Archive for June, 2007

This and That: Blog Edition

June 28, 2007


A number of personal finance blogs have come online over the past year and quality posts are being written all the time. I am planning to collect posts that I found interesting and publish a list every other week.

  1. If you invest in a mutual fund that is closely identified with a star manager, you run the risk that the manager will leave the fund for greener pastures. Ellen Roseman and Tom Bradley share their thoughts on a recent departure from Sceptre Equity Growth Fund.
  2. Canadian Financial DIY offers a primer on how value stocks in an index are identified. I found it surprising that different index providers use different metrics in addition to price-to-book to determine “value”.
  3. Million Dollar Journey recommends Interactive brokers for active traders.
  4. Your local grocery store or supermarket will most likely place a more expensive at your eye level. Thicken my Wallet is conducting a little experiment to see how much money can be saved at the supermarket by buying a product located at a non-ideal location. You can check his latest results here and here.
  5. If you live in Toronto, you may be able to take advantage of Four Pillars’ painstaking research to find out which grocery store will save you money overall.
  6. Canadian Mortgage Trends points out the effect Toronto’s new land transfer tax will have on the frictional costs of home buying. Also, will this ugly example spread to other Canadian cities?
  7. Canadian Dream has some suggestions for raising happy children without going broke.
  8. Growth in Value comments on a column about money being a taboo subject despite the importance of financial compatibility in a relation ship.
  9. Larry MacDonald says that though natural gas stocks (such as Encana) have had a strong rally, they still have room to run.
  10. Money Gardener shares his stock selection process by examining Walgreen (WAG), a drug store chain in the US.
  11. Financial Jungle explains why he prefers Bank of Montreal over investing in a 10-year bond.

Happy Canada Day everyone. Since it is a long weekend, I won’t be posting on Monday.

Stay at Home with the Kids or Work?

June 27, 2007


Million Dollar Journey posted about the financial angle of one of the parents opting to stay at home with the kids. I only have one minor point to add (Update: MDJ has updated his post to include CCTB benefits) to his analysis: You’ll also have to account for the Canada Child Tax Benefit (CCTB), a tax-free monthly payment made to eligible families with children under 18. The CCTB is based on your family’s net income (line 236 of your tax return), which for most people would be total income less RRSP contributions, child care expenses, loan interest deductions etc.

For the scenarios detailed by Million Dollar Journey in his post, I used the CCTB benefits calculator to estimate the payments for a Quebec family. In Scenario 1 where a spouse stays at home with the child, the family will be eligible for an annual CCTB of $1,800. In Scenario 3, where both spouses work, the family is eligible for a lower CCTB benefit of $310.

We grappled with this issue when our kids were a year old. For many families there is no choice: mom has to return to work to bring in an extra pay check to support the family. We were in a bit more fortunate position that we could afford to have my wife stay at home with the kids despite the obvious hit of giving up one pay check and the opportunity cost of my wife’s growth at her job.

The ideal solution for us would have been having my wife work part-time. It would have enabled her to keep up with the latest in her field and not having to start all over when our kids are about to go to school. Unfortunately, though she tried hard, she was unable to find a suitable part-time position. In the end, we decided that my wife would be going back to work because she would have been miserable giving up the social and professional aspects of her job entirely. The downside to both of us working is that our lives are so hectic that I don’t have the time anymore for activities like photography.

CommunityLend: People-to-People Lending

June 26, 2007


Investing Intelligently recently posted [Update: Investoid broke the news a while back] that Canadians could soon be getting our own social lending service, which would allow you to lend money to (or borrow money from) other people eliminating the middleman (read bank) from either side of the transaction. The lending service called CommunityLend will be modelled on already successful websites such as Prosper in the US and Zopa in the UK. While I understand the advantages such services provide to borrowers who are unable to get an unsecured loan for a reasonable interest rate elsewhere, I do not see the attraction of lending money to total strangers:

  1. You need to lend a lot of money to make a significant difference to your bottom line. If the interest rate spread between a savings account and a P2P loan is 3%, lending $10,000 will net you $300 per year. The extra spread you earn may not be worth the time spent in managing your loan portfolio.
  2. A P2P loan is not a savings account. By making a loan, you are agreeing to lend your money for a period of three years. Unlike a savings account, a P2P loan is not liquid and does not offer 100% principal protection.
  3. The biggest risk you face with P2P loans (which are unsecured) is default: the possibility that your loan will not be paid back either in full or in part.
  4. A P2P loan is similar to investing in mortgages because every loan payment is a mixture of principal and interest. Unlike Government of Canada bonds, you face the risk that your loans will be repaid early, either due to decreasing interest rates or improving credit history of the borrower.
  5. Since bonds are best held in a tax-deferred account such as RRSP, the location of a P2P loan in a taxable account is not ideal. You have to pay tax at your marginal rate on your interest earnings.

Prosper has been online for a while and US bloggers have been posting their experiences with the service. You might be interested in My Money Blog’s review (Part 1, Part 2, follow-up) and Tired but happy’s experience as a lender.