Tuesday, 17 January 2012

Fantastic Mortgage rates

If you are in the market for a new home. Or if you have a mortgage with a remaining amortisation that is 5 years or more, you should be super happy this week.

Last week Bank of Montreal announced that they had lowered their 5 year rate to 2.99%. That is really incredible considering that a lot of people don't have variable rates as low as that.

And now ING Direct is offering a 10 year mortgage at 3.99%. Wow!

We have no idea where mortgage and interest rates will be over that long a term. So to be able to lock in your mortgage for a 10 year period at that low rate is just too good a deal.

I remember with envy that in the early 2000s I started off my mortgage at a 5 year rate north of 7%.

Tuesday, 10 January 2012

The case for not investing in your own company

For a lot of people out there, being invested in the company they work for comes naturally. It is after all a known quantity. Of all the investments out there, the one you can know the most about is the place you work. You know whether things are on the right track, if the products or services being offered are selling, if the company is looking to grow, what the morale is like etc. Additionally, a lot of organisations will offer employee stock options so that is one way you find yourself wandering into the "self-invested" realm. As an added perk, your organisation might offer employee stock purchase plans where you have the opportunity to buy stock in the company at anywhere from 5 to 15% off market value. It is like getting a free and guaranteed 15% return. And then of course we have the corporate pension / retirement plans where a good chunk of the funds are invested in the company itself. Is this a good thing?

I say not. And I have just one main reason ... Diversification

1. Talk to any financial adviser and the need to diversify ones investments is front and centre. This really takes a back seat when investing in the company we work for. We are already heavily dependent on the success of the company thanks to our pay-check. If your company does poorly, the risk of losing your job or worse the company itself disappearing heavily impacts your net worth because the prime source of your investing dollars is now gone. Add to that the risk that your already invested $$ could also be going down in flames. That is not a pretty scenario. Ask all those Enron and Nortel employees.

One does not have a choice with respect to stock options so there is no escaping them. Once they vest, I would simply cash them out (even if the company is doing great) and take the money elsewhere.

Same goes for the stock purchase plan. Take the shares at 15% off market price and sell them as soon as you can and pocket your 15% growth. The program forces you to save which is always a good benefit and gives you a 15% return ... can hardly complain about that.

For the retirement plans, if you have the option, try investing in balanced funds. Nothing worse than seeing your job gone and your company disappear and then checking your retirement account to see that its balance has dwindled as well because most of the money was invested in the company itself.

Of course there are always going to be cases where people come out millionaires because they stayed up to their eye-balls in the company they worked for. But for every such person there are tons others that lost everything. The idea is to reduce risk. And with risk reduction comes some level of reward reduction as well. So you won't become a multi-millionaire this way but if your company flames out and disappears, you won't find yourself on the street as well.

Friday, 6 January 2012

Waste or Economy helper

I read a news item today that informs us about Elin Nordegren (Tiger Woods' ex-wife) tearing down a $12 million home she bought only last year and re-building. As someone who's never known $12 million and quite likely never will, I was certainly "impressed" by the story. After all, I don't think she and I have a lot in common. I have trouble throwing out a $12 shirt I bought on sale that has served me well for 5 years but still shows no signs of wear - why discard perfectly good clothing??

What was more interesting though was reading the comments. I only scanned the first page of comments and practically every single one of them complained about the excessive spending and wasteful nature and what $12 million would do for so many people who could better use that money. It was typical Occupy-rant with us versus the 1% mentality. But are those people really right?? I don't think so and here is why...

In my opinion, every one of us 99%ers should applaud her decision to tear down the $12 million home. It is the perfect example of wealth re-distribution from the rich to the ... well ... less rich. The money she spent buying the home and whatever she spends on tearing it down and rebuilding and decorating will go where? To real-estate agents, lawyers, construction workers, dump truck operators, electricians, plumbers, landscapers, architects, builders, carpenters, cleaners, interior designers, chandelier manufacturers etc etc. These people in turn will spend that money at local restaurants, coffee shops, toy stores, car dealerships, spas, electronics stores, cinemas etc.

In short she is quite probably single-handedly kick-starting the local economy. If she hadn't decided to renovate / rebuild, all that money would stay in her bank account. This way it gets spread out among the people. Why would anyone have a problem with this, I fail to understand.

Ideally, we should encourage every single wealthy person to take similar actions that appear vain and ridiculous at the outset but if you scratch just a wee bit deeper, they are actually exactly what we need.
I'm sure I am not the only one that sees it this way.

Tuesday, 3 January 2012

Air Miles is changing

Do you collect Air Miles?

If so, you may want to pay attention.

Air Miles is one of the more popular "points" / "rewards" programs here in Canada. You shop at participating retailers and show your card and earn points. Collect enough Air Miles and you can get yourself all kinds of rewards (and yes flights are amongst the rewards offered).

So Air Miles is changing. So far the Air Miles you had collected never expired. Well that's going away. Effective Dec 31st 2011, Air Miles have a 5 year life span. You use them or lose them. In addition Air Miles is introducing something called Air Miles Cash where you can automatically convert your Air Miles to "Cash" and redeem the Air Miles Cash at any participating retailer for stuff you like to buy ... just like having a Debit card.

But of course not all is as simple as it seems. The rate of exchange between $$ and Air Miles Cash is not the same as the "value" available if you redeem for rewards (called "Dream Rewards" from now on) - 95 Air Miles = $10 Air Miles Cash. And you need to pre-select whether you wish to divert your points to "Cash". Its not clear to me if you get to re-classify those points to Dream Air Miles.

If you do nothing, everything continues as usual and you continue to collect Air Miles in your "Dream Rewards" account. Just make sure you use them within 5 years of earning them.

For more details check out the Air Miles website

Do you like this change?

Sunday, 1 January 2012

New Year

A very Happy New Year to everyone.

So what does one need to do once the new year's eve alcohol and festivities wear down? From a financial perspective, there are a few things you should look at right away ...

1. TFSA: If you have a Tax Free Savings Account, a whole new $5000 in contribution room becomes available as of January 1st. So if you have to dough ... make sure you put the money in the account and let it grow ... tax-free as soon as possible. Even if you do not have money saved up, you can start smaller regular contributions from your paychecks. Pay the TFSA before anything else and you won't miss the money. :)

2. RRSP: Hopefully you have already made your RRSP contributions for the 2011 tax year. If not, the countdown to the deadline starts now. Make sure you do that before Feb 29th to get you tax savings in time for your 2011 return. You could be even more proactive and start contributions for the 2012 Tax year. Of course this means that you need to guess a bit on your RRSP contribution room for the year. But if your income has stayed much the same or grown in the past year, your RRSP room should be at least what it was for 2011. Its never a bad idea to start something safe now and then when you get your Notice Of Assessment, you can always top it up.

3. Mortgage lump sum prepayment: If you have a Mortgage and plan to make a lump sum payment to the mortgage without penalty, Jan 1st gives you a fresh opportunity to do that. Most lenders allow annual lump sum prepayments with no penalty. If you have funds lying around, doing nothing, get them working for you by saving you mortgage interest.

4. Credit card debt: Before you do any of the above, make sure you pay off your credit card debt that you may have accumulated thanks to Christmas and Boxing day shopping. The 19 or 29% interest you pay on your balances will be far greater than any benefit gained from any of the above.

In addition to the above, the new year is a great time to reassess your financial situation, review your plans, and course correct if needed.

Have a Happy New Year!!!