When it comes to the debate about whether to buy a home or rent, there are several benefits of owning your home, benefits that don't easily fit into a spreadsheet comparing homeownership with renting.
First, you can lend money, at mortgage rates, for investment purposes. This is a lower rate than other loan types. This makes the Smith Manueovre more attractive.
Second, you are "more secure" in a home because, if I recall correctly, under Canadian law you can't be evicted/foreclosed on until you miss three consecutive mortgage payments. People who own real estate have a higher status under the law.
Third, from an investment viewpoint, a principle residence is not subject to capital gains. You get to keep all the profits.
Friday, August 31, 2007
Thursday, August 30, 2007
Virginia Tech Shootings
We are hearing about how fault finding is going on with the school.
I think a reasonable solution to the school shooting events of the last decade or so would be prevention. How can it be prevented?
First, all schools should have a "zero tolerance" policy on bullying. By this I mean, no verbal abuse or gestures are allowed. I expect most physical violence between students is preceded first by verbal abuse or unwelcome comments, sentiments expressed by gestures, strange clothing etc. This would include written comments etc on school property or books covers etc.
Second, all schools should have a respectful school policy. For example, a dress code guideline to prevent some students from expressing their rebellion against others through extreme cloths such as long black trench codes. School uniforms are not necessary just general guidelines, with a provision for special case decisions as creative students try to get around the rules. Just tell them they can dress any way they like when they are out of school. Anything that can be interpreted as being disrespectful towards fellow students or teachers must not be tolerated.
Third, extreme cases should be reported to the police. That's their job.
The parents should be asked to vote on these rules to gain their support so it is not "just the school authority".
I think a reasonable solution to the school shooting events of the last decade or so would be prevention. How can it be prevented?
First, all schools should have a "zero tolerance" policy on bullying. By this I mean, no verbal abuse or gestures are allowed. I expect most physical violence between students is preceded first by verbal abuse or unwelcome comments, sentiments expressed by gestures, strange clothing etc. This would include written comments etc on school property or books covers etc.
Second, all schools should have a respectful school policy. For example, a dress code guideline to prevent some students from expressing their rebellion against others through extreme cloths such as long black trench codes. School uniforms are not necessary just general guidelines, with a provision for special case decisions as creative students try to get around the rules. Just tell them they can dress any way they like when they are out of school. Anything that can be interpreted as being disrespectful towards fellow students or teachers must not be tolerated.
Third, extreme cases should be reported to the police. That's their job.
The parents should be asked to vote on these rules to gain their support so it is not "just the school authority".
Wednesday, August 29, 2007
TSX Going Below 12500...Aug 29th Observations
I don't use an alarm clock anymore since retirement unless we have something special going on. The sounds of the west coast were the first things I heard this morning. The first was the sound of the nearby fog horn at the light house. There must have been fog out on the Straight of Georgia this morning. The second sound I heard was the squawking of a Raven flying over the house.
I checked the stock price charts for RY (Royal Bank) , K (Kinross Gold) and PCA (Petro Canada) just now... well known examples of the Canadian in the banking and resource sectors. All three appear consistent with my impression of the TSX Comp index going lower. These three stocks all look like they will go below their lows of mid August 2007. All three have made recent rallies, since mid August lows, on decreasing volume.
BMO (Bank of Montreal) may have started its drop. Now at $65, I expect BMO to go below the mid-Aug low of $59 (-10% from today's price). BMO news out about large trading losses. The company fundamentals seem to agree with the chart. Another red flag.
If I was a gutsy gambler I would short BMO stock at this time. Selling short is an interesting experience. You sell the stock first, then buy it back later at a lower price (if your successful). It is still buy low and sell high. Unlike buying Put options there is no time limit to run out on your trade. If I owned a lot of BMO shares I could sell covered Put Options at this time. But I digress.
These individual stock charts are suggesting the same thing I see in the chart for the S&P TSX Comp Index. If my prediction is correct, this is the way it should be. When possible, it is always wise to look at something from at least two different viewpoints. If it walks like a duck, looks like a duck and sounds like a duck...it probably is a duck.
I checked the stock price charts for RY (Royal Bank) , K (Kinross Gold) and PCA (Petro Canada) just now... well known examples of the Canadian in the banking and resource sectors. All three appear consistent with my impression of the TSX Comp index going lower. These three stocks all look like they will go below their lows of mid August 2007. All three have made recent rallies, since mid August lows, on decreasing volume.
BMO (Bank of Montreal) may have started its drop. Now at $65, I expect BMO to go below the mid-Aug low of $59 (-10% from today's price). BMO news out about large trading losses. The company fundamentals seem to agree with the chart. Another red flag.
If I was a gutsy gambler I would short BMO stock at this time. Selling short is an interesting experience. You sell the stock first, then buy it back later at a lower price (if your successful). It is still buy low and sell high. Unlike buying Put options there is no time limit to run out on your trade. If I owned a lot of BMO shares I could sell covered Put Options at this time. But I digress.
These individual stock charts are suggesting the same thing I see in the chart for the S&P TSX Comp Index. If my prediction is correct, this is the way it should be. When possible, it is always wise to look at something from at least two different viewpoints. If it walks like a duck, looks like a duck and sounds like a duck...it probably is a duck.
Monday, August 27, 2007
Average Retirement Age 61.5 Years Old
There are a number of news articles out there today based on a recent Stats Canada report(s).
Statistics Canada has recently reported that "the average age of retirement remained steady at 61.5" according to this on-line article.
Most baby-boomers are not seeing "freedom 55". Having retired myself just a few months after my 55th birthday I can understand why. It requires a lot of discipline to save more and spend less while everyone around you is spending their extra cash on winter vacations, larger homes and newer cars. Then there are all those who just need to continue working due to their low wage level.
Statscan also found that about one third of older boomers are taking their Canada Pension Plan money at age 60 but continuing to work. The majority are women.
The CPP has investments worth about $120 billion, with about 65 % of this money in equities. This money is one of the many sources that help guarantee that the TSX Comp Index "will always come back" after a correction, like the current one.
Statistics Canada has recently reported that "the average age of retirement remained steady at 61.5" according to this on-line article.
Most baby-boomers are not seeing "freedom 55". Having retired myself just a few months after my 55th birthday I can understand why. It requires a lot of discipline to save more and spend less while everyone around you is spending their extra cash on winter vacations, larger homes and newer cars. Then there are all those who just need to continue working due to their low wage level.
Statscan also found that about one third of older boomers are taking their Canada Pension Plan money at age 60 but continuing to work. The majority are women.
The CPP has investments worth about $120 billion, with about 65 % of this money in equities. This money is one of the many sources that help guarantee that the TSX Comp Index "will always come back" after a correction, like the current one.
Saturday, August 25, 2007
TSX Going Below 12500?
Once again I feel the urge to stick my neck out a little and make a stock market forecast.
Patterns in a few stock market (price and volume) charts suggest that the drop in the stock market, the one that started back in late July 2007, may continue, and that the current rally is just a correction in a longer term downward trend. If true, it means we will see the TSX Comp go below 12500 before the index recovers from this correction.
The pattern is present in the TSX Comp Index. Bank stocks like BMO, RY and TD also show a pattern of decreasing volume. This pattern is very pronounced in the chart for BMO.
The key information is that the current rally over the last 8 trading days is being made on decreasing volume. Decreasing volume is consistent with a "correction" or pause in an overriding longer term trend.
The decrease in volume means that the volume of buyers is diminishing each day. If the crowd of buyers continues to shrink, to the point where the sellers outnumber the buyers, the prices will begin to drop (basic law of supply and demand at work here).
What value does this forecast have? If your a "buy and holder"...continue to be patient. If your trying to time the market and buy low, there may be better bargains ahead.
Thursday, August 16, 2007
Don't Listen!
The media is making a big deal over the current stock market correction. A few thoughts.
- This drop is normal for the stock market. Three steps forward and two steps back.
- For every seller there is a buyer.
- The panic sellers are referred to as "weak hands" in the investment literature.
- Take a longer term view. The TSX Index drop so far is well within "normal limits". Check the previous drops on the chart. The DJIA Index is similar.
- If it wasn't the US Credit Crunch it would be some other excuse for the sell off.
- The "strong hands"...those who are buying now have the right idea.
I'm not checking the balances of my investment accounts. How about you?
Tuesday, August 14, 2007
TSX Index Funds On Sale Today - 10 % Off!
Because the index always comes back after a decline, S&P TSX Index Funds are on sale today for a discount of at least 10 percent minus any fees. Over the last few weeks, after reaching a peak of 14,646 in July, the TSX Index has now dropped back to near 13,300 today. In the future, when this index recovers back up to the previous 14,646 level, this will be an increase of 1,346 points or 10 percent (1.1 * 13,300 = 14,630).
If market history teaches us anything...it is that the index will recover those points at some point in the future. It may take 2 months, 6 months, a year or longer but it will occur. Need, greed and fear guarantee it. The probabilities favour a shorter time frame for recovery.
We can't know when the low is reached, there may in fact be a much better sale price later on...in any event a net profit of perhaps 9.5 percent is available today for anyone who has the courage and funds to buy the dip.
This approach is not valid for individual stocks or for narrowly focused "stock picker" type mutual funds. Only the index fund comes with this 10 % guarantee.
When the 10 % increase occurs a number of stocks in the index will increase more than 10 % but we can't know which stocks they will be. More importantly, some stocks in the index will continue the downward trend or increase less than the 10 percent. Some stocks may never recover. An index fund guarantees average market performance in return for giving up the opportunity for "stock picking".
If I buy more index fund today I must accept the possibility that the index can go lower, perhaps much lower before I see my 9.5 percent profit at some time in the future. Part of the price I pay is having to live with the discomfort of watching my investment drop in the short term.
If market history teaches us anything...it is that the index will recover those points at some point in the future. It may take 2 months, 6 months, a year or longer but it will occur. Need, greed and fear guarantee it. The probabilities favour a shorter time frame for recovery.
We can't know when the low is reached, there may in fact be a much better sale price later on...in any event a net profit of perhaps 9.5 percent is available today for anyone who has the courage and funds to buy the dip.
This approach is not valid for individual stocks or for narrowly focused "stock picker" type mutual funds. Only the index fund comes with this 10 % guarantee.
When the 10 % increase occurs a number of stocks in the index will increase more than 10 % but we can't know which stocks they will be. More importantly, some stocks in the index will continue the downward trend or increase less than the 10 percent. Some stocks may never recover. An index fund guarantees average market performance in return for giving up the opportunity for "stock picking".
If I buy more index fund today I must accept the possibility that the index can go lower, perhaps much lower before I see my 9.5 percent profit at some time in the future. Part of the price I pay is having to live with the discomfort of watching my investment drop in the short term.
Friday, August 10, 2007
Planning For Retirement Study - Are Canadians Saving Enough? University of Waterloo
The on-line report does not contain all the calculation or data details.
Some key points include:
They used data from Stats Canada.
A two senior Canadian household, in 2003, spent $43,717 on food, shelter, clothing, transportation, health care, energy and taxes.
Two thirds of Canadians are not saving enough to retire at age 65.
Assuming one starts at age 40, the required savings rates for a $40,000 income household, for age 65 retirement are 14-20% for one person and 30 % or more for a couple. These savings include the increases in home equity, in some form.
CPP is in excellent financial shape for the next 75 years.
They dealt with home ownership equity by assuming the home was sold at retirement and converted to an indexed annuity so home ownership could be viewed as retirement income (If I understand this correctly).
Income sources included Old Age Security, CPP or QPP, Workplace Pension Plan and other savings such as RRSP and money from home ownership equity.
My initial questions/thoughts:
How good is the $43,717 number?
One car or two?
Newer or older cars? This makes a big difference.
Any vacations included?
How did they obtain the cost of shelter for households that own a home? If it was just total income, then the cost of shelter would only be operating and maintenance costs.
I'm very skeptical about the two-thirds of people not saving enough for retirement.
By their definition...How many retired people don't have enough for retirement now?
No mention of government income over and above OAS and CPP such as supplements.
The home ownership component is the part that I find difficult to fathom. It is a large component and one must be sure to make a valid comparison between the $43,717 spending in 2003 and the required retirement income that translates into a required savings rate. This was a big part of our savings for retirement. The $43,717 per year for a couple, seems to be in-the-ball-park, especially if a couple owns their own home.
Some key points include:
They used data from Stats Canada.
A two senior Canadian household, in 2003, spent $43,717 on food, shelter, clothing, transportation, health care, energy and taxes.
Two thirds of Canadians are not saving enough to retire at age 65.
Assuming one starts at age 40, the required savings rates for a $40,000 income household, for age 65 retirement are 14-20% for one person and 30 % or more for a couple. These savings include the increases in home equity, in some form.
CPP is in excellent financial shape for the next 75 years.
They dealt with home ownership equity by assuming the home was sold at retirement and converted to an indexed annuity so home ownership could be viewed as retirement income (If I understand this correctly).
Income sources included Old Age Security, CPP or QPP, Workplace Pension Plan and other savings such as RRSP and money from home ownership equity.
My initial questions/thoughts:
How good is the $43,717 number?
One car or two?
Newer or older cars? This makes a big difference.
Any vacations included?
How did they obtain the cost of shelter for households that own a home? If it was just total income, then the cost of shelter would only be operating and maintenance costs.
I'm very skeptical about the two-thirds of people not saving enough for retirement.
By their definition...How many retired people don't have enough for retirement now?
No mention of government income over and above OAS and CPP such as supplements.
The home ownership component is the part that I find difficult to fathom. It is a large component and one must be sure to make a valid comparison between the $43,717 spending in 2003 and the required retirement income that translates into a required savings rate. This was a big part of our savings for retirement. The $43,717 per year for a couple, seems to be in-the-ball-park, especially if a couple owns their own home.
Thursday, August 9, 2007
Okanogan Trip
We spent a week visiting relatives in the Okanogan Valley... quite a contrast to the East Coast of Vancouver Island. A hot and dry desert country and a different kind of beauty.
A lot of traffic in places like Kelowna. A lot of beach eye-candy there near the August long weekend...not that I ever enjoy that sort of thing. Everything is booked for the long weekend and rates are the highest of the year.
To have your pick of hotels in Kelowna it costs at least $200 per night. Trying to save a few bucks we stayed a few nights at a Super 8 Motel for about $110 per night. This included a help-yourself continental breakfast. We booked weeks in advance and got the senior’s rate for a room poolside. Part of the price we paid was having to wear earplugs to block the traffic noise. Not the best way to save a buck!
We also spent a few nights at a B&B in Summerland. That was excellent value at $125 per night with a nice view of the lake and no traffic noise. Lots of California Quail (photo) around and we were lucky enough to see a coyote during one of our early morning walks.
A lot of traffic in places like Kelowna. A lot of beach eye-candy there near the August long weekend...not that I ever enjoy that sort of thing. Everything is booked for the long weekend and rates are the highest of the year.
To have your pick of hotels in Kelowna it costs at least $200 per night. Trying to save a few bucks we stayed a few nights at a Super 8 Motel for about $110 per night. This included a help-yourself continental breakfast. We booked weeks in advance and got the senior’s rate for a room poolside. Part of the price we paid was having to wear earplugs to block the traffic noise. Not the best way to save a buck!
We also spent a few nights at a B&B in Summerland. That was excellent value at $125 per night with a nice view of the lake and no traffic noise. Lots of California Quail (photo) around and we were lucky enough to see a coyote during one of our early morning walks.
ps...ferry was $63 each way for the car and two adults.
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