Oct 292018

Short Term VS Long Term Bond Funds

Earlier this year I put together a list of high quality bond funds for readers to check out. There was a lot of good feedback, but some people questioned why I didn’t include any short term bond funds in my list. More recently reader Carla also asked about my indifference to them.

Well, to be Frank, I would have to change my name. 😎 But rather than doing that I will answer Carla’s question. 🙂

Retirement portfolios are usually associated with long term planning. Short term bonds tend to be less volatile and less sensitive to interest rate movements. But since I don’t plan to sell any time soon, short term volatility doesn’t really affect my bottom line. On the other hand, long term bonds pay a higher interest rate (or coupon) which more than compensates for the higher volatility in the long run. For evidence of this, let’s compare 2 bond funds with different durations.

Comparing Returns of ZCS and ZLC

For consistency purposes we’ll isolate the duration variable and look at the following 2 funds.

  • BMO Short Bond ETF (ZCS)
  • BMO Long Bond ETF (ZLC)

Both funds are from the same company, and hold corporate bonds. The only key difference is the duration of bonds they hold. Below shows the annual total return of these funds from Morningstar, highlighted in yellow.

bond fund comparison between short and long

As we can see, over the last 5 years the short term bond index fund (ZCS) returned only 2.21% per year. The latest inflation rate number from Statistics Canada is 2.2%. So holding a short term bond fund such as ZCS would have earned an annual real return of 0.01%. I think we can all do better than that. 🙂

Meanwhile the long term bond fund (ZLC) returned 6.21% per year on average. Even the 1 year return shows that long term bond fund ZLC came out ahead. Keep in mind this is during a rising interest rate environment, which should hurt long bond funds more. But short bond fund ZCS currently has a weighted average coupon of only 2.91%, while ZLC’s is at 5.29%. The longer investment time horizon we have, the bigger the difference in returns we should see between ZLC and ZCS. 🙂

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Jan 262017

It finally happened. The Dow index broke 20,000 points for the first time in history. It’s never been so high before. If the stock market was a rapper, it would be Snoop Dog. 😀 With valuations being stretched so much it’s important to be very selective about what investments we buy now. One wrong move and we could accidentally buy a stock that is nearing its peak.

Lowering Investment Risk With Covered Calls

So after looking at my options, 😉 I contributed some money into my TFSA earlier this month and purchased 200 units of BMO’s Covered Call Utilities ETF (ZWU.) This is enough to make it DRIP.

A covered call is an options strategy which generates income for investors, even in a bear market. We basically sell a call option on a stock that we already own. In doing so, we receive some money called a premium. 🙂

Related post: How to write a covered call (buy/write options) 

Option strategies have slightly different risk considerations than owning a stock directly. For covered calls, we always get to keep the premium. But if the stock goes above the strike price, we have capped the gains we can make. Call options can reduce our risk because if the stock falls, then at least we’re getting paid to wait until it climbs back up.

This is why covered call strategies work best on low volatility stocks that are not expected to move up or down a lot. Essentially we want the stock to remain steady, or grow slowly. But most of the profit should be made from the juicy premiums. 🙂 I do not believe utility and telecom stocks can continue to grow at double digit rates, given how expensive their valuations are.

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Feb 202014

In a recent poll commissioned by the Bank of Montreal, 34% of Canadians say they are planning to fund their retirement by winning the lottery. That has to be the most optimistic retirement plan I’ve ever heard of 😆


Most personal finance experts will probably tell you that buying lottery tickets is a waste of money and isn’t worth your time. And they would be right, if for financial reasons only.  After all, the odds of winning the jackpot is something like 1 out of 14 million (O_o)


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Oct 132012

According to a Bank of Montreal study, impulse shopping cost Canadians $3,720 a year. These can be any kind of purchases like clothes, knickknacks, or food. That amounts to $310 a month being spent on items that are wanted, but not needed.

More than half of the people surveyed actually bought something they might not need because it was simply on sale. For people doing marketing, this means price slashing does pay off because you’re getting people to buy things they’ll probably never use. But for consumers, it means we have to be careful and think about what we’re doing next time we feel the impulse to buy something we didn’t plan for. Impulse spending isn’t necessarily bad. Many people would say they do it to cheer themselves up \(^_^)/  Can’t argue against that, as long as people can afford it. But the problem is that many of us can’t. In fact, most of the respondents regretted their purchases and 43% sometimes spent even more than they earned in a month ( ・_・) And 33% of those surveyed had to borrow money or take out a loan to cover those impulse expenses.  (・・? ) That certainly can’t be healthy for someone’s financial situation. These consequences of impulse spending are more common among people under 30, with one in three unable to afford something they need because they purchased something else they wanted. Another bit I found surprising is that men spend twice as much ($414) on impulse shopping as women ($207.) But I guess that makes sense because guys tend to spend more on pricy technology items.

Best way to curb this impulse if you can’t afford it? My suggestion is to keep track of your unplanned purchases, then give yourself a realistic budget on impulse spending and stick to it every month. Setting goals for yourself and achieving them feels much better than shopping for stuff you don’t need. Trust me, I’m a blogger 😉

Random Useless Fact:  There are about 47,000 shopping malls in the United States. California has the most with over 6000. Whyoming has the least with 55. But the largest shopping mall in North America is the West Edmonton Mall in Canada :0)