Dec 122016
 

A Shift in Focus

Money can’t buy happiness. But it can help us look for it quicker, in a BMW. 😉 In order to maximize our chances to earn more money we have to reassess our investment strategies from time to time and be flexible to changing market conditions. Currently the price to earnings (P/E) multiple for the S&P 500 is around 25 times, compared to 16 times per historical average, suggesting the stock market today is probably overvalued.

If we invert the P/E ratio we would get the earnings yield, which is currently 3.9% for the index. 🙁 This means if we invest in the S&P 500 today, we can expect to make 3.9% return by next year. That doesn’t sound very attractive does it? And it’s not much better for Canadian stocks. The S&P/TSX Composite index has an earnings yield of 4.3%.

This is why I’ve been focusing a lot on fixed income investments over equities in 2016. I can get 7% or 8% on high yield bonds or mortgage investment corporations, with arguably the same or even lower risk than buying stocks. 🙂 I prefer to buy individual junk bonds because ETFs are too mainstream for me. 😉 But if you want to buy a basket of high yield bonds in a neatly packaged fund, Nelson from Financial Uproar wrote an informative post on high yield bonds with some useful ETF suggestions.

Anyway, last week I purchased $5,000 face value of Baytex Energy junk bonds. Here is how I did it using my broker, TD Direct Invest. Other brokerages may have similar procedures.

How to Purchase High Yield Bonds

On the main account page.

 

On the next screen.

On the new pop up screen.

I now hold 3 individual high yield bonds in my retirement account. 

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Aug 112016
 

Sherritt Restructures its Debt

Earlier this year Sherritt International, a Canadian mining company, announced plans to extend its debt maturity by 3 years in order to weather the current commodity downturn. Out of the $720,000,000 debt that will get the extension, $5,000 of it is owned by me. 😀 A couple of years ago I purchased some Sherritt bonds for $5K with the expectation that I would be paid 8% interest rate every year until maturity in 2018, at which point my principal will be returned to me.

But last week I received the following online message from my discount broker.

16-08-sherritt-bond-pushed-back-to-2021 Sherritt Restructures

I always knew this was a potential possibility. Making 8% investment return a year comes with a fair chunk of risk. I can understand the plight of the mining company. I first realized Sherritt was in trouble when the value of my bond dropped 38% last year, and prepared myself or the worst. Sherritt’s profits are tied to the underlying commodity that it’s trying to sell. The price of nickel has dropped to just under $5/pound today, compared to $12/pound 5 years ago.

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Jan 142015
 

The basic concept of debt is simple. It’s when someone borrows money from another person. But once we start looking at different forms of debt such as sovereign debt, treasury bonds, mortgage-backed securities, demand loans, etc, it can start to sound like a different language to many of us. 😕

Even the money in your wallet right now is just another form of debt. It may not be your debt but if you trace back that money to its initial point of creation you’d discover who’s debt it belongs to. 😉

Year of the Debt

It has come to my attention that there is a lot of misinformation and confusion about the topic of debt on the internet. That’s why I’m making the proclamation that 2015 will be the year of the debt. I dedicate this year to write more about debt and its impact on our lives. I have even created a new section on the blog that’s all about debt.

15-01-year-of-the-debt

Most consumers are told that being in debt will hold them back from spending, investing, and living the life they want. But this is not entirely true.

Canadians now have more debt than ever before yet our average household net worth continues to reach record highs. So debt and wealth doesn’t have to be contradictory. In fact, often times debt can increase our financial well-being.Alberta has the highest household debt of any province, but they also have the highest household incomes. 🙂

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