to forgot is when you get overly emotional you don’t think straight.  Your logic is impaired and you really shouldn’t be making any big decisions at that point.  So for my family we tend have a rough plan for our investing laid out in advance for the year.  It isn’t hugely detailed, but just an idea of how much we want to save, to which accounts and what investments we are interested in getting (often just sectors rather that a specific company).  That way when the market goes nuts, I tend to think about how can I use this to help the plan proceed rather than run around like Henny Penny thinking the sky is falling.

So how did you react to the market this week?  Buy anything or just ignoring it all?