Business Posts

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 […]

Hard to believe that less than 30 years ago gold was trading at $35/ounce. At that time, the US Dollar was fixed to the price of gold due to an agreement called the Bretton Woods Agreement. That agreement effectively forced countries to back their currencies with gold, which ultimately enforced sound fiscal policies on the participating countries (you can’t spend money you don’t have). Unfortunately the inability to spend money they didn’t have eventually caused the United States to break out of the BWA: In 1971 Nixon decided to end the convertibility of the US Dollar into gold, which effectively was the same as declaring the United States insolvent. Since that time the Federal Reserve in the US and most of the central banks around the world have engaged in inflationary economics, resorting to printing money to pay off their debts. Gold (and other precious metals) have historically been used […]

I’ve been meaning to do a posting about the Garth Turner event the other day, but haven’t gotten around to it. While Garth is a good public speaker, I didn’t really learn anything at the event that I didn’t already know or believe. Yes, Garth believes real estate in Canada is in for a rocky ride, as do I. Yes, we are about to head into a period of asset deflation following by price inflation. I’ve spent the last six months reading tons of books on investing and retirement, partially because I’m interesting in the subject, and partially because I’ve been a bit bored and felt like learning something new. I’d wager that I know more than the average person at this point about investment strategies and ways to build a nest egg. But truthfully, even armed with all that knowledge I sometimes feel like we’re in a world without […]

Within the United States, there is a strange entity, neither completely public or completely private, that manages the monetary policies of the United States. This entity, The Federal Reserve, has the task of adjusting interest rates, and also attempting to stimulate the economy using various mechanisms such as Quantitative Easing. Thomas Jefferson, one of the founding fathers of the United States, had this to say about a government influenced monetary system: I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will […]

My background obviously isn’t in finance – I’m actually some weird hybrid between an electrical engineer and a physicist. While I understand a lot of the basics in finance, there are still quite a few gaps in my knowledge, and I’m slowly working towards filling those in. Last night I was pretty beat, so I crawled into bed and purchased a book about capitalism and the economy. I actually managed to read most of that in a few hours, and decided I’d grab another book as well. Wouldn’t you know it, I finished that one as well sometime around midnight, and passed out on the couch. Both books gave pretty dismal predictions about what may happen in the United States in the next few years. They also gave a brief history of capitalism and some rather interesting insights into what’s going on now. Like I said, a lot of this […]