Investing
Investing
Dodging A Bear Market: (Keeping What You've Got)No one knows when the bull will stop charging and the bear will take over. But it will happen. If you've been investing since the mid 80's, you might find the bear market a bit shocking - instead of bouncing back, markets seem to just keep going down. Here's some suggestions for financial safety: Buy Bonds Sure, if interest rates rise and pummel the stock market, bond prices will suffer as well. But there will be no deteriation of capital if they are held until maturity, only an opportunity cost: you could have made 10% instead of 8%. Bonds provide a steady income that can be re-invested at the higher prevailing interest rates. Join a Stock Investment Club and follow the conservative investing strategies that they teach. Find a group near you at Canadian Stock Investment Clubs. Value and Growth Management Styles Produce Inversely Related Performance Looking at a chart of the Russell Value 300 and the Russell Growth 300, it becomes obvious that during the 90's at least, comparing quarterly returns that when one is up, the other is down, and vice versa. Diversifying by management style should smooth out the ups and downs! Use DRIPs These are dividend reinvestment plans and are much loved by the buy and hold crowd. With a DRIP, you buy high quality, dividend paying stock and have the (tax-advantaged) dividends invested back in for more stock. This way you build a sizeable portfolio cheaply over time. Some plans allow you to buy additional shares at a discount to market price, and with no commissions, either!Many major Canadian stocks are part of the DRIP (Dividend Reinvestment Plans) and SPP (Share Purchase Plans). Companies like BC Tel, BC Gas, Canadian Pacific, TransAlta Utilities, CIBC and Molson's all offer to allow people with at least one share to purchase more without any commissions, plus have the dividends reinvested into MORE shares. The experts on this are a Dale Ennis' Canadian MoneySaver. Look for an 8 1/2 x 11 sized magazine at better newsstands. For more information on participating companies, go here. Invest In Convertible Securities This method allows you to partially hedge your bets if you don't want to exit the markets completely. You invest in quality convertible securities, either bonds or preferred shares. Convertibles provide steady income, are less risky than pure stocks and often appreciate more than bonds. Going back to the 70's, they did drop in down markets, but the income will partially cushion the fall. Join The Rush To Investment Trusts These are those new securities that pool owners of real estate or energy stocks, but not in the same way that mutual funds do. They pay a steady stream of income and have some tax advantages because some of that income is a return of capital. And right now, they are generally cheap because of a glut on the market of either the trusts or their underlying assets, such as oil and gas. Watch for the return of principal part, though. An 18% return is not so hot if the asset is used up in 5 or 10 years. Sell Out The ultimate defensive strategy is toget out completely. If you really feel that the Big One is coming, cash in everything and use the money for something really safe like debt paydown, or GICs. A 4.5% return will make you the local hotshot if markets correct by 10-20%, but you will be very envious if they return to their upward surge.
Buy Strip Bonds Held in an RRSP for tax reasons, these give you the security of knowing what your portfolio will be worth 5 or 10 (or 25) years down the road. If interest rates spike upward, these could be the best long term bet. Strip bonds, or "stripped bonds" give no interest payments, but pay ALL of the interest and principal back at the end of the term. For instance, a Manitoba strip bond would cost $22.46 and yield $100.00 in 2023. You can know the end result at the future with certainty: $22, 460 invested would become $100,000! If you have to sell in the interim, however, the non-payment of interest increases the volatility. Stripped bonds rise faster, and fall faster, than straight coupon bonds.
SOME QUICK POINTSRRSPs are allowed to invest 20% in foreign stock markets - take advantage of this, as it both increases returns and reduces risk! Canada is only 3% of the world stock market pie, it only makes sense to put something into the other 97%!! This does not mean buying into risky Far Eastern country stocks, but could be as simple as buying a well diversified U.S. or European mutual fund.If you pick your own stocks and just basically tell the broker what to buy, you can save a bundle by using a discount brokerage like E*TRADE. Canadians can access TD Greenline, E*TRADE CANADA or Bank of Montreal InvestorLine, and save as much as 88% of your commission costs! Set up your portfolio at www.imoney.com, and it will update stocks and bonds and show portfolio balances, graphs of past performance, and offers online applications for loans, car insurance and more. It feels strange entering all of your information, but i/money is a tool that you will go back to over and over again. Ing Direct, a huge Amsterdam based banking conglomerate, offers 4.75% on savings accounts with no service charges or monthly fees. Look into it at www.ingdirect.ca Altamira offers a daily interest account called Cash Performer that pays five percent, but is a bit more restrictive and less accessible than ING Direct. Pay down Hudson's Bay and Canadian Tire credit cards first! The 18 - 24%+ rates on most credit cards is paid in after tax dollars. Do you know anywhere else where you can get a GUARANTEED 18 - 24% return? PS - pay off the highest interest expense cards first, then work your way down the list. Look into income splitting with your wife. The tax savings are in the order of $10,000 if you each make $50,000 vs. you making $100,000. If you own a business, there is still a $500,000 capital gains exemption available! Plus you can hire your children to work for you, and pay them their allowance as a deduction! Look into taking out a second mortgage to create investment dollars, instead of taking it from available cash. This can make the interest payments tax deductible. A loan swap involves selling non-RRSP investments, paying off your mortgage with the proceeds, and then borrowing to buy back the investment, turning non-tax-deductible debt into deductible debt. The perfect answer to "do I pay down my mortgage or contribute to my RRSP?" is to make the RRSP contribution and then apply the tax rebate towards the mortgage! The best of both worlds! Though it sounds crazy, you are probably better off to pick the worst performing mutual funds of the previous year than to load up on the ones that did the best. Often it is special areas like Asian funds or metals that soar one year and crash the next. By buying at the bottom (and holding), you are likely to get a better return than buying last year's success story. Look into no-load funds like Altamira (only a $40 set up fee). Other good fund companies include CI Mutual Funds, BPI Mutual Funds, and Trimark. Consider keeping income investments inside your RRSP and growth investments outside to save on taxes. Consolidate all your RRSPs into one plan to cut down on trustee fees and keep on top of changing values. Pay the trustee fee from OUTSIDE your RRSP! How Do I Lock In the Value of my Mutual Funds?Click HERE to find out all about segregated funds, a mutual fund hybrid that only 10% of Canadians know about! Available from CI Mutual Funds or BPI Mutual Funds. Your house is your largest investment, and if you have an investment property it is probably your second largest investment!Real estate investments are crucial to almost ALL families, whether they are involved in revenue properties or not. When investors look at the increases in value of their family home, they can't help but wonder where they'd be today if they had accumulated a second home, or a third! Huge returns are created by the high, but safe leverage only available through real estate. The large mortgages involved naturally raise a lot of questions about the payments and the amount paid down on their own mortgages--on their own largest investment! What Are My Monthly Payments?To calculate monthly payment, let the First National Bank Loan Calculator do the work for you! This also works for loans of any sort, just fill in the number of payments, interest rate and mortgage or loan amount. Caution: as American ammortizations are based on monthly compounding, versus Canadian semi-annual compounding, each creates slightly different results. Canadians , the Westminster Savings and Credit Union calculator is here. (Use browser "back" button to return here) For Canadians who want to compare Surrey Metro Savings with the TD Bank, Bank of Montreal, Scotia Bank, CIBC, Canada Trust, Van City Credit Union and many more, here are the current canadian mortgage rates where they are ALL compared!
How Can I Save On My Mortgage?MORTGAGE TIP #1: If you pay your mortgage payments every two weeks instead of once a month, you will cut approximately 5 years of payments, based on a 25 year ammortization. (Time reduced is greater the longer the original ammortization) Your only extra cost is that you will make an extra payment each year, as there are 12 months = 24 biweekly, but you pay 26 biweekly as there are 52 weeks per year. No mortgage "holidays", except for 5 years at the end!!! Pretty painless, huh? MORTGAGE TIP #2: Since the amount of your monthly payment that is devoted to principal is very low in the first five years, rising until it is almost the whole amount in the last few years, the most advantageous time to make an additional payment is in the early period of your mortgage. A good example of this is during the first year of an $85,063 mortgage, I made payments of $9,227.76. This broke down to $1195.80 in property taxes, $6989.08 in interest payments, and $1042.88 in PRINCIPAL! If the bank is crediting $86.91 out of each $768.98 payment towards principal, then I can reduce the ammortization by one year by paying $1043 in a lump sum at the beginning of the mortgage! Since it"s a 25 year mortgage, that's a powerful way to eliminate 12 X $669.33 = $8031.96 from the payments that I have to make! Whether this is done through "doubling up" or through bulk pre-payment (up to 15% with some financial institutions) it accomplishes the same thing! How Much Is Left On My Mortgage?As long as you know your initial loan balance, interest rate, length in years, and month and year started, the Open House Mortgage and Ammortization Calculator will give you a year by year (or monthly) statement of principal paid off and end balance. (Use browser "back" button to return here) The moral of these figures is that whatever the real estate investment, time is your ally! The longer you hold a property, the more of the mortgage is paid down, not to even mention the effects of rent increases with revenue properties. Percent of HomeOwners With Mortgages, By AgeBelow 25: 81.8%25 - 34: 88.2% 35 - 44: 76.5% 45 - 54: 58.3% 55 - 64: 33.2% 65 - 74: 14.7 75 and up: 7.1% More than 40% of homeowners in the 45 to 54 age group are already mortgage free, according to a 1996 survey by the Canadian Home Builders Association. For the 55 to 64 age group, the number swells to 67 per cent. See the area above for information on how YOU can become mortgage free sooner!
Buy or Rent? Mortgage Qualification Tables(from The Mortgage Source)
- How far can your rent dollar go? Monthly Payment..........Mortgage Amount...........Gross Yearly Income
...........$650..............................$101,593........................$26,775 Figures are based on monthly payments, 32% GDS, 25 year ammortization, 6.20% interest, proportionate taxes/heat/maintenance.
Citizen's Bank of Canada offers 3/4% off posted rates!Citizens Bank of Canada advises that you could save a lot of money when renewing your mortgage, as at early renewal most banks offer the posted rate. Since Citizens Bank has posted rates already discounted by up to 3/4 percent, any early renewals would also be at discounted rates. At last visit, they offered 5 year terms at 5.95%!CITIZENS BANK MORTGAGE FACT: If you have a $100,000 mortgage with an average rate of 8% for 25 years, how long will it be before you have paid off half of the mortgage, ie. $50,000? ANSWER: SEVENTEEN YEARS AND TEN MONTHS.
Canada Trust offers 3% Cash Back!On a $150,000 mortgage, get $4,500 back! For more info, call 1-604-650-7857. It looks to be valid for transferring a mortgage, arranging a new mortgage, or refinancing an existing mortgage.
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