Tuesday, January 11, 2005

Frugal investing

I've posted few informations about investing up to date. Today, I want to talk a little bit about a type of investment called Exchange-traded Funds. As a short explantation, ETF are, like stocks, traded on stock markets and, like funds, they invest in a wide range of investment securities.

Just like funds, they are entitled to management fees. But here is the nice part: these fees are generally much lower than mutual funds. For instance, iShares S&P 500 charge only 0.09% a year. This fund matches closely the behavior of the S&P 500 index.


  • as a "passive" management index fund, the management fee is low. Since you pay for commissions on trading (as normal stocks), you don't pay for all the people coming in and out of the fung. In the long term, this can save you thousands.
  • you don't pay capital taxes each time stocks inside the fund are sold. This type of security is known to be tax-efficient
  • traded as stocks, so you can get your money when you want and buy when you want


  • You have to pay trade commissions each time to buy or sell, thus not well suited for dollar-cost averaging-like stategies

Bottom Line: iShares S&P 500 seems to be a very good investment product for the people who don't want to watch the market, who don't believe they can beat the market and that seek investments for the long term.

Thursday, January 06, 2005

How to retire today!

Paul B. Farrell explains how to take the leap today. It is not my plan to do so, maybe because I'm younger than he was and because I've been cumulating wealth for a few years only. Also, I want to be financially independent, which is not the same that simply quitting my current job to start something new: I wish to be able to quit, start project and survive even if they don't provide new income.

Nonetheless, an interesting article.


Sunday, January 02, 2005

The Man Who Plans to Retire at 37 (RET37) Reports Q4 2004 Results

RET37 today reported that earnings for the quarter ended December 31 has increased 32.9% at $9300 from $7000 compared to the previous quarter ended October 30, resulting mostly from better return on investments and also from decently higher wages.

Expenses decreased 4.7% from $4506 to $4305 on lower car insurance costs, lower provision for contingencies budget, higher condo fees and higher car repair budget. Car loan has been paid-out during the quarter. The $340 payment has been replaced by a $200 provision for future car purchase.

Assets decreased $35kto $175k from $210k in the previous quarter, mainly due to a small real estate sale (was rental) and earnings. Liabilities amounted to $70k, down $59k from $129k, mainly as a consequence of the real estate sale. Liabilities include $25k as provision for contingencies.

Total wealth (net assets) amounted to $105k.

Good stock returns in the quarter
Returns on stock investments were a healthy 12.2% (48.6% annualized) thanks to luck and strong stock market. Total stock shares amount to $29,200. In the past six months, stock shares increased 24.2% (48.2% annualized).

RRSP returns were a non-annualized 3.1% on a nest egg of $35,000 during the quarter. Other investments include $17,500 cash in an INGDirect account yielding an annual 2.4%. Unregistered mutual funds amounted to $16,000, yielding 6.6% (not annualized) during the quarter.

Forward looking statement
The net earnings in this quarter are not likely to be sustainable, since a large part of it resulted from good investments returns. Particularly, I don’t expect the stock market will increase in the beginning of 2005; worse, decrease in value could be feared as Canadian and US markets might suffer a correction. Future investments will be more conservative, I will likely increase my exposure to bonds and money markets to 40% of my portfolio (from current 30%).

Interest rates are likely to continue their slow way up, which would increase returns of future interest-bearing investments. We expect interest rates to increase by 75 points during the next quarter in the US and by 50 points in Canada.

Statement on Retirement Target
Retirement is scheduled for not later than October 1st, 2012. Since the retirement plan was decided four months ago, results are on track to raise about $175k registered and $169k unregistered and $40k equity in real estate for a total of $384k at 2012’s dollars. Expenses in 2012 would be inflation-adjusted $20k annually.

Wages have increased slightly more than expected. On the other hand, last inflation figure for November 2004 was 2.7%, 0.7% higher than my 2% estimate. However, my expectation is to be able to get returns on investment 4% higher than inflation, on average, which has been largely surpassed in the last two quarters.

Despite good results so far, I remain conservative on future returns. Nonetheless, a good start is always welcomed, since it allows a more conservative approach to future investments to reach the goal. According to calculations using historical data (see FireCalc) and the number of years before target, I estimate that the probability of retiring by the target date has increased to 73% in this quarter from 71% in the previous one. This increase is gained first by the higher wages than expected (a gain that is likely to be kept in the next years) and better returns (a non recurring gain).