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Balanced Passive Investing

This is the active part of passive investing, balancing (or actually re-balancing) your investments, to fit your investment goals after a period of time.

Suppose you decide that you are getting older and you want to set up a conservative investment plan for your RRSP, so you decide the following investment goal splits:

  • 40% of the RRSP will be in Bonds, GIC’s or the like (slow growth, but loss less likely)
  • 60% in equities, which you then split into
    • 25% in Canadian Equities  (Canadian Wonder ETF)
    • 25% in U.S. Equities  (U.S. Super ETF)
    • 10% in International Equities  (Worldwide Amazing ETF)

Remember this is an example, you can set your passive investing plan up however you wish. You would then decide which index funds, ETFs or the like that you want to act in your passive investment plan, take the money you have available and buy the equities you have identified to act as your category investments. (I have included wacky fictitious names to help out with the example).

Re-Balance

After a period of time you will wish to make sure that your investment goals are relatively the same percentage wise, and that period of time is your decision, you could choose:

  • Never, simply leave the purchases as is, and walk away (now that is really passive investing), and take out the funds when you need them (I am not espousing this theory simply pointing it out).
  • Every Quarter, if you are really into making sure you aren’t caught out by any market adjustments.
  • When you have more funds to invest in the RRSP, which is usually when I do the re-balance.

I don’t feel good selling one equity to buy another in this methodology (unless something heinous is going on in the markets which dictates that might be the most prudent thing to do (e.g. ETF CEO ran off with all the funds, etc.,)), to ensure the correct balances, so when I have more money to invest, I simply see where I need to put my money to get my investment goal percentages back to where I planned, and hopefully that will put things back into balance.

An example would be that Worldwide Amazing ETF has dropped to actually being 6% of your RRSP (due to your other investments doing so well, let’s say), so you need to buy more of this ETF with your extra funds to get your portfolio back into balance, it’s really that simple (if you look at the Sleeply Mini Portfolio with the Canadian Capitalist he even gives you a nifty little spreadsheet that you can adapt for these types of calculations).

Time

Over time, more likely your investment goals for where the money should be will change (hopefully becoming more conservative), so you can change your goals when you have more money to invest, or you can sell your equities to change the balance as well.

This is not an original idea by me, I borrowed it from the Canadian Capitalist and I have seen it around in a few investment books as well, but it is one way to manage your investments, if you don’t want to be an Active investor (or hyperactive).

I also have the dividends in my funds reinvest themselves which helps out too (i.e. I use the DRiP capabilities of the ETFs and Index funds that I hold).

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Drip, drip, drip…

I have written before about how I am a passive-leaning (if not down right lazy) investor. Here I write about being a Drip.

A while ago, I checked over my investment accounts to see what had transpired in the past month or so. I saw that some of the few stocks I own in one or two of my investment vehicles had paid dividends. I had not (however) signed up for the Dividend ReInvestment Plan (DRIP) for these stocks so I received the dividends in cash.

Dividend Reinvesment Plans
No not that kind of Drip, Dividend ReInvestment Plans

Getting cash is OK, but I prefer to have dividends reinvested, since it causes me to buy more of the stocks I own for free (i.e. no service or trading charge). The DRIP program I have is with my investment firm (TD Waterhouse) and not the actual DRIP set up by the Company who’s stock I own (there is a big difference, I have been told). The DRIP with TD Waterhouse is simply them taking the dividend and buying as many whole shares of that stock, without charging me a transaction fee.

An example would be if I had 500 shares of Magic Bank and they declared a dividend of 61 cents a share for the period, I would then receive $305 cash into my account, however, since Magic Bank’s share price on the day of declaration was $65, the TD DRIP would have purchased 4 shares for me (at $260) and left me $45 cash, and $0 transaction fee.

I do not know how actual DRIPs work with specific companies, I believe they allow for the purchase of partial shares (anyone care to comment on this, please feel free).

This methodology allows for more laziness in investing on my part, which is what I strive for. I called TD Waterhouse and had DRIPs turned on all investing accounts that I have, for all stocks that are supported, so now any time dividends are declared, more stock will roll into my account instead of more cash.

When I call myself Passive, I do not hold many Stocks directly, I mostly hold them through index funds, thus the passive-leaning label, but I do own a few stocks directly.

Other Dividend ReInvestment Program Articles

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Stock Market Bottom Today

This was written back in 2008, when I was unemployed and the Markets were still falling. The market issues were due to the Credit Bomb of 2008, but it snowed in Ottawa. Interesting times.

My regular readers will remember last week I asked, “What is the Bottom in Stocks” and pointed out we will not know what the bottom is until six months later. I was proven right again yesterday when I (eternal pessimist) thought there was no way things could drop any lower, yet they did. Canadian financial stocks (banks and financial folks) took a hell of a pounding again, and now I am not even sure why, but TD and BMO both took hits again. 

TD’s drop had a minuscule basis as their Ameritrade division announced some fairly neutral numbers. Still, the whole TSX went “Financial Apocalypse” for the last 45 minutes of trading and many losses were incurred in that sure time frame (stock value losses, I mean).

I keep wondering whether this is the bottom, but as I have said, we will only know in six months.

Financial Impact on Me

My RRSP’s continue to drop in value (I haven’t looked really, but I am glad it is Dividend time since my DRIPs (Dividend Reinvestment Plan) on most of my stocks will be kicking in, and I will be buying some very cheap stock with it). I also continue to collect up old investment vehicles into a single set of investment devices, which are now reasonably heavy in cash, which is a good thing, now the only question is when and what to buy, and I continue to “waffle” on what that decision might be.

E.I. Not For You

I got a call yesterday from a lady at the Employment Insurance office asking me a bunch of questions about my severance package and how it had been implemented. She was new on her job, so she and I fumbled around a few questions, and I think it has been straightened out for now, but this did bring up an interesting point, which is that you MUST apply for EI when you are laid off, not when you think you need it. If you don’t use it right away, you may be disallowed your claim for taking too long to fill in the correct documentation.

At the end of the conversation, the lovely lady mentioned that I would not be eligible to get EI for about a year (the length of my severance package in their calculations). This didn’t surprise me, but I know for sure now that someone at the EI office has said it to me out loud.

Weather Bomb

Ottawa will be the victim of a Weather Bomb in the next day or so. Before you start thinking that the folks at Environment Canada have created a Weapon of Mass Destruction that will cause massive storms, that is not what the term means. It is an actual Weather Forecaster term to describe a quick and significant drop in the Barometric Pressure, which is usually part of a severe storm system.

What does this have to do with Personal Finance? Everything!

  • With 15-30 centimeters of snow coming Do You Have Your Snow Tires On? I don’t! If you live in Quebec, remember you need to have them on, it is the law now.
  • Do you have enough food at home in case it is hard to get out in the next day or so?
  • Is your furnace in good working order?
  • What if the power goes off, have any wood in for your fireplace?
  • Does your snow-blower work? Does it have any gas?

All of those points either cost money or are going to cost you money if they aren’t dealt with, so keep this in mind, with the coming of “Old Man Winter.”

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Statistics, Smoking and some Friday Random Thoughts

A busy week for me at work, which is always a good thing, so let’s just bounce around to some thoughts on my mind and some ideas.

  1. Let me state that I am NOT in favor of the Government banning smoking in some one’s house. I never meant to imply that should be the case, however, I am all over parents who ban smoking from their house (even their spouses) when there are kids involved. To paraphrase a famous (infamous) Canadian, The Government has no place in the bedrooms of Canadians (kind of creepy to think of my MP hanging out in my bedroom).
  2. TD announces amazing profits yesterday after last week’s DOOM and GLOOM statements, so what does this mean? You should have bought TD last week? That’s about my only view on this, whether there are still more ramifications from the below prime fiasco in the states, we shall see. My DRIP keeps dripping along happily.
  3. The back to school insanity continues in my financial world, with that sucking sound you hear my kids going back to school.
  4. My visit to the Passport office this week was not the horror I expected, it took me 20 minutes once I was in the door and I paid only $2 parking at 240 Sparks Street, amazing. I didn’t see Lotta Hitchmanova anywhere around however. Just go after 9:00 AM on a Wednesday before the Lunch rush.
  5. My company (my real job remember) just changed their parental leave benefits (naturally lowering it’s top up (was 75% after first 9 weeks are at full pay, now is only 55%) ), which has caused a great deal of discussion internally, with one side crying FOUL and the other pointing out that a great deal of companies do not offer any “top up” of the EI benefits and we are lucky to still have them. Given I am not planning on having any more kids, I am not part of the discussion.

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Investing: BCE Smokes Along

With the sale of their A-Channel assets and the rumors of a takeover BCE shares have been rising nicely lately, they are almost at their preNortel sell off price, which is just fine by me! I bought the stock for it’s dividends. Now of course, if the take over does not occur, the stock value will drop again, but that would be good for my Dividend Reinvestment Program as well (DRiP), so it’s all good on my side of the world.

In other areas my investments are not doing as well, but at least I can point to one area of happiness for me.

Always glad to see the mainstream media follows Stats Canada as well, as I saw my commentary about Salt has also made it onto the CBC web page (well from the same source at least). My nose for news is still good!

I also don’t feel quite so DUMB about my Arithmetic problems on my Credit Card after finding out that CERN blew up their Particle Accelerator, due to mathematical errors at Fermilab. Goes to show that everyone has problems with their calculations.

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