Saturday, November 30, 2013

Why invest money? Part 2

This is post in a continuation a recent article called Why Invest Money ? Part 1.

The traditional way to save  money was to put your money in  a bank account. This bank account will then pay you interest on the balance of the account calculated over usually over a calendar month. This interest rate is very small as interest rates are at historic lows right now. Also, the interest received is taxed at marginal rate. Therefore, when saving money in a bank account right now, an individual is actually losing money because of inflation.  Having a bit of savings is important though, such as for an emergency fund.  Savings can be used to help pay for a down payment on a house or wedding for example.
   I invest money in companies that pay me to own them. I am mostly invested in corporations and REITs at the money.  These companies pay me once a month or once a quarter. This money in the form of dividends or distributions is more tax efficient than interest from a bank. When a company makes more money they often reward their shareholders with increased payouts. The increase in payouts is, in most cases, greater than the rate of inflation.

        Yield on Cost  (YoC) = annual dividend rate / purchase price
    
         Current Yield = annual dividend rate / current price

 Example : If stock ABC pays a annual dividend of $1.00 per share and I paid $20.00 per share, then
                  yield on cost is 5%.   In 5 months time, the price of the stock goes to $25.00, then the                   current yield is 4%. If company ABC raises the dividend by $0.05 to $1.05 per share,                    YOC increases to 5.25% meaning your initial investment is working harder for you.

The interest rate on a savings account will not have increases that are greater than the rate of inflation.


With the dividends and distributions being more tax efficient, that means I get to keep more of my money. As the amounts of dividends and distributions I receive on an annual basis increases, I am able to have more options. This money can be used to enjoy a better lifestyle, to save for retirement of financial independence at a quicker rate, or to leave a job if it is not a good fit for me.

 If a person is living paycheck to paycheck, they have to keep working there to they are able to find a different job. The job they hate currently have a negative effect on their mood which can have negative effects in a interview setting.

Increasing passive income allows a person to have more options. They are able to sleep better as they are less stress. Financial independence is when there is enough passive income to exceed expenses. When this occurs, an individual can CHOOSE to do what they want with their time.

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Sunday, November 24, 2013

Why invest money ? Part 1

     We all have been around the people who say "you only live once". These same people can't wait to get paid from there jobs so they can spend the money.  These people have the best video game console, big screen tvs, a good car. When the end of the month comes,  they are completely out of money and saved nothing. I have been around people who say things like " I am too old to start investing" and "I will have to work until I die". These same people seem to be stressed out a lot more than people who spend less.








       I decided I didn't want to be like these people. So I decided to read more and more financial books.  I read Rich Dad Poor Dad by Robert Kiyosaki.  Robert and Kim Kiyosaki started out paying themselves first 30% of their money regardless of where it came from.  With this money that they paid themselves first which was used to buy cash flowing assets. So I basically started with the 30%  as a number  to pay myself first. The 30% was divided 2/3 to savings and 1/3 to investing. I want to make it clear that I do not agree with everything Robert Kiyosaki does.
        What has this done to by life? I found I have been able to sleep better as I am less stressed. I have been raised in a household were money was not mentioned. My parents didn't invest or know anything about investing. I have built up a portfolio that generates approximately $3000 in annual passive income. This is money that I don't have to physically work for. Everything single month my passive income grows through DRIPs and on occasional an investment purchase.

        The investments decisions I make today, will help in dealing with inflation. Their are companies to invest in that increase there dividend annually and it if often greater than the increase in inflation.

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Wednesday, November 13, 2013

Types of Investments - Part 2

This is my second post  for Types of  Investments . The first part talked about savings, stocks, bonds and mutual funds.

  Real Estate

       When talking about rental real estate, people are often referring to income generating rental properties. The idea is by putting down a percentage of the purchase price and then borrowing the rest from the bank to create income. When a tenant pays rent, this rent should cover the mortgage, insurance, property taxes and other monthly expenses. The rent can also include a property management fee. The goal is to have money left which is positive cash flow.
       The downside to rental real estate it takes the average person a lot of money to get started.  Also if the tenant moves out, then the owner of the property must now pay the mortgage.  Rental real estate can have a high "Pain in the ass" factor for those who do not use a proper manager such as early, early morning toilet problems.
       Is there a way for people to get involved in Rental Real Estate without being a landlord? The answer is yes. REITs, or Real Estate Investment Trusts, are income trust that buy real estate. A REIT trades on a major stock exchange. By law,  a REIT must pay out at least 90% of their profits as a distribution to its unit holders. REITs can be involved in residential housing, apartment complexes, retail centers, office space, seniors housing, medical facilities etc.In order for a REIT to grow, it will issue more units (i.e. shares) to build up a cash . The yield on a REIT is usual  high such as 6%. REITs make it easier for the average person to invest in commercial  real estate as this would be really expensive.

 Business

        Starting a business is one of the most profitable avenues that an investor can take.  Starting and running a business is the hardest to maintain out of all the asset classes. When running a business as a corporation, the business can have enormous tax deductions.

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Monday, November 11, 2013

Types of Investments - Part 1

There are various types of investing vehicles. How is an investor to chose which ones to use?  The investor should decide the investment vehicles that are best suited for their risk tolerance. An investor can choose from these types of vehicles.

(1) Savings and Cash Instruments
            - High Interest Savings accounts
            - GICs ( known as CD's in the United States
            - Precious Metals.

(2) Stocks, Bonds, or Mutual Funds

(3) Real Estate

(4) Businesses

Savings and Cash instruments

    An high interest savings account basically pays interest of roughly under 2 percent.  With interest rates so low this is basically below the rate of inflation.  I currently use a high interest savings account for my savings and emergency fund. I want to be able to access the money immediately if need be. The interest that is paid by the investor is taxed at your marginal rate.
    A GIC, or Guaranteed Investment Certificate, pays slightly more interest than an high interest savings account. The down side is that the money is locked in until expiration The interest on a GIC is taxed at the investor's marginal rate. 
    Precious metals such as gold and silver do not pay any yield. The only way for an investor to make money is to sell the precious metals at a higher price than what was initially paid for.

Stocks, Bonds and Mutual Funds

Stocks

     A share of stock represents ownership in a company. The ratio of the number of shares owed by and investor to the amount of shares outstanding represent the investor's percent ownership of the company. Owning shares of stock means an investor owns a partial ownership of company and its assets. The investor (ownership of common stock ) also gets to vote on some matters regarding the company such as election of board of directors.
      If a company makes a profit, the company must decide on what to do  with the cash. The cash can be retained and reinvested back into the business. The cash can also be passed on to the investors in the form of a dividend.  Companies usually have a dividend payout ratio between 40-60 percent. A company raises its dividend, through the board of directors, when the company increases its earnings.
 
             yield = dividend rate / purchase price

The yield represents the annual return on a yearly basis. The dividends that are paid out  are taxed less than regular income.  A high yield means investors do not have high confidence in the company in the near future.

Bonds

 A bond is a debt instrument. A bond is basically a loan by the investor to the government or a corporation. The corporation or government  must pay the loan back plus interest in the time allotted. The interest is paid to the investor usually paid every six months. This interest that the investor receives is taxed at the marginal rate, or as earned income. The interest on a bond is slightly higher than a guaranteed investment certificate. The interest rate , or coupon rate, will not increase of decrease year to year.
       It is difficult for an average investor to invest in bonds directly unless that have money like $10000.  The average investor starting out, would be better to invest in a bond ETF or a bond mutual fund.  An ETF is basically a mutual fund that trades like a stock. Examples of bond ETFs are PCY and JNK on the NYSE.

Mutual Funds

       A mutual fund is basically an investment company. A mutual fund is run by a professional money manager. A mutual fund is a pool of money from investors that is invested in the stock market in instruments according to its own objective. Mutual funds are run by professional money managers, offer instant diversification and allows an investor to diversity with a small amount of capital. When an investor invest in mutual funds they pay a management expense ratio, or MER. A mutual fund does not trade like a stock. Instead, if an investor wants to purchase units in a mutual fund, there order must be in 3-5 hours before the market closes. The net asset value of the assets under management  is calculated at the end of each day for the market being open. If you put in your order early enough in the trading day, the purchase will go through that day after the net asset value, or NAV, is calculated.
        When people are trying to sell there mutual funds, a mutual fund must sell shares of some of its assets they own if they do not have cash on hand. This will cause the assets under management to be less resulting in the price of the mutual fund to be less.
         The distributions that are paid out can include capital gains, foreign income, eligible dividends , non-eligble dividends or return of capital.

Coming soon : Type of Investments - Part 2

D
DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Thursday, November 7, 2013

Dividend Income for October 2013

October 2013 has come and gone. During the month, passive income through dividends having been paid to me.
The total for this month is  $229.49. This is  a slight increase from 3 months ago. This increase in dividend income is due to dripping a few companies. Due to the market being where it is, I am being cautious with my money as trying to buy stocks at good long term prices.

Not included in this amount is a distribution payment from Dundee REIT in my margin account. This is a trade and all income will stay in this account to help grow the cash in this account to be used for investing or transferred to the TFSA for the same purpose. As this a trade, I am treating it different. Recently I decided to pay myself first 35% which is up from the 30%.  If money is left over at the end of the month, then I put this amount into my investing account.

Currently, the income received from Dundee REIT in the margin account is $203.47 after 5 months. As indicated in the above paragraph this entire money is staying in the account or be transferred to the TFSA account.

I will update my dividend tab with the above  total.

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Dividend Income for Sept 2013

September 2013 has come and gone. During the month, passive income through dividends having been paid to me.
The total for this month is  $177.56. THis is  a slight increase from 3 months ago. This increase in dividend income is due to dripping a few companies.

Not included in this amount is a distribution payment from Dundee REIT in my margin account. This is a trade and all income will stay in this account to help grow the cash in this account to be used for investing or transferred to the TFSA for the same purpose. As this a trade, I am treating it different. Currently, I take 30% of all my income from job, investing and interest from savings and pay myself first . If money is left over at the end of the month, then I put this amount into my investing account.

Currently, the income received from Dundee REIT in the margin account is $147.47 after 4 months. As indicated in the above paragraph this entire money is staying in the account or be transferred to the TFSA account.

I will update my dividend tab with the above  total.


DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Saturday, November 2, 2013

Portfolio Update

Another month has come and gone and time to an update of my portfolio.

With the markets going higher and higher, I am holding off on making any major investment buys.  Therefore I decide to not make any investments at all besides the ones that are automatically through DRIP. Towards the end of the month, I bought 1 Dec 21 2013 62.5 Put option at a total cost of $60.95.

I also DRIP a few stocks and acquired a few more shares though this avenue.
   - 6 shares of Just Energy (JE.TO) @ $7.39
    - 2 shares of Enerplus (ERF.TO) @ $17.92
    - 0.082494 shares of Bank of Nova Scotia @$61.22

The value of the portfolio bounces around, but the income that the portfolio generates is steady and will increase over time. The income from my portfolio, will be used to help escape the rat race.


I have updated my investment tab spread sheet.


DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Recent Trade

When the markets at an all time I, I decided to make a very small purchase due to not having a lot a cash.  On Oct 29th, I bought  Bank of Nova Scotia Dec 21 2013 62.50 Put Option at a cost of 60.95 including commissions. If the price of the stock goes down then the value of the Put option goes up.

I have 3 options when it comes this trade.
  (1) If the market goes up, I can do nothing and let the option expire worthless. My loss would be my overall purchase price of the option
(2) I can exercise the option, which mean I get to purchase the 100 shares at 62.50 of Bank of Nova Scotia.
(3) I can Sell to Close my option to another trader or investor.

The closer I am to the expiration day the effect of the market will have less and less  effect of the price of the option.  I am not an investment professional, so I won't go into detail about why happens.

Buying an option, whether a call option of put option, allows an investor or trader to control 100 shares of a company  for very little money.

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk