My Own Advisor

Drawing some inspiration from some other great blogs recently, like Give Me Back My Five Bucks and Million Dollar Journey, I wanted to ask you – what did you do with your tax refund this year?  Did you spend it wisely?

I’m sure I’m no different than you but we’ve got a bunch of priorities around our house in 2013.  Home improvements, paying down mortgage debt, investing for the future and taking some funds to travel and enjoy life are important things to us.  With a busy life and obligations, it’s hard to decide what the priority should be.  Maybe all of these things are worthy candidates?  In no particular order then, here is what I consider some of the best uses for your tax refund this year or any year:

1.      Reinvest in your RRSP

Revisiting a previous post here on my site, if you do not reinvest the tax refund gained from RRSP tax deduction then I believe you are not capitalizing on the true power of this account.  A friend of mine told me recently, he believes RRSPs are misleading to many investors – he is probably right.  While RRSPs are in fact an excellent account for retirement savings, a Registered Retirement Savings Plan could easily be rebranded as a “Registered Reinvestment Savings Plan”.   Meaning, to make the most of this account you should really reinvest the tax deduction as much and as often as you can.  At some point, the tax deduction you get today or what I consider a temporary government loan must be paid back when you withdraw RRSP funds.  Hopefully though, you are withdrawing funds in a lower tax bracket than your contributions of today.  This may or may not be the case for you so you need to use this account wisely.

2.      Invest in your TFSA

Folks who read my blog regularly are probably aware I’m a huge fan of the Tax Free Savings Account (TFSA).  This account is a true gift to Canadians.  You can find out why I adore this account in some previous posts here and here.  My strategy is to use the TFSA to hold Canadian dividend paying stocks that return consistent dividends every month or quarter.  In many cases, the companies I own increase their dividends every year or so:  Bell Canada (BCE) and Fortis (FTS) just to name a few.  My plan over time is to shelter dividends paid as much as possible using TFSAs so in retirement, I can make a few periodic withdrawals from this account to pay for living expenses, tax-free.

3.      Pay down debt

A while back, I offered up a question for readers to consider:  What would you do with $1,000?  In that article, I shared what I’d do with that tidy sum if it found me.  If your tax refund was $1000 (even more or even less) I think a good use for your tax refund is to pay down high interest debt (like credit card debt) or your mortgage.  If you have no consumer debt (good on you) then consider making a lump sum payment on your mortgage.  Paying down your mortgage might be one of the best guaranteed investments you can make – because you and I pay our mortgages with after-tax dollars, so even a cheap mortgage rate of 3% is going to feel closer to a 4.5% return on investment.

Sure, you could definitely build an emergency fund or contribute to your child’s education instead of these options – those are excellent things to do too – but whatever you choose to do with your tax refund, consider spending it wisely delaying at least some gratification today.

In case you are curious, this year we did half-and-half:  half of our tax refund was reinvested in RRSPs and the other half was applied to our mortgage.  As much as I can, I try and eat my own cooking.

What did you do with your tax refund this year?

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I was happy to see the latest edition of Canadian Business in my mailbox this week.  Every year, the magazine issues the Investor 500 edition, a comprehensive look at Canada’s 500 largest publicly traded companies.  In this edition of CB, I also found an article listing the top 15 Canadian companies by profit and total revenue:

Although these stocks offer a range of yields, the top-15 by profit would likely be a good starting point for your dividend stock portfolio research.  Some of these Canadian companies have been paying dividends for over 100 years and others, regular and increasing dividends for decades.

Let’s a have quick look at some of the data:

• Royal Bank (RY) – paid dividends since 1870.
• TD (TD) – paid dividends since 1857.
• Bank of Nova Scotia (BNS) – paid dividends since 1832.
• Bank of Montreal (BMO) – paid dividends since 1829.
• Imperial Oil (IMO) – paid dividends for over 100 years and has increased annual dividend for 18 consecutive years.
• CIBC (CM) – paid dividends since 1868.
• Canadian Natural Resources (CNQ) – paid regular quarterly dividend since 2001.
• Canadian National Railway (CNR) – paid regular quarterly dividends since 1996.
• Bell Canada (BCE) – paid regular quarterly dividends since 1983.
• Great-West Lifeco (GWO) – paid regular quarterly dividends since 1990.
• Husky Energy (HSE) – paid regular quarterly dividends since 2001.
• Power Financial (POW) – paid regular quarterly dividends since 1990.

Can you imagine the income you might have received from such companies if you had bought and stay invested in such companies over the years – instead of jumping in and out of the market?

Can you imagine the capital appreciation you would have gained as well?

Investors, if you’re struggling over what Canadian dividend paying stocks to purchase for your portfolio, while pouring over company metrics still makes sense and buyer must always beware, consider owning the Canadian companies that make a bunch of money and have been doing so for a very, very long time.  Just ask do-it-yourself investors like Susan Brunner and Robert Gibb.

What do you think of these companies?  Do you think past performance could be any forecast of future results for these dividend paying stocks?

Thanks for reading and sharing this article.

Last year, my front lawn and parts of my back lawn were decimated by grubs.  It was a hot and very dry summer in Ottawa last year and the lack of rain over a period of many weeks coupled with some extreme heat beat my lawn into submission.  That hot, dry weather also encouraged significant grub growth.  Actually, the grubs didn’t do all the damage last year.  The damage went over the top thanks to some huge crows and a few night critters like racoons that dug up my lawn recklessly to find and eat the grubs as appetizers.  The damage started in July and continued right through to October.  Here is a picture of my front lawn today:

As you can see, there is a recovery process in motion – there are small signs of life.  For today’s post, I thought I’d take a departure from the personal finance and investing stuff and tell you what my recipe is for a healthy lush lawn this year, on a modest budget of course.

1.      Bye Bye Thatch

Thatch is dead and/or dying matted grass that accumulates on top of the soil.  Thatch prevents air, water, and fertilizer from reaching the soil.  This is not good folks.  So, I removed the thatch this spring with a metal rake.  It took me a few hours last weekend and this past weekend, but I raked our 0.5-acre lawn from stem to stern.  After the snow melted this winter, our lawn was brown in colour and very thin.  Every year actually, Ottawa’s harsh winter weather wreaks havoc with our lawns. To promote the recovery process, thatching was a must.  Getting rid of the thatch didn’t cost me a penny, just my time.  At least the weather was good when I did it.

2.      Hello Seed

I’ve read that overseeding is a great way to recover your lawn from winter; it will green up the lawn, thicken the turf and introduce new varieties of grass to existing turf.  Overseeding will also help crowd out weeds and withstand more bugs.  I typically use a hand-held spreader to overseed our lawn, going just above the seed manufacturer’s recommended spreading rates.  Unlike thatching overseeding will cost me money.  I decided to purchase a few bags C-I-L Golfgreen Grass Seed this year.  No, this is not a sponsored post.  I read this particular grass seed contains endophytes which should help my lawn and ward off grubs.  You see, endophytes are fungi that live inside grasses or plants in a symbiotic way.  Endophytes are natural and quite desirable (I’ve learned) in turf grasses.  While living off the host the endophytes will produce alkaloids that are not appealing to many insects; these alkaloids are essentially toxic to armyworms, chinch bugs, cutworms, green aphids and webworms.  Endophytes are basically a biological insecticide.  To date, I’ve purchased three bags of C-I-L seed at about $13 per bag ($39 total).  I’ll probably need a few more bags in a couple of weeks as I continue the overseeding process.

I’ll also need to buy some more good soil to mix the seed with.  To date, I’ve spend about $20 on soil and will likely need to spend at about $20 every month going forward mixing the seed with good organic soil.

3.      Welcome White Clover

With my degree in Biology, I probably should have remembered the benefits of clover in a lawn.  Clover not only greens a lawn, even during dry spells but it’s a natural fertilizer for your lawn by fixing nitrogen.  Using white clover on your lawn, you don’t have to buy any more lawn fertilizer – ever.  While nectar from the flowers clover produces might attract some bees now and then, you can rid yourself of this issue by mowing your lawn at a modest height, cutting the flowers during the blooming season.  The best part about white clover, apparently it is toxic to grubs.  A 500-g bag of white clover costs about $10 at my local hardware store down the road.  That small bag should cover a few hundred square feet.  I’ll probably need many bags this year (maybe another 5 bags ($50)) to encourage clover growth in areas where my lawn is well-established and where I’ve needed to start the lawn almost from stratch.

4.      Just Add Water

Based on seeding instructions, I’ll need to water my lawn liberally for about 7-10 days in a row to promote seed germination.  After that, I should be able to cut back to 2 days per week, eventually 3 days per week in another month.  Seeds cannot germinate unless there is good seed-soil contact, sunlight and lots of water for nourishment.  I’ve read you need to water your lawn enough to get the soil wet to about 4”-6” down or the equivalent of 1″ of rain per week.  It is not frequent watering you need for your lawn (once established) but deep, prolonged watering that will produce and maintain a healthy root system.  We have a well, so we don’t pay city water or sewer fees but I’m very water conscious so I don’t want to water the lawn recklessly.

Over the spring and summer, I’ll repeat the cycle of overseeding, adding clover and thorough watering.  When I need to mow the lawn I’ll keep the clippings on the grass and avoid cutting the grass too short.  I’ve read 3″ is a good height to maintain deep grass roots.

Hopefully…that should do it.

When I add it all up, the supplies to recover my lawn this year will cost me a few hundred bucks.  Not a killer expense but certainly enough money to be spent.  Last year was a disaster for our lawn.  Hopefully this approach on a modest budget will bring it back into top shape.

Got any tips for my lawn this year?

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Peel away the skin and we’re identical underneath, no matter if we live in the United States, Canada or across the world in the Middle East.  I suspect our investing behaviours and fears are not much different either. I would hypothesize individuals across world regions have the same emotional attachments to money and investing, although some external forces such as culture and religion may cause more tension and thus be larger factors.  Unfortunately, those comparative studies are elusive, at least to me they are.

To provide more insight into what I mean, how/if/could financial fears be any different around the world, I would like to revisit some data in the BMO Psychology of Investing Report, released towards the end of last year.  This report revealed the following data about Canadian investors:

• Nearly 60% of Canadians surveyed say they have invested on impulse at least once.
• Only 16% surveyed are very familiar with the actual investments they hold in their portfolios.
• 41% of Canadian investors did not believe they were investing enough.
• 90% felt they had not saved enough to even warrant investing.
• In addition, fear of losing what they invested in (79%); feeling that investing was too complicated (76%); and not knowing who to turn to for advice (64%) were all identified as major investing barriers.

Getting past your own emotional and often perceived barriers about investing is an essential step towards success.  Luckily for many Canadians, there is an abundance of financial professionals if you want to take advantage of them.  Hopefully, Canadian investors are getting good value for their money and not being taken advantage of, although that’s an entirely different blogpost to discuss that.  My point is, Canadian investors are not necessarily fearful of the stock market; the data says we are not averse to pouring our hard-earned money into investments rather the data suggests many Canadians lack the financial literacy to manage their investments or their personal finances.

Is the lack of financial literacy in Canada really any different when compared to other world regions?  Are our investing behaviours in Canada unique at all?

I would like to think financial forces in other parts of the world tell a different tale than Canada but I cannot totally be sure.  In the Middle East world, I have read there is more focus on “keeping cash king” and avoiding markets despite the growth of a modern financial services sector across this region. Although the situation is slowly changing, banking and dealing with money in the Middle East is still treated with suspicion.  For the most part, I would think Canadians trust our financial system on the whole.  Back to the BMO Psychology of Investing Report, Serge Pépin, Vice-President, Investment Strategy, BMO Asset Management Inc., was quoted saying:

“While we’re only human, wise investing means more than simply following your heart. It’s critical not only to take the time to understand the market environment before making any financial moves, but also to ensure you’re in the right frame of mind to make such decisions.”

True but controlling your emotions is easier said than done.

As a personal finance geek, I would like to find a comprehensive study on the investing behaviours across world regions.  I would be interested to learn if any of the following occur that would confirm my hypothesis – different people from different places have the same emotional money-barriers to overcome.  Regardless of the cultural factors at play:

• Most investors perceive market losses with suspicion and thus are cautious (stop investing now) while most investors perceive market gains with trust and feel compelled to take action (time invest again).
• Most investors grossly overestimate their skills, akin to, “of course I’m a good driver?!”.
• Most investors take a very short-term view (measured in months) despite the overwhelming literature that a long-term view (measured in decades) will be hugely successful.
• Most investors are obsessed with prices but instead should be obsessed with trends.

What do you think about my hypothesis?  Do you know of any studies that confirm or refute my thinking?

Thanks for reading and sharing this article.

That’s right, I wrote it.  My Ottawa Senators will beat the Pittsburgh Penguins in seven games.  Although they lost game 1 of the series (4-1), I’ve got a great feeling they can rebound in game 2 on Friday night and come home with the split.  Who’s with me?

The “lawn weekend” will be filled with yard work and studying for an HR course I need to write an exam for soon but some relaxation is also in store as well.   Until my next post, enjoy these articles.  Have a great long weekend!

Mr. Money Mustache had a cool post about a lawyer calling it quits and a despondent millionaire.  The lawyer has more money than he can spend and now, realizing this, is quitting his job and selling his McMansion.  The despondent millionaire has been somehow programmed to think he has been financially unsuccessful by his family despite owning two homes and holding a bunch of investments.

Prairie EcoThrifter had some tips to simplify your life.

Garry Marr said too many eggs might be in the housing basket.

Modest Money offered what you might want to know to improve your credit score.

Avoid these mistakes, when starting your investing journey courtesy of Boomer & Echo.

Financial Highway wondered when do you like to splurge?  I don’t splurge very often, but when I do, I splurge on travel, and Dos Equis.  For the most part, stay frugal my friends.

Dan Bortolotti wondered if some potatoes can be socially responsible index investors.

Big Cajun Man scoffed at some bloggers seeking to retire by age 35.  I missed my chance.  The Financial Blogger on the other hand, is wondering if he can still make it.

My University Money offered a few ways your campus bar can become a rockstar.

Rick Ferri said on his blog this week:  “Wise investors do not try to time markets. They create an asset allocation to stocks based on their needs, invest in the asset allocation using index funds, and rebalance occasionally. A low-cost buy, hold and rebalance strategy has the highest probability for meeting future financial goals.”

The Passive Income Earner shared some mortgage strategies.  9 more years to kill mine, so the math says, can’t wait.

Dividend Growth Investor shared the world’s best dividend portfolio.

Dan Mac had a great post about reinvesting dividends.

My friend Steve has a way to shop at Costco sans membership – read more here.

Susan Brunner reviewed Power Financial.

Thanks for reading and sharing this article.