1. The Home Renovation Tax Credit introduced in Budget 2009 has not yet been approved by Parliament. With the Liberals threatening to pull the plug on the minority Conservative government, Canadians will be wondering if they will be able to get a tax credit on renovations. The Ottawa Citizen reported today that the Liberals are assuring Canadians that they support the HRTC no matter what.
  2. With stocks up more than 40% since March, Jason Zweig suggests investors should exercise caution and should not pile into stocks just because they’ve run up.
  3. The online savings account market place just got even more crowded. Rob Carrick reported that Ally, a division of car finance company GMAC, has opened its virtual doors by offering fairly competitive savings accounts and GICs.
  4. Member Cannon Fodder graciously shared a number of excel-based financial calculators on the Canadian Money Forum.
  5. Kathryn shared some tips on finding someone with compatible financial goals on Million Dollar Journey.
  6. Michael James points out why the bell curve, despite its widespread use, may not be the best way to model equity prices.
  7. I’m a light cellphone user and concur with the conclusion on Four Pillars that Speakout Wireless offers the best pay-as-you-go deal in Canada.
  8. Canadian Financial DIY points out that there is no relationship between economic growth and stock market returns.
  9. Thicken My Wallet has some tips for investors thinking of buying a franchise.
  10. Gail isn’t too pleased with our love affair with stuff.

No post on Monday on account of Labour Day. Have a great long weekend everyone!

This article has 20 comments

  1. Thank you for linking my post.

  2. Thanks for the mention. It’s kind of sad that investors would choose to buy stocks because they’ve gone up. But, this kind of backwards thinking isn’t likely to change.

  3. Hi CC. Had not noticed the thing about the renovation tax credit. I wouldn’t be too happy if the Liberals came in and dumped it. Thanks for the link and have a good weekend.

  4. Hey CC, thanks for mentioning Kathryn’s article. Enjoy the weekend!

  5. Lina // Sep 4, 2009 at 8:45 am

    Hi, I’d like to open an ING Streetwise account, however, I’m not sure which to choose. I’m 37 and hubby is 46, so would it be better to choose the one that allocates 70% to Can. Bonds/30% distributed equally to Can. , U.S., and Intern. stocks. Or, should I choose the 40% Can. Bonds, and 60% distributed equally to Can., U.S., and Intern. stocks. This potfolio will be held for the long run of 10-15 yaers at least. Thanks.

  6. Also, should this be opened as a regular, TFSA or an RRSP account? Thanks.

  7. Thanks for the link. Have a good weekend.

  8. I highly recommend to learn a lot more about investing before using any investment products including ING Streetwise, TD e-series, or ETFs for that matter. I came to regret to some previous decisions, because I did not research as much as I need.

    I recommend Mebane Faber’s A Quantitative Approach to Tactical Asset Allocation published in Spring 2007 in the Journal of Wealth Management. It can be accessed here http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461 . Mebane Faber’s Ivy Portfolio has been highly praised by many, but it is very expensive and harder to read : http://www.amazon.ca/Ivy-Portfolio-Invest-Endowments-Markets/dp/0470284897/ref=sr_1_1?ie=UTF8&s=books&qid=1252076884&sr=8-1 . There are older books like Random Walk Down Wall Street, Four Pillars of Investing, etc that can be found in your local library.

    Because no one here is a licensed financial adviser or broker dealer through a brokerage, none of us can give real financial advice or we violate the Canadian law. If you want actual advice, you need to see a financial adviser or go through a direct sales mutual fund company like PH&N.

    At PH&N, they have investment counselors that can give you basic ideas and directions about what and how to invest. PH&N have the lowest cost active managed mutual funds in Canada and a portfolio of PH&N funds would have a similar MER than Streetwise funds. PH&N accepts clients directly when you have $25,000 to invest with them. PH&N has offices in most of the big cities in Canada. Mawer is another good choice, but they have a much higher basic minimum requirement.

    Most financial advisers are commission based and I would avoid those due to conflict of interest. A good choice would be fee based or fee only advisers, which are difficult to find and many only accept very high net worth clients. If you want to save money and save effort of finding a financial adviser, you need to study as much as you can. William Bernstein, author of Four Pillars of Investing, recommends spending at least one hour each night to study books on investing.

    Disclaimer: I am not affiliated with RBC or PH&N.

  9. My previous comment meant to be addressed to Lina.

  10. Linda, I am also not a financial advisor, and thus do not offer any financial advice.

    I largely agree with Henry, except I personally do not recommend A Quantitative Approach to Tactical Asset Allocation nor any other technical analysis (trend based) approach since I believe in the weak efficient market hypothesis that states that, like dice, past stock performance is independent of future performance. In my opinion technical analysis is the homeopathy of finance.

    I certainly do recommend reading Random Walk Down Wall Street which espouses this view. I found it a pleasant and easy read. I have not read Henry’s other book recommendations, but they are probably also good. Finally I recommend browsing some of the archives of this blog. I found CC’s investment strategy to match my own style, plus I learned a lot of details specific to investing as a Canadian (details about RRSP, TFSA, etc.) that I didn’t know since I was starting out.

    Good luck, and certainly take your time learning about your choices.

  11. Lina: You can decide for yourself whether trendline analysis works or not. Evidence is convincing enough for me and it is also easy to use. As a disclaimer, I do not use other aspects of technical analysis such as Elliot Wave due to the difficulty in implementing its ideas.

    Russell: Actually, I also accept the weak form of the efficient market hypothesis may apply most times, but I do not accept the random walk hypothesis. When you mentioned your definition of the weak form of the efficient market hypothesis, you actually incorporated the random walk hypothesis into your definition. The way I understand the weak form of the efficient market hypothesis is that unsystematic risk is efficiently priced. As a result, it is difficult to pick a basket of securities and beat its respective index most of the time. My understanding comes from Andrew Lo’s (Professor of Finance at MIT) Heretics of Finance.

    Professor Malkiel tried to argue that technical analysis is finance’s astrology in Random Walk Down Wall Street. However, you will realize Professor Malkiel never touched on trendline analysis or SMA200. I have tried to find arguments against using SMA50 or SMA200, but the best argument against SMAs is that they do not work perfectly and do not result in perfect timing. I find that argument to be very weak and for example, Modern Portfolio Theory works far from perfect as well.

    Here is my take on SMA200. SMA200 is simple moving average 200 as you know. SMA200 removes the noise in the market and shows the trend in a clear fashion if a trend does exists. SMA200 is derived endogenously within the prices of the stock market. In economics, we like things to be endogenously derived within a model.

    Disclaimer:
    SMA200 will not work in a market where there is no trend.

    SMA200 is descriptive rather than predictive in nature. SMA200 is able to describe whether we are in cyclical bull market or cyclical bear market. Major market crashes occur when market has been already falling, but not all falling markets have market crashes.

    SMA200 usually provides a satisfactory exit point from a looming bear market, but may not be the best signal to return to a bull market. Using SMA50 to reenter a bull market may work a little bit better.

  12. Regarding the wireless article, I used to be on prepaid years ago and I found that with the amount of talking I did, which wasn’t much at all mind you, it was cheaper to go with a plan. Fido makes it easy now to go cheap with postpaid without having to constantly worrying about expiring airtime and wasting airtime as it’s rounded to the minute. And Fido users who sign up for the new plan get to roam for free on the Rogers network.

  13. Thanks Henry and Russell, I appreciate your views and advice. I guess I’ll be reading a few more books and articles just to be on the safe side. Thanks again, have a good long weekend.

  14. Lior,

    You are correct that prepaid is only good for people with very, very low usage. 7-11 SpeakOut Wireless $100 airtime is good for 365 days and provides around 452 minutes for the entire year. As a result, you have less than 40 minutes for each month. Prepaid is only good for people who use their landline as their main phone or have unpredictable usage (like out of country for several months at a time).

    I think Fido is good. I like their 2 yr contracts and pay by the second with warning text messages regarding to usage. However, Fido’s plans start at $20 without voicemail and call display. Depending on what you need, Fido do have a lot of good solutions.

  15. @Lina,

    I’m the one who is always running around trying to discourage anybody from buying a bond fund – any bond fund. I would prefer people buy either a GIC or an actual Government bond (with a maturity) rather than buying a bond FUND.

    Bond funds are funds which hold a variety of bonds and have no maturity and the unit price of the bond fund is based upon the trading value of the bond. In general with all else being equal, bond prices go down when interest rates go up. Since interest rates are at all-time record lows, then I would say that chances are good that in the future interest rates will go up and hence bond prices will go down. Since these bond funds are marked according to the value of the bonds, then chances are the unit value of the bond fund will go down and you will lose money.

    The problem is that with a bond fund, there is no maturity so that loss that you would incur would be lost forever. In the case of actually holding an individual government bond or a GIC, you would get all of your principal back at maturity.

    I don’t work in the financial services industry and am not affiliated with any bank or credit union or whatever. I am a small investor who just can’t stand bond funds and will go out of my way to talk anybody and everybody out of buying bond funds.

    Now if you want to buy a foreign bond fund as a way to kind of play the currency markets as a short term trade, then that’s a totally different story. But if you want to buy a Canadian bond fund thinking that it’s going to preserve your capital, DO NOT do it!!! You can most definitely lose money in the fund!

    • Canadian Capitalist

      @Phil: It depends on an investor’s time horizon. If I am saving money for an obligation with a fixed date, then yes, it is best to buy bonds or GICs. However, a bond fund is sufficient for the purposes of a long-term investor who is holding it for reducing portfolio volatility. The primary advantage to a bond fund is diversification — you may need quite a bit of capital to assemble a portfolio of bonds. Buying bonds directly is also more expensive for an individual investor compared to a bond fund.

      GICs yield a little extra because they are not liquid like bonds. However, GICs may not be suitable for those investors who hold fixed income for rebalancing purposes.

  16. Lina: I concur with Phil S that regular bond funds in general are actually not a way of preserving capital. Some GICs do have higher yields than equivalent bonds. Most bond funds in Canada charge ridiculous MER as well and those should be avoided 100%.

    There is a lot of information about bonds and I will let you do your research rather than try to summarize everything for you.

  17. Has anyone really done the math on this Canadian Home Renovation Tax Credit? By my calculations (paying about 28% income tax a year and with the 12% sales and GST added in) I will have to earn $15,555 before tax dollars to spend the $10,000 to be eligible for the max $1,350 tax credit. As I can’t afford to spend a full 1/3 of my before tax dollars on renovations, I’ll have to finance the $11,200 (including sales tax and GST). If I finance over three years at 5% interest(as this is all I can afford to pay out of my meager $45,000 salary per year), that $10,000 is now costing me $16,784 before tax dollars. And all that just to get a lousy $1,350 credit back? I think the government really needs to re-think this thing and come up with some real tax incentives like, for instance, no GST or PST on renovations or products. Before tax dollars on that is only $13,888, a savings of $1,667 on a cash purchase. Or maybe a $10,000 deduction off our taxable income which would save us a whopping $3,000 (roughly. I’m not going to do the exact math on that one).

    What it boils down to is the only people that can really afford to do $10,000 in renovations in order to fully take advantage of this tax credit are people who are making over $80,000 or have been frugal enough to stash some cash during the last recession. All the rest of us will have to go deeper and deeper into debt and it really isn’t worth it. It’s just another tax break for the rich.

  18. Lina and the rest that have responded to her – (disclaimer this is not advice and nor am I providing any – this is my opinion)
    – I have seen the financial markets and a lot of investors chase returns
    – trying to time the market is like trying to figure out what the weather will be like 6 months from now… you can predict but most are wrong and it costs them money

    – you are correct in trying to use asset allocation to reduce your overall volatility – when equities are down typically things like bonds perform significantly better – ie bond funds doing over 6% as of late

    – you will find that less than 10% of active fund managers actually beat the markets that they are investing in
    – this is due to the efficient market theory – markets like the S&P 500, NASDQ etc – information is available to all investors and no one has information that is not available to everyone else… for this reason the theory states that basically you don’t have a leg up over any other investor and the same goes for funds managers (unless you are working in markets that are developing – small caps – developing nations etc where there is potentially information that is not available to all investors – usually higher volatility/risk associated with them)
    – over the last 30 years why would you want to time the market? I would much rather ride out the waves and average out to 10% roughly like the market has … that is my personal opinion – but you can use this tool or that technical program and be a millionaire – if it was that easy they wouldn’t be writing about it on the internet they would be on a beach in the bahamas … follow a few rules and you will be fine

    – put 10% of your income away for retirement
    – structure your debt to ensure that you are paying the least amount of interest possible
    – talk to your accountant and do a little tax planning – make sure all of your retirement funds are not just tied up in RRSP’s forcing you to pay tax on every dollar you need.. there will be vacations, cars etc that will push you up into the next tax bracket if you don’t properly plan
    – investing is always based on your personal risk tolerance – we could all generalize for your age group and say a balanced investor at 60 equity – 40 fixed or 75 equity – 25 fixed income but it all depends on how you feel about investing, what you know about investing and if you are fully dependent solely on these funds
    – ie someone with a great pension might take on more risk than someone that only has their rrsp’s to survive off during retirement
    – all things you should discuss with a licenced professional
    – most of all budget wisely, don’t overspend – if you don’t have the money to go on that trip or buy those clothes .. then don’t … set up a savings plan for those type of expenditures… I am in my 30’s and live by that … I own two properties and plan on expanding that on top of my 15% savings of my salary for retirement and spending

    I wish you all the best and remember if they could time the market they would be on a beach in the bahamas and not trying to give you advice…

    Cheers