In this piece Corcoran is says that there is no risk free way to save for retirement. The piece is called "The New National Savings Fantasy" and it is about the CEO of CIBC called for enlargement of CPP plan.
Investing, no matter what you invest in is not risk free. It never has been never will be. Even putting your money under your mattress is not risk free. (Someone could steal it or it can lose its value to inflation.) This is because life is not risk free.
We live in large cities and control our environment to a big degree. However, we are not invincible and nowhere is completely safe. Every once in a while we hear from Mother Nature and we should absorb her message. We are not in total control of anything.
The civil service unions are called for the same, but their motives are different. They are hoping that CPP expansion would help solve the problem of their underfunded pension funds. This is not the way to go. Increasing the size of CPP is not the way to go. Maybe the biggest problem the CPP fund will have is that as a mammoth fund, it will not be able to make many moves without affecting the whole market.
Forcing people to save for retirement is not a bad idea. I just think that the market would be better if there are many players, not one huge mammoth CPP fund.
The other problem with one huge mammoth CPP fund is the potential for politicians to miss use the money. They can invest the money for political reasons or fritter it away. It is a very big temptation. It is better than we do not have a mammoth CPP fund to tempt anyone.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, February 27, 2013
Monday, February 25, 2013
Do not Buy Bonds
I cannot that buying bonds or bond funds would be a very good investment at this point. I also think that they are far riskier than most people believe.
The bond bull market has been going on forever it seems. But these things can last far longer than anyone imagines. In a bond Bull Market, interest rates go down and the value of the bonds rise. It is important to remember in dealing with bonds is that interest rates and bond value go in opposite directions.
I see problems with bonds. First the interest rates are low. I do not see how anyone can make only money at these rates. This is especially true about government bonds.
At some point interest rates will have to rise and we will be in a bond bear market. In bond bear markets, interest rates go up, but value of the bonds goes down. (This means that you get interest, but bonds values sink or you lose capital.) This is going to happen at some point. The problem is trying to figure out when. It would probably happen quite suddenly.
You can default on bonds in more than one way. A way that Western governments seem to have chosen is to inflate their way out of debt. Historically, government bonds are a safe investment until they are suddenly they are not.
If you really need to buy bonds, the only thing I can suggest is short term bonds of very good corporations.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
The bond bull market has been going on forever it seems. But these things can last far longer than anyone imagines. In a bond Bull Market, interest rates go down and the value of the bonds rise. It is important to remember in dealing with bonds is that interest rates and bond value go in opposite directions.
I see problems with bonds. First the interest rates are low. I do not see how anyone can make only money at these rates. This is especially true about government bonds.
At some point interest rates will have to rise and we will be in a bond bear market. In bond bear markets, interest rates go up, but value of the bonds goes down. (This means that you get interest, but bonds values sink or you lose capital.) This is going to happen at some point. The problem is trying to figure out when. It would probably happen quite suddenly.
You can default on bonds in more than one way. A way that Western governments seem to have chosen is to inflate their way out of debt. Historically, government bonds are a safe investment until they are suddenly they are not.
If you really need to buy bonds, the only thing I can suggest is short term bonds of very good corporations.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Thursday, February 21, 2013
Debt Ratios
I look at Liquidity Ratio, the Debt Ratio, Leverage Ratio and Debt/Equity Ratio. For these ratios, I look at the ratios for the last financial year end and from any current financial statements. I also look at the averages for these ratios over the past 5 and 10 years. For the Liquidity Ratio, I also look at how they would be adjusted for cash flow less dividends and adjusted for cash flow less dividends and cash flow investments.
The Liquidity Ratio is comparing current assets to current liability. Generally speaking, what you want is a ratio that is 1.50 or above. If the ratio is below 1.00, that means that the current assets cannot cover the current liabilities. With this ratio, higher is better.
For the Liquidity Ratio, if it is low, you might want to see if they are including the current portion of long term debt in the current liabilities. If so, you could remove this value from the current liabilities, if the long term debt has been taken care of. You have to look at the notes section after the financial statements to see the status of the current portion of long term debt.
With other stocks, the cash flow is important when it can be consistent, for example on utility stocks. This is especially true if the Liquidity Ratio is low. Also for some industries, the standards are different or the Liquidity Ratio is just not of much importance. The basic exception is financial institutions.
In my spreadsheets, I use current assets to current liabilities. Also, this is sometimes called the current ratio. For a good tutorial on liquidity ratios see Investopedia.
The Debt Ratio is comparing assets to liabilities. Generally speaking what you want is a ratio that is 1.50 or above. However, this can change with industry, with Financials coming in just above 1.00. With this ratio, higher is better. For more information, see Investopedia.
For Leverage Ratio and Debt/Equity Ratio there is no particular ratio that you are looking for. These ratios tend to vary with industries. These ratios on financial stocks tend to be quite high and other types of companies, like industrials these ratios tend to be low. You really have to compare the company's ratios with the company's past ratios and with like companies. With these ratios lower is better.
For more information on the Leverage Ratio, see Investopedia. For a good article on Debt/Equity Ratio, see Investopedia.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
The Liquidity Ratio is comparing current assets to current liability. Generally speaking, what you want is a ratio that is 1.50 or above. If the ratio is below 1.00, that means that the current assets cannot cover the current liabilities. With this ratio, higher is better.
For the Liquidity Ratio, if it is low, you might want to see if they are including the current portion of long term debt in the current liabilities. If so, you could remove this value from the current liabilities, if the long term debt has been taken care of. You have to look at the notes section after the financial statements to see the status of the current portion of long term debt.
With other stocks, the cash flow is important when it can be consistent, for example on utility stocks. This is especially true if the Liquidity Ratio is low. Also for some industries, the standards are different or the Liquidity Ratio is just not of much importance. The basic exception is financial institutions.
In my spreadsheets, I use current assets to current liabilities. Also, this is sometimes called the current ratio. For a good tutorial on liquidity ratios see Investopedia.
The Debt Ratio is comparing assets to liabilities. Generally speaking what you want is a ratio that is 1.50 or above. However, this can change with industry, with Financials coming in just above 1.00. With this ratio, higher is better. For more information, see Investopedia.
For Leverage Ratio and Debt/Equity Ratio there is no particular ratio that you are looking for. These ratios tend to vary with industries. These ratios on financial stocks tend to be quite high and other types of companies, like industrials these ratios tend to be low. You really have to compare the company's ratios with the company's past ratios and with like companies. With these ratios lower is better.
For more information on the Leverage Ratio, see Investopedia. For a good article on Debt/Equity Ratio, see Investopedia.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Tuesday, February 19, 2013
Adjusting RRSP Account
Currently I am doing adjustments to the RRSP (and RRIF) accounts. I try to keep some 5 years of cash and projected dividends in my accounts. See my blog entry on Planning in Retirement that discusses this concept.
Because some of my stocks pay low dividends (less than 1% in some cases and others less than 2%) I am selling off low dividend yield stocks and buying higher dividend yield stocks. Mind you, to me high dividend yield is 4 or maybe 5%. I do not chase really high dividend yields (over 5%) because the potential of higher dividend companies maybe making income, but losing capital.
So far I have sold Canadian National Railway (TSX-CNR) from my RRSP account as it was my lowest dividend yield stock with a yield of 1.56%. I have also sold some Alimentation Couche Tard (TSX- ATD.B) from my RRIF account which has a yield of just 0.57%. This is just to raise some cash.
In the RRIF I have sold some Alimentation Couche Tard (TSX- ATD.B) to buy some Davis and Henderson (TSX-DH). As mentioned above Alimentation Couche has a dividend yield of 0.57%. Davis and Henderson have a dividend yield of 5.9%. In my RRSP account I am planning to sell some Saputo Inc. (TSX-SAP) with a yield of 1.69% and buy some more RioCan REIT (TSX-REI.UN) with a yield of 5.14%.
The stocks I am selling have been great stocks. It is just when you are taking money from RRSP/RRIF accounts you want to have higher yields to lower the cash requirements for the account. These stocks were great in building up fund values and I might buy them for my Trading Account, but they are not as good when winding down RRSP/RRIF accounts.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Because some of my stocks pay low dividends (less than 1% in some cases and others less than 2%) I am selling off low dividend yield stocks and buying higher dividend yield stocks. Mind you, to me high dividend yield is 4 or maybe 5%. I do not chase really high dividend yields (over 5%) because the potential of higher dividend companies maybe making income, but losing capital.
So far I have sold Canadian National Railway (TSX-CNR) from my RRSP account as it was my lowest dividend yield stock with a yield of 1.56%. I have also sold some Alimentation Couche Tard (TSX- ATD.B) from my RRIF account which has a yield of just 0.57%. This is just to raise some cash.
In the RRIF I have sold some Alimentation Couche Tard (TSX- ATD.B) to buy some Davis and Henderson (TSX-DH). As mentioned above Alimentation Couche has a dividend yield of 0.57%. Davis and Henderson have a dividend yield of 5.9%. In my RRSP account I am planning to sell some Saputo Inc. (TSX-SAP) with a yield of 1.69% and buy some more RioCan REIT (TSX-REI.UN) with a yield of 5.14%.
The stocks I am selling have been great stocks. It is just when you are taking money from RRSP/RRIF accounts you want to have higher yields to lower the cash requirements for the account. These stocks were great in building up fund values and I might buy them for my Trading Account, but they are not as good when winding down RRSP/RRIF accounts.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, February 13, 2013
Saving for Retirement
I just read an article on the Out of your Rut Blog. It talked about whether or not people could save $1M for retirement and if it will be enough. Saving for retirement covers some 40 to 45 years (if you retire at 65), less if you retire earlier.
It is also rather interesting to note that Canada's first pensions paid were at age 70. The current OAS is at age 65, but due to move to 67 in a number of years. A lot of civil servants have pension beginning at age 55.
One big item that no one seems to talk about is that stuff happens. This is not all bad. Yes, one thing is loss of a job, but you could also receive money you had not expected to receive.
Also, current return rates will not remain. Since I have been an investor, interest rates have been north of 19% and south of 1%. This is a massive change. The stock market went nowhere in the 1970's. It was on tear between 1982 and 1999 and since 2000 as done very little.
I would suggest that if you are young and looking forward to retirement, perhaps you are in the wrong job or career. To expect to spend half your adult life in retirement involves a huge amount of savings when people are working. I do not expect that most people will do this.
If you want to retire at age 55, you then expect to work for 30 to 35 years and retire for 25 years or maybe a lot longer. Life expectancy is 79 for males and 83 for females. See Stats Canada. Do not forget, these are averages, so only half the people are dead at 81 years, but half are still alive. However, there are more and more people living until 100. (That means spending some 45 years in retirement.)
If you look at life expectancy at age 65, then it is 85. That is, if you live until 65, you could live for another 20 years. It is a little less for men (83) and a little more for females (86). See CBC article.
If anyone is wondering why pension plans are underwater, need look no further than the increase in life expectancy (and the drop in retirement age from 65 to 55). Pension plans were not set up for people to be on pension for the same length of time as they contributed to a pension. Of course, this is not the only reason lots of pension plans are underwater, but it is a big problem.
If you want to live long and well see CBC article with advise from Heart and Stroke Foundation. Basically, if you do not eat a healthy diet and do not exercise, you will spend the last 10 years of life sick and disabled.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
It is also rather interesting to note that Canada's first pensions paid were at age 70. The current OAS is at age 65, but due to move to 67 in a number of years. A lot of civil servants have pension beginning at age 55.
One big item that no one seems to talk about is that stuff happens. This is not all bad. Yes, one thing is loss of a job, but you could also receive money you had not expected to receive.
Also, current return rates will not remain. Since I have been an investor, interest rates have been north of 19% and south of 1%. This is a massive change. The stock market went nowhere in the 1970's. It was on tear between 1982 and 1999 and since 2000 as done very little.
I would suggest that if you are young and looking forward to retirement, perhaps you are in the wrong job or career. To expect to spend half your adult life in retirement involves a huge amount of savings when people are working. I do not expect that most people will do this.
If you want to retire at age 55, you then expect to work for 30 to 35 years and retire for 25 years or maybe a lot longer. Life expectancy is 79 for males and 83 for females. See Stats Canada. Do not forget, these are averages, so only half the people are dead at 81 years, but half are still alive. However, there are more and more people living until 100. (That means spending some 45 years in retirement.)
If you look at life expectancy at age 65, then it is 85. That is, if you live until 65, you could live for another 20 years. It is a little less for men (83) and a little more for females (86). See CBC article.
If anyone is wondering why pension plans are underwater, need look no further than the increase in life expectancy (and the drop in retirement age from 65 to 55). Pension plans were not set up for people to be on pension for the same length of time as they contributed to a pension. Of course, this is not the only reason lots of pension plans are underwater, but it is a big problem.
If you want to live long and well see CBC article with advise from Heart and Stroke Foundation. Basically, if you do not eat a healthy diet and do not exercise, you will spend the last 10 years of life sick and disabled.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Monday, February 11, 2013
Great Canadian Blogs
Jeremy Biberdorf of www.modesmoney.com has done a blog on Great Canadian Blogs. There are lots of very good Canadian financial and investing sites. He has quite a long list, so it might be worthwhile to check it out .
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, February 6, 2013
Return on Equity
To calculate ROE in my spreadsheets, I use Net Income divided by Book Value. The ROE can generally say how efficient a company is.
An ROE from 10% to 15% is considered good. A sustained percentage above 20% is considered above average. Warrant Buffet prefers companies that have a 5 year average ROE of 15% and with no year below 10%.
What Warrant Buffet wants is above average ROE. The average ROE for companies has been an average of 10 to 12%. A good ROE is one that averages between 12% and 15%.
If the ROE is high you want to ensure that the company is not highly leveraged. Take a look at the Leverage Ratios, which is Assets over Book Value. A highly leveraged company can be vulnerable in recessionary times.
The reason I also check the ROE based on the comprehensive income because if these ratios are far apart, it could mean that the net income is not of good quality. If the ROE on Net Income and Comprehensive Income is far apart, it is warning sign.
There is a very interesting article in Forbes about how ROE can be artificially raised or lowered.
According to this Forbes article, reducing share equity by buying back shares can artificially increase ROE. Increasing debt, too, can artificially raise ROE. Liabilities are subtracted from assets to get that shareholder equity, so issuing bonds or preferred stock or taking out loans reduces the total.
Companies that issue shares may have their ROE artificially reduced. Also, paying off debts makes the ROE look worse. So when solid companies did the responsible thing and paid down debt during the financial meltdown, their ROEs suffered for it.
There are other factors, asset write-downs for example, which game ROE numbers, intentionally or not. According to this Forbes article, investors can take a good ROE seriously at companies that are not in the business of buying back shares or raising cash.
In other words, look carefully at factors than can affect either side of this equation, the book value or the net income. This is just one of many ratios that can be used to value a stock. Do not reply on any single ratio to determine your valuation of a company.
For a definition of ROE see Investopedia or see Wikipedia or see about.com.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
An ROE from 10% to 15% is considered good. A sustained percentage above 20% is considered above average. Warrant Buffet prefers companies that have a 5 year average ROE of 15% and with no year below 10%.
What Warrant Buffet wants is above average ROE. The average ROE for companies has been an average of 10 to 12%. A good ROE is one that averages between 12% and 15%.
If the ROE is high you want to ensure that the company is not highly leveraged. Take a look at the Leverage Ratios, which is Assets over Book Value. A highly leveraged company can be vulnerable in recessionary times.
The reason I also check the ROE based on the comprehensive income because if these ratios are far apart, it could mean that the net income is not of good quality. If the ROE on Net Income and Comprehensive Income is far apart, it is warning sign.
There is a very interesting article in Forbes about how ROE can be artificially raised or lowered.
According to this Forbes article, reducing share equity by buying back shares can artificially increase ROE. Increasing debt, too, can artificially raise ROE. Liabilities are subtracted from assets to get that shareholder equity, so issuing bonds or preferred stock or taking out loans reduces the total.
Companies that issue shares may have their ROE artificially reduced. Also, paying off debts makes the ROE look worse. So when solid companies did the responsible thing and paid down debt during the financial meltdown, their ROEs suffered for it.
There are other factors, asset write-downs for example, which game ROE numbers, intentionally or not. According to this Forbes article, investors can take a good ROE seriously at companies that are not in the business of buying back shares or raising cash.
In other words, look carefully at factors than can affect either side of this equation, the book value or the net income. This is just one of many ratios that can be used to value a stock. Do not reply on any single ratio to determine your valuation of a company.
For a definition of ROE see Investopedia or see Wikipedia or see about.com.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Monday, February 4, 2013
Respect for Democracy Rally
When a small group of people can hold the whole of society at ransom, how is that respect for democracy? I do not think that people who have a monopoly on an essential service should have the right to strike.
I, of course, feel that workers should be treated with respect and fairness. But giving strike rights to government employees that own a monopoly to an essential service was wrong. They were able to secure for their members, salaries and benefits beyond what most tax payers could only dream of.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
I, of course, feel that workers should be treated with respect and fairness. But giving strike rights to government employees that own a monopoly to an essential service was wrong. They were able to secure for their members, salaries and benefits beyond what most tax payers could only dream of.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
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