subscribe to the RSS Feed

Friday, May 27, 2016

Don’t Like Your Cell Bill, Then Buy Stock

Posted by Tim Stobbs on May 26, 2016

Perhaps the issue is Canadians are too polite? Or more likely we have a market so dominated by a handful of companies that the telecoms can and do charge what they want for your cell phone.  A fairly good analysis of the issue is available in this story.  Yet the author missed one entirely major point in the story in my mind. If you can’t beat them, just buy them instead.

At least that is part of my own strategy when it comes to dealing with high telecom bills.  Rather than complain, we took a two fold approach.  First up was buying all you actually use.  For example, my wife almost exclusively texts with her phone (rarely a call and no data as she usually uses her tablet at home instead).  So we got her a prepaid phone and signed up for a basic plan with Rogers.  So for $5/month she gets enough texts to be happy and has a bit of cash on the account if you wants to make a call.  It works for her at the moment.  As our needs change we can look for something else.

I’m not saying we are perfect here, I still pay too much in my mind for cable and internet, but overall we have made some progress over the years getting a handle on what we actually use and then buying as close to that as we can.  The trick is to come back to the issue every once in a while and see if any changes could help you lower your bills.  I’m currently keeping an eye on the ‘skinny’ cable packages and playing around to see if we could use one of those to help lower our bills a bit.  The bane of my existence right now is getting CFL games on some kind of steaming package, then I could get rid of our cable bill entirely, but alas that doesn’t exist yet. Sigh.

The second part of our plan was to buys some shares in those previously mentioned telecom companies and get a nice stream of dividend income form everyone else paying too much for their cell phones.  After all a few hundred shares at a yield of 4 to 5% (which is roughly where we bought in with Rogers and BCE) and you suddenly have some income to help pay those cell phone bills with money for the very company that is sending you the bill.  I sort of enjoy the irony that Rogers pays us money to help pay our bills.

In the end, I’m happy with our current setup.  It’s not perfect, but I don’t feel so bad about paying my bills when they keep sending dividends to our trading accounts.  So how do you cope with your cell, cable or internet bill?  Any other ideas on how to save money?

Stop Blaming the Rich

Posted by Tim Stobbs on September 22, 2015

Okay, are you sick of this never ending federal election campaign in Canada?  Goodness knows I am already.  Yet perhaps the single thing that is pissing me off the most during this campaign is the idea of ‘let’s blame the rich’ theme. Or really more actually I’m not terribly impressed that a few of the proposals out there are to roll back the latest TFSA limit increase since ‘only the rich can use them’.

I okay with general idea of fairness.  After all no one likes to be screwed over in life and it does make entirely sense to me to have progress tax brackets that increase as income goes up.  After all if I am earning more I can easily pay a bit more to help out those that don’t earn much.  I don’t consider that unfair, but rather practical.

Yet rolling back the TFSA limit increase because only the rich can use is a damn crappy reason.  Um, news flash people…those how have built business, got high paying jobs and actually save some money to get rich…the system wasn’t fair to begin with.

For example, RRSP contributions are based on last years income up to 18% (to a given maximum), so the reality is that is actually worse for lower income people.  Since the more you earn beyond perhaps $40,000 a year it gets easier to save that amount.  Meanwhile the TFSA limit is equally to everyone over 18.  Even when it means the lower income people can potentially save a MUCH higher percentage of their income as compared to a person making $100,000/year.  Case in point the $10,000 limit of $40,000 is 25% of their income, which is WAY higher than the RRSP percentage.  Yet for the $100,000 income person the $10,000 TFSA limit is only 10%.

Then when we get to investment gains those that save also get some extra breaks, capital gains are only taxed at half of your marginal tax rate and Canadian dividends also benefit from a significant tax break.  The dividends are such a good break that if you earn less than $44,000/year they actually end up being tax free.

The system is built around encouraging people to save and invest, so those that do are rewarded by paying less tax.  Fairly simple right?  Yet it amazes me that people want to blame the rich.  Did you ever consider the fact the ‘rich’ may have started off just like you but rather than spend their money they decided to save it instead.  They learned a bit about investing and made ever more money.  It was often a hard long road, but after a number of years and the miracle of compound interest they are doing well.

Compared to those at my age and savings I’m likely considered rich or top 20% at least.  Yet the money just didn’t appear in my accounts in a puff of smoke…I got a degree and then a good job.  Then I saved for a decade straight likely spending less money than you did last year…that is why I have a net worth of over $750,000.  So go ahead and take away the TFSA limit increase for all I care…just stop blaming me for your problems and perhaps start to save something yourself.

The Stock Market Yo-Yo

Posted by Tim Stobbs on August 25, 2015

I sort of laughed at some of the media stories on Monday based the the sharp drop off of many stock markets…reading the articles you would swear the world had just shifted on its axis a few degrees.  Yet then on Tuesday the markets spiked back up and the media then sounds all positive about everything.  Do you know what I did during all of this….nothing.

Yes, I didn’t sell anything and I didn’t buy anything since I had already moved around $10,000 into the markets last week.  I noticed the market was down a bit and we needed to shift over some cash into ETF’s (Exchange Traded Funds) in our RRSP accounts.  I bought some US stock index ETF and my wife had a bit more cash so she did the same US ETF and also picked up some Canadian index ETF.  So we missed the bottom…so what?  We aren’t stock market timers anyway.

I think the problem most people have with this big swings down is they feel the need to do something…when in fact when you are down the answer is usually to buy something rather than sell anything.  Selling just locks in your losses while buying can provided an option to load up on some good investments on the cheap.  Yet if you don’t have cash handy the right answer should be chanting to yourself: this too shall pass.  Because in fact, in the stock market on a whole, just about everything does pass at some point or another.

I’m not saying this isn’t easy to do the first few times.  Being active in managing my own investments does make you want to do something when these big things occur, but in fact a lot of the time the right way to approach things is doing nothing.  Sit on your hands if you have to but don’t login to your trading accounts…that just gets way to tempting to do something.  Instead, pick up a good book and distract yourself for a while.  See if the one day drop or spike is turning into a longer term trend and then decide if you need to make any adjustments according to your plan.

Yes, your plan.  You know your highly emotional at this point and perhaps you already planned for this by writing out your investment objects and plan.  Pardon…objective and plan?  Yes you know that one page document you know you really should have written out ages ago that outlines when you buy and sell things when were rational rather than your current emotional state.  See if you put in anything for drops of less than 5%…likely you didn’t which means you previous rational self is reminding you to keep sitting on your hands.  No trading for you.

In my case it would look something like this:

“Invest the money into your trading accounts approximately once a month…do not let it build up in the chequing account (you may get delusions that you are rich otherwise).  Our investments are broken into three buckets: pension, RRSP and TFSA.  Pension is the long term money and invested in the second most conservative option available from my plan provider.  The RRSPs are in index based ETFs.  The current ideal ratio is about 40% in bonds, the rest even split between Canada, US and world. Only rebalance about once or perhaps twice a year.  TFSAs are the high risk investments in individual stocks.  Seek out mature companies providing monthly billing services that pay dividends (ideally Canadian -remember that the US doesn’t recognize TFSA yet as a tax shelter and you will pay tax on US dividends).  Target average payout from TFSA accounts is 5%.  So some high risk ones are allowed if they are balanced off by lower risk ones. When you max out contribution room in all RRSP and TFSA then consider adding taxable accounts. You may only borrow to invest from the Line of Credit if you have put the money back in less than three months.”

That’s it…notice I have nothing about market drops in there.  It doesn’t prevent me from shopping a downturn, I just need to have the money into the accounts to do it or be able to put there in a short period of time.

So how do you handle these downturns or upswings?