Tag Archives: investing

Oil pumping up returns for Canadian investors

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By Neville Joanes

(Sponsor Content)

We don’t just use it to drive. It’s in the roads we drive on. In fact, it is used in over 6,000 products that help make up modern life. “Oil,that is. Black gold. Texas tea …” And for a fossil fuel commodity supposedly going the way of the dinosaur, oil is looking pretty slick these days.

Oil hit $73 recently and then moderated down to a sweet spot in the mid-$60 range. But can $100 oil really be on its way down the pipeline? Spoiler alert: you might not be thinking big enough. $100 is just a number, not a cap.

As an example of the importance of oil to the Canadian scene, let’s look at the Horizons S&P/TSX 60 Index ETF, which holds the top 60 companies on the S&P 500 index as well as the Toronto Stock Exchange. (WealthBar holds HXT because it is an efficient way to have exposure to Canadian companies or businesses in our clients’ portfolios.) A significant number of those companies are energy producers (ie. oil companies). Indeed, on the TSX, nearly one fifth of the stocks represent energy companies.

Their success fuelled a bounce to a record high in late June. Oil is back — and that means Canadian investors (or at the very least, investors in Canada’s oil-fuelled economy), a steady pipeline of profits is bubbling up.

The recent history of oil. Before the boom, the bust

If you filled up your car recently, the dog days of oil might seem like a distant memory. But it wasn’t that long ago. Thanks to a glut of supply on the world market, oil was down at $30/barrel in 2016. How did it get so low? Mostly, fracking.

North American energy companies employed new technology techniques to bump up energy production by exploiting fields formerly deemed uneconomical. This reduced the need for importing oil from abroad.

The world did not adjust, at least not right away. Russia and the OPEC countries are addicted to revenues from exported oil. With few alternatives as a revenue pipeline, these nations had continued to pump oil even as the price was clearly sliding. Soon, the world had an ocean of cheap oil on its hands.

Moving forward to the dog days of August 2017 and that glut was still choking down the price per barrel. Note the final bolded conclusion in this Bloomberg article:

When OPEC and Russia first embarked on their strategy to clear a global oil glut, it was expected to succeed within six months. It now looks like the battle could last for years.

The Organization of Petroleum Exporting Countries and its partners plan to wrap up their production cuts next spring, already nine months later than originally expected. Yet oil prices are faltering again as data from the International Energy Agency show world inventories could remain oversupplied even after the end of 2018. ESAI Energy LLC predicts that, rather than months, draining the surplus may take years.

With oil priced so low, North American energy companies struggled to keep pumping. At the height of the crash, tens of thousands of Canadians, mostly in Alberta, lost high-paying jobs. By 2017, our Prime Minister was even talking about phasing out the oil sands.

But predictions of oil’s demise were premature.

Oil slides back from the brink

The rebound in oil happened a lot quicker than the experts expected. Today, it is welling up past $70/barrel. What happened? Supply met demand. Continue Reading…

The Case for Financial Assets over real estate

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Billy kicking back on Mexico’s Pacific Coast

By Billy Kaderli

Special to the Financial Independence Hub

When I was a stock broker in California — one of the hottest housing markets in the US — real-estate was my competition. “Everyone” was making money in real-estate, so why would they invest in the stock market?

I needed an angle

I went to the Board of Realtors and got prices for 2-, 3- and 4-bedroom homes in the area, both at the current price and for 10 years prior. I did the math to calculate what annual return these houses were creating for that ten-year span, then compared that to the S&P 500 Index for the same time period.

The index clearly beat all three home styles without the hassles of ownership. Now I had my argument to help people invest in the market.

Ok, that was then and this is now

Using Zillow.com I looked up what the home we used to own was now worth. It was listed at US$862K. Again I did the math and found that over the last 31 years since we bought it, that house has appreciated 6.4% annually. Sounds OK, except that there were property taxes, maintenance and repairs that would need to be deducted lowering that annual return.

Then, I wondered, what if we had put the money to buy our home into the S&P 500? So I calculated that figure also.

Are you ready?

It would be worth 3 million (US) dollars today! Over three times the current value of the home, as the Index produced a 10.46% annual return during those 31 years. Continue Reading…

7 steps to Financial Independence

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By Laura Martins

Special to the Financial Independence Hub

Financial Independence (aka “Findependence”) is something that many of us are working towards, but which very few actually achieve. Having a high-paying job alone does not guarantee financial independence. While making more money does make Findependence easier to achieve, the important thing to focus on is what you do with your money, rather than how much you earn.

It’s also important to understand that financial independence will take time and planning. With the right goals and steps in place, Findependence can be achieved, but it’s important to be persistent and patient.

In most cases, financial independence doesn’t mean you won’t work ever again, but it brings freedom so you can enjoy your life and work on the things that matter to you. Here are seven key steps to develop financial independence.

1.) Get to know your money

Before you can begin to work on your financial independence, it’s imperative that you know exactly what your money is doing. You must know how much is coming in, and how much and where you are spending it.

Develop a habit of checking your bank account. Ignoring it is one of the fastest ways to lose track and lose money. It might seem obvious, but developing financial independence means spending less than you earn.

Spend a few weeks or months tracking your finances and create a budget. It’s important that it’s realistic so you can stick to it.

2.) Remove non-essentials

Once you understand your finances, it’s time to find the areas where you can save more. This is one of the hardest parts on the journey to financial independence, but also one of the most important steps.

Look at your spending and assess what you don’t need. In other words, you should try to minimize your non-essential expenses. That might mean cancelling your gym membership, reducing the amount of streaming services you pay for or making more meals at home. While these things might seem small, they will all add up, and after a few months it might make a noticeable difference to your bank account.

3.) Increase your income

Now that you understand your finances and have your spending under control, it’s time to start saving more. Continue Reading…

4 investment strategies every stock investor should consider

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By Sia Hasan

Special to the Financial Independence Hub

Portfolio managers and analysts believe that no one investment strategy outweighs the rest. Instead, every game plan has its unique strengths and weaknesses. As such, it’s up to investors to choose the tactic that best works for them. It’s worth taking time to learn to develop strategies if you are considering investing in bonds or stocks. Some of the stock and bond investment strategies include quantitative, algorithmic trading, value investing, growth strategy, GARP investing, and collar options strategy.

Quantitative, Algorithmic Trading

Quantitative, algorithmic Trading involves selection of an investment based on mathematical analysis. In fact, investors don’t need to consider other factors such as how a business operates. All they need is to analyze different variables that correlate with each other to create an algorithm that can help predict how stock or bond prices will change over time. Quantitative, algorithmic trading is one of the newest investment strategies that have become popular in the past few years. It allows investors to engage in different investment styles and come up with a thesis, variables and set of data that they can use to identify and exploit market inefficiencies. It’s up to the investors to develop a model, test it with historical data, and implement it to see if it works. Algorithmic trading is ideal for investors with some mathematical and computer programming background.

Value Investing

Value investing is a strategy where an investor buys stocks that are grossly undervalued. Buying stocks that trade for less value than their net assets and cash profits allows the investor to limit the amount of money he or she could lose on an investment. The strategy is ideal for investors who believe that the market overreacts to emerging trends, resulting in a price decline that doesn’t correspond with an investor’s long-term fundamentals. The stock price could decline beyond its fair value when a market overreacts to bad news. As such, an investor can take advantage and buy stock, and wait for its value to return to its optimal level.

Growth Investing

Growth investing is a more aggressive investment strategy that focuses on capital appreciation. It involves investment in stocks or bonds that exhibit signs of growth even if their current share price seems high. Investors are anticipating that stocks and bonds will grow in value and offset the premium they will pay for the investment. However, this is an aggressive investment approach that investors regard as both highly rewarding and highly risky. Investors have to be confident about the growth and competitive strength of a company to justify that its share value will grow in the future. Growth investing strategy is ideal for futurists who are confident that stocks or bonds will increase in value over time.

Growth at Reasonable Price Investing (GARP)

GARP (Growth at a Reasonable Price) is a hybrid of growth and value investing strategies. However, analysts have often stated that value and growth-based investment strategies are joined at the hip. In fact, there is little difference between growth and value-based investment strategies. The growth of a company will always impact its fair value. It is far better to buy highly valued shares at a fair price than to buy undervalued shares at a lower price. GARP strategies enable investors to identify stocks and bonds that are priced reasonably. As such, they can benefit from the stock’s growth potential as well as enjoy protection against price deviation.

It’s important to note there is no one investment strategy that is best for everyone. What matters is whether the investment tactic is a good fit for your company or not. However, nothing is worse than being inconsistent with each of your investment strategies. You can hardly find the source of error that could be increasing your costs if you invest in different philosophy each time. However, it is vital to minimize your trading costs irrespective of the investment strategy you adopt.

Sia Hasan is a tech entrepreneur by day, and a freelance writer by night. Her passion lies in business technology, efficient and sleek programming, and customer relationship management. When she doesn’t have her nose pressed against her computer screen, you can find her spending time with the loves of her life, her two dogs, Pixel and Vector.

Stop cheating yourself out of tax savings: Tips to get the biggest refund

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By Clayton Brown

(Sponsor Content)

The CRA might not exactly be falling over themselves to help you get a nice tax refund. A recent audit showed the agency blocked more than half the calls it was getting (that’s 29 million calls out of 53.5 million) because … well, it just could not handle all of the call volume.

And even when Canadians did get through, agents gave the wrong information about 30 per cent of the time. So, Canadians might need a little help in figuring out how to file their taxes the right way; ideally, so they get the maximum refund they deserve.

Here are some things you can do around tax time to make sure you get the money that should be coming to you:

Take your deductions and claim your credits

The CRA likes its revenue but successive governments have created various options to give the taxpayer some breathing room. Deductions are one of the few variables in your favour, lowering your taxable income, so make the most of them.

Probably one of the best known ones comes from RRSP contributions.

You can contribute up to 18 per cent of your previous tax year’s earned income, plus unused room carried forward from previous years. This helps you pay less tax now, and assuming your income is lower in retirement, also helps you pay less tax later on. By now, you should have all your RRSP receipt slips from your financial institution. (Make sure you keep those receipts, in case auditors come calling).

Another tactic: claiming deductions for child care costs. The government wants to encourage parents to buff up their skills and improve their job prospects. For instance, you can deduct up to $8,000 per child who is under 7 years old. For children aged 7 to 16, you can deduct up to $5,000 for those eligible child care expenses.

Canadians can also claim the interest on certain student loans as a credit. This credit is not like a deduction (where a $1 deduction translates into $1 less taxable income, up to a limit). However, it can still significantly lower a tax bill for those struggling to finally pay off student debt after they’ve finished school.

There are many more deductions and credits available, so don’t leave money on the table!

Love those Spousal RRSPs

Marriage is a beautiful thing. Being with the person you love, sharing memories … and don’t forget about those tax advantages! (Technically, they also apply to common-law spouses, so you don’t have to get hitched to reap the rewards).

These tips generally apply where one spouse earns quite a bit more than the other. In that case, it can make sense for the higher-earning partner to contribute to a Spousal RRSP.

So, let’s say Ned makes $80,000 in salary at his engineering job. Meanwhile, Ned’s wife, Claire, earns just over $50,000 as a manager in an electronics store.

They are both contributing to their own individual RRSPs (Ned saved $6,000 in his. Claire saved $4,000). But Ned also puts $5,000 into a Spousal RRSP. Since Claire’s income is lower, she is the holder of the Spousal RRSP and she will be the one withdrawing income from it. The ideal result, if they’re doing it right: when she makes a withdrawal, it will be taxed at a lower rate than if Ned withdrew it from his own RRSP. Continue Reading…