Hedge Fund

 

Hedging is the act of reducing your financial risk to potentially negative events, not unlike an insurance plan. Gold for example, is a popular hedge against inflation. With the rising cost of living, consumers are forced to spend more all the time. Can we do anything about this? Yes! We can hedge our cost of living and pay less for everyday expenses, without compromising our lifestyle or consuming less. That is what I intend to do here with…

The Dividend Subsidizing Hedge Fund (TM)

The idea here is to amass a pool of money (or fund) to buy shares or units of profitable, dividend paying companies whom I do business with regularly. This way, if a company starts charging its customers more money for its goods and services, then instead of just being gouged as consumer, I will also be on the other side of that business transaction and benefit as a shareholder. Eg: Hedging against higher banking fees by buying dividend growing bank stocks, so as other people give more money to the banks, the banks will become richer, which means my shares in those banks will either appreciate in value or grow their dividends which are of course paid back to me! Below are some examples of how much I spend on certain categories and which dividend stocks I currently have to offset (or “subsidize”) some of those expenses.

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Summary of dividend subsidies based on my current expenses: Updated: Dec, 2016
>Transportation expense: 39% subsidized by the oil industry
>Strata + electricity: 69% subsidized by property upkeep related firms
>Telecommunication expense: 68% subsidized by telecom and related tech companies
Once an expense is subsidized in full (100%), it essentially means I don’t have to worry about making any active money to pay for that.
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Note: All expenses and dividend incomes below are based on monthly averages.

Transportation Costs (Car insurance/maintenance + Gasoline + Public Transit)
Total Expenses: $150
Dividend Subsidies: $58 (39% complete)

CompanyType*$/Share# SharesMkt ValueDiv YieldAvg Div/Mth
CVX-NA$11135$38853.8%    $13
HAL-NB$50100$50001.5%     $6
CPG-TC$1775$12752.0      $2
SU-TA$43170$73102.7%     $16
CNQ-TB$4495$41802.3%      $8
BBD.B-TB$3414$12420%      $0
KEY-TB$39100$39004.1%     $13
Total$26,7922.6% avg    $58
~Hedging potential = High. Oil and gas companies tend to make more money whenever energy costs
increase. As consumers pay more at the pumps, the extra cash flow to energy companies will likely lead to
dividend increases over time.
.
.
Strata Fee and Electricity (Building maintenance, management, hydro, hot water, and other building amenities)
Total Expenses: $300
Dividend Subsidies: $207 (69% complete)
CompanyType*$/Share# SharesMkt ValueDiv YieldAvg Div/Mth
REI.UN-TC$27302$81505.3%      $36
AP.UN-TC$35229$80104.3%      $29
SRU.UN-TC$31226$70005.4%      $31
NLY-NC$10115$115010%      $10
ECA-TC$16193$30900.5%       $1
BIP.UNB$43123 $52903.6%       $16
BEP.UNB$3983$32406.1%       $16
BEI.UNC$4760$28204.8%       $11
TRP-TC$60102$61203.8%       $19
ENB-TC$5670$39203.8%       $12
SNC-TB$5795$54101.8%        $8
DRG.UN-TC$9272$24508.7%        $18
Total$56,6504.4% avg      $207
~Hedging potential: Med-High. When the cost of maintaining a property goes up REITs can negotiate higher rents on long term contracts. Not only that, but low interest rates are making their debts easier to refinance as well.

 

Telecommunication Bills (Cell phone + high speed internet + Netflix)
Total Expenses: $120
Dividend Subsidies: $81 (68% complete)
CompanyType*$/Share# SharesMkt ValueDiv YieldAvg Div/Mth
RCI.B-TC$52104$54003.7%       $17
INTC-QB$35156$54602.9%       $13
AAPL-QB$11121$23302.0%        $4
T-TC$42103$43304.5%        $16
VOD-NC$2545$11206.0%        $6
CMCSA-QA$6940$27601.6%        $4
QCOM-QB$6830$20403.1%        $5
BCE-TC$5850$29004.8%       $12
VZ-GSC$5022$11004.4%       $4
Total$27,4403.5% avg      $81

~Hedging potential: Med. As communication servers, cell phones, and technology become cheaper to make and operate, tel-cos and chip manufacturers should see better margins and higher profits.

*Type: (hedging type)
A = Direct hedge, eg: CVX-N, I often fill up at Chevron gas stations, buying petrol from them directly. The more I spend on gasoline, the bigger their profits will be which comes back to me as a shareholder either through stock appreciation, dividend hikes, or perhaps both.
B = Indirect hedge, eg: BBD.B-T, The public transportation system here in Vancouver uses Bombardier’s fleet of rapid transit vehicles. If local transit fares increase, at least a portion of that premium will make it into the hands of Bombardier’s stake holders.
C = Sectoral hedge, eg: BCE-T, I use a cell phone and the internet but neither of those services are with Bell. But if one telecom company raises fees or increases dividends, others in the industry will likely follow in order to remain competitive with each other.
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Disclaimer: The proper financial term “hedge fund” actually means something completely different than what’s depicted on this page. I just thought the term made sense to describe a fund used to hedge against inflation and daily expenses. Also, nothing in life is free; the price to pay for these subsidies and hedges is the capital required to buy and hold the dividend stocks in perpetuity.

  17 Responses to “Hedge Fund”

  1. I like your idea to cover your expenses by buying stock in the same sector as your spending is. I have way more to buy in telecoms then haha !

  2. According to above, it was Oct 15 when this was last updated. If you don’t mind could you update these numbers for your visitors.

    Thanks

    • Thanks for reminding me. Just updated it now. Increasing subsidies came from a combination of buying new stocks, DRIPs, and dividend increases by a few different companies since last year. Another thing that really helped is that my spending for these particular expenses didn’t go up since my last update.

  3. I love the concept !!!

    I need to buy more Timmies, Endbridge, Bell, IMO, Telus and RioCan wouldn’t hurt

  4. I love your setup!!! It’s really nice to see how you organized it and how it can help cover the cost of living. I might just try to organized mine that way to see if I cover my expenses.

    • I bet your hedge fund would look really interesting because you have a family and your expenses would look very different from mine.

  5. You should add a food/eating out fund 🙂 Some of my best investments are derived from that.

  6. Love this idea, need to go through this page more thoroughly when I get the time, I’ll be bookmarking this one 🙂 great blog!

  7. Looking at my gas/electricity bill last month reminded me of exactly this idea and I even looked (very briefly) at share prices for utility companies. I have to applaud you for having the foresight to do this as a couple of things occurred to me. 1st one was I should have done this much much sooner as the prices are a bit more than they were 10 years ago, and the 2nd was the P/E ratio of around 14 seemed a bit high to be good value for me. That’s a lot of money to tie up for now, so I’ll stick to paying off more debt for the moment.
    I do think banking shares are cheap at the moment though.

  8. Don’t forget to consider income taxes on your dividends and interest. Your bills are paid with after tax dollars, and your “hedge” income is pre-tax.

  9. A commenter on my site just let me know that you and I both came up with this concept independently! Too funny, check it out: http://pretired.org/pretirement-how-to/dividend-mapping/

  10. Nice. I like the breakdown between different sectors.

    R2R

  11. I have something similar, except instead of hedging sector by sector I just targeted 2 variables, oil prices and USD interest rates. These 2 basically affect everything else.

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