The new program—funded partly by the Ontario Securities Commission—comes after several studies identified low levels of financial literacy among Canadian students.

Federal Finance Minister Jim Flaherty has identified financial literacy as an important issue for the economy as a whole, particularly in the wake of the global financial crisis.

]]> http://www.moneysense.ca/2011/02/28/ontario-unveils-financial-literacy-curriculum/feed/ 39 http://www.moneysense.ca/2011/02/28/are-you-saving-as-much-as-the-average-canadian/ http://www.moneysense.ca/2011/02/28/are-you-saving-as-much-as-the-average-canadian/#comments Mon, 28 Feb 2011 14:10:07 +0000 MoneySense staff http://www.moneysense.ca/?p=11255 Canada’s personal savings rate was less than 3% last year. Who wants to be average? Supercharge your savings with these tips.

Then subtract your liabilities – the amount you have left owing on your mortgage, your credit card and other loans.

What remains is your net worth. If it’s going up year after year, congratulations! You’re on the road to prosperity. If not, it’s time to start asking questions and possibly seeking out some advice.

• Conventional wisdom has it that America’s best days are behind it and economic might is going to inevitably shift eastward. Buffett, however, is optimistic about America’s prospects. He says that the country’s best days lie ahead because America’s system for unleashing the human potential is the same it has been in the past. (Pages 3-4).
• If you invest is stocks, you have to have confidence that management will invest retained earnings sensibly. Buffett points out that a dollar of earnings in the hands of Sears Roebuck’s CEO had a far different story than a dollar entrusted with Sam Walton. (Pages 7-8).
• Next, Buffett explains the business results in Insurance (Pages 8-11), Berkshire’s vast empire selling everything from candies to underwear (Pages 12-14), Railroads and utilities (Pages 14-15) and stock holdings. (Pages 17-18).
• Buffett warns investors against putting too much stock in net earnings, which can be gamed by management. Instead, he counsels investors to pay close attention to changes in book value and a company’s operating earnings. (Pages 20-21).
• Buffett counsels investors to eschew leverage, which can magnify gains but can turn lethal to a portfolio. Instead, he explains why despite very low interest rates investors Berkshire keeps plenty of cash around just in case things go horribly wrong as they did in September 2008. If there is only one thing you can read in this year’s letter, it should be Pages 22 to 25.

Quotes

On Leverage: “And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.”

On reaching for yield: “We agree with investment writer Ray DeVoe’s observation, “More money has been lost reaching for yield than at the point of a gun.””

On availability of credit: “Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees.”

On market volatility: “As one investor said in 2009: “This is worse than divorce. I’ve lost half my net worth – and I still have my wife.””

On homeownership: “But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.”

Related Reading:

• Notes from the 2007 Berkshire Hathaway Annual Report
• Notes from the 2009 Berkshire Hathaway Annual Report
• Notes From The Berkshire Hathaway Annual Report
• Notes from the Berkshire Hathaway Annual Report
• Notes from the 2008 Berkshire Hathaway Annual Report

Notes from the 2010 Berkshire Hathaway Annual Report is brought to you by Canadian Capitalist — Helping you to invest & prosper.

The Star’s Moneyville site features an article based on a press release from TD Canada Trust, illustrating the virtues of investing early in life.

In a nutshell, it says that if you start investing $100 a month at age 25 and increase your contributions as you age, you’ll end up a millionaire by the time you retire.

At first glance I had no problem with the article. You save money — on an increasing scale — for 40 years, and wake up wealthy on your 65th birthday. Time to bust out the champagne!

But then I noticed this line:
This chart assumes contributions are directed into an RRSP account, benefiting from the tax deferred growth and earning a 6.8% rate of return per year, compounded monthly.

Readers, to put it mildly, did not like this. The comments section lit up like it was Chinese New Year in Shanghai.

“6.8% rate is not realistic,” ripped one reader. “The Toronto Star should be embarrassed for putting this forward as ‘news’.”

“Who is getting 6.8% or even 5% interest?” asked another. “I want to know what financial outlet is giving that kind of interest on GICs, RRSPs, TFSAs? It is not true.”

And finally, “Anyone with a [sic] some sort of common sense knows this is next to impossible which is the same as winning the lottery.”

6.8% … Seems kind of high, right? As it turns out, the answer is yes, and no.

With interest rates currently somewhere between “very low” and “why even bother having an interest rate?” investment vehicles like savings accounts, money markets and GICs don’t offer a whole lot of growth. Bonds are slightly better, but are wobbly these days thanks to European and Middle Eastern governments either spending like drunken sailors or reaping the dubious rewards from decades of authoritarian rule. Stocks have been on fire as of late, but we all know that they too, can end up in tears.

However, from a historical perspective 6.8% is completely within the realm of possibility. According to our Canadian Couch Potato investing expert Dan Bortolotti, global stock markets have delivered returns of 9%-10% annualized over the past 30 years. Even bond markets have returned 9%, although current conditions make it unlikely to repeat that feat anytime soon. However, a balanced portfolio can reasonably be expected to return 6% to 7% annualized.

From what I can see, people are still suffering from myopia due to the legacy of the financial crisis. Markets took a big hit three years ago. Economies went into recession. Interest rates plunged and investment returns of all types followed suit.

But it wasn’t always this way. Map out investment returns over 30 or 40 years and TD’s math makes sense, even with calamitous events such as what we saw in ’08.

Despite the din from hysterical naysayers, the point of the article is sound. Investing works best if you start early, choose investments wisely and increase your contributions whenever you can. A return of 6.8% may sound high to those who stare at their feet, but if they lifted their gaze to the horizon they would see a much different picture.

]]> http://www.moneysense.ca/2011/02/25/since-when-is-a-6-8-return-unreasonable/feed/ 24 http://www.moneysense.ca/2011/02/25/get-top-dollar-for-your-home/ http://www.moneysense.ca/2011/02/25/get-top-dollar-for-your-home/#comments Fri, 25 Feb 2011 18:31:03 +0000 Camilla Cornell http://www.moneysense.ca/?p=11337 There was a time when a shotgun shack in Toronto’s coveted Riverdale neighbourhood would have sparked a frenzied bidding war, selling within a week for well above the asking price. So when Maria Armstrong’s Riverdale home sat on the market for 40 days this fall, she was “honestly very, very surprised.” Armstrong had done everything right—she painted the house inside and out, staged the basement so that it became more of a family room than a toy-littered play room for her six-year-old twins, and even moved the kids and her three dogs out of the house for almost a month so that the home retained its showplace feel.

When no offers were forthcoming, Armstrong decided to take the house off the market and relist in the spring. That’s when the sole offer came in, and after a bit of negotiating, Armstrong accepted. “I had pushed my agent to list the house at a slightly higher price than she wanted,” admits Armstrong. “She told me that it had a couple of things working against it.” The house didn’t have parking—not unusual in central Toronto—and it was located on a fairly busy street. As it turns out, the agent knew her market well. Says Armstrong: “Her ballpark estimate of what I was going to get for the house was exactly what we ended up getting. She was right on the money.”

The experience persuaded Armstrong of three things: first that Toronto’s overheated housing market may have cooled at least a little; second, that it pays to choose an experienced real estate agent who is intimately acquainted with the neighbourhood where you’re selling; and third, that “if you put your best foot forward it will all work out in the end.”

There’s little doubt that some of the heat has gone out of the real estate market—at least in comparison with 2009 and early 2010. According to the Teranet-National Bank Composite House Price Index, the most recent run of surging prices ended in September, when the national composite price slid 1.1% from the month before, then slid another 0.4% in October (the last month for which stats were available). As for the coming year, even the Canadian Real Estate Association is forecasting that, given “lackluster economic and job growth, muted consumer confidence, and the resumption of interest rate increases,” there will be a 1.3% drop in housing prices and a 9% decline in home sales. It’s hardly cause for panic. But if you’ve got a house for sale, you might actually have to do some selling, instead of just sitting back and collecting bids. Aiming to get top dollar for your home? Read on for expert advice on making maximum cash.

Recognize that the Internet has changed the game
In 2001 about 41% of all home buyers checked out houses online. Last year, that number was about 90%, according to the U.S.-based National Association of Realtors’ Profile of Home Buyers and Sellers. Although buyers generally use other resources as well, they tend to start the search process online, even before contacting an agent. About 36% of NAR’s respondents said the Internet gave them their first glimpse of the home they eventually bought. Although there are no figures available specifically for Canada, John Andrews, a real estate expert and assistant professor at Queen’s University, reckons the stats would hold true here as well.

“The widespread use of the Internet changes a lot of things,” says Kelowna real estate broker Steven Bergg. The first is the importance of listing photographs. When Bergg lists a house, he insists it be decluttered and then hires a professional photographer. “People go online and narrow down the list of houses they’re going to see based on the pictures,” he says.

Halifax home stager and photographer Kathleen Heithorn-Althoff agrees. The photos should tell a story, she says, beginning with the establishing shot of the front of the house, leading in the front door to the main rooms, the upstairs to the bedrooms and finally down to the basement. Heithorn-Althoff shoots houses in full sunlight, using a wide-angle lens to give an overview of each room, and she turns lamps and lights on inside to ensure a bright appearance. In addition, she asks that cars be removed from the driveway and that lawns and gardens be well-groomed.

Of course, getting great photos isn’t going to help if you don’t get exposure on the net. The MLS system still attracts plenty of buyers, says Craig Stokke, president of Calgary-based discount broker Seller Direct Real Estate Inc. But he also advertises homes for sale on some 250 to 300 other websites, including Kijiji and Craigslist (which attract lots of young people) and real estate sites that allow for virtual tours.

Bergg offers a tip for home sellers listing on the MLS. “I valued a house the other day at $590,000,” he says. “But when I looked between $600,000 and $650,000 on the MLS, there wasn’t much there that was very nice.” So Bergg upped the price to $600,000. His reasoning: that way people searching between $550,000 and $600,000 would find the house, as would those searching between $600,000 and $650,000.

]]> http://www.moneysense.ca/2011/02/25/get-top-dollar-for-your-home/feed/ 78 http://www.moneysense.ca/2011/02/25/cut-back-save-big/ http://www.moneysense.ca/2011/02/25/cut-back-save-big/#comments Fri, 25 Feb 2011 09:51:15 +0000 Gail Vaz-Oxlade http://www.moneysense.ca/?p=10982 You probably get tired of hearing people say, “Skip lunch and you can save $10 a day, or $50 a week. That’s $2,600 a year.” Who wants to skip lunch every day? Besides if I skip lunch for a month and save $200, and then turn around and buy two tickets to see Jersey Boys, I’ll blow through my lunch savings in one sweep of the credit card … k’ching! Which is exactly the problem people have “saving” money.

I can’t tell you how many times I’ve heard some version of, “Yah, I can give up eating lunch out and save $25 a week, but what’s that really going to get me?”

How about a $30,000 savings on your mortgage. Interested?

On a $250,000 mortgage at 6% amortized over 25 years, if you add an extra $100 to your monthly payment, you’ll save $32,640 off your mortgage and chop 3 years off your amortization. That’s got to be worth brown-bagging it for lunch!

Most people never realize the gains they could make because when the do something to “save” money, they leave their “savings” in their wallet, where it eventually vanishes into a cup of coffee, a new magazine, or a DVD for the kids.

If you want to make your “savings” work as hard as you do, then you’ve got to apply them somewhere important quick, quick like a bunny. Use the money you’re saving to pay down your credit card balances or your mortgage, bump up your emergency fund, or increase your retirement savings.

I’ll bet there’s a bucket-load of ways you’re spending unconsciously. And I’ll bet you can find the $100 a month to save $30,000 on your mortgage. Why don’t you take a look?

Phew! That’s it for this week. Just a quick reminder that you can read my posts in your favourite reader or delivered by e-mail. Have a great weekend everyone!

Related Reading:

• Another RRSP Debate
• This and That: TFSA Returns and more…
• Don’t rush your RRSP decisions
• This and That: Charities, No-Fee Chequing Accounts and more…
• Who Would Say ‘No’ to Free Money?

This and That: Parking RRSP contributions, Market Risk and more… is brought to you by Canadian Capitalist — Helping you to invest & prosper.