This is where your finance takes place

Ok, here’s what you need to do now: go outside your house, jump in your car and go to the grocery store nearby. Then, go at the first cashier and help any old woman with 10 bags or more to pack them in her car. If you have to, help her to cross the street and walk her home. In your way back, try to see if there is any cat stuck in a three or a kid missing his lollypop. Do as many good actions as you can because the end is near!

We are about to die from our own greed! This is what I would tell you if I would believe what is being said in the economic world sometimes.

The latest news came from a well known economist: Mr. Nouriel Roubini, economics teacher at the Stern School of Business / New York University. He claims that the United States are about to crash into their most important recession since the Montreal Canadiens won the Stanley Cup… I mean since 1929!

This is quite a statement, even for a reputable economist such as Mr. Roubini. He based his thoughts on the following facts:

- Several small banks will declare bankruptcy due to the subprime crisis. They are actually the financial institutions that are the most vulnerable, holding near 67% of all “b class” mortgages. It seems that a few regional and national banks are in the same basket.

- The Federal Deposit Insurance Corporation (FDIC) already disbursed 10% of its fund in the Indy Mac story a few weeks ago. This is only the first time of a series of actions to save financials from catastrophe.

- Regardless how many cheques they will receive from the Government, US consumers can’t buy anything any more since they are maxed out on all their credit facilities. If people stop buying, it will only leads to a bigger economic depression.

Mr. Roubini also states that the US stock market should go down 40% from its 2007 high. Therefore, we are only half way done. According to his estimations, the recession should last 12 to 18 months instead of 6 months which was previously forecasted.

When we look at his arguments, I can’t really say that Mr. Roubini is wrong. In addition to that, he definitely has more experience than me in the market However, he would not be the first one to make false prediction. Is so different this time than any other crisis we encountered in the market? I honestly don’t know but I must say that human beings tend to be euphoric or panicked for not much.

Therefore, I only wish I had the time to go back and read editorials from brilliant economist during 9-1-1 or the techno bubble. I guess they were writing the same thing

image source: flickr.com

 

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Since there is not much to make on the stock market these days (it is time to invest but you will surely not see the result right away) and the global economy is slowing down, we need to turn on different ways to keep more money in our pockets. One of them is by saving fees with your bank, broker and insurance agent. Today, I am giving some tips on how to save money with them.

Investments

Regardless if you deal with a broker or you leave your financial advisor managing your money (like they do with wealth management), they are all after new money in these difficult time. Therefore, if you have assets held in more than one institution, it is the perfect time to put the pressure back on your different financial consultants to see what they can offer if you transfer everything at the same institutions.

Most of them will negotiate and several mutual funds (as well as most wealth management program) have a depreciation rate grid. For example, most of them will charge about 1.75% if you have 150k-250K with them. However, you can hit below the 1% if you reach a million. You might not be there yet (I wish I was!) but even if you can transfer 25K – 50K, they might try to lower their management fees.

You would probably save a lot if you look at different mutual funds and their MER’s. If you have mutual funds that can’t beat their index, you might also want to switch strategy and get ETF’s. They will get a similar result for only a portion of the fees.

Money Management

Give a call to your banker in order to review your credit facilities along with your bank account package. You might be paying extra bank fees for nothing. You should bring a special attention to accounts that are not charging fees if you maintain a minimum balance (usually $2,500 to $5,000).

Then, if you have credit cards, why don’t you just pay them with a personal loan? Variable rates are pretty low and you will be forced to pay it back. Outstanding balance on credit cards cost a fortune in interest since we take forever to pay them back. Transferring your balance to a 0% credit card for 6 months? That is simply postponing the problem later on in the same year. If you don’t expect a money entry that will pay it off (a bonus or a job settlement for example), don’t bother and go with the personal loan.

Insurance

I know two easy tricks to save on insurance premium: keeping a high credit score and consolidating all my insurance with one company. When I combined my house and car insurance with the same insurance company, I saved a few hundred bucks right away. You are usually able to save between 10% and 15% by doing so.

Remember that saving 1$ worth actually more than making an extra buck. Especially if you have a high marginal tax rate (as it is the case with most Canadian!), you will probably end up saving almost 2$ while making an extra buck will leave you about 55 cents in your pocket once the government got its due

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Are you looking for a way to maximize your fixed income strategy? For most people, having fixed income in their portfolio in a certain percentage is a really good idea. In fact, most asset allocations offered by financial institutions will include this investment category.

 

Fixed income are pretty useful to stabilized your portfolio and reduce its fluctuation. I guess that it will become even more popular with what is going on on the stock markets.

Therefore, several people will simply buy “the best bonds” on the market, i.e. the one with the best yield. They are usually tempted to do the same thing with GIC’s. Even though I am not a big fan of this product, GIC’s can still be optimized through a ladder system. So you can apply the bond ladder strategy to GIC’s with the same success (with probably a lower interest rate!).

The first thing to consider is your investment horizon. If you plan that you need your money within the next 5 years, chances are that the bond ladder won’t be of any help. However, this strategy will help you out getting the best return on your fixed income over a long period of time. I would suggest this strategy for RRSP portfolio for example.

How does this thing work?

The simplest example is to do it with a 5 years strategy. Let say you have $100,000 to invest; the logic would be to find the highest paying bond/GIC on the market and wait 5 years to renew it, right? Since nobody can predict the future and you might freeze your money for five years and rates could go up in six months from now. If this situation occurs, you won’t be able to benefit from the situation. You could also secure your amount today with a very good rates but having super low rates in 5 years at the time of your renewal.

This is where the ladder comes into play. You have to take your 100K and split it into 5 equal parts. So each 20K is invested for a different period according to the rates offered on the market. Then you will get the following portfolio:

1 year 20K

2 years 20K

3 years 20K

4 years 20K

5 years 20K

One year from now, you will have 20K to be renewed. At that time, you will have 20K in liquidity (to be reinvested) and no more 5 years investment. You take your 20K and invest it for another 5 years on the market.

If you repeat this strategy year after years, in 5 years from now, you will benefit only from 5 years investments (which usually have better interest rate than 1 years) and you will also be able to benefit from the best rate every year. Sometime you will renew the amount for a smaller rate but you will be sure to get the best deal every year.

Along with providing the best rates possible, this strategy also allows you to benefit from liquidity every year. Therefore, if you need money for an unexpected expense, you know that you will have enough liquid assets to face it. If you have a very long term investment horizon, you can do the same ladder with investments to be renewed every 2 years (so 2, 4, 6, 8 and 10 years bond will be available).

image source : flickr.com

 

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