Finance Posts

While many people advocate going to school and getting an education, the reality is that education costs are more expensive than most people realize. Canada thankfully provides reasonably priced educations compared to the rest of the world, but it is far from free. Given that I grew up in Chilliwack, and that I had to move out to Vancouver to attend UBC, I spent approximately $11,000 per 8-month period, which included housing on the UBC campus along with a university food program (which tasted fairly similar to prison food, I imagine). Of those costs, approximately $3,000 went towards tuition, $1,000 for books, and the rest towards accommodation, clothes and food. Given that the average engineering summer job back then paid around $2,000 per month, it was essentially impossible to pay for a full year of school by financing it with the money you made during the summers, at least in […]

I’m scheduling this post for when I’m out tomorrow for a while, so it’s possible the US may find some common ground on the current US debt negotiations. I don’t it though. Right now things aren’t looking very good for the United States, and the time is almost out where a solution can be reached and implemented before the debt ceiling expires. Negotiations continue to stall, and both sides seem unwilling to deal with some of the harder issues, like coming up with a long term financial strategy that will reduce the deficit and the debt. I actually thought there was only about a 10% chance that the US might default previously, but I’d say we’re probably looking at 50/50 right now. Either way, I think the ratings agencies should severely punish the US for the state it is in. What use is there in waiting until after a default […]

When the protests started in Egypt, they were over something relatively benign: the increased costs of basic food items. That led to full on revolts, and the eventual toppling of the government in Egypt. We now see what’s happening in Libya, and it’s possible that these are just the first few pebbles in what will undoubtedly be a much larger avalanche. People who are hungry are motivated for change. Make no mistake, the increased costs of commodities and food is in large part the result of the United State’s loose monetary policy, especially concerning QE1 and QE2. You simply can’t double your entire money supply overnight and not see consequences. The US runs a trade deficit every year, which means that it buys more items from other countries than they buy from the US. The net result of that is that US dollars flow out of the United States and […]

I gotta say, I like precious metals. Maybe it’s because I’ve seen Pirates of the Caribbean one too many times, or maybe I was a gypsy in another life. But there’s something strangely appealing about the shine and lustre of a piece of gold or silver. Most guys don’t have many opportunities to own any metals. I used to have a gold plated watch, but unless you’re wearing a suit or at a formal event, a gold watch just looks out of place most of the time. My current watch is made of titanium, which is actually a very expensive precious metal, but I like it mostly because it’s extremely light, not because it’s valuable. In fact, had my ex girlfriend not bought it for me, I’d probably still be wearing a cheap $50 Casio or something. But I love the fact that it’s super light and doesn’t look much […]

I’ve gone through various mutual fund companies and financial planners over the years, but ultimately decided last year to take my finances into my own hands and manage my own portfolio. My main issue with the financial planning/advice market is that there is an inherent conflict of interest in most of the advice given out. Yes, a par-life plan may in fact be a great investment vehicle, but when your purchase of one results in a $1,000 bonus for the financial planner, how can anyone ever be sure that the advice was given solely because it was in your best interest? Also, most mutual funds have trailing fees build in, which are effectively sales commissions that go back to financial planners who sell them. The majority of mutual funds presented to clients of financial planners have MER (management expense ratios) of between 1.5% – 3.0%, with the majority (in my […]

One of the things I’ve come to realize over the last year is that in most cases, debt is horrible thing. Granted, many businesses look towards debt as a way to fund capital purchases in their beginning stages, and I have no problem with small business loans. But all the other debt that people are addicted to is ultimately bad for the economy in general. There are many people who believe that the reason housing prices are skyrocketing in North America, as well as education costs, is due to the availability of cheap credit. I’m one of those people. Stated another way, housing and education costs would be forced to come down if people couldn’t take out massive loans in order to fund them. It seems almost self-evident if you think about it – a product or a service that people can’t afford to pay for must eventually come down […]

A few years ago, the government opened up a new investment vehicle for people looking to save for retirement, the tax free savings account (TFSA). An RRSP is effectively a tax-deferred investment account. When you contribute to it, you are doing so out of pre-tax dollars (or, if you get a tax refund due to your contribution, you are getting the tax you paid on that amount back). Eventually you have to pay the piper, so when you start pulling money out of your RRSP to fund retirement, you will pay tax on that amount. The upside is that you’re able to invest pre-tax money (hence you have more of it). The downside is you’ll pay tax later on all the investment gains you make. TFSAs are a bit different. You contribute to them out of post-tax dollars, so there’s no immediate tax advantage. While it’s harder to contribute out […]

Inflation is technically an expansion of the monetary supply. Prior to the invention of fiat (i.e. paper) money, inflation occurred when pure gold or silver coins were melted down and mixed with less valuable metals. The end result was a coin that was worth less, even though it was the same size, shape and colour. Another form of inflation occurred when people used to subtlety shave the edges of coins off and use that metal to purchase other items. The coins ended up becoming deformed, and had less metal than the used to have, making them worth less. With fiat money, inflation occurs when a country prints additional money and puts it into circulation. The net effect is that people have more money to bid on items, which (due to the Quantity Theory of Money) causes prices to increase (if someone walked into an auction and gave everyone an extra […]

In times like this, I hate being right. I met with a few financial people Friday afternoon at their offices in Abbotsford. As I was leaving, I casually asked everyone who worked there what they thought about the recent run of gold. Surprisingly (or not surprisingly, depending on how up to date you are with what’s going on), they didn’t seem to think it meant anything, and that the US economy was going to recover shortly. I then made a comment that I wouldn’t be surprised if the US did another round of Quantitative Easing (QE3 I dubbed it), but they simply laughed that comment off. Not more than 48 hours after I was there, Ben Bernanke goes on 60 Minutes and says that another round of quantitative easing is definitely possible. That guy seems to be determined to destroy the US dollar at all costs. One of the side […]

There are various statistics used to track each country’s currency in circulation. The main ones that most people reference are the following: M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency. M1: The total of all physical currency part of bank reserves + the amount in demand accounts (“checking” or “current” accounts). M2: M1 + most savings accounts, money market accounts, retail money market mutual funds,and small denomination time deposits (certificates of deposit of under $100,000). M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements. When we talk about inflation, the actual definition of it involves an expansion of the money supply. Somewhere along the line inflation seems to have been refined as price increases, but it is technically due to the increase in the supply of […]