I always get the question from people at my speaking events “what should I put in my TFSA?”.  I’ve decided to write about that today and what I do.  Because I’m a dividend and options guy I’d make a portfolio of covered call ETFS.

GICs won’t give you a proper return to beat inflation and corporate bonds are just as risky as the big blue chip stocks that we buy, collect dividends, and write calls on.  Plus I get a way higher yield from them with volatility being the way it is right now.

Place $1k of your $5k into each of these ETFS each year ongoing.  Set up a dividend re-investment plan so that their crazy high yields that pay monthly keep buying you more units.  This is the best way to get a boost in your TFSA and save the tax.  You can’t use it like a savings account either.  You need to let your TFSA ride to gain the most of it using this strategy of yield and tax savings.  Just keep a high interest account for cash that you might need in the future.  It’ll pay you back in the long run.

I used the symbols below but the product name’s are as follows:

20 % BMO Covered Call Canadian Banks ETF (ZWB)

20% Horizons Enhanced Income Equity ETF (HEX)

20% Horizons Enhanced U.S. Equity Income Fund (HES.UN)

20% Horizons Enhanced Income International Equity ETF (HEJ)

20% Horizons Enhanced Income Gold Producers ETF (HEP)

If you like the banks for the long run buy ZWB.  It currently has a 8.9% yield made juicy with the six big Canadian banks 4% dividends and the rest is made of “writing” option calls on the positions every two months or so 5% out of the money.

Add HEX which is the TSX top 30 companies.  It has a 16.656% yield right now due to the volatility and you have the cream of the TSX all in one.

I’d then add in some US exposure and buy HES.UN.  This is the top 50 NYSE stocks with a nice 16.635% yield as of today.  It will be the similar HEX ETF but with US top stocks.  There aren’t any tax benefits because the dividends and capital gains are considered foreign here so it’s good that this US product is in your TFSA.

Because we want to keep adding the $5k a year to our TFSA to take the most advantage of the tax savings we will buy HEJ which gives us exposure to international stocks and then write calls on them.

For a little “spice” for our TFSA the last ETF I would buy would be HEP – The Gold producers covered call product. I don’t think that gold has hit it’s highs and with the volatility in the market the yield is 23.8% right now for this product.

Love your TFSA and it’ll love you back with long term tax free returns!

Dave

Part of making and loving money is to give a little back to our community.  We all profit because of each other and any money that I make due to our global community I give some back.  My favourite place to give back that I believe makes a HUGE difference is Kiva.org.

Kiva is a non-profit organization with a mission to connect people through lending to alleviate poverty. Leveraging the internet and a worldwide network of microfinance institutions, Kiva lets individuals lend as little as $25 to help create opportunity around the world.  It allows you to give something back when you’ve done well in the market through microfinancing the world’s most needy.

When I do my book signings at Chapter and Indigo stores, I always get actors, musicians and other non salaried artists coming up and asking how do they budget?  All the tips on budgeting are based on people who get paid on a regular schedule.  But if you’re an actor, musician, etc. you’ll get a chunk of change at a time.  It’s so easy to blow through the money that you get paid and then have nothing left for the few months that you’re waiting for the next gig.

I have a strategy for actors, musicians and the like that will help you keep on track.  Here is your action plan below.

1) Open a high interest savings account along with your chequing account.  Make sure that they are linked so that you can easily transfer or deposit money directly into your savings and then transfer to your chequing account.

2) Find the highest interest for your daily savings account.  Currently ING has 1.5%, Ally has 2.0%, and PC Financial has 1.5% with a minimum $1k deposit.  Shop around and get the best rate!

3) Go through three months of credit card and bank account statements and find out how much you spend each month on average.  If you had a bender of a month because you got the lead in “My Fair Lady” cut those numbers back down to the average monthly spend.

4) When you get your big cheques from working place them into your high interest savings account.  Set up a fixed payment from your savings account and pay your self like a salaried employee.  If you need $3k a month but you made $9k from a show, you’ll get $3k a month for three months instead of blowing the $9k the first month.  I dated an actor so I know how this goes!

5) Get side jobs to keep your savings growing.  There are tons of classes that you can teach, working for your favourite charities or community groups, what ever you love to do that will still pay you when you aren’t working.  Have these cheques go into your savings to keep you at your set monthly budget.

6) Only use CASH for your everyday expenses like eating out, entertainment, trips and shopping.  This will put a ceiling on how much you can spend each month to keep your acting cheques lasting you longer.

7) Set up your monthly expenses on a no fee credit card.  Charge your cell, fixed groceries, utilities, and tv, internet bill to your card and then get your bank to pay it off each month for you.  Add up how much they all cost and then know that $XXX will be coming out of your account on the xxth of every month.

Build your credit! Many actors, musicians, etc. get to a point where they make it big and want to buy a home or get a car and they don’t have any established credit.  By charging your fixed expenses and then paying them off you’ll build your credit while you stay on budget.

9) Budget for classes to improve your skills.  If you want to take a class to improve your skill – make sure you have the money first.  Work extra shifts, take another job or save monthly so that you pay cash for your courses.  It is a ton of emotional work to be the best at your craft you don’t want to worry about having to pay it back.

10) Be amazing!  If you take the energy out of being stressed at money and direct it back into your art – you’ll flourish.  Be sure the break a leg every time you perform. Not the bank.

Have an awesome week,

Dave

Reduce Risk and Increase the Love to Your Portfolio

We’re having some crazy days on the market for the last six months or so and it looks like we’re entering a time of slower economic growth. This new economic cycle will be a time of volatility and fewer company profits which equals less stock price appreciation. To compensate for this slower growth, investors should be looking for to reduce their risk anyway they can.  Here are three ways I do this.

Number one, load up with strong companies that return a solid 3% dividend, or more. When times get tough, money managers build positions in large dividend paying stocks and therefore there will be more of a demand for them. All our pension funds and boomers need yield moving forward and they’ll get it in our big blue chippers that pay dividends. If there isn’t any growth in the stock price-moving forward like we’ve been seeing for the last six months, at least I know I’ll be collecting the sweet sweet dividends.

Second, write covered calls.  What I do in my portfolio ads a spin to just collecting dividends from our big blue chips. Find an ETF that writes or sells covered calls if you don’t want to do it yourself.  Horizons has the Canadian TSX 60 top stocks and writes calls on all of them – symbol HEX.  I’ve written about it and BMOs has ZWB that writes calls on the six top Canadian stocks before. Diversify your portfolio and collect income from not only the dividends but covered calls too.  Check out more on HEX at the link below.

Horizons HEX

Thirdly, us an equal weighting strategy.  I like to keep all of my money so I buy stocks and build my portfolios myself to save the management fees.  I make sure that I equally weight each stock and rebalance stocks quarterly to make sure that one sector doesn’t get too big.  When oil hit record levels earlier this year it was smart to rebalance and buy some weaker sectors like telecoms or railroads.  Now that oil has come back down I didn’t have that extra exposure to the energy sector.

Bonus point!  Set your account up on a DRIP (Dividend Reinvestment Program) and let it automatically buy more shares each payout for $0 trading costs.  Many of the large dividend paying companies have a discount if you sign up for the DRIP program.  BMO gives you a 2% discount every time your dividends re-invest in shares.  As prices fluctuate you lower your average cost by buying at the lows and increasing your overall yield of the portfolio.  Win, win. 

My overall idea here is that by reducing your risk in your portfolio you can hunker down for the next market cycle and concentrate on the dividend paying stocks dividend income and option premiums. Creating a portfolio that is diversified, equally weighted, and paying solid dividends will ensure a retirement asset to fulfill your goals and aspirations – and help you sleep.  

Have an awesome and profitable week!

Dave

How to save TONS in Mortgage Interest!

When I was a banker we had this tool to show you how much you’d pay in interest over the amortization.  When you look at the bottom of the chart I always liked to point out that you basically pay the same amount in interest as you took out on a mortgage at an average mortgage rate.  Cripes!  If your house doubles in 25 years you’d still be flat.  Here is how to take some of the “ouchie” out of that number.

1. Set your payments from monthly to bi-weekly–or even better weekly. Bi-weekly payments mean you make one extra monthly payment per year compared to monthly. Over the amortization time of your mortgage these extra payments will save you thousands.

2. Round up your payments. If your bi-weekly payments are $829.68, for example, round them up to $900. The extra $70.32 bi-weekly will save you even more over the amortization of your mortgage.  Plus round numbers are nice to see when you’re adding up your expenses at the end of the year.

It is so hard to step away from your prime minus variable rates when they are so low. I had a rate of prime -.85 before I sold my place. Stick to your variable rate.  In my opinion interest rates will climb slowly over the next ten years.   Increase your payments so that you are making the payments that you would be for a five year fixed. There are two advantages to this:

1. You will be paying down your principal very quickly, which will equal less principal to pay back when rates go back up. It will save you bundles in the long run.
2. You’ll also be used to the payments at a higher interest rate. When you need to renew or decide to go with a fixed rate, you’ll have a few years of already making payments at that higher rate.

Get rid of the extra insurance and crap the banks offer you.  Make sure you are covered through work or get proper term and disability and then dump that extra money on your mortgage.  I use to get huge bonuses on my disability and life insurance sold on mortgages.  If the banks make tons of money off it – it’s not a good deal for you.

Dump your RRSP contributions back onto your mortgage if you don’t have debt or RESPs to fund.  It’ll help you finish off the mortgage faster.  If you get any unexpected money from insurance or estates – dump it on there too and feel good about where it went.

Try out some of the mortgage calculators online to see how much interest you save with the different options, along with how many years you’ll “bump off” your amortization, instead of it bumping you off. And mortgage free years are years that you can spend that mortgage money on your extra special life!

Have a mort-free week,

Dave

My kids’ RESP or my RRSP – which to choose?

The kiddies are all back to school again.  We made sure that they all had new outfits for the first day of school, backpacks that fit all their do dads and the coolest cahiers and pens to capture their little genius.  But what about RESPs for college and university?  It’ll be right around the corner soon.  It seems hard to fund our RRSP contributions never mind our kids RESPs!

I get tons of questions about which registered plan to fund first when I do my book signings across the country.  (I’ll be in Vancouver on Sept 21^st doing a signing at the Granville Chapters!)  I get … “If there are only so many dollars floating around how do I choose which plan to contribute to?”  “The kids will be off to university before I retire so are RESPs the priority?”  “I also know that I need my money to be in the market for a long time to help it grow?  What’s the answer?”

The answer I always say is BOTH.  You need to FULLY fund your RRSP to make sure you have enough money in retirement and you need to do it now if not sooner!  Think of the financial stresses that our financial system will be under when we retire?  We’ll still be paying back all our government debt then, the boomers will be raiding the pensions, plus the economy looks like it’ll be sluggish for the next few years because of this last HUGE recession.  That will result in a smaller return for your RRSPs.

Ok cool, so now we have committed to pay ourselves first.  Make sure we dump as much into our retirement as we can. In my book I have the scenario where you contribute $800 a month for 30 years at 8% growth to be a millionaire.  But what about Junior’s RESPs you ask?

Take your return each year and use it to contribute to the kids RESPs.  The government will add 20% up to $500 a year for a total of $7,200 over the plan’s lifetime.  When you have birthday parties ask for  ½ toys 1/2 contributions instead of gadzillions of toys. Paper routes, parks and rec. jobs and be forwarded towards the fund as well.  Get Nana and Papa to help as well.  That’s what grandparents are for – spoiling their little monkeys.

Don’t pick RESP over RRSP – contribute to both!  It’ll make you feel secure that you and your KIDS are taken care of in the long run.

Love your money and it’ll love you back with secure education and a secure retirement,

Dave

I Heart Money is 24% off right now at Indigo.ca

Keep A Money Diary Everyday

I like to keep track of all of the money that is coming in and going out from my personal accounts and my business accounts.  I use MINT.com to track all my assets here and in the U.S.  I also check my online account at least once a day.  It’s a good practice to keep.

Another great way to track you money is with a money diary.  My friend Ryan just got back from Scandinavia and brought me back a really awesome notebook.  I instantly recognized it as my new money diary.  I like to jot down my daily income and expenses each day.  Today, for instance, I took back some bottles from a party I had this weekend and collected a whopping $3.60!  For the rest of the day I wrote down all of my expenses like breakfast , coffees, and another liquor store run.  I am very social.

At the end of the day I’ll tally my income for the day vs my expenses and it’s amazing how after a few weeks you’re that little bit more careful about how you spend your money.  Watching a few days go by where you spend just a bit too frivolously will be more obvious when you add up all of your spending daily.  If you just swipe away you sometimes don’t make the connection between all of your random purchases and how much you really spent.  It’s easy to forget a $65 gas bill when you don’t write everything down.  It’ll keep you on top of your spending.

The other thing I keep track of is what my next trading idea will be.  Today I saw Gold come back down and I’m thinking of writing a deep in the money call on GLD – the ETF.  That’s a way to get all the upside of Gold bullion without having the risk of my option expiring worthless.  If I choose to go a few months out into NOV for a GLD 120 call option, I’ll have all the upside as Gold blast past 1900 in the upcoming months, with the downside protection of taking the GLD ETF units at $120 if it backs off.  I believe Gold will move higher as the US and Europe borrow into infinity so it’s a great strategy for me.  I’ve sketched it all out in my money diary.

Love your money and write about your spending and investing ideas EVERY day,

Dave

Are we blowing up?  I had a bunch of my clients call to see if this was the double dip that we have all been afraid of.  The decisions or lack of decisions are in the hands of the central banks and politicians.  I do however, know what worked for me in 2008.  Here is what I did.  It’ll work really well again now.

Set Up A DRIP (Dividend Reinvestment Plan):

All of my stocks pay a dividend to cushion the downside in times like this.  Dividend stocks pay you to wait for times to get better.  When the market went down like this last time, I had all of my dividends set up on a DRIP.  That way as the market went lower I bought stocks as they got cheaper and cheaper.  When the market goes back up you’ll have a higher average yield than when you had started.  Win win.

Review What Works:

Take a look at what stocks that you had went down the worst.  See which ones held up the best.  If you look at the sector breakdown of the DOW Jones Industrial Average  you’ll see that companies like Proctor and Gamble, Coca Cola, Johnson and Johnson, Walmart, McDonald’s, Kraft, and AT&T hold up the best.  Make sure that you get more or have these guys in your portfolio.  You’ll also get some yield as the market sorts itself out.

Review What Doesn’t Work:

Make a list of the stocks that got their faces ripped off.  When the market moves back up be sure to get rid of your dead wood.  Take the proceeds and buy what worked in bad times with a great dividend.  The funny thing about the list of what worked in this kind of market is also a list of the companies that have been doing well in the bull market too.  McDonald’s, AT&T and Kraft are all up year over year.

SELL Option Calls:

Either buy some of the great covered call products that I’ve mentioned in previous posts or do it yourself.  When times are tough like they are right now, the option premiums that you’ll receive from the sold option calls will be really juicy.  This will help build cash to buy even more stocks cheap and to offset the downward movement.  If you sell option on your gold or oil stocks they are HUGE right now.

If you are not comfortable selling calls on your own.  There are great products from BMO ZWB – BMO Bank Covered Call ETF or from Horizons – HEE, HEP, HEX, HES.UN, HEF.  See my past blogs on them.

Just remember that this storm will pass.  Set up drips, see what works, see what doesn’t and build cash by selling options.  Trust your money and it’ll reward you when the times become better.

Dave

Here are my best tips to keep your credit score well loved.  Credit scores are becoming more important in day to day lives.  Landlords, bankers, and I bet mother-in-laws check them to see how responsible you have been in the past.  Keep your rating in proper shape and it can save you loads of money in interest if you treat it right.

I know you are the type of person who will only be satisfied with the best. Your credit rating should be treated in the same manner.  A score of 750 or higher is what you want to have full stop.  A FICO rating of 750 or higher will prove to employers that you’re a “steady ship” and get you the job, your lenders will give you the best rates to save you money and landlords will give you the lowest down payment on your apartment. Anchor yourself to this number and get it!

Know your credit rating and make sure that you keep it above 750.

Find out what your credit rating currently is and then make a plan to keep it if it’s over 750 or get it there if it is less.  You find out your rating from the three credit rating agencies (Equifax, TransUnion and Experian) once a year for free in most states and provinces.  Your credit rating is very important so be sure to treat it like you would any other important person or item in your life.  Respect and nurture it and it’ll pay you back in the long run.

Don’t say yes to more credit just because it feels good at the time.

One of the ways to keep a high credit rating is to keep only two (max three!) credit cards.  When you have loads of credit cards it lowers your overall credit available and your rating too.  Keep it to two or three cards and fix the limits to your desired amount.  Call up your bank or credit card company and make sure that they don’t have auto limit increases.  Be master of your “money house” and tell them what your limit will be.

Make sure to “pay” your bills automatically so there is more time to “play”!

Your payment history makes up 35% of your credit score so it is crucial that you pay all of your bills on time.  This makes total sense if you think of it from a lenders point of view.  They want to make sure that you are paying back your loans in full and on time.  Why not make this a win win situation.  Make all of your monthly bills such as electricity, mobile phone, cable, gym, etc. all come out automatically from your account or on a credit card and then pay your card off completely at the end of the month.  This way you will never forget a payment or lose a check in the mail. This will automatically build your rating as you pay your bills month after month after month and free up precious time.   Spend that time that you’ve been paying them individually online or writing and mailing checks doing something you love like your career!

Don’t burn your credit bridges!

Missing one payment won’t hurt your rating but missing them chronically will put you on the late payers list or worse. If you’re in an emergency and can’t pay your loans or credit cards call your lender and have an open dialogue with them.  Don’t ignore the problem because your rating will be hurt the most in that situation.  Like in the job world, having a negative relationship with an old employer or lender does not serve you in the long run. Lenders would rather work with you to get their money then to drive your rate lower and lower.

Don’t always be searching for credit.

Employers are like creditors in the sense that they don’t like it when you’re always searching for credit or a new career.  If you’re applying for a loan make sure that the credit officer is going to give you the loan and you’re going to take it before they check your credit.  If you have several credit inquiries on your report it’ll lower your rating.  A good rule of thumb is to have it checked only once a month max.  If you’re buying a car, house, etc. then spread them out so your rating doesn’t take a huge hit in that one month.

Have a great long weekend,

Dave