Pawning Our Future

My ex said once that we are still born slaves and it is our duty to pay for our freedom. This made me think and compare it with what we accept as being slavery. In Ancient Rome, slaves had the option of saving the tips, do business and profit and, in the end, pay themselves out of slavery. Few did so, indeed. Most would use it for pretty things, wine, instant gratification. Their children, born out of a slave would remain slaves as well.
Truly, there isn’t much difference. Most of us hate to work, to be at specific times somewhere, the rush hour, being away from our children. But we all love confort and instant gratification and we are having issues defining clear and sane boundaries. At 20 we call a confortable car one that doesn’t break in the middle of the road, has running air-conditioning and, maybe, automatic transmission. At 45, suddenly we are having a hard time driving a car without heated seats, without DVD player and navigation system, 7 seats which we fill once a year and 300 HP to carry all that load. At 25, a one bedroom for ourselves is comfort, at 45 we NEED that 3500 sqft and 5 bedrooms for two adults and one child. And to pay for this increased comfort, we have to work, to go where/when we don’t want to, to have 2-3 weeks of rest per year, half of it being used to maintain that huge house…
Easy debt makes us stay always behind the moment of freedom. Bigger income, bigger house, more comfort and we never repay ourselves out of this modern slavery. Comfort?! What could be more comfortable than the thought of playing with the children in the park, reading a book in peace, having enough time to do our chores properly and still be left with some “me time” – all these without thinking of the next bills?!
I believe that everyone should live their lives whatever way they want. Yet I am still shocked that people can’t see this hamster wheel. And they stay blind not for 5-10 years but for all their lives. They declare that they want happiness but don’t seem to notice how miserable they feel after 20 years of doing the same thing, upgrading, replacing, redecorating. Or if they notice they have something missing in their life they blame it on anything else but on this behaviour.
Now, don’t you think that I am blameless! I’ve been through this but when I discovered why I was living hand-to-mouth, I asked myself what am I doing with my life, why do I work in a profession I don’t particularly like – to pay the bills. I want comfort too and I have urges for luxury too but then I fight myself and discover that I can be happy without that Mercedes and without increasing the square footage of my home. The thought that one of these days, soon, I will have repayed my debt to Capitalism, that I will be able to pay my minimum bills with the income I generate, is soothing.
Freedom, for me is to be able to do what I want, when I want. As long as I didn’t reach that point in life, my philosophy is not to over-live. Live the day with the soul, not the wallet.

INVESTING DIY – 3 – Selecting the right investments

I knew since the beginning of this cycle that this would be the hardest chapter, only I didn’t imagine it will be so hard. Why?! Because while there are only limited number of investment strategies, there are as many personal situations and characters as people on this world. This confusion, though, lasted only until I remembered something important: I am NOT a real financial advisor, writing for an audience of millions. Phewww – so all I need to do is to talk about the general guidelines that govern my decisions, rules of thumb etc. I will lay down some of them but probably now and then, as my experience grows, I will add more.

Basic Rules

  1. Invest LONG TERM. You are NOT a day-trader (trust me!). Trading often means commissions that can chew up your profit and – probably – translates into trying to time the markets. Not a bad career, interesting, exciting, but this activity is outside of my scope and I hope your too.
  2. Information is MONEY. Information and information processing. Not only financial reports but being up-to-date on the news and maybe trying to understand the world we live up to the point where we know where we are going to. I.e. If one knows that the world population is increasing by 74 million yearly at the same time that we continuously lose agricultural land due to misuse and abuse, the logical conclusion is that in the next 10-20 years agricultural-related companies will do well. Subscribe to economical magazines, financial newsletters, read the economical page of major publications… keep informed
  3. Discipline and Common sense is MONEY. Invest periodically, chose solid investments and stick to them for as long as they make sense. Just because many are selling that is not good-enough a reason to be selling – maybe you should be buying and taking advantage of the herd (but, yes, sometimes the herd can trample you so use that common sense)
  4. Greed is GOOD… but so is realism. A line in an article drew my attention – many intelligent investors know and prepare well for buying but very few are disciplined when selling: “Shouldn’t I stay with this investment some more?! It’s doing well, maybe it’s going to be making more money”… but then again, maybe not. If you estimate that there is no more growth in that sector and that is not compensated by other means, like dividends, sell it at a fair price. If the sector is doing less than good, take the beating and accept the losses. Better -7% than -35%. And remember, we’re not in this to double our money in one year but to grow them into a financial stable future.
  5. DISTRIBUTE the risk. The purpose is that overall you are making money and profits are beating the inflation. Especially in the beginning, I know what psychological impact would make losing money by betting all your cards on a single horse. So diversify by betting on the good geographical and economical areas.
  6. REINVEST. While I know that it would be very tempting to take those 2000$ profit to have that wonderful vacation, those could mean 8000$ in 20 years. If you put it that way, it might not be such a good deal. Dividend reinvestment (if you chose companies who pay dividends while insuring some growth) is a sure way to grow solidly. A conservative return of 7% will DOUBLE your money in 7 years. Not good enough?! Get a gun – 300$ – and rob a bank and you can make as much as 10,000% profit in 1h… which then you can hand it to a lawyer or a judge for a more lenient sentence
  7. Don’t forget about TAXES. If you invest outside RRSP/401K, made sure you know what you’re doing and evaluate the impact of taxes on your return. Some investments might seem meager but allow for tax deductions while others might seem booming but less so after tax. Subscribe to tax-reduction tips newsletters and use whatever means you have to reduce the taxes. Don’t give me that BS that you’re not believing in RRSP/401K/TSFA etc. – they are not GOD to believe in; simply some accounts with some perks that we can use for our own good.
  8. Invest in what you understand. Just because something makes good profits and everyone says it’s a good deal, don’t jump in the boat before you researched and made your own mind. Look for products and companies that you like and find useful. Warren Buffet said that if the business is good and solid (i.e. product is good) the price of stock will follow.

Let’s leave the theory and systemization to the ones who can do this. How did I go about investing?! Sergiu Preston helped me a lot – our conversations cleared my mind, confirmed some knowledge I wasn’t sure about and opened new idea threads.

  • Gold was a good investment although most articles were announcing that it peaked and there is no more place for growth. But then I read an article where somebody was pointing that in 1982, gold has reached 850$/ounce. Adjusted for inflation, that meant 2300$ in nowadays dollars so 1200$/ounce left ample place for growth. As the governments are printing more and more money (few years ago 440 million dollars deficit for US was a tragedy, now 1.4 TRILLION is a fact of life), it simply makes sense that all the investors would seek the shelter of gold. Fearful that the gold itself might be though too expensive and worried about liquidating should there be an issue, I turned my attention on the companies mining for gold and low-cost, no-load index mutual funds.
  • Dividends make sense in this tough economical times. Companies who seek growth when everyone is watching their pockets are making a huge gamble and by investing in them, you take one yourself. Better companies with moderate growth that put cash in your portfolio on a regular basis. I was shocked to find out that investments with 7-8-11% yield (dividends paid divided by price of share) don’t have to be risky business. Dividends are NOT guaranteed yet there are companies with a very long track of paying them – thus some certainty that, unless something earth-shattering happens – they will not cease to pay those dividends.
  • Energy – despite all the conservation promoted by the governments of the world – is required for growth and the demand drives the price of energy up. I found out that there are very good Canadian Trust Funds (google the term) which are about to transform into corporations and that the uncertainty made investors shy away from them, despite paying very good dividends 6.5-9%. With the capitalization they have (tens of BILLIONS of dollars) it’s unlikely they will vanish and bargains are to be taken advantage of. One of them, which drew my attention already converted to a corporation, it’s unit price grey by more than 4% and they still pay 6.3% dividends and there doesn’t seem to be a stop or diminishing them.
  • Emerging markets – we, the Westerners, we screw it up. By spending and spending and never saving we eroded our buying power. But hey, there are hungry new consumers on the horizon to save us and afford the luxuries we take for granted. China and other countries in Asia, Brazil and other South American countries are places where economy grows while ours is shrinking. Again, an index mutual fund – 0.73% MER and no load – was the solution to tap into that wealth-to-come. And this is a good example of personal attitude to take – soon after purchasing the mutual fund, it dropped by 7.5%. I studied the situation, I realized that it’s just a herd-attitude and stuck to them. In just 3 months they are back in black, more than 3% and I expect this trend to continue. The Chinese consumers are barely awakening and they will want everything we have: cars, electronics, apartments, nice clothes. The Chinese government started appreciating their currency, the yuan. With this, the average Xuang will see his buying power appreciating and will start buying more – thus better their economy will do. It’s just at the beginning but its a good thing to be in a sector when it starts rising than when it has peaked.

CONCLUSIONS: No matter what you do is still a guessing game. Information can help you minimize the guessing and thus the risk to a bearable level. By being informed and using your common sense, caring for your investments, not being overrun by emotions and keeping your greed in check, you WILL make profits. It’s all been written over and over again yet I write this to expose the human element: the initial fear and the joy when I realized that it’s not such a big deal to select decent investments. Bypassing the middle-man – the investment agent, who is on commision – you are already ahead of the game.

INVESTING DIY – 2 – Choosing a brokerage firm

In due time you will discover that not managing your own money leads to losses more times than gains. Probably sooner than later. In a strong economy, the lack of skills of the so-called “agents” is not so obvious. Yet when the mutual fund they chose for you charges 2.5% MER while losing 12% in value every year, things look clearer.

Don’t beat yourself. It took me more than 5 years to make the step. I thought I didn’t have enough money and thought to myself – what difference can 2-3-4% make on, let’s say, 5000$?! And, oh, my gosh, how difficult it can be to figure all those things out. And then, when I was ready, in 2007, personal things made me lose my focus and I dropped everything again. By January of this year, when I started taking the matter in my own hands, I had 10% less than the money I put in. Not so good for a 6-7 years investment, eh?! Well, that’s life! There is a right time for everything. But I also had the support and encouragement that a very good friend – Sergiu Preston –, a person with a vast life-experience and long track in investing, gave me to start this new enterprise, the act of investing by myself. He pounded on myself all these advantages I describe here, like – I am sure – he did for many other people. I am simply trying to pass-it-forward and to make the path to self-investing much easier.
In any case, when you will be ready to step in this brave new world, the first thing you will do is try to figure out who should keep your money. The comments I make below are mostly focused on Canadian brokerages. In the US, options are much wider, deals are much sweeter and things might be different but the base criteria for selecting a brokerage remains the same. Please also read the fine print and try to understand where you qualify. If you still have unclear things, don’t hesitate to contact the brokers with your questions BEFORE you sign, because later it will cost you a dime and a nickel.

Instead of doing my own research – because I am lazy and lazy is sometimes good – I googled it and I found this excellent breakdown for Canadian brokerage firms: Stingy Investor

As you check the brokerages, you will notice the wide-range variation of fees and commisions. Some are well-established and they are cheap… but only if you do >100 trades/quarter or if you keep +50,000$ in their account. For a beginner, that number of trades is unimaginable. Some charge as much as 29$/trade. Well, if you make 20 trades that is a 600$ – so you really want to pay the brokerage instead of getting that LCD TV for the bedroom?!

Ask yourself a number of questions:

  • Will I be trading in USD or other foreign currency?! Why is it important?! Because if the brokerage charges you a currency-conversion commission, you need to take that in consideration. In Canada, traditional, well-established brokerage firms will charge you 1% to change the money in USD, and when you sell the equity/mutual funds, they transform it back automatically in CAD, charging you another 1%, although you might as well desire to purchase something else from NYSE. It has been allowed to keep USD in RRSP (Canadian 401K) since 2006 , yet very few had adjusted their systems to allow such a thing.
  • How much will I be charged if I change my mind and want to transfer my funds elsewhere?!
  • What kind of customer support they have?! How does their trading platform looks like? How can I access it? Google it and see what other people say but take that with a grain of salt – might represent a particular failure and pretty much all brokerages have their share of bad stories they don’t want us to know.
  • What are the perks I can get by signing with them?! Brokerages in US sometimes pay incentives and don’t shun the 100$ you get or 100 free transactions they offer because it is, indeed, free money.
  • Do they allow DRIP (Dividend Reinvestment) and if they do, do they allow fractional investment?! (Explanation: If the company X pays you 40$ every month, it is a good idea to reinvest it by purchasing the stock of the company. But if the company is trading at 37$, buying it directly means at least 5$ spent for 1 share. DRIP allows you to have that purchase made without any fees. Fractional DRIP means the brokerage allows purchasing 0.98 units of that same share – some don’t, so if the stock is now 43$, they will place the 40$ in your account)

In short, try to imagine what you want to do, read all the publicity and fine print, tick them off with questions and pick up a firm that will satisfy your PARTICULAR needs.

But enough with the theory. Why did I chose QUESTRADE?!

  • low fees. 5$ for up to 499 shares, 0.01/share after that; 9.95$ for mutual funds
  • 1% rebate on mutual funds’ MER: but to qualify you need a certain amount (still, I can live without since I purchase funds with MER < 1% anyway)
  • 50 free-trades in the first 3 months and 100$ of free trades for every friend you refer (and he/she gets 50$ in free trades in those 3 months)
  • keep both USD and CAD in the account; the conversion is 0.5% and once changed the currency stays that way, unless I purchase something in another currency
  • while their customer service is less than perfect, and speaks with a funny accent (I have a funny accent too, Eastern European one :), they post good FAQ and I mostly rely on written documentation
    the joining process was simple and documented, most of the steps were done online.

Of course, nothing is perfect:

  • now I know that you have to log on 3 websites to see all features: one for Penson (the one that holds registered accounts), one for the main account settings, statements etc. and one for trading) – yet I can live with that.
  • Estatements are somewhat late – 10th of each month for the previous one
  • the free trading interface (one has options for paid ones – probably much better) is not great but does the trick. Now and then they list things in a way I don’t understand (i.e. USD currency kept in account was listed as a number, like a company).
  • While they allow for DRIP, they don’t allow for fractional re-investment.

Yet, I am with them and unless they screw-up badly, I will stay with them because I have no-thrill needs – and I hope that you will not try to become day-traders before you can walk 🙂

Next time I will present some basic strategies for picking up solid AND profitable investments.

INVESTING DIY – 1

WHY DIY?!

There are a thousand reasons to do so but they all pretty much translate in “because nobody care for your money as much as you do”.


The so called “investment agents” are simply “sales agents” and once they make their commission, they will forget about you until next year. You might say to yourself, for good reasons: how am I going to get the knowledge of the markets, or understand all those terms like derivatives, options, beta, EPS, P/E etc. Well, let me tell you the level of knowledge of some of the people you entrust your money with. Before migrating my RRSP investments to Questrade, I asked what fees I will be charged if I wanted to sell them. My agent redirected me to his secretary, being told “I don’t know this kind of thing”. My “agent” didn’t know what are the fees associated with my investments! How much worse can I do?!
My ex went to another agent and asked some trivial questions and made some savvy comments to let her know that she is not completely unaware of investing terms. The investment agent was so enthusiastic that couldn’t help herself ask “Did you ever consider a career as an investment agent?! You seem sooooo knowledgeable”. Otherwise she readily agreed with everything that Brindusa suggested. One would think that you walk into an “expert’s” office to get some insights, not smiling nods.


I will not badmouth a whole profession. I am sure there are good investment agents but, from what I’ve heard, those guys have their hands so full that they mostly focus on big-money and for the smaller investor they are pretty much out of touch. Indeed, you might have an active, REAL investment agent who makes you good money but then stick to him/her and thank God you are so lucky.


It just makes sense that the average investment agent will not necessarily recommend you the best investments but the ones that bring the best commission. A standard mutual fund that very seldom, if ever, beats the index mutual fund (the index of the industry the mutual fund is focused on), would charge you 2.5-3%. And that is yearly coming out of your pockets. A well managed fund, with no load – like Phillips, Hager and North (PH&N), which charge 0.8-1% will not be recommended by agents because the commission is too small. I calculated that the front-loads and back-loads (fees for purchasing a mutual fund: either paid upfront or when you sell them if they are sold before a certain period) cost me with my late agent about 2500$. Those loads are traditionally going into the pockets of the investment agent. Why would they recommend you something that makes YOU money and doesn’t leave much for them?!


I know it seems scary. I heard too the stories with people who lost everything. People asked me if I “play on the stock market”. Oh, God, NO! No such thing, not now and probably not ever. I will NOT play with my hard earned money.
Yet things are not as complicated as the fear of unknown makes them seem. After all, it’s a guessing game and, while nothing is certain, you can make safe, educated guesses as well as the “agent”, just less expensive. The point is not going for the “get rich quick” scheme, because there is no such scheme. For smart ones amongst us a “get rich slow” scheme is good enough and there are plenty of strategies. I never aim at outrageous performances – since most of the time they try to hide huge risks and weaknesses. Even so, one could get 5-7-9% dividend from perfectly sound companies, which reinvested, in time, can make the difference between a comfortable retirement and a stingy one.


Here are some initial steps to take:

  • Subscribe to some good newsletters such as (you can tell they are good if they have been for a number of years on the market – if they gave poor advice, they would not have survived long):
    • Read and understand the basics of investing without bothering too much with the higher level economical knowledge:

    • Complete Idiot’s Guide to Investments
    • follow the tutorials on Investopidia that will guide you with baby-steps to financial success.
    • Use a portfolio simulator, such as this one offered by Investopedia here – where you invest virtual funds and make virtual gains or losses.
    • Read what other people have to say, follow the financial news and try to get up-to-date with the global economy. By reading constantly the economy news from your newspaper, you’ll start understanding what industries are making money and which are in a volatile position.

Here are some facts to chew on until part II. Did you know that:

  • 300 shares of a stock paying 14% dividend, which you reinvest (DRIP), in 10 years will become 1160 shares?!!!
  • by investing 25,000$ in a mutual fund with 0.87% MER (management fees) instead of one with 1.72% MER, with 5% yearly average return, would save you almost 3000$?!!!!
  • most of brokeragers in Canada, when you purchase a US equity will charge you 1% currency conversion fee AND, if you sell the equity, they will automatically convert it to CAD, even if you want to purchase another US stock and then charge you another 1%?! Do this thing 2-3 times/year and you doubled the losses that a normal inflation (3%) would bring to your savings.