take a break

A Connection Is Made...

I personally don't find it very difficult to control my spending. Part of this is a function of the fact that our household income far exceeds our lifestyle requirements so we can be a little bit loose with our spending. We don't have to worry if our groceries for one week are $20 above the expected average for a week. Another part of this is that we don't really have the desire to impress anyone with our 'stuff'. We only have one car which works out quite well for us (I will admit it is a higher-end car, a Volvo S60, but we only got that because we got a deal on it and because I was lucky enough to have some in the money stock options so I could do some RSP contribution tricks), we have lived in the same house for the last 7 years and it is an older house so it seems it is in constant need of work both inside and out but we do that work on a longer-term schedule, we don't have a 'need' to spend a couple of weeks every other year in Europe or Asia or even on the west coast here in North America (the last time I was on a plane was in 2003 which was paid for by my employer and for M it was in 2001, just one month before 9/11). Anyway, the main point is that we live very much within our means and we don't find it very difficult to do. We have what we need and we don't overspend just for the sake of over spending.

Contrast this with my (not M's, just my) 'caloric spending'. I am right around 5' 9" tall. I currently weigh in at around 102 kg (about 225 lbs.) and my body fat percentage is around 20% which is on the high side of the overweight category for a male my age. I think I have been a little bit smug about how other people spend their money friviously (as you might be able to tell by my comments about European vacations and $6 smoothies). Over the last couple of weeks I have come to the realization that the 'issues' I have with food and eating more than I should more often than I should is very similar to people who spend more than they should more often than they should. The method of over-doing is different but the fact that something is being over-done for irrational (or even unconcious) reasons is the same...
category: Personal Finance posted on Sunday June 25, 2006 at 23:10:18 by: 0xCC

Our Investment Goals

In previous articles I have talked about how important I feel it is to track your spending. The main reason I think it is important to track your spending is so that you will have a good understanding of the cash flow required to maintain your lifestyle no matter what level your lifestyle is. If you like taking a 2 week trip to Asia every 18 months or enjoy little weekend jaunts to New York or Las Vegas or if you like to spend $6 on a cafe-made smoothie twice a week (that would cost you less than $1 to make at home) that's all well and good, you just need to have an understanding of how much you are spending, what you are spending on and how that spending changes on a year to year basis. Once you have an understanding of all that you can start to look at how the income your investments are generating can subsidize your lifestyle.

This brings me to the point of this post, our investment goals. Our main investment goal is to provide enough after-tax income to support our lifestyle. Our second goal is only slightly different than the first, increase our after-tax income (income from investments) at a rate that exceeds inflation. Our final investment goal is to increase the market value of our portfolio by an average of 8-12% a year. I think it is important to note that increasing the market value of our portfolio comes in third on our list of goals, and a very distant third at that.

This past month has been very difficult to handle from a investor's perspective. Over the past month or so we have seen our portfolio shrink to the size it was at the beginning of the year (taking into account funds added so far this year). So while watching our incredible shrinking portfolio it has helped to keep in mind that although the market value of our portfolio has gone down because we have quality companies that have a history of increasing their cash payouts (either in distributions or dividends) the cash flow from our portfolio has actually increased since the beginning of the year. Ok it hasn't helped but I have been trying to think more about cash flow than market value in an effort to prevent myself from just assuming the fetal position in a corner somewhere.

Oh and this past week should have given a lesson in market timing to anyone that has been paying attention to the TSX Composite Index. On Tuesday the index dropped between 2% and 3%. By Friday if you weren't paying attention all week you wouldn't have noticed the dramatic swings the market had made over the week.
category: Personal Finance posted on Sunday June 18, 2006 at 22:44:01 by: 0xCC

Rough Week

Last week was a pretty rough week for the markets and for our portfolio. The TSX Composite Index is now just barely in positive territory for the year, closing at 11390.7, it closed 2005 at 11272.26 meaning it is up only 118.44 points or 1.05%. If you held an index fund and sold everything at the close on January 3 you would be in better shape today than if you had held. The index closed at 11441.58 on January 3. The Dow closed at 10717.50 at the end of 2005 and closed last week at 10891.92, a gain of 174.42 or 1.62% only slightly better than the TSX. Of course the rising Canadian dollar would turn that gain into a loss when converted from US dollars. Finally the S&P 500 closed out 2005 at 1248.29 and ended last week at 1252.3 a gain of 4.01 points or 0.32%.

The returns for this past week have had probably the biggest impact on the year to date performance of the markets. The TSX Composite lost about 4.27%, the Dow lost 3.16% and the S&P 500 lost 2.78%

Looking at our portfolios since the beginning of the year, our professionally managed portfolio has an internal rate of return of 6.16% (internal rate of return gives an annualized rate of return based on how long money has been invested). On the other hand, the accounts managed by me have an internal rate of return of 4.41% this year. If we take a look at the last week however, the story is slightly different. The accounts managed by me lost 3.74% from June 2 to June 9. Our professionally managed account lost 4.25% (both absolute returns, not annualized).

I admit that it is pretty easy to pick on one week's worth of returns and that is part of the reason I presented the year to date returns here. Having said that, I think that one of the reasons for having a professionally managed portfolio (in other words a collection of mutual funds chosen by an advisor) is to have some reduced volatility. I think that part of the value that mutual fund managers should be able to add to a portfolio is stability. Mutual fund managers should use some form of hedging to make sure their more risky stock picks don't have a big impact on the overall performance of the fund. Of course, comparing these returns to the returns of the market over the last week puts a bit more of a positive spin on the results. Our managed portfolio just barely did better than the TSX Composite Index over the last week. Barely.
category: Personal Finance posted on Sunday June 11, 2006 at 10:24:13 by: 0xCC

Sam Spendalot - Payday and Update

Last time we left Sam his accounts looked like this:
Main account: $2539.49
Cash in pocket: $21
Credit Card balance: $460
High Interest Savings account: $500.57

Pay Day
There has been one pay day for Sam since the last update. Sam's take home income for the two week period was the regular $1600.04. As Sam has done over the previous 5 pay days Sam immediately took $100 from his pay cheque and put it into his high interest savings account.

Cash in Pocket
There were 8 working days in May since the last update and 3 (including today) in June. Sam has been starting to think about how to reduce his cash spending but he hasn't done anything about it yet. So he is still spending $3 a day on his morning coffee and muffin and he is also spending $8 a day on average on lunches. So in May Sam spent a total of $88 on coffee and lunches. Since Sam only had $21 in cash after the last update he actually had to go to the bank machine twice, taking out $60 each time. That left Sam with $53 in his pocket at the end of May and he spent $9 in June on a coffee and muffin and $24 on lunches (again, including today). That leaves exactly $20 in his pocket.

Regular Expenses
The first of the month has come and past and Sam had to pay his regular first of the month expenses. These expenses include mortgage ($871.55), car insurance ($122.58), car loan ($280.33), condo fees ($240) for a total of $1514.46. Sam also had to pay off his credit card. He only put his car repairs on his credit card last month which meant a credit card bill of $460. Finally, Sam has bought groceries twice since the last update, paying $65 and $62 for a total of $127.

High Interest Savings Account
On the first of the month Sam got his interest payment in his high interest savings account. At the beginning of the month he had $300.57 in his account. This generated 77 cents in interest. On May 4 he added $100 and this generated 23 cents in interest. Finally on May 18 he added another $100 which generated 11 cents in interest for a combined total of $1.11. Adding the $100 he put in on his pay day the balance in his high interest savings account is $601.68.

Car expenses
Sam has had to fill up his car twice in the last two weeks, once at 99.2 cents a litre and once at 96.3 cents a litre. The fill ups for 45 litres cost 44.64 and 43.33.

Other Expenses
Finally, Sam went to the dentist last week. He has dental insurance through work but it only pays 90% and Sam has to pay his dentist up front and wait for a cheque to come in the mail from the insurance company. So Sam paid $185 on his credit card for the dentist. Unfortunately Sam also has to go back this week to get a cavity filled so there will be another charge coming up.

So now Sam's accounts look like this:
Main account: $2,141.81
Cash in pocket: $20
Credit Card balance: $185.00
High Interest Savings account: $601.68

Just finding out about Sam Spendalot? Use these links to navigate through the series:
Start of series.
Previous update.
category: Personal Finance posted on Monday June 05, 2006 at 13:39:15 by: 0xCC