Bonds are not a Safe Haven Right Now

One of the nice parts about writing this blog is I have met some folks who know a great deal more about Investing and Investment vehicles, and one of those is our friend Preet Banerjee. I met Preet through the Canadian Capitalist (for those who don’t know the story look at the N.C.F.B.A. links on my sidebar most of these members have dinner and discuss things every few months), and he has been kind enough to explain a great many things to me about investing and such.

The last time we met, I asked Preet if he might be doing a post on Bonds and how many folks think they are a “safe” investment and he promised me one was in the works and here it is: The ‘safe’ part of your portfolio could get you in trouble. If you have not read this article in the Globe, please go do so, especially if you are or are thinking of investing in Bonds and you are not advanced in the nature of Bonds.

Handcuffs

Standard Smith & Wesson Handcuffs

This is not talking about the CSBs (Canada Savings Bonds) you grew up with, these are the Bonds that are in Bond Mutual Funds, or Bond ETFs, we are sort of in a perfect storm for these vehicles to lose their investors money (when in fact the investors think they are in a very safe place).

Interest rates are so darn low, that any small change (like a 1% change), can cause these funds to lose money. I won’t go into details, because I don’t think I am sophisticated enough to do the topic justice, but just understand that if you think your money is “safe” in a bond fund, you need to think again.

If you want safe and boring growth, GICs or CSBs are the choice of boring, milk toast, don’t want ulcers (or growth) investors, stick with those for now, if you want safe (and incredibly slow) growth.

If you want safety, make sure you know that it is safe.

 

 

 

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Random Thoughts

With Lent beginning, tax season roaring into view and the RRSP season coming soon to an end some very interesting posts were done this week, for the end of February.

Have a great weekend all, and watch for the Ultimate Canadian Get Rich Quick scheme video.

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When Financial Bloggers Meet

When Financial Bloggers Collide

Another one of the great N.C.F.B.A. summits took place this week with a special guest Preet from Where Does All My Money Go who was in the National Capital region on business and decided he wanted to get his finger on the pulse of some of the most dynamic financial bloggers in Canada (ok, what is the correct font for sarcasm). Preet has been promoted to an honorary member of the N.C.F.B.A., and promises to attend yet another of our “Financial Think Tanks” in the near future.

What do Financial Bloggers talk about when they get together? Finances, ETF’s, Mutual Funds, Get Rich Quick Schemes, Blogging and Advertising, Car Racing,  and many other interesting topics. This esteemed group is also frugal, (some might even say CHEAP) I had two decaf coffees, Michael James had a ginger ale, the Canadian Capitalist had a hot tea, Canadian Money Review had two Perriers, and Preet I believe had a soft drink. Needless to say our server was not enthused by our lack of ordering, but we as Financial Bloggers must show the financial restraint that we espouse (i.e. practice what we preach).


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The Rates Stay the Same

Interest Rates Hover

The Bank of Canada kept one of it’s key rates (the overnight rate) the same yesterday in response to a shakier Canadian Economic view. This means interest rates have flattened for now, and may well be heading back up very soon.

To quote them directly:

Three major developments are affecting the Canadian economy: the protracted weakness in the U.S. economy; ongoing turbulence in global financial markets; and sharp increases in many commodity prices.

Turbulence is never a good thing and I think the bank is reflecting that in it’s monetary policies, by holding interest rates steady.

For someone like me, it suggests that now is the time to start paying down debt, because we may have hit the bottom of the interest rates market, and rates going up is going to mean more money that will have to be spent on Debt Reduction due to interest charges (all my debt is carried in variable interest rate debt vehicles).

Kindred Spirit

Larry MacDonald’s blog is one that I read every day, and I was heartened to see that he and I are not only friends in the N.C.F.B.A. but we are kindred spirits in terms of Nortel’s stock. Larry did an excellent Update on Where Nortel Stands currently.

I was particularly touched by the last paragraph in the post:

So where is the stock going? Despite recent price action, there seems to be an improvement in expert opinion and fundamentals. Still, the situation remains speculative. And add a grain of salt to my update – I’m a long-suffering Nortel investor whose holdings are down 70%.

Glad to know that I am not the only financial blogger with scars from this stock.

TD & BMO Banks Continue to Slide

Both TD and BMO stock have been sliding and as I have said I am not sure what the bottom is, but I am starting to think this is going to be a buying opportunity (for me) very soon. I buy these stocks for straight dividend value and the fact that banks treat their customers very badly, yet the customers keep coming back.

Please take the above paragraph is me meerly navel gazing and guessing, I have no real insight about these stocks, but am interested to hear if anyone else has any opinions on my statements and TD and BMO.

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Worst Financial Advice Given

A while ago the National Capital Financial Bloggers Association met, and we did what we normally do, swap stories and ideas about finances and the like (see the N.C.F.B.A. blog roll in the side bar for the sites authored by this group).

During these discussions the topic of time share condominiums came up and that led me to tell this story (which I previously published here).

The Worst Financial Advice I Ever Gave

Most of you know that I am very unlikely to give you direct advice in any financial area, and this story is one of the reasons why.

What could this one mean?

Sometimes Bad Advice Leaves a Big Mess

My wife, myself and some friends went on a vacation to Florida (this was about 17 years ago). My Father In Law had told me about how if you go to a Timeshare Condominium sales pitch, you can get free tickets to some of the sites around Orlando, which sounded good to me (Free is always a good price).  We found that at the Motel we were staying there was an entire courtesy desk filled with Timeshares offering this deal, so we signed up for a “sales demonstration”.

Off we went to this sales pitch, and it was hilarious,and surreal. I must mention one of my friends on this trip was Michael James On Money himself and his wife, so we were sure we weren’t going to buy. The salesman (who we nicknamed “Ray Don Bob Ron Don”, don’t ask why, but it was funny), tried all the sales pitches:

  • Slow playing us to see if the condo would sell itself  (it didn’t)
  • Pandering to our wives about how there was little or no housework  (they laughed)
  • Telling the men they could rent when they wanted (I asked if we could get to stay during Daytona 500 week, he said yes, I laughed)
  • How much money we’d save (we in turn figured out how much money they were making per building on the initial sale, and then how much they were going to make per year on their service fees).
  • Finally asking, “Would you buy this place for nothing?”, and then saying, “OK your price is between FREE and our selling price”, which always makes me chuckle.

I must admit that we played along and acted very much out of character (worrying my wife a great deal), but at the end, there was no sale, we got our free tickets and we left (our salesmen grumbling about how we were, “… too analytical…”. I was struck by how the people at the sales pitch “closing” room looked like deer in headlights while paying for their time share with their Credit Cards, a very disturbing site.

Fast forward a few months and a dear friend was off to Orlando with his new wife, so I told him the story about getting free tickets for a theme park and all you had to do was sit through a timeshare sales pitch. He said he’d think about doing that, and nothing much more was said.

My friend returned from Orlando a week later, picked me up to go to work and he told me all about his trip.  I asked had he gone to the timeshare sales pitch, and he confirmed that he had. I then railed about how pathetic the sales pitch was, and what kind of imbecile would buy one of those things, etc., etc., etc., for about 5 minutes.

Once I finished, my friend said in a very small voice, “We bought one…

The car ride to work was very quiet that morning.

From that day, I always shy away from giving anyone any financial advice directly, I will tell them what has worked for me, and let them decide for themselves

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