Sunday, February 18, 2007

S&P 500 vs. TSE

Here is another reason why I need to include US equities in my portfolio.

The table below shows the performance of the S&P 500 and the TSX Composite Index since September 1981. Since this date, the average monthly return for the S&P 500 has been 0.92% (or 11.05% at an annualized basis). The TSX has averaged a 0.74% monthly gain (or 8.86% annualized).






Friday, February 16, 2007

ON DIVERSIFICATION

It's RRSP season and time to review my portfolio. The S&P/TSX Composite Index had an amazing performance last year, gaining 17.3%, and I have come to realize that I need to diversify away from Canadian equities. My main concern lies with the TSE's reliance on Financials and Energy, which comprise 58.9% of the index (see below).



Consequently, I will be replacing a good portion of my Canadian equity funds with a S&P 500 index fund, which has the following composition.








Tuesday, February 6, 2007

ON SELLING MY CAR III: FEAR AND GREED

On my last post dealing with the sale of my car I commented how I established a batna (best alternative to a negotiated agreement): I would try to sell the car for $7,000 or keep driving it a while longer. I had verified the black-book value and was confident this was a reasonable price.

The car was posted at the end of November and I only received two offers in December, both for $6,500. I turned them down, telling the prospective buyers that I was not prepared to go down that low. But, given the proximity to Christmas, these were the only two offers I received that month.

Soon I began to doubt my batna. Maybe I was asking too much? Fear. I should just call these people back and take the $6,500. Greed. I can save a ton on insurance if I sell the car now. More greed.

Eventually the car did sell for a higher price, but it took several offers. I constantly doubted myself and had to keep telling myself that it was a numbers’ game: sooner or later somebody would come along and take my offer.

Sunday, February 4, 2007

TWO CENTS

Last week, Canadian Dream shared some good savings tips on his blog. Here are two items that are at the top of my list:

1. Don't buy a new car. Cars can depreciate at 15% per year. They are absolutely the worst purchase you could ever make.

2. Use a VOIP phone. I used to spend about $100-$120 per month in communication costs (includes Internet) when I was with a certain phone company that is named after a certain gentleman who invented the telephone. I then switched to a VOIP company that charged me $20 per month and gave me every feature on the planet, plus 500 minutes of free calling anywhere in North America.

STAYING ON BUDGET

Am I spending too much on beer? Eating out a few too many times? Are my expenditures right on budget?

I try to answer these questions by conducting reviews of my expenditures at the end of every month. I facilitate this process by using a credit card instead of cash for all purchases, thus keeping an accurate record of all spending. At every month’s end I download my bill as a comma-separated-value (csv) file and categorize each item (e.g. groceries, car repair, restaurant, etc.). I then create a pivot table using Excel to see how much was spent on beer and restaurants.

I conducted this exercise throughout last year and was able to build a fairly accurate budget for 2007. Here is an example of what my spreadsheet looks like (hypothetical data used).

Thursday, February 1, 2007

ON SELLING MY CAR II

She sold! After a lot of work and much fretting over whether I was advertising the right price, I managed to sell the car. Here are the details: she was a 2000 Civic hatchback with nice rims, rear spoiler, and 80,000 klicks. I began the selling process last August by driving around with a for sale sign taped to the rear window (this produced very limited results). Again, the whole ordeal taught me a great deal about negotiation. Lesson 1 revolved around the selling price of the car and establishing a proper BATNA (best alternative to a negotiated agreement).

With regards to the selling price, I first established an astronomical price by comparing my car to others listed in www.autotrader.ca. I soon realized that most people list their cars for way too much; $9K for my 7 year old darling was a little too much to ask for. In order to set a more realistic value, I decided to visit a Honda dealership to get a worst case scenario: $4.5K. I also checked the black-book (tade-in) value, which was between $6,700 and $7,200.

These two values helped to establish my BATNA: I would try to sell the car for $7,000. Anything less and I would keep the car until she was worth $4,000. (I didn't really consider selling to a dealer because this alternative felt like giving my car to someone for four thousand bucks and a kick to the teeth).

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