Investing | I Heart Money

I Heart Our Banks!

Dividend Investing, Financial Coaching, Investing, Mutual Funds, Saving Money No Responses »

Feb 182013

People LOVE to hate the big five Canadian banks. If you read through their corporate twitter feeds or read the comments after the CBC Market Watch show on bank fees – you’ll read people’s rage. Other personal finance “talking heads” have been getting in on the action by tweeting about increased overdraft fees and other pain points that rally the unhappy customer rage.

I, on the other hand love when the banks increase fees. When they buy another bank like ING. When they add another ATM charge. Because I make sure not to pay these fees with some quick and easy steps AND I get my increased dividend payouts by owning all of the big five banks. Win win for me!

The BMO big five banks ETF that I own symbol ZEB did 14.71% in 1 yr. That’s probably better than any of the mutual funds that all of those banks sell. BMO ETF Equal Weighted Banks

Here is how I keep the dividends without paying the fees!

1. Keep the minimum balance in your account to waive the fee: I keep $1,000 to waive the $4 fee in my 10 transaction a month account.

2. Limit your transactions: I charge my gym, cell, insurance, internet, TV, groceries, gas etc. to my card and have it paid off at the end of the month with one transaction automatically. ( call your credit card company to do this).

3. Automatically have your retirement, mortgage/rent and debt payments come out of your account fixed: Make sure all of your necessities are automatic and set for your success. Max out on paying back debt and building up retirement vs. maxing out cards and lines of credit.

4. Take out weekly miscellaneous spending amount ONCE a week: Things like hair cuts, coffee, dinning out, gifts, clothes, and movies. This will keep your transactions to 4 or 5 a month plus they’ll stop you from using other bank machines. If you’re good with your credit cards you can make payment for the weekly amount and then charge away until it’s gone. But be good!

Keep getting the big 5 banks dividends without paying the fees!

Dave

Be Financially Savvy in 2013! Now 24% off.

Business Tips, Coaching, Credit Cards, Dating and Money, Financial Coaching, Investing, Mutual Funds, Personal Finance, Saving Money No Responses »

Dec 222012

CLICK ON THE BOOK TO BUY!

“While budgeting is akin to dental surgery to many, Lester approaches this in a way that is both painless and practical. He includes budgeting exercises that are easy to complete and which help you identify misguided spending that, when redirected, can result in better allocation of assets and income. “Writing it down in black and white is half the battle towards being a master at budgeting. The same principle applies to your goals,” says Lester. His ‘life status’ section allows you to identify your core values and to prioritize your life while also providing you with tracking tools to chalk up your achievements. These chapters alone make the book worthwhile.”

John Archer is an investment adviser with RBC Dominion Securities in Montreal and will be spending his New Year’s Eve coun
Read more: http://www.montrealgazette.com/life/Budgeting+will+help+make+money+love+back/5930472/story.html#ixzz2FnHVetI5

I Still (Heart) BMO Monthly Income Fund!

Dividend Investing, Income Investing, Investing, Mutual Funds 2 Responses »

Sep 142012

The recent fat kid on the mutual fund street that everyone likes to make fun of has been the BMO Monthly Income Fund. If you read other financial blogs and big papers you’ll read that the fund has a large return of capital in its distributions, that they will have to cut their .06 cents per unit and that it’s a horrible investment.

When I was writing my book three years ago I used the BMO Monthly Income Fund as great “Zero Effort Portfolio”. I liked it’s .06 a unit monthly distribution, how it is naturally built as a 50% dividend equity and 50% corporate/ gov’t bond balanced portfolio and how it only dropped 13.9% in 2008 when the entire market went down 33%. It has a reasonable 1.57% MER and you can wander into any BMO branch and buy it for novice investors. Starting to contribute with a simple $50 a month, newbies can get excited about money, watching the monthly income add to their pot!

In my book I wrote that if you had $100,000 divided by the $8 a unit you’d have 12,500 shares that each paid .06 or $750 a month. I decided to sharpen my pencil and see how it has done by crunching the numbers. There is fear that these distributions are unsustainable but BMO reports that most investors, re-invest the money and don’t draw from the fund. The fund only had a net drain on cash flow in 2008 when people were fleeing the market because of the crash. I’d keep an eye on it but here is how it’s done for me in the last three years. I don’t own it by the way!

If you held it since I wrote the book that would have generated $27,000 in yield after three years. The share prices have gone from $8 a share in September 2009 t0 $7.30 as of today. You would be down $8,750 on your $100,000 but up $27,000 in your distributions giving you a $18,250 profit in three years.

Now if you had re-invested your $750 monthly at an average $7.65 a unit you’d now have an extra 3,529 units and a payout of $961.76 monthly buying you 131 more units a month. One of the most popular ETFS from iShares XIU has a reported 4.41% return in the last three years compared to the BMO Monthly Income Funds’ reported 5.54% on the BMO web site.

If someone had bought my book and gone with the BMO Monthly Income Fund they would have been ahead of the game compared with what has been a more popular buy – XIU or TSX top 60 companies by market cap. Sometimes you just need to do the math and see how well you’re doing. Listening to or following the heard can end up being the wrong decision for you and your money.

Keep loving your money and have an awesome week,

Dave

Sell Options and Collect Dividends!

Income Investing, Investing, Mutual Funds, Uncategorized No Responses »

Aug 292012

Hi everyone,

Here is a section talking about how options work from the DCL Capital monthly commentary. Our super fantastic Portfolio Manger, Gordon Higgins, describes the process of selling options on dividend stocks that you already love. In this market it’s crucial to collect dividend and option income. DCL Capital clients are up while the market is flat to date.

If you’d like to be put on our email list to receive the DCL Capital monthly commentary please email me at davidlester@dclcapital.com.

DCL Capital Option Income Portfolios
• 2 sources of income: dividends and by writing options
• Actively managed value-oriented portfolios
• Focused on large capitalization dividend paying Canadian and US companies
• Individually managed portfolios
• Tax preferred dividends and capital gains from option premiums

Options as an investment tool.

Options are often perceived as a risky way to increase leverage in an investment portfolio; however they can also be used to generate income.

First, what is an option? An option is a derivative that allows the owner to either buy (call
option) or sell (put option) a stock at a fixed price over a period of time. Warren Buffett
describes derivatives as weapons of capital destruction yet he invested in warrants, long term
options, when he bailed out some US banks.

How can you take a derivative and use it to generate income?

You can enhance the yield by collecting income from selling what is known as a covered call. A
covered call is a call you sell when you own the stock. For example, you buy 200 shares of a
stock and write (sell) a call option on 200 shares of the stock. When you sell the option you get
paid a premium from the purchaser. This is your income. What do you have to give up to earn
this income? When you sell an option you sell the right to purchase the stock for a fixed period
of time, say 2 months, at a fixed price. If the stock is trading at $20, you might get 50 cents in
premium but limit your upside on the stock to $23 for 2 months. If the stock price drops you
keep the 50 cents as income. If the price rises buts stays under $23 you keep the income. If the
price rises above $23 you could be forced to sell the stock at $23 but you also get the 50 cent
premium. This strategy works best in a flat or slowly moving market. If stocks have large
upward price moves you give up the opportunity for significant gains. Remember the concept
was to increase ongoing income so selling a stock at a higher price than you paid is not a bad
thing.

David Lester describes this as collecting rent in his book “I Money”. He views the dividend
income as the first rent and the option premiums as the second rent. He feels investors get paid to
hold stocks, if they have dividends and options.

This strategy is not for every investor but may help those looking for higher distributions from
stocks they already like.

Covered Call Writing vs Covered Straddle Writing

Dividend Investing, Financial Coaching, Income Investing, Investing, Mutual Funds, Personal Finance, Uncategorized No Responses »

Aug 172012

In this topsy turvy market that has most investors staying on the sidelines, covered call writing has been a welcome strategy. Taking a portfolio of large cap stocks and collecting another stream of income as the market goes flat or down is a welcome tactic. As volatility has risen on every chance that the Euro will come to an end, it’s provided more premium by selling options. There are even a few new covered call ETFs that make the strategy available to us everyday investors.

Now meet Covered Straddle Writing! Not only do you sell a call on a stock but you also sell a put. The details on the strategy are below from the Montreal Exchange site. Chart 1 is the covered call strategy vs the iShares XIU TSX Top 60 Stocks and chart 2 is a Covered Straddle Writting strategy vs the iShares XIU TSX Top 60 Stocks. Hopefully the ETF companies come out with covered straddle products or maybe I beat them to it.

Check me out on BNN talking about it in February. David Lester on BNN

#1 COVERED CALL VS XIU

#2 COVERED STRADDLE VS XIU

Introduction to Covered Straddle Writing

A straddle involves the simultaneous purchase or sale of a close-to-the-money call and a close-to-the-money put. In order for a short straddle to be covered, the investor must hold the underlying security to cover the short call and must hold sufficient cash to meet the obligation of the short put. An uncovered short straddle is a volatility trade. The straddle writer is not focused on where the underlying security is going, only that it remains within the boundaries of a trading range established by the straddle. In the XYZ example (see Covered Straddle Writing Strategy), the straddle writer will profit if XYZ remains between $41 ($50 strike price less $9 per share in premium income) and $59 per share ($50 strike price + $9 per share in premium income). As for covered straddle writing, investors employ this strategy as a way to dollar average their way into a stock position. They do this by buying an initial position and setting cash aside to buy additional shares should the short put option be assigned. Covered straddle writing should outperform a buy and hold strategy in a bear market. However, the strategy involves ownership of an underlying security and an obligation to buy more shares of the underlying security. In a bear market, the underlying security will decline in value and so too will the value of the covered straddle. It will not decline as far or as sharply as the buy and hold strategy, but it will move in the same direction. Similarly, we would expect covered straddle writers to underperform in a strong bull market environment. The covered straddle writer is obligated to deliver the underlying security to the call buyer at a pre-determined price. In a bull market, that obligation acts as ceiling, limiting the full extent of a strong upside move.

This is from: http://www.m-x.ca/indicesmx_mpcx_en.php

Free BMW Anyone?

Coaching, Credit Cards, Dividend Investing, Financial Coaching, Investing, Mutual Funds, Personal Finance, Saving Money 1 Response »

Jun 252012

Well it’s been three years since I got my first free car so I’ve decided for a summer free car. In my book and in a former blog I wrote about how I get the stock market to buy me cars. Here is it again for anyone who wants a refresher.

First, you find an awesome car that you love and makes your heart go thump. This is easy for me since I’m a big car guy. This time around I decided to get a BMW Z4. I always buy a) luxury cars and b) cars that have that awesome factor in order to keep their value. The Z4 does an awesome job of holding it’s value, especially because it’s a convertible – and pretty rad.

My fist car was an Audi A5 and it topped the list of cars that kept their resale value. I opted for the 2.0T turbo engine that gets awesome fuel economy and made sure it had a nice sports package, quattro and other nice options to help it “pull away from the pack” to keep it’s value high.

When you find your stud-mobile, shop around online to find the place that will give you the best deal. Search online for the deals and how much you’ll think the car will be worth after a few years. Check out your work or any association deals you might have with the auto manufacturer. Partners of the manufacturer have a secret list and you could apply for up to 7% off! Just ask your dealer.

Here is the trick, and there is always a trick, right? After you get the very best price you buy the car and with CASH. If you have a trade in you’ll get the tax savings on it. If a car is worth $35k still when you trade it, you’ll get the 13% HST or $4,550 applied to the down payment. It’s a big saving over selling the car on your own!

If the new car was worth $60,000 you go to your bank and ask for an investment loan. B2B Trust does investment loans and so does BMO. You’ll have different options on how to structure the debt and payments.

B2B Trust Investment Loans

With my $60,000 that I’ve borrowed at 3.5% (that is tax deductible) I invested it in the Horizons ETFs that I’ve been writing about. I bought around $20,000 of HEX top Toronto 50 companies, $20,000 HEA.U top US 50 stocks on the NYSE and also $20,000 HEJ International big blue chips.

HEX, HEJ and HEA.U all are yielding from 9.2-13.8% and thus my $60,000 generates around $549 a month to make it’s own investment loan payments. You amortize the loan for as long as you have to to make the income cover all or most of the loan. At his rate, and not including any growth in my covered call ETF portfolio, the car will pay for itself. Compared to leasing or straight up buying the car, this makes tons of sense for me. Plus, because I own the car, I can blow it out at any time.

As the stock market gets bumpy, like it is about to get, the covered call portfolios could potentially generate more option yield due to volatility and the loan will be payed back more quickly. The market is sure to take some dives from now until the car is payed off but over the long run the top Canadian, US and International companies are a better bet for me than their respective governments. Worse case scenario is that their yields will drop but it’s still better than me making empty payments on a depreciating car.

Zim zimmer who’s got the keys to my free bimmer!

Dave

New Horizons' Covered Call ETFs!

Dividend Investing, Financial Coaching, Income Investing, Investing, Personal Finance 2 Responses »

Jul 042011

In my book I explain how I use a covered call strategy to get the kind of return that I want for my portfolio. By comparing it to a rental property, I show how I like to use dividend stocks and trade around them with options to increase my overall yield. When you buy a dividend buying stock it is like buying a rental property with one tenant. You’ll collect that income from them each quarter, year after year, just like rent.

I like to buy big blue chip dividend companies with a 3-5% yield. If we continue like the past, good dividend companies increase slowly over time and when they have extra profit they increase the dividend payment to their shareholders. It’s similar to how housing prices have increased along with rental prices.

Now when I write covered calls on the position, I then add another tenant to my rental. I now have two sources of rent. One source from the call and one from the dividend. I go from getting a 3-5% yield to getting twice that amount when you write these covered calls every other month.

Using this strategy of buying blocks of big blue chip stocks and trading options around them gives me a much better yield. And with this increased yield I will re-invest the money to keep growing my portfolio. It has been working very well for me right now. In my book I explain how I do this and get a third renter by selling puts too!

Keeping my strategy in mind, I’ve come across an entire basket of Horizon’s AlphaPro covered call options ETFs! This takes my strategy and makes it crazy simple for everyday investors. You don’t have to write the calls each month, and you don’t have to worry about replacing the stocks that get called away. There are all of my favourite sectors, like Energy, Financials, and Gold. Plus they’ve just launched a US Equity (CDN $ headged) covered call ETF that helps diversify the portfolio.

The ETFs will sell covered calls on the basket of stocks every 1-2 months at about 5% over the current stock price. In any market other than a crazy bull market, this strategy has been shown to outperform. The fund management fees are only 0.65% too.

Here is what I would do for sector break down:

20 % HEE – AlphaPro Enhanced Income Energy

20% HEF- AlphaPro Enhanced Income Financials

10% HEP- AlphaPro Enhanced Income Gold

25% HEX – AlphaPro Enhanced Income CDN Equity

25% HES.UN – AlphaPro Enhanced Income U.S. Equity (It converts to an ETF soon)

This portfolio currently has over a 10% yield thanks to the extra income from writing the calls. It also writes calls on non-dividend paying companies in the index to generate income on stocks that otherwise wouldn’t have some. The ETFs are available in a DRIP (Dividend Re-investment Program) so that the juicy monthly yield buys more units. Right now HEE is paying a 16% yield and we all know how I love big yield. All we need now is an AlphaPro International Equity covered call ETF!

I heart Horzon’s new covered call ETFs,

Dave

I Heart Options! New BMO ETF.

Dividend Investing, Income Investing, Investing, Uncategorized 2 Responses »

May 032011

In my book, I Heart Money, I have an income strategy where I buy large positions of Canadian blue chip companies and write (or sell) calls on the positions every few months. When I do this I collect the dividends each quarter and then get another stream of income from collecting the premiums from the sold calls. If you have no idea what an option is you have to buy my book!

There are many pluses to this strategy. Firstly, you increase your yield from only the dividend income by adding the income from the options. Secondly, the income is tax preferred. Compared to money from bond income, dividends and the option premiums are tax preferred. Thirdly, if the options aren’t exercised, the holder keeps the upside of the stock. Only 20% of options are exercised. Lastly, when markets are bearish the sold options will collect even more premium because of higher volatility levels. Win win for income investors like us!

It’s kind of like having a rental property and having two floors rented out. You gain the income from the dividends and then another stream from the selling of the options. I hold my stocks like the rental property and collect these two streams over the long term, just like how a rental property works.

This strategy takes time to manage. I constantly need to monitor my option positions and re-write them when the positions expire every few months. To my delight, BMO has come out with the BMO Covered Call Canadian Banks Exchange Traded Fund or ETF. It performs everything I described above on our 5 big banks, BMO, TD, ROYAL, NATIONAL, CIBC and SCOTIA, but it can be bought and sold as an Exchange Traded Fund, symbol ZWB.

Currently it has over a 9% yield and has still appreciated over $1 to $16 from it’s $15 launch price in Jan 2011. Being a common reader you know that I love yield and for a measly .65 Management Expense Ration it is very cheap to hold for a long time. Most mutual funds are over 1% Management Expense Ration and are half as sophisticated.

Check out the product at the link below. I don’t own it yet but It’ll be added shortly for sure.

BMO Covered Call Canadian Banks

Keep loving your money and it’ll love you back with a great yield,

Dave

BMO Covered Call Canadian Banks ETF Objective

BMO Covered Call Canadian Banks ETF seeks to provide Unitholders with exposure to the performance of a portfolio of Canadian banks and monthly distributions while mitigating downside risk. Currently, the investment strategy of BMO Covered Call Canadian Banks ETF is to invest in and hold the securities of Canadian banks, Units of BMO S&P/TSX Equal Weight Banks Index ETF or a combination of these. In addition, depending on market volatility and other factors, BMO Covered Call Canadian Banks ETF will write covered call options on these securities. Under such call options, the fund will sell to the buyer of the option, for a premium, either a right to buy the security from the fund at an exercise price or, if the option is cash settled, the right to a payment from the fund equal to the difference between the value of the security and the exercise price.

Fuel Up Your Savings and Portfolio!

Coaching, Credit Cards, Dividend Investing, Financial Coaching, Income Investing, Investing, Personal Finance, Points, Saving Money, Uncategorized 2 Responses »

Jan 262011

Fuel is on its way up and I wanted to share my strategies to save on this necessity. Not only will it take the pinch out of the pumps but it’ll get your portfolio going. Vroom vroom!

1. Buy a car that is fuel efficient – this will be more important as fuel breaks $100 a barrel this year. I love cars but I also love my money so I got the most fuel efficient but performance driven car. I have an Audi A5 but with the turbo engine instead of the V6. Not only is it a driver’s car but I get really good fuel economy. That is smart for my pocket book and the environment.

2. Get a fuel cash back card and use it. There are many cards on the market. I use the BMO Mastercard and fill up at Shell getting 1.5% back on my fuel. Then I pay cash when I’m in the US because you save .10 a gallon. That is around $1.50 a fill up or $78 a year.

3. Find a cheap gas station a little out of the way and make a route to hit it once a week to fuel up. In Toronto my place is the Shell on Dupont between Lansdowne and Dufferin. It’s always $0.05 a litre cheaper and I get my cash back when I use my BMO Mastercard. In Silver Lake I use the stations at Melrose and Vermont. They are always $0.10- $0.20 cheaper a gallon than anywhere else in Hollywood.

4. Buy a basket of energy trusts and collect the dividends – not only will you get the stream of income, most of the time monthly, from the royalty or energy trusts you will get all of the upside. I have 30% of my portfolio in oil or gas stocks and as oil increases in price, it will offset the increase in gas prices. Oil is only going up from here until we move to a new resource – and I can’t see that happening for a good 20 or more years.

5. Walk or use transit whenever possible. It’s good for your body and wallet. You want to keep both firm and fully packed, right?!

Love your money by being smart with oil stocks and it’ll love you back with free gas and a pumped up nest egg,

Dave

2011 Money Resolutions Made Easy!

Coaching, Credit Cards, Financial Coaching, Goal Setting, Investing, Mutual Funds, Personal Finance, Saving Money, Uncategorized No Responses »

Jan 022011

I bet everyone has some new years’ money resolutions on their list, right Bellos and Bellas? I’m used to seeing these following money resolutions on goals lists:

Pay down debt

Increase my net worth

Track my spending

Spend less on junk

Save eight months of salary

Well I have a great tool to help you achieve all of these on day one of 2011! It’s called Mint.com. It’s the old Quicken.com and I’ve been using it religiously since I found Quicken.com. And the best part of this program is that it is FREE!

You add all of your bank accounts, investments, credit cards, loans, assets and mortgages and it tracks all of your spending, budgets, net worth and investment returns. What fun! You can add accounts from different banks, business and personal, and it even tracks my US Bank accounts for when I spend the winter down here. All in once place!

Mint.com is available as an iPhone App!

Mint.com has an amazing app that is password protected and allows me to scan all of my cash, credit cards, budget and net worth on the first page. You can scan your last transactions from any of your accounts, check credit card balances, and feel safe a check has gone through. If I had to do those things with all my accounts I would have to check with four separate companies. Instead it takes two touches on my iPhone.

Every transaction that goes through any account or card gets categorized by Mint as best as it can. If it doesn’t recognze someting it will keep it uncategorized and wait for you to assign it a category. While waiting for someone at a mall (my mom) I’m able to categorize my transactions with a big smile.

It Helps Me Love My Money More

Mint also flags you when a big payment has gone in or out of one of your accounts and when an account has a low balance. I had a friend coming to visit me in LA last month and Mint emailed me that I had a low balance in my US Bank Checking account. It flagged that a big check had come out early, so I was able to transfer more funds before the weekend. I would have never known that the check had come out early and I could have been out money.

Budgets Galore and More!

Another great plus for Mint is that it gives you great freedom to set budgets for the month. You can set them and it tracks how much you have spent for the month on all of your budgets on the very first page of the iPhone app. If you click on it it shows how all of your budgets are tracking. If you do happen to go over (and I know none of my money loving readers would go over) it will send you an email letting you know.

Mint also sends weekly updates to your email account to let you know how much you’ve spent the following week. It includes your net worth which comes in so very handy to keep you motivated to keep saving and making more money! Can I get a whoop whoop for making more money?

Keep loving your money with amazing tools like Mint.com and it’ll love you back with accomplished 2011 resolutions!

Dave

Older Entries

I Heart Our Banks!

Be Financially Savvy in 2013! Now 24% off.

I Still (Heart) BMO Monthly Income Fund!

Sell Options and Collect Dividends!

Covered Call Writing vs Covered Straddle Writing

Free BMW Anyone?

New Horizons' Covered Call ETFs!

I Heart Options! New BMO ETF.

Fuel Up Your Savings and Portfolio!

2011 Money Resolutions Made Easy!

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