Archive for October, 2005

How Wealthy Are You?

October 12, 2005

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I was surfing through the wealth of data available in the Statistics Canada web pages and stumbled upon the net worth statistics of Canadians. The data was collected in a 1999 survey and net worth is defined as the value of all financial and non-financial assets (excluding employer-sponsored pension plans) less any liabilities of a family unit. The family units were then ranked by net worth and divided into five quintiles. The results:

Lowest quintile – Less than $7,400
Second quintile – $7,400 – $50,000
Third quintile – $50,000 – $126,100
Fourth quintile – $126,100 – $270,400
Highest quintile – More than $270,400

It looks like it doesn’t take all that much (between $50,000 to $126,100) to have as much net worth as a median Canadian household.

Surplus Allocation Act

October 7, 2005

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Reacting to criticism that Ottawa is running up huge surpluses on the backs of over-taxed Canadians, the federal government tabled the Surplus Allocation Act in parliament today. On the surface, the plan sounds responsible and reasonable: Any leftover surplus will be divided into three parts: one part will be allocated towards debt repayment, one part towards social spending and one part towards tax relief.

Before we start dreaming of a big fat tax refund, there is a catch: the act merely addresses any unexpected budget surpluses. The government can always spend it all during the budget and ensure that there isn’t anything left over for tax relief. Now, they can claim that they are cutting taxes, without actually having to do it! Very clever!

Even if the government does post a huge surplus like it did during the last fiscal year ($9.1 billion in surplus versus the budgeted $1.9 billion), it won’t translate into much of a tax relief. Let’s do the math: the unexpected surplus would be $7.2 billion. Subtracting the $3 billion contingency reserve and dividing the rest in three parts leaves us with $1.4 billion. Since there are about 15 million taxpayers, each of us can expect a princely sum of $93.33 back. What can I say? It is certainly not enough to cover the tab for a pizza dinner.

Investor Profiles

October 7, 2005

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MoneySense magazine is profiling four small investors who are beating the market under the rubric “The Genius Next Door“. If you dig a little bit deeper, you realise that their strategies are not for everyone.

Dale Johnson, for instance, invests only in diamond mines and energy trusts. Last I checked, energy trusts have been red-hot investments over the past few years (and not so hot in the past few days). What happens, when these trusts have a bad year or two or many in a row? While concentrated bets like this can pay off spectacularly, they can also crash and burn.

Or take Carl Anderson, who has a reasonable strategy of buying dividend-paying securities and reinvesting those dividends. But then, he “has over 200 individual securities” in his portfolio. Huh? I know mutual funds that have fewer holdings.

The story also profiles Derek Foster, who retired at the ripe age of 34 and wrote a book about it and Jim Chuong, who has assembled a concentrated portfolio of just six stocks. It is fun and sometimes educational to read about other people’s investment strategies, but I am not sure they will work for me.