I thought of finishing the week with a good news; the QuickTax Software Winners! About a week ago, I have reviewed the Canadian tax filling software and also announced the QuickTax giveaway. So here are the winners:

-  Craig

- Norman

I’ll be contacting you by email and ship you over your free copy! For those who didn’t win, make sure to have a optimal way to fill your tax this year. If you don’t, QuickTax offer great software starting at $29.99.

Some good read for the weekend:

I have just finished my RRSP season. The official season ended on this Monday on March 1^st but the rest of the week was also hard since we had to take care of all the postponed meetings and tasks we couldn’t do during the last week. In a way, I really like this season of the year as I can have a good idea of what my bonus will be at this point. After 4 months done in my financial year, I have done about 100% of my numbers. Now it’s time to take some rest and get after the 200% mark!

Speaking of taking time off, I’ll take the weekend off so here are some great reads for this weekend:

Get China ETF stock picks @ Intelligent Speculator

How to start an online business @ Four Pillars

Note on 2010 Federal Budget @ Canadian Capitalist

Financial lessons learned from hiking @ Canadian Finance Blog

Co-signing for your child, a good idea? @ Million Dollar Journey

3 new dividend stocks in The Dividend Guy’s portfolio

How to make a budget @ Squawk Fox

Follow your passions to make money @ Studenomics

Technical analysis trading @ ABC’s of investing

Best MBA for your bucks @ Ending the rat race

Life and finance lessons from the Olympics @ Thicken my Wallet

Top 10 common tax filling mistakes @ Financial Highway

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Before I start with this morning’s article, I want to ask you to vote for me in the Free Money Finance March Madness contest. The best personal finance article will win the right to give $1,000 (generously provided by FMM) to a charity of your choice. I have selected a charity that helps children. Please comment on this post with the word “figures”. Thx a million!

The Prime Rate, or Prime Lending Rate, is a term used in many countries to describe an interest rate reference used by Central Banks. This key rate has been a major discussion for the past 6 months, as we realized that the sky is not falling and soon talk about economic growth and prosperity will dominate again. The prime rate is the starting point for all discussions involving mortgage rates (especially variable rates that are directly linked to prime). When discussing interest rates, we usually address debt management and how tough it would be if mortgage rates would climb to 6%+ again …

I don’t really like to play Nostradamus with regards to market trends or interest rates and I’ll show you why today. Recently, Bloomberg asked several economists their opinion on the Canadian Prime Rate and at where it would be at the end of 2010. You can see their predictions in the following table:

Out of 8 highly paid and hopefully knowledgeable economists, we notice predictions of a Canadian Prime Rate between 0.25% (no change) and 2.25% (an increase of 2.00% within one year… or should I say 10 months!) for an average prediction of 1.18%.

So my question is quite simple: how can someone predict no change and another (with the same level of knowledge/competence/tools of analysis) forecast a rate that is 9 times higher? I even read that some economists from Desjardins see the Prime Rate at 7% in 5 years… I guess I should call them to know which stocks will give me a 20% annualized return over the next 5 years. They probably have it written in their black book of prophecy This is why I spoke about Nostradamus!

So what is the point of this post if it’s not to predict the Prime Rate?

The point is to tell you that you will read a lot of apocalyptical scenarios about the interest rate going up since semsationalism sells. The very same people that were convinced that capitalism was dead 12 months ago will try to convince you that we are going to back to 12% interest rates as seen in the 80’s.

In fact, you will probably see a smooth increase in the interest rate as the economy gains its second wind. However, it won’t happen overnight

We still have a fragile economy, high unemployment rate (8.3%) and job creation doesn’t reflect reality as most of them are part time or under paid compared to the lost jobs. In addition to that, do I have to mention that the loonie is strong enough compared to the US dollar that we don’t really need interest rates to give it the final push to parity?

What if we see 10 years of near to zero economic growth as Japan experienced? Oh shoot…. That’s it! I am writing about another apocalyptic scenario on the other side… see how easy it is to predict the future based on rationale?

image source: Xurdle

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You are in the store, all excited thinking that you will see the hockey gold medal final on your brand new (not yet purchased) 58” plasma TV (since 42” is too small these days ). As you are about to tell the salesman that you will take it, he looks at you and starts his sales pitch.

The thing is that he doesn’t want/need/care to sell you a TV (he knows that you have made up your mind and that you will leave the store with a giant screen anyways!). He wants to sell his extended warranty. His whole pitch is based solely on how great the extended warranty is while your life would suck so much if you don’t buy it.

For every $100, the store gets $50 to $60 in profit!

According to Eric Arnum, chief editor of Warranty Week, here’s how $100 in extended warranty is split:

$50 in profit

$30 in administration fees (gotta love paperwork!)

$20 only is actually used towards actual claims.

I’m not surprised that $7.5MM were made from extended warranty sales in the USA in 2004 (according to Warranty Week).

When you think that an extended warranty could cost around $500 for a big TV, you can figure that the store makes as much money out of the extended warranty than from the TV itself!

What are your chances?

According to Consumer Reports, the chance of having a defective plasma screen within the first 4 years is only 3%! It jumps to 12% when you are talking about a refrigerator… Even then, the cost of an extended warranty can go as high as one third of the original cost.

So far, in my own experience, everything I bought new (tv, computers, furniture) has always lasted me more than 3 years (which is usually the longest any extended warranty period goes for). My first tv is still up and running (since 1998) and my “new” plasma TV is already 5 years old! I’ve had my washer and dryer for the past 8 years too… nothing to worry about so far!

Extended warranty’s biggest weapon: fear!

Fear is one of the biggest motivators in life and any good salesman knows it. They will ask you what you will do if your TV breaks in 6 months. They will amplify the potential problems you will have when you will contact the manufacturer directly. He won’t forget to mention that you will be on your own, that you will have to ship your goods by Purolator and that it will take forever to repair.

By playing the fear card, he will take away the rationale behind your real chances of buying the worst item in the store. Unfortunately, it works really good in most cases…

What are your options other than extended warranty to protect your purchase?

So if you still think that you need an extended warranty (because we all think how disappointing it would be to drop $2,000 in 13 months to buy another TV!), you have a few options to explore.

When it comes to protecting major purchases such as a plasma TV, computer or refrigerator, you basically have 2 options:

-         Request to read the extended warranty contract and make sure that most of the stuff is covered.

-         Pay with a credit card with an warranty extension (usually, most good credit cards double your warranty up to 2 years additional).

I actually use the credit card option. My Platinum MasterCard (from National Bank) offers me a great protection plan (double the warranty up to 2 additional years). Therefore, I don’t have to mind much when I buy a plasma TV (this jump the warranty to 3 years). Everything is covered according to the manufacturer’s basic warranty (which includes most of the “normal” stuff that could break).

While I have never had to use this feature (I guess it’s the living proof that we don’t really need an extended warranty), the process seems quite easy: you need your original bill, your credit card statement, a formal option on the state of your “broken” good and a insurance declaration.

I am actually in the process of finding out if I can use it to get my laptop screen working perfectly again (I have pixel bars showing here and there). The problem is that I didn’t keep any of my receipts, nor my credit card bills. My latest research showed that I didn’t purchase it with my main credit card (which I think I didn’t have 2 years ago…). So I am still looking to see if my other credit card has the same extended warranty feature… more news later on!

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Guest post by By The Rat

Biography For The Rat

The Rat is a young Canadian investor and entrepreneur hailing from the east coast.

After earning a Bachelor of Commerce in the Maritime Provinces, he returned home at the age of 21 to work in various capacities, most of which were in the private sector. There, he had the opportunity to accumulate over ten years of business experience in a range of senior management levels, take advantage of real estate opportunities, and invest in equities and other types of investment vehicles. In January 2010, he was able to retire and hence “end the rat race” in his early 30’s.

Going by the pen name ‘The Rat’, the author has etched out and created a small place in cyberspace through his website “Ending The Rat Race” with the intent to provide value to readers both in terms of content and sharing of real-life experiences.

Officially launched in September 2008, Ending The Rat Race is a personal finance blog that has as one of its key purposes, the sharing of various personal finance topics with others having similar interests, and learning from one another.

Do you know that if you had 100% of your portfolio into equities during the financial collapse, or more specifically during the periods of June 2008 to February 2009, you could have lost upwards to 43% of portfolio value?

How many people do you know or talked to during the financial crisis that mentioned they had lost almost half of their portfolio value, in a time frame that felt as though it was overnight? I have definitely heard a few of these real-life stories, and at the same time I have also learned from some of my own, costly mistakes to say the least.

For example, I have had discussions with people who were invested primarily in mutual funds, and because they took the advice to invest in a ‘well-balanced’ collection of funds, each of which were primarily invested in a basket of equities, were ‘hung out to dry’ during the market meltdown.

We didn’t have to go far to hear the horror stories. One of my previous threads, discusses a family (the Rossis) who were featured in a November 2009 MoneySense article titled, “From Rich To Ruin” and had lost over 40% of the value of their $314,0000 RRSP nest egg. This is an example of a ‘nightmare on wheels-type story’ where their adviser selected their funds for them. During the interview, one of the family members mentioned, “I would have been happier had we buried our money in a mason jar in the backyard”. This type of comment really hits home.

Some may say that despite the above mentioned, markets have recovered rather nicely since the financial collapse and that had the Rossis or others not panicked, the value of their respective portfolios would have likely rebounded quite nicely by now. Perhaps this is true to some extent, but not everybody has the same risk tolerance. I know that if I had kids and a family under a roof and all of a sudden I was forced to witness losses in the tens of thousands of dollars in a very short period of time, I would have been worried.

The interesting statistic I referred to in the opening paragraph stems from a November 2009 MoneySense magazine article, written by Suzane Abboud.  Adequately titled, “Better Crisis Next Time”, Suzane Abboud clearly demonstrates the importance of asset allocation in an investor’s portfolio and that sometimes a “do-it-yourself strategy” without all the fees may be a better approach to managing one’s portfolio. Even though the example I provided at the beginning of this thread falls under one of Abboud’s worst cases, it does highlight the fact that even typical balanced funds, which “holds more than 50% of its portfolio in bonds and cash” still experienced an “average loss of 23.5%” because of all the management fees and the fact that these investors had not taken a do-it-yourself approach.

In my view, what is really important to highlight from Abboud’s finding is her ‘take-no-prisoners’ approach to being clear and concise as it relates to the whole experience of the market meltdown. For example, she states, “Your experience during the recent market turmoil should determine your asset allocation going ahead. If you lost sleep, or couldn’t eat, at the very bottom of the bear market this past year, you should never put yourself in that position again.”

I believe the message that really stood out to me was when Abboud mentions, “If you want to make sure that your portfolio is not going to go down by more than 15%, you should not hold more than 40% of your money in stocks.”

As a result of the financial collapse and what I had witnessed within my own portfolio, I made some important changes. I had to look myself in the mirror and come to terms with the fact that 100% of my portfolio was in equities, and I had also been ‘chasing yields’ in the Oil & Gas sector with the thought of never-ending lucrative yields. One of my most important threads I ever posted, (despite its short length) was My Asset Allocation, mainly because I had reached a sense of realization as to how my investing strategy would be carried out on a go-forward basis.

My intent of this post is not to give readers the impression that “this is what you should do with your investments, and how you should go about doing it”. Instead, my purpose is to stress how important it is for investors to be cognizant of the risks associated with having the wrong asset allocation. Now that the ‘dust has settled’ somewhat with respect to the markets, we quickly realize the importance of one’s asset allocation as the economy and markets take wide swings. It’s up to the individual investor to bulletproof their respective portfolio given their own risk tolerance and investment style – by choosing the right asset allocation, this can be accomplished.

If I had more ‘safety’ in my portfolio during the financial collapse, I’m sure I would have witnessed much less volatility and loss of portfolio value had I had a more effective asset allocation. Lessons learned indeed.

What about you? Have you changed your asset allocation as a result of the financial collapse? Are you comfortable with your current asset allocation?

image source: ieshraq

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I am waking up this morning with a big smile as Team Canada just won the Gold Medal for both Men and Women! Congrats to them! YOU ROCK!!!!

As we do every month, here is the TSX 60 dividend yield and ex-dividend date for March:

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