Celebrate Humanity
Well, the Olympic Games have finally arrived in Vancouver. I'm currently writing this as I await the Opening Ceremonies, and I can not be more excited. I've grown up watching every Olympics since 1996, and I've witnessed feats of human achievement inspire an entire nation and feel the victory of one individual bring pride to a country of millions. But today, those feelings of hope, inspiration, and humanity lay in the hands of my country.
Canada has hosted two previous Olympic Games, but did not win a gold medal in Montreal or Calgary. The expectations of the Canadian athletes this year are insurmountable, especially for the Ice Hockey teams and Curling teams. When Vancouver was announced the host city a few years ago, the country had a theme to support our athletes. "Own the Podium" was instilled in the minds of every Canadian, and now it is up to our athletes to justify all Canadians have done.
The Olympic Games bring the world together to compete and showcase the best humanity has to offer. Heroes like Phelps and Bolt are born, stories of unity will be shared amongst competitors, and cultures will mesh for the human spirit. To see competitors of rival nations stand side-by-side on the podium as champions brings a little hope for the world's problems, albeit a pipe dream. The best part about the Olympics is that we will all root for our nation's athletes with a great passion, but nobody is ever disappointed with the final result, because The Games are a symbol of peace.
Both tears of joy and despair will be captured for the world to witness, but these athletes should be proud of what they have done. I want to wish good luck to all Canadian athletes and want to welcome the tourists and athletes from all around the world. Canada will not let you down. Our world-renowned hospitality and politeness is not a myth.
Before I finish up, I would also like to share my condolences to the country of Georgia and the family of Nodar Kumaritashvili. Earlier today, the luger died in a practice run. He was only 21 years old. To see a man put years of hard work and effort into his passion and have his chance at victory wash away so suddenly puts the games into a perspective. I have heard that the Opening Ceremonies will be doing something in mention, and I hope all countries and people can honour his life properly.
With that said, let the games begin!
The Bare Necessities: Chapter One
Chapter One: The Real First Step
Most people who start investing get their information from pamphlets, the television, and the Internet. These are great sources of information, but people often do not understand that investing is more than just dollars. The first 
step is determining your current and future objectives through risk tolerances, needs, age, employment conditions, and even capital. A small difference in any of these variables may produce an entirely different portfolio. Sadly, for most people who want to start investing, they can not afford an advisor to determine this, so here are some textbook ways to do this yourself.
Risk Tolerance
Being able to handle risk will ultimately shape your account. However, it can be quite difficult determining your risk tolerance. One suggestion is to sign up for a free mock trading account. These mock accounts allow you to trade and invest using pretend money with real-life quotes. It is not as effective as using your own money, but it is a great way to figure out if you can handle losing a few hundred dollars over night. It is also a great way to get real-life experience without risking a cent.
Once an individual's level of tolerance is fully understood, advisors can build an appropriate account. Those with a low risk profile should have little exposure to stocks, allowing them to maintain their capital with limited exposure to the market, however keeping enough to create some growth.
Traditionally, low risk vehicles are money markets, treasury bills (t-bills), guaranteed investment certificates (GIC), commercial deposits (CD), and bankers' acceptances (BA). These products are usually backed by an issuer, the government, or the CDIC (FDIC in US), therefore have almost no risk.
Medium-risk vehicles may include mutual funds and bonds. These products are not backed by an issuer, and the risk of losing all your money is possible, but due to its features, is quite unlikely. We will discuss this more in-depth later on.
High-risk vehicles are considered to be stocks, real estate, options, commodities, and foreign exchange. These vehicles provide no guarantee on your capital and losing it all is very possible. The adage higher risk, higher rewards runs true historically. The high-risk vehicles average over 8 per cent annually, but with volatility, that is, years of ups and downs.
Needs
What is the difference between a 40-year married male with two children and a 25-year old single male? That was rhetorical by the way, but these life needs can factor into a portfolio as well. There are a multitude of options each of these have. The man with children may have less capital to invest, but could also open up education accounts for their children, could pool funds with his spouse and open a joint account, or may be able to make spousal contributions into an RSP.
The single male will also have many options because of his needs. Lower expenses could mean more can be contributed to RSPs and TFSAs (sorry to my American readers. I believe it's 401K's), investing in more products, and potentially taking on more risk.
Other needs may include liquidity. Many people may invest the majority of their savings in their investment account, but what if there is an emergency or an opportunity arises outside of the market? The ability to release funds in a timely manner is also a factor. A person who may have a large savings account will not need to access their investments, therefore, has the ability to lock in to long-term products for better returns.
Age
A person's age can be an influence when building a portfolio because of its inverse relationship with risk tolerance. The younger somebody is, the higher the appetite and fit for risk. A 20 year old will have ten more years to save and recover from high risk losses compared to a 30 year old. For most, this means investing a little more in high-risk ventures like penny stocks, new companies, and even companies nearing bankruptcy. The opportunity for huge returns outweighs the potential for losses.
Employment
An investor's source of income can also have a factor on the portfolio. Those employed with a fixed salary have more stability and therefore can build an account with more risk. The certainty of a paycheque next week provides for this basis. Another option with fixed salary workers is their ability to make periodic investments into mutual funds or registered accounts. Mutual funds allow investors to put in just a few dollars, usually just $100 a month at no additional cost. This dollar-cost averaging allows investors to stabilize their purchases instead of going in all at once. This strategy would not be practical for stocks, with the exception of Dividend Re-Investment Programs (DRIPs). The purchase of stocks will always have a commission, which can eat away at returns. Therefore, those who plan on making periodic payments should consider mutual funds appropriate with their risk apetite. Again, we will discuss mutual funds in a future chapter.
Those that may be free lancer or have unstable sources of income may want to consider a more stable account filled with preferred shares, bonds, and risk-free assets. Preferred shares and bonds generally are less volatile and do not move up and down with the market. They provide higher returns on dividends and coupons because of their lower risk profile. The inclusion of the risk-free assets (money markets) provide the liquidity required during times void of income. These products clear within one business day, meaning access to the cash is available in 24 business hours.
Capital
The final variable an advisor may look at is start-up capital. Those that head to a broker typically have half a million dollars and want a professional to maintain their wealth, but in reality, most of us start with just a few thousand dollars. For those that have less than $3,000, I would suggest mutual fund investments, which I will discuss in the coming chapters. The larger the account is today, the more options one has. Those that want to avoid fixed income or mutual funds should stick to large blue-chip companies that are expected to be around for a few decades. Historically, these are banks, utilities, energy, technology, and consumer staples that pay dividends. Again, consider your risk factors, needs, etc. to determine what are appropriate for you.
step is determining your current and future objectives through risk tolerances, needs, age, employment conditions, and even capital. A small difference in any of these variables may produce an entirely different portfolio. Sadly, for most people who want to start investing, they can not afford an advisor to determine this, so here are some textbook ways to do this yourself.
Risk Tolerance
Being able to handle risk will ultimately shape your account. However, it can be quite difficult determining your risk tolerance. One suggestion is to sign up for a free mock trading account. These mock accounts allow you to trade and invest using pretend money with real-life quotes. It is not as effective as using your own money, but it is a great way to figure out if you can handle losing a few hundred dollars over night. It is also a great way to get real-life experience without risking a cent.
Once an individual's level of tolerance is fully understood, advisors can build an appropriate account. Those with a low risk profile should have little exposure to stocks, allowing them to maintain their capital with limited exposure to the market, however keeping enough to create some growth.
Traditionally, low risk vehicles are money markets, treasury bills (t-bills), guaranteed investment certificates (GIC), commercial deposits (CD), and bankers' acceptances (BA). These products are usually backed by an issuer, the government, or the CDIC (FDIC in US), therefore have almost no risk.
Medium-risk vehicles may include mutual funds and bonds. These products are not backed by an issuer, and the risk of losing all your money is possible, but due to its features, is quite unlikely. We will discuss this more in-depth later on.
High-risk vehicles are considered to be stocks, real estate, options, commodities, and foreign exchange. These vehicles provide no guarantee on your capital and losing it all is very possible. The adage higher risk, higher rewards runs true historically. The high-risk vehicles average over 8 per cent annually, but with volatility, that is, years of ups and downs.
Needs
What is the difference between a 40-year married male with two children and a 25-year old single male? That was rhetorical by the way, but these life needs can factor into a portfolio as well. There are a multitude of options each of these have. The man with children may have less capital to invest, but could also open up education accounts for their children, could pool funds with his spouse and open a joint account, or may be able to make spousal contributions into an RSP.
The single male will also have many options because of his needs. Lower expenses could mean more can be contributed to RSPs and TFSAs (sorry to my American readers. I believe it's 401K's), investing in more products, and potentially taking on more risk.
Other needs may include liquidity. Many people may invest the majority of their savings in their investment account, but what if there is an emergency or an opportunity arises outside of the market? The ability to release funds in a timely manner is also a factor. A person who may have a large savings account will not need to access their investments, therefore, has the ability to lock in to long-term products for better returns.
Age
A person's age can be an influence when building a portfolio because of its inverse relationship with risk tolerance. The younger somebody is, the higher the appetite and fit for risk. A 20 year old will have ten more years to save and recover from high risk losses compared to a 30 year old. For most, this means investing a little more in high-risk ventures like penny stocks, new companies, and even companies nearing bankruptcy. The opportunity for huge returns outweighs the potential for losses.
Employment
An investor's source of income can also have a factor on the portfolio. Those employed with a fixed salary have more stability and therefore can build an account with more risk. The certainty of a paycheque next week provides for this basis. Another option with fixed salary workers is their ability to make periodic investments into mutual funds or registered accounts. Mutual funds allow investors to put in just a few dollars, usually just $100 a month at no additional cost. This dollar-cost averaging allows investors to stabilize their purchases instead of going in all at once. This strategy would not be practical for stocks, with the exception of Dividend Re-Investment Programs (DRIPs). The purchase of stocks will always have a commission, which can eat away at returns. Therefore, those who plan on making periodic payments should consider mutual funds appropriate with their risk apetite. Again, we will discuss mutual funds in a future chapter.
Those that may be free lancer or have unstable sources of income may want to consider a more stable account filled with preferred shares, bonds, and risk-free assets. Preferred shares and bonds generally are less volatile and do not move up and down with the market. They provide higher returns on dividends and coupons because of their lower risk profile. The inclusion of the risk-free assets (money markets) provide the liquidity required during times void of income. These products clear within one business day, meaning access to the cash is available in 24 business hours.
Capital
The final variable an advisor may look at is start-up capital. Those that head to a broker typically have half a million dollars and want a professional to maintain their wealth, but in reality, most of us start with just a few thousand dollars. For those that have less than $3,000, I would suggest mutual fund investments, which I will discuss in the coming chapters. The larger the account is today, the more options one has. Those that want to avoid fixed income or mutual funds should stick to large blue-chip companies that are expected to be around for a few decades. Historically, these are banks, utilities, energy, technology, and consumer staples that pay dividends. Again, consider your risk factors, needs, etc. to determine what are appropriate for you.
The Bare Necessities: Prologue
The concept of investing and saving is something that should be developed early. My mother forced me to open up a savings account once I got my first job at age 15, and I assume most of you are in the same boat, but she was right. The earlier you start, the more you will have in the end. Time is on your side because of the power of compounding. However, people often forget about retirement because it seems so far away, and this could pose problems in the future. Over half of Canadians and Americans do not have a retirement plan and maybe even worse, have not saved enough for retirement. In fact, some believe winning the lottery is one.
In my first year of college, my investments professor made me realize how important it was to save every extra penny. He presented us with a typical financial math question, and we inputted the data into our newly-found financial calculators. At the time, I had no idea how to use it, but the resulting sum was over one million dollars. We were all amazed how little it took to earn a million dollars, only to realize it was over forty years of saving. Disappointment ensued, until my professor asked, "When else will you need one million dollars?" - immediately answering his own question with, "When you have no income."
He was dead on. For the majority of us, it takes a lot of hard work and a lot of time to build up such wealth, but you're building the wealth for a great retirement. There's nothing wrong with enjoying your life early on, and I don't want to stop you at all. Life is for living, but these next few lessons are here to help guide you with ways to enjoy it today and tomorrow, without making sacrifices.
Before I provide you with my opinions on investments, let it be known that I have worked in the financial services industry for almost three years, dealing with million dollar accounts, CEOs of major multi-national corporations, and even the little guy. I am currently on hiatus, taking time off, actively trading in the equity and options market, but plan to re-start my career with investments very shortly.
In the next few chapters of this series titled, "The Bare Necessities", I will discuss the strategies used by financial and investment advisors to build a well-balanced long-term portfolio, as well as fully explain the typical vehicles and products seen in the market. This is targeted for buy-and-hold investors looking to safely park wealth and allow it to grow with little concerns. In a future series, I can discuss the basics of day and position trading through the explanation of basic technical analysis.
Greek Tragedy, Euro Falls
Sadly, I've been a little negligent with my blog the last week, but my friend Di insisted on more market blogs (and future non-market blogs to come). I'm currently working on a re-formatted options lesson, as requested by my other friend Wilson, and an article on RSP and TFSA's. Later or early next week, I will start to add investment basics for the beginner, along with my current daily market blog.
It has been a few days since my last blog about Toyota, and so far, fears about the Japanese automaker seems to have disappeared with renewed concerns about European governments and their inability to finance their deficits, most notably Greece.
According to a Bloomberg article posted on February 8, 2010, the Greek government has the largest budget shortfall in the European Union, and may need outsider aide.
Concerns are also being extended to Portugal and Spain, resulting in rising credit default swap spreads. For those that do not know, a credit default swap is like an insurance policy against a government's debt. At last check, Portuguese swaps cost $244,060 to insure $10 million of debt for five years, up $20,000 over the weekend, reaching a new record for the country.
Bank of America-Merrill Lynch analyst, Steve Pearsons, said that the Euro will continue to decline over the coming few years until the issues are resolved. Major currencies, especially the US Dollar, have advanced significantly against the Euro in the last ten days alone.
He also claims the mounting problems will undermine commodity prices. Falling commodity prices are good for consumers, as costs of good will decrease, but could cause more economic problems for countries heavily invested in mining and drilling, such as Canada, Russia, Brazil, and many parts of Africa, which could offset any benefits for the average citizen, already being seen just days after the turmoil.
Stressed countries have recently lowered wages, which has triggered massive strikes in Greece.
The world is listening to these three countries with their ears to the door and worldwide stock markets have declined between five to ten per cent in the last two weeks. The theme of 2009 was "buy on dips (down days)", but 2010 seems to have reversed course quickly, with many to "sell on rallies (up days)."
I've seen mixed reviews from analysts: Many believe this is a short-term correction that was anticipated in the early winter, others believe the 2009 rally was uncalled for and sees lows retested. Only time will tell.
For anybody already invested in the market, I would suggest protecting your account. The costs of puts are a little high, but could be well worth it if the market falls for another few more weeks. Gains incurred on your puts would offset some of the drops in the value of your stocks. Consider writing calls for income as well.
Feb 3, 2010: Toyota's Misery, US Economy
When my family received a letter regarding our Toyota Camry two weeks ago, I should have realized this would be a great trading opportunity, but alas I did not. Toyota Motor's [7203:TYO, TM:NYSE] recall will forever change their reputation as a safe, reliable vehicle.
The worldwide recall which occurred in the last week of January has put a damper on Toyota's sales. The company actually halted vehicle sales in December when a lesser-known recall was reported in late November.
Earlier today US Transportation Secretary Ray Lahood told owners to stop driving their Toyota and immediately take it to their dealership, as a fix has been found. Later in the day, Lahood retracted his statement, as it turned out this was false. For anyone who has a recalled make, Toyota suggests a simple test.
"If you experience any issues with your accelerator pedal, please contact your dealer without delay. If you are not experiencing any issues with your pedal, we are confident that your vehicle is safe to drive."
But that's not all. In the last 48 hours, more problems have appeared in Toyota vehicles. There have been 140 complaints with respect to the 2009 Prius. The vehicles are not responding to braking, as well as sudden acceleration. This problem has already caused at least two injuries and two crashes to date.
I am not here to spread propaganda or speculation, but if you own a recalled vehicle, please be cautious and pay attention to the news. These vehicles are the 2009-2010 RAV4, 2009-2010 Corolla, 2009-2010 Matrix, 2005-2010 Avalon, 2007-2010 Camry models (excluding hybrids), 2010 Highlander (excluding hybrids), 2007-2010 Tundra, and 2008-2010 Sequoia. The 2009 Prius is not yet on the recall list, as investigations are under way.
Meanwhile, competitor's are thriving in sales in the wake of the news. All but Chrysler reported an increase in January sales year over year, and net US auto sales rose to 10.8 million from 9.6 million last year.
Yesterday, US home sales also showed positive growth, another sign US economic conditions are improving, and this morning, services industries also showed improvement, but less than expected. The figures were limited due to high unemployment.
The recent plethora of news has allowed markets to rise strongly in February, albeit three days old, after a steep sell-off to finish January. For many of my friends and family, the struggles will continue, but signs show there is light at the end of the tunnel. A recovery is in the works, although many see it as slow-paced.
On average, Bloomberg analysts believe the S&P500 will finish the year up 10 per cent.
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