Archive for June, 2007

No Post Today…

June 11, 2007

3 comments

Due to unavoidable circumstances, I won’t be posting today. Regular programming resumes tomorrow.

This and That

June 7, 2007

14 comments
  1. While a variable-rate mortgage will usually save you money, Rob Carrick suggests in The Globe and Mail that now would a good time to opt for a five-year fixed-rate mortgage.
  2. Canadian Banks and Insurance blog does such a good job of covering our giant financial institutions. Here’s their take on the latest earnings reports from Bank of Montreal (TSX: BMO), TD Bank (TSX: TD), Royal Bank (TSX: RY), Scotia Bank (TSX: BNS) and CIBC (TSX: CM).
  3. The Summer 2007 issue of MoneySense magazine features an excellent article titled 10 Laws of Building Wealth (not available online). If you are not a subscriber, the article is worth a trip to the local library.
  4. The sleep-at-night factor is very important in making financial decisions. Four Pillars explains why he opted for a five-year fixed-rate mortgage.
  5. How long can the good times last? James Daw poses the question for Canadian equity investors who have enjoyed an annualized return of 21% over the past four years.

Reader Question: To DRIP or not to DRIP

June 6, 2007

23 comments

The following thoughtful question is from Kevin:

To DRIP or not to DRIP: that is the question I’ve been pondering for some time and I thought I’d ask your opinion. Basically, what are your views on DRIPs?

I see it in two ways:

1) I’ve purchased a great dividend (or income) producing stock/trust. With a DRIP I can continue to increase my holdings of that great company with no additional commissions or brokerage fees. Net effect: larger holding of a good company with a dollar-cost averaged purchase price and decreased average commissions/fees.

2) I’ve purchased a great dividend (or income) producing stock/trust at a discount. After some time the share price goes up and the stock sells at a premium. Without a DRIP I’ll get the dividends in cash and perhaps be able to purchase shares in a different company that is selling at a discount. Net effect: a diversified and value-cost averaged portfolio.

Thank you for a great question. The first option might be a reasonable choice for a fairly static portfolio (no additions and no withdrawals), which hardly ever happens in practise. Even here, an investor should be careful that the regular dividend reinvestments do not result in a portfolio that is tilted mostly toward the high-yielding dividend stocks.

I personally prefer to let our interest payments and dividends collect, add our regular savings to it and invest the proceeds periodically. Since I am going to pay the commissions when investing our savings anyway, this method works well for me. I look forward to comments from our readers on this topic.