Archive for September, 2007

More Canadian Financial Blogs

September 20, 2007


Since my previous round up, a number of Canadian Financial Blogs have appeared on the scene:

FP Trading Desk is the online blog of The Financial Post and features extensive coverage of business and stock market news and analysis of individual stocks.
(RSS Feed)

Dividends Matter aims to “to empower individual investors to gain the knowledge, skill, and confidence required to invest in high quality, dividend paying stocks to generate steadily increasing cash flow and ensure a lifetime of successful investing”. If that sounds similar to Investment Jungle, it’s because Average Joe is the blogger behind both. Some recent stocks analyzed include Loblaws (L), Fortis (FTS) and Power Financial (PWF) etc. (RSS Feed)

Montreal-based, 25-year old, Financial Blogger works in the banking industry and has been blogging for a while about everything involving personal finances. He is a big fan of leveraged investing and is personally implementing the Smith Manoeuvre. (RSS Feed)

Nabloid on Investing (Nabloid = net + tabloid) aims “to publish information about investing and the investment industry in Canada and the United States”. Nabloid mostly blogs about individual Canadian and US stocks. (RSS Feed)

Where Does All My Money Go? is written by Toronto-based stock broker Preet Banerjee, who promises to “explain EVERYTHING about money”, in his blog. Recent topics covered include his 12-part series on life insurance. (RSS Feed)

Next week, we’ll look at Road to Harvard, Loonies and Sense, Give me Back my Five Bucks, Guerilla Investor and Wealthy Canadian. If you have a Canadian Financial Blog and would like to be featured in my next round up, please leave a comment or contact me directly.

Wash Trades Save You Money

September 18, 2007


I held 150 shares of iShares MSCI EAFE Index Fund (EFA) in my RRSP account and wanted to switch to the Vanguard Europe Pacific Fund (VEA), which is 20 basis points cheaper. Before the recent cut in trading fees by TD Waterhouse, I was hesitant to pay $58 ($29 to sell EFA and $29 to buy VEA) to save $24 per year (0.20% of 150 shares of EFA at $79) and planned on switching sometime in the future when I am adding new money or rebalancing. At $10 per trade, it was much easier to justify spending $20 to save at least that amount every year over the long term.

I sold 150 shares of EFA and bought 250 shares of VEA with the proceeds and it is illuminating to see how much money could be saved by washing the trades. TD Waterhouse converted Canadian dollars into US dollars at a 2.5% premium one way and 4.39% the other way. The difference: $224. Even if I had paid a higher trading commission, the savings obtained from a wash trade would more than make up for any difference in commissions. If you trade US-listed stocks even occasionally in your RRSP account, it’s possible that you could save more money by choosing to wash your trades than paying a lower commission.

Reader Question on Employer RRSP Match

September 17, 2007


Alex from New Brunswick asks:

I have a few questions about matching contributions made to a group RRSP by my employer. I work for a small software company, which matches an employee’s RRSP contributions up to 2% of their base annual salary. In order to qualify for the match, we sign up for an RRSP using the funds of our choice at a particular bank (which is not the bank I use). Our contributions are taken off the top of our bi-weekly pay and our tax deductions are adjusted accordingly. Deposits are made into the mutual funds at the end of each month. However, the employee match portion is done once a year in February as a lump sum payment rather than being paid monthly. This doesn’t seem right to me because rather than take advantage of dollar-cost averaging and spreading the deposits out over time, the deposit is at the mercy of whatever the market is doing that particular day. Also, if my employment with this company were to end in November or December, I would get no match for that year. Is this common? What are the characteristics of a “good” employee match program? Is 2% competitive? Do you have any recommendations for how I could negotiate a change in the program during an annual review and what I should ask for?

I’ve worked in a few software companies myself and I know friends who have worked in other companies in the Ottawa area. I don’t know much about other industries but at least among small software companies, providing a match to employee contributions is the exception rather than the rule. It’s not clear exactly how much of your contributions are matched by your employer but not taking advantage of the maximum match is like giving up free money. While there are some restrictions in your plan, they are not serious limitations.

Since your employer matches your contribution in a lump sum fashion, you could opt to park the proceeds in a money market fund and periodically invest it on your own. However, many studies have shown that you are better off to invest in a diversified portfolio as soon as you have the cash.

I think your bigger challenge is wisely investing your RRSP. You should take the time to think about your goals for your savings. Are you saving primarily for a retirement that is many decades away? Do you plan to use the funds in your RRSP for a down payment on your first home? Your goals will dictate your asset allocation and how much risk you can take. Once you have an asset allocation, you should invest in low-cost funds, stick to your asset allocation and eschew chasing performance.