August 31, 2007, 7:00 am

One of the Best Things I Ever Did: Quitting my Job!

by: The Financial Blogger    Category: Career

As we all spend the most of our time at work and this is why we have a pay check, I decided to add some post about career management. Some of you might say that I am only 25 and I probably do not know much about career management anyway. It is true that my experience is limited, I will be giving you my thoughts about this topic and you figure out yourself if it can help you out in your personal life or not.

So I finished my bachelor degree in 2003. A year before I had my diploma, I had the chance to work for the back office of a bank. I was balancing trades on stock options and futures. It was a great job in term of network and knowledge. You got to know all the traders (as you are taking care of their trades) and you see how everything is done on the market. When I finished in 2003, they already had their offer in place. I did not look around and started the next morning. I was so excited to get a job in the finance industry!

I got one of my friends in as well. He was a great worker and had strong financial aptitudes. We had a lot of fun during the first three months. We were learning new stuff everyday and having lunch together. That was the good time. Unfortunately, it did not last long.

In fact, things got sour for two reasons; I got bored by what I was doing once I learnt all my tasks and people in the department (beside my friend) were not motivated and wasting their time most than anything else. After a while, I started to have a bad work attitude too. I used to go on the internet, sending emails and my lack of concentration results into many mistakes. These issues were all described in my first evaluation. Worst than that, I realized that some of my co-workers used this opportunity to backstab me. My friend received the similar evaluation a few hours later.

This was a shock for me. I took my weekend thinking about what I have done and if was happy where I was working. The answer was obvious: I was not happy. I then decided to quit my job the next Monday. I did not have anywhere to leave but I though it would force me to get going faster. I found another job within two weeks. It was more fun, well paid (23% more than my previous job) and there was room for promotion ahead of me.

The biggest lesson I learnt from this story is the following: Stop everything the minute you are not enjoying working. You spend more time at work than everywhere else. Make sure this environment is healthy and makes you happy. It was a blessing that my ex employer gave me such bad evaluation at the very beginning of my career. I realized fast enough that this job was not made for me.

The other thing I realized was that if you are not happy where you are, there is no point of having a bad work attitude. You are not helping your co-workers and you are definitely not helping yourself either. The world is small and you never know when you could need you ex-employer’s help later on in life. Keep your relations clean, find another job with a better environment and get off internet and personal stuff at work!

One last note before I go, my friend stayed there and decided to change his attitude. He then switch department later on and got a great promotion. To this day, he is still working for the same company. It was the same situation for both of us, different thinking but two positive results at the end.

 

 

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August 30, 2007, 7:00 am

Trading Strategy: Sell a loser to buy a bigger looser

by: The Financial Blogger    Category: Trading

I am not usually writing about stock trading, but with all the ups and downs we lived so far in 2007, I thought I would add my point of view on this topic. I have been trading since 2004 and made a reasonable amount of profit. While I am not trading with a large sum of money, I should end up my third of experience with a positive overall positive return.

However, my recent year has not been my best one as I am negative 6% as of this morning. The main reason being this is that I had to sell all my stocks back in October 2006 in order to purchase my property. Since then, I only put back money in the market last April, at the market’s peak. There were not much room for profit and the market dropped since then.

I recently wrote in my Financial Ramblings III that I made some change in my portfolio. In fact, after the markets’ drop, I looked at some stocks I was keeping an eye on. I noticed that two stocks dropped more than the average.

My first pick was Harvest Energy Trust (HTE.UN). It is an oil and natural gas income trust offering a very decent yield (about 17% at the price I bought it). Harvest dropped from $34,40 on July 10th to $26,67 on August 20th. I bought it during that day at $26,89. This represents a slide of almost 22% in a span of a month and a half. The company just released its Q2 results with an increase in most categories. What does interest me the most is the distribution ratio that went down to 63%. They are gradually preparing the company for the “after tax free” period.

My second pick was pure speculation. I bought a mining stock (Chariot Resources; CHD). This company is implicated in a copper mine in Peru and its stocks dropped significantly as well. On July 20th, the stock was sitting at $1,30. As of August 20th, it has closed at $0,90. I bought it at $0,88 on that day. Then again, the stock went down by 32% in a month. It is true that penny stocks are more volatile then the rest of the market but still, I decided to take the chance. There is a high volume of shares traded per day and the industry of copper is doing well.

Regardless if I was thinking these were good deals or not, I did not have any liquidity to inject in the market. Then, I looked at my current portfolio and came up with the following trading technique: One of my stocks in my portfolio was only down by 5% from the time I bought it (Westjet: wja). I then decided to sell my loser (Westjet) and buy two bigger looser (Harvest and Chariot).

I estimated that the chance of both stocks going up to compensate the loss I incurred selling Westjet is pretty good. In fact, just with Harvest’s distribution, I should cover for my 3 transaction fees (1 sell and 2 buys) along with what I lost by selling Westjet sooner than expected. I’ll keep you posted on the result of my decision at the end of this year. Hopefully, I’ll be in a better position!

Have you ever used that method or other trading technique after a market correction?

 

 

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August 29, 2007, 7:00 am

Financial Ramblings IV

by: The Financial Blogger    Category: Financial Rambling

This is another quick financial ramblings about many things today. The first thing I would like to discuss is in line with Four Pillars series on baby expenses. Those diapers cost a fortune! I have already have set a monthly budget of $400 a month for my two kids. However, I am thinking about setting a special budget only for newborn diapers! After two weeks, we already went through three packs of 40 diapers each! I remember that newborn babies were big producer of you know what but not that much!

One last comment on babies, when you are expecting your child, make sure everything is in place for your Government replacement income for the parental leaves. I made my thing very last minute (in fact, a week after my child’s birth) and I am paying the price of my procrastination. I will probably have to run without a single pay cheque for about a month… This was kind of stupid from my part but I am a big procrastinator in regards to my personal stuff…hopefully, I am the opposite guy when it comes to my job!

I would also like to bring to your attention that we have 50% chance of having a new bull market or 50% to be introduced once again to our friendly bear Winnie the Pooh. In fact, the more I read on the newspaper or on the internet, the more I get confused. Why are there so many highly respected investment specialists, economists, financial journalists and other “ists”, but so many different opinions on the subject? Half of them are using the market correction theory and the other half is calling the Apocalypse. Who to believe? I do not know.

One thing is for sure, they seem to not know much than we do. Sometimes I wonder who the meteorologists or the investment specialists are more accurate! In fact, both of them are right about 60% of the time… I do not really mind about the weather, but when it is the case with my investment future, this is something different!

Carnival Selection

It has now become a weekly habit to submit some of my articles to different carnivals and festivals. This week, my post on “When Would Be the Best Time for Leveraging? Right Now! has been featured on Free Money Finance for this week edition of the Carnial of Personal Finance. I also have another articles on Filam Words for the 89th edition of the Festival of Frugality. This article was about being frugal with babies.

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August 28, 2007, 7:00 am

The Way Banks Look At You Part 6: Calculating Your Net Worth

by: The Financial Blogger    Category: Banks and You

I do not think this post is only related to banks and their perception of your own personal file. It could definitely help you out completing a balance sheet and understanding where you at, where do you want to be and how to get there. Whatever your financial goals are, you need a map to know where you are going. Calculating your net worth is one of the indicators on your financial rally map.

What are your assets?

Sorry to disappoint you but your grandmother’s 10K ring does not really count for a banker. Even with a valid certificate, jewellery, antiques or art collection are rarely considered for what they are. How about vehicles? Hum… do you really give a value to something that depreciates by at the very least 10% per year? I would say that car value is offsetting the car loan… not more than that. If cars, fifth wheels and boats are the bulk of your assets, you will not be considered as a high net worth client for the bank.

What matters then? Tangible and marketable assets. Banks’ favourite are registered and non-registered investments. Mutual funds are more praised than stocks but the full value will be appointed to your balance sheet in both cases. You property is definitely one of your biggest asset according to banks. However, it is not very liquid. Financial institutions love to be reassured by liquid assets that can cover for any bad period of your life. Stocks held within an employer’s contribution plan will be taken in the calculation only if they are vested shares.

Your pension plan, LIRA or locked-in RRSP will be taken into consideration but not added to your balance sheet. Why is that? It is simply because it is not an accessible asset over a short period of time. Even if you are on a verge of a bankruptcy, the Government will not give you access to your pension plan.

As a summary, take your bank account statements, registered and non-registered investments, the fair market value of your properties (please stay conservative) and your vehicles (then again, offset your car loan but do not push your luck) and you will get your total assets. Please note that if you apply by yourself and you have joint assets with your spouse, only half of the asset (and the liability) will be included in your balance sheet. Unfortunately, liabilities will also show on your balance sheet.

What are your debts?

Debts are easier to distinguish. However, some details must be mentioned. Basically, anything that you are liable to should be shown on your balance sheet. That includes credit card and line of credit balances, any type of personal loans (which includes car loan, student loan, consolidation loan, etc), mortgages and HELOC. Leases or alimonies will be considered into your TDSR calculation but it will not affect your net worth.

What is the final result?

Banks are looking to lend to people with positive financial net worth. They are searching for liquid and stable assets. You might have a positive net worth, if have of it is invested in penny stocks, good luck convincing your banker that they actually worth something! If you are young, ie below 30, I would not be worry to much about having a positive net worth. Financial institutions also understand that you need time to pay off your student loans and show some assets on your balance sheet. Having a co-applicant could help getting your way through if it is the only issue. Even if it sucks to have daddy on the loan, sometimes you are better off putting your ego aside and getting the appropriate financing.

As it is the case with the company’s financials, a personal balance sheet is a picture taken of your financial situation at a given moment. Establishing your net worth on a yearly basis will help you out fixing financial goals and measure if previous year’s objectives were met on time. This constitutes an interesting way of determining your state of financial health overtime.

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August 27, 2007, 7:00 am

RRSP Contribution VS Lump Sum Payment on Mortgage II: Answering a reader’s question

by: The Financial Blogger    Category: Personal Finance


After I wrote my post about the dilemma between making RRSP contribution vs making a lump sum payment on a mortgage, Investing911 asked what would happen if you are investing the interest you are saving into your RRSP after making the lump sum payment on your mortgage. Today, I’ll revisit my calculation to show what would happen in such situation.

Let’s say you have a mortgage of 200K over 20 years at 6% (let’s presume the interest rate will stay the same for calculation purposes). The monthly payment would be $1,424.28. Instead of keeping the mortgage at 200K, you make a lump sum payment of 10K. Therefore, you would only have 190K to pay over 20 years. Your monthly payment would drop at $1,353.16. You would then save $71,12 per month over 20 years.

If you invest this money into your RRSP at a rate of 7.2% (to keep the same investment yield than the previous post) over 20 years, you would get the amount of $37,961.18 in your pockets.

When I used the CanEquity mortgage calculator, I also find out that you would pay a total amount of interest of $141,849.77 over 20 years with a mortgage of 200K compared to $134,757.50. This makes a difference of $7,092.27. This amount is much less than what I previously posted (12K with calculation of 10K*6%*20years).

So while saving $7,092.27 in interest fees, you will also accumulate the amount of $37,961.18 into your RRSP. Don’t forget that you would also get a tax return of $6,827.52 ($71.12*40%*12months*20years) if your marginal tax rate is 40%. Once you withdraw your RRSP investment at a 35% marginal tax rate (at retirement), you would get a net amount from your contribution of $24,674.77. The total benefit (net of taxes but not adjusted with an inflation rate) is $21,502.29 ($24,674.77 from RRSP + $6,827.52 from tax returns – $10,000 from the initial lump sum payment).

If you invest the 10K into your RRSP at 7.2% over 20 years, you would get the following result: $4,000 in tax return the first year and a RRSP account showing a balance of $40,169.43. Once you withdraw the RRSP, you will get $26,110.13 net of taxes. The total benefit is therefore $20,110.13 ($26,110.13 net from RRSP + $4,000 from tax return – $10,000 from the initial lump sump payment).

Please keep in mind that I did not take into consideration the interest advantages you save from the first scenario as you need the extra cash down to invest this money into an RRSP. Both scenarios have the same investment rate, borrowing rate and cash flow results.

I did further more calculation and if your investment yield goes over 8%, you would be better of with the 10K invested in the RRSP. At this point, it shows that both strategies give about the same results. So unless you think you can get 10% over 20 years or if having a lower balance on your mortgage account makes you sleep well at night, you are better off with making a lump sum payment on your mortgage and invest the difference. A big thank you to Investing911 and also Gates VP to bring up the question and to show an interesting alternative to this dilemma!

 

 

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