Sep 292016
 

A Crappy Way to Smuggle Gold

In a story that would fit right into a heist movie, an ex-employee from the Royal Canadian Mint has been accused of stealing gold nuggets from the government facility by hiding the precious metal in his butt. 😆 Talk about gold bottoming out. I guess you can say this alleged gold heist was an inside job, if you know what I mean. 😁

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35 year old Leston Lawrence sold multiple nuggets of gold called “pucks” to a local gold dealer in Ottawa, and then deposited the proceeds into his bank account. Each puck weighed about 210 grams (7.4 ounces.) According to records, he sold 18 of them in the span of 4 months. Investigators with search warrants also found 4 gold pucks in his safety deposit box. The combined value of all this gold is estimated to be $180,000. His job was to measure the purity of gold coins at the Mint, but he has since been fired in light of the accusations.

It was a bank teller who first raised the alarm. She could smell something was not right, 💩 noting the frequency of Lawrence’s deposits, his requests to wire the money overseas, and the fact that his account with the bank listed the Canadian Mint as his place of employment.

The bank teller notified her supervisor and the RCMP was soon involved. They even found a container of Vaseline in Lawrence’s locker. Prosecutors alleged that he smuggled the gold nuggets out of the Mint by concealing them in his anal cavity one at a time. This would explain why the handheld wand used as a security measure at the Mint didn’t detect anything on him. So despite the Mint’s sophisticated security system, it was still vulnerable to a backdoor exploit. ROFL. 😆

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Sep 262016
 

When Average Isn’t Enough

Everyone knows that exotic dancers are bad at investing. After all, they always end up losing their shirts. 😆 But they are not alone. Most people in general are simply not very successful at investing.

According to BlackRock, the largest financial management company in the world with nearly $5 trillion of AUM, the average American investor managed to make only 2.11% return per year over the past 2 decades. 😱

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The saddest part is how this number is even lower than inflation, lol. So in terms of real returns people actually lost money. 🙁 There are many reasons for this low performance. Investors’ sentiments, emotions, and personal goals are all factors. But the reason I want to discuss today is the improper use of investment tools.

Why People Are Generally Bad at Investing

Reason 1 – Not using tax sheltered vehicles

The Roth IRA is a great example of a tax savings vehicle that many American investors have overlooked. In Canada we have the Tax Free Savings Account (TFSA) which has similar benefits; Any investment gains realized within this account is tax free. 🙂

The first problem is that most people don’t use it. According to the CRA, in 2013 only 38% of eligible Canadians have opened TFSAs. The second issue is those who do have this account aren’t making the most of the tax savings. Data from RBC Royal Bank suggests that its clients tend to play it safe when it comes to their TFSA with 44% of holdings in high interest savings accounts. *Yawn* Another 21% is invested in GICs which are also producing rock bottom returns right now. This means only the remaining 35% of the money in TFSAs are actually used for proper investments that hold stocks, bonds, and other asset classes that have a decent chance at beating inflation.

This essentially means that only about 13% of TFSA eligible Canadians are using the investment vehicle correctly. But even less have taken maximum advantage of it because only 7% have fully maxed out their contributions. Of course everyone has different financials goals, which alludes to my post about the debt spectrum. So it may be perfectly suitable for a retiree to put all of his savings into a GIC if it suits his investment objectives. But in general 2.11% should not be the target most investors should aim for. 😉

Taxation is one of the costliest expense on investment returns. If more investors make better use of tax advantaged accounts they can leave more money in their own pockets. 🙂

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Random Useless Fact:

33% of Harvard University students get the following question wrong.

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Sep 222016
 

Lower Cost with Interactive Brokers

Everyone likes a discount, especially personal finance enthusiasts. We tend to get hyped over even marginal deals. 😀

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Speaking of margin-al discounts. I recently lowered my stock margin rate from 4.45% to just 1.95%. Hot damn! It’s even lower than my mortgage now, haha. 😁

One of the best things investors can do to increase our net returns is to reduce the cost of investing. When it comes to leverage, or borrowing money to invest, the best way to reduce our cost is to find a broker which charges the lowest interest rates. 🙂

In the past I have held my margin account with TD Direct Investing. The current interest rate they offer is 4.25% or 4.75% per year, depending on which currency investors borrow in.

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Although TD’s rates are already competitive relative to the other large banks in Canada, it is not the lowest. After doing some research online I’ve discovered that a U.S. based brokerage firm called Interactive Brokers offers the lowest margin rates, and has cheap trading commissions. So I recently transferred my entire margin portfolio from TD to IB to reap the benefits of lower cost borrowing. 🙂

Interactive Brokers Advantages

Here are 4 reasons why I switched to IB.

  1. Reduced margin rates for more cost-effective leverage. I currently have about $54,000 of margin debt. I was paying on average 4.45% a year for this massive loan with TD. But with Interactive Brokers I’m now paying only 1.95% on average because I have both US and Canadian dollars. This represents a difference of 2.50% between the two brokers, which translates into $1,350 of interest rate savings every year! 😀 “BM” in the table below refers to the benchmark rate set by Central Banks.16-09-interactive-brokers-margin-rates
  2. Cheaper trading commissions. TD and many other brokers charge a flat fee of $9.99 per trade when buying stocks. But IB charges 0.5 cent per share for U.S. accounts, and 1 cent per share for Canadian stocks. The minimum cost per transaction is $1. For example if I buy 200 Shares of BMO (Bank of Montreal) shares, then my total commission would be $2.00 CDN. My trades are typically worth between $1,000 to $3,000. This means I rarely buy more than a few hundred shares of anything because most companies I prefer to own are dividend growth stocks, which tends to be priced at $20 per share or higher.
  3. Access to global markets. This isn’t a big deal for most people, but for more advanced investors Interactive Brokers allows trading in foreign currencies outside of North America. This means we can buy European stocks in Euros, or Australian stocks directly from the ASX using Aussie money. 🙂 TD used to have a platform that lets Canadians like myself trade internationally, but they cancelled that service last year. 🙁 I’ve mentioned in a previous post, that I want to diversify into other countries and there could be some good opportunities in the U.K. after the Brexit event earlier this year. So having access to a global trading platform is important for my financial goals. 😉
  4. Great for options trading. $0.70 per contract; $1 minimum order; volume discount available. And in the unlikely chance that our open options are exercised or assigned, there is $0 assignment fee, unlike $43 for TD or BMO.

Disadvantages of IB

Here are a couple drawbacks with IB.

  1. Penalty for not being an active trader. If investors do not spend at least $10 in commissions per month, we will be charged the difference. Furthermore, there’s a $10 fee for real-time quotes each month which is waived if at least $30 in commissions is spent. I typically trade once or twice a month so I will be paying these fees.
  2. $10,000 USD minimum balance to open up an account. This isn’t an issue for me, but some investors might have trouble coming up with $10K.

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Sep 192016
 

The Effects of Debt on Your Health

According to a Globe and Mail article I recently read, people have gotten sick and depressed thinking about their debts. “Researchers and health professionals are making the case for treating personal debt as a public health problem.” Oh no. 🙁 Dr. Donna Ferguson, a psychologist in Toronto says, “I think that it’s a major crisis. It’s an issue that needs to be addressed.”

The average consumer debt in Canada is only about $21,000. Personally I don’t think that’s a whole lot. Yet psychologists are calling this a “major crisis.” 😠 People are blaming debt for making them feel physically ill. But I have much more debt than they ever will. So if having a healthy relationship with debt is their primary goal, then they should do something to keep their stress under control. 🙂

Luckily I have a solution to help those consumers. If we want them to get better we have to address the root of the issue. The problem is with individual psychology, not with debt. Instead of creating more health problems for borrowers and increase the burden on our public healthcare system, like what Dr. Ferguson suggests, let’s try to educate people about the truth so we can prevent people from feeling ill in the first place.

So here’s my simple yet effective tip to help anyone who may have debt anxiety:

If you don’t think you can handle the debt, then don’t borrow the money. 😀

Sometimes the negative consequences of debt are blown out of proportion. The ASA, a financial support organization, has even made a horror video to show the trepidation and paranoia that comes with having student loan debt, which further supports the common narrative.

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Some people have this irrational fear that if we have debt then somehow it will come to get us like the boogeyman. 😆 But the reality is nothing bad will happen as long as we make the payments on our debt.

Missing a Debt Payment is No Big Deal

The consequences for delinquent debt are very lenient towards borrowers. The bank can’t just take our house away as soon as we stop making mortgage payments. In my neck of the woods for example, the bank has to first draft up a foreclosure petition if a mortgage payment is 3 months late. Then the court hearing will be a month later. And then the property goes into a redemption period for up to 6 more months. So we have plenty of time throughout this entire process to get our payments back on track. We can even sell our house if it’s worth more than the mortgage balance.

For other types of debt, if money becomes tight we can enter into consumer proposal or apply for other debt relief options. We’re usually given at least 3 months to catch up on our payments before it goes to a collections agency. Despite the scary rumors, consumer debt cannot physically harm us. We won’t be assaulted or locked up if we’re late on our credit card payments. Nobody will drag us to jail because we failed to make a car payment, lol. The worst they can do to us is take the car away and tarnish our credit score. But I think that’s only fair. Our vehicle is being repossessed only because we broke the debtor/creditor agreement first.

So there’s no reason to get all worried and stressed out over a reasonable amount of debt. 🙂 We just have to be smart and not borrow too much.

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Random Useless Fact:

If the original Power Rangers series were made today in 2016, it would probably offend too many people and be banned from airing in most countries.

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The yellow ranger was Asian. The red ranger was Native American. The pink ranger was portrayed as a ditsy white girl. The black ranger was black. And in later episodes they introduced the white power ranger who was the strongest.

Sep 152016
 

Staying in Debt Forever

Sometimes I get asked if I will ever be debt free. Unfortunately I don’t have a good answer for this question. In my previous post earlier this week I discussed the debt spectrum, which describes debt as a financial state along a sempiternal line. This line stretches out in both directions and has no ends in sight because it’s hard to put a limit on the amount of debt we can lend or borrow. For example, it’s common today for regular folks in Zimbabwe to hold literally quadrillions of dollars of debt in their outdated, but still existing currency. 1 quadrillion looks like this: 1,000,000,000,000,000.😁

Compared to a huge number like that, it would appear most Canadians have a much more reasonable amount of debt. 🙂

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Of course that’s not a fair comparison, but the point is almost everyone has some form of debt or another. Since I believe in the debt spectrum concept, I don’t view debt as something that I can ever remove from my life completely.

To me debt is a continuous road that I’m constantly on. There’s no beginning and no end. I’m either a net debtor or a net creditor. I’m either buying debt or I’m selling debt. I use leverage when interest rates are low. I lend money to people who need it when interest rates are high. I might do both at the same time. Debt will always be a part of my life just as it is a part of the broader economy. My position on the debt spectrum will constantly shift from left to right depending on changing circumstances. But I will never not be on the spectrum.

Even in a high interest rate environment where I’m a net creditor, there could still be unique opportunities where I would borrow money. For example, I could use promotional credit card rates where I can borrow money at 2% and invest in a safe bond that yields 4%.

So it’s hard to answer the question if I’ll ever be debt free, because the idea of being “debt free” is kind of irrelevant within the context of the debt spectrum.

Being “debt free” on its own doesn’t mean a whole lot anyway. A barista could be debt free with a net worth of $0. But a stock broker could have $5 million worth of index funds in his portfolio with the help of a $50,000 margin loan. The first person is broke while the second person is a financially independent millionaire. But it’s impossible to tell by simply looking at their debts. This is why the debt spectrum is much more useful.

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