DRIP Order Problem With Questrade Update

OK, I just got the e-mail reply from Questrade. It looks like the executed price was correct. They execute the DRIP order the day after the dividends payout, which is July 2nd in this case. The trade will settle in 3 business days, which is July 7th. In their back end system, Pension, the correct executed price(July 2nd price) was recorded. However, in their trading platform, Webtrader, the executed price was recorded as the price at the close time of the day the trade settled which is July 7th price. So, the number in Pension is correct but the number in Webtrader is not. I am glad the problem has been figured out. But this kind of issue is still not acceptable. Basically, I could not use the records in Webtrader to calculate my adjusted cost base. I have to go back to the back end system to figure that out. Oh, well, let's just hope there is no more issues with Questrade. Otherwise, I am ready to switch.

DRIP Order with Questrade

I just noticed a problem with my DRIP order in my Questrade account. The executed price shown in my webtrader account is different than the one shown in its backend system Penson. The net difference is 2%!! They are not sure what is going on now, but will e-mail me back when they figure it out! I will sure not be letting this go without a proper reply. Let's see what they come up with.

My ETF Dividends Payout

iShares Canada has finally published the quarterly dividends payout for their ETFs. I currently hold the following ETFs in my portfolio: XRE, XBB, XIU, XIN, and XSP. The dividends payouts are:

XRE: $0.22096 per share
XBB: $0.33506 per share
XIU: $0.49049 per share
XIN: $0.35008 per share
XSP: $0.12630 per share

Based on my average cost of each ETF and the percentage of each one in my portfolio, the current yield of my portfolio for this quarter is around 1.07%. If this rate is sustainable through out the year, my overall yield for this year will be around 4%. Not bad at all.

I have been thinking about adding XTR to my portfolio due to its high dividends payout ratio and VWO to diversify myself into BRIC. However, I still need to do more research on both.

Timing the Market

We all know that market timing is bad and does not work in the long term. But can we eliminate it completely? I don't think it is possible though. I have just come to realize how difficult it is to try NOT to time the market.
Currently, I have around $10,000 in my Questrade trading account. I plan to use the money to balance my ETF portfolio that I have set up by following the couch potato approach. But I have not done it yet. Every time, when I saw the market went up, I said to myself,"Um, it might go down tomorrow. I probably should not be buying today. I should just wait." Then, it did go down the next day. Did I pull the trigger? No, I did not because I am afraid it might go down further.
The similar thing could happen when you try to sell. People keeps post ponding the selling because they always want to sell for more. Fear and greedy are really the worst two enemies of individual investors. We can only not to time the market when we have overcome them.
Um......Should I balance my portfolio today?

Road to Wealth

I still remember the question from one of my professors in university."Do you care to be famous or rich?" You answer might be both. Unfortunately,I only have some points to share with you on how to be rich.

1. Live within your means. It does not matter how much you make. What it matters is how much you keep. You are not anywhere better off if you make $70000 per year and spend $70001 per year than those who merely earn $35000 per year and manage to only spend $30000 per year. Simple?

2. Make more. It is difficult to make a lot out of single source, but relatively easy to make some from different ways. Each little step makes a difference. You might think $40 extra per month is small. But I look at it differently. If you can bring in $40 more each month, that simply means you can use your cell phone free for the rest of your life. I think it is pretty damn good.

3. Invest intelligently and REGULARLY. Keep the investment simple. Don't buy those products you don't understand. Make regular contributions to your investment. Wait and see it grow. Speculation is exciting, but investment should be boring as hell.

4. Pay attention to cash flow. Will loads of gold and antiques do you any good if they do not generate any positive cash flow? Those articles are probably important and inflation protected. But you can only achieve your financial freedom with POSITIVE cash flow.

5. Diversify. Don't put all the eggs in one basket. Trust me on this one. 10% drop in your assets hurts so much more than 10% lost in potential earnings even if they are equivalent amount of money.

6. Stick to your plan. People tends to talk about their investments when they are making lots of money from it. When a sector got so many people talking about, it is usually too hot already. Do you own due diligence to protect yourself from catching the falling knives. Set your goal, draft a plan and stick to it.

Pay Attention to Your Withholding Tax

Do you buy stocks which are listed in American Exchange? If you do, you might want to double check the statements from you broker and make sure you have been charged for proper amount of withholding tax.

The withholding tax is the tax to be withheld by the paying country on dividends and interests paid to residents of the other country. Normally, the withholding tax rate is 30%. But because of the agreement between US and Canada, if the security holder (You) has certified himself/herself as a Canadian resident, only 10% and 15% withholding tax rate will apply for the interests and dividends you received from US investments, respectively.

For example, if you, as a Canadian, buy the Bank of America shares listed on New York Stock Exchange, for every dollar dividends you received from BAC, there will be 15 cents tax withheld. When you file your tax at the end of the year, you can claim the credit for foreign tax paid, but up to 15% withholding tax level. And then you includes the grossed-up amount (100% of the interest or dividend payment) on Canadian tax returns, and calculates federal and provincial taxes in the normal way. It is important to make sure you are charged for withholding tax at the maximum 15% level instead of 30%. Otherwise, you will be double taxed.

It goes like this: You paid 30% up front, only able to get back maximumly 15%, file the tax, pay whatever tax you owe on the interest/dividend you received from US investment, say 20% of the interest/dividend, based on your income level. How much you have been tax actually? 35% (30%-15%+20%).

So if you invest in the US securities, it is important that you are taxed properly.

Switch to Index Fund for My RRSP

I called the ING Mutual Fund Associate last week to switch from ING Aggressive Portfolio to the new ING Street Wise Growth Fund. It looks like it is all done today. (It took around 7 - 8 business days for the whole process to be done)

The main reason for the switch is that the MER associated with the original aggressive portfolio is too high, average 2.3%. I do not think its performance is worth that. The MER for the ING Street Wise Fund is 1% and it will be balanced every quarter.

I know the MER is still high, at least not cheap, for an index fund compared with TD eFund series and ETFs. But my annual RRSP contribution is small at this moment, around $4800 per year. If I use ETFs instead to build my portfolio, it will be inefficient for me to do the dollar cost average and keep my trade commission low.

Also, as I mentioned in previous post, the ING Street Wise Fund might not be tax efficient outside RRSP. Since I will hold it inside my RRSP, I don't need to worry about that now.

A Different Approach to My RRSP

The way I contributed to my RRSP has always been putting the money I got from my tax refund into my RRSP account all and at once. After I did it, I do not need to worry about my RRSP for a whole year. That worked fine when the money has been put into savings or GICs, but not a great strategy for buying mutual funds inside RRSP. This year I want to take a different approach.

For the tax refund I am getting, I will save it under my regular savings account until it hit the amount of $10,000. When I have $10,000, I will transfer the money into my Questrade account and balance my ETF holdings there. In terms of my RRSP, I have just called my mutual fund associate to set up a monthly contribution of $400. By the end of the year, I will have my RRSP being taken care of as well.

The major benefits of this approach are:

1. Dollar Cost Averaging for my RRSP mutual fund purchase. The stock market turbulence has shrunk many investors networth. I am not the exception. However, the Scotia Dividend Fund I purchased right before the stock market sink is still in green. How is it possible? Because I am doing dollar cost averaging and continue to buy it each month. I would certainly like to apply this technique and take advantage of it for my RRSP account as well.

2. Keep my ETFs transaction cost down. By saving the tax refund I got and investing it into my ETF portfolio when the amount hits $10,000 allows me to keep my total trading cost under 1% of the money added.

3. Mostly importantly, I will be saving $400 more per month instead of blowing it away by taking this new approach to my RRSP.

Have a great weekend! :)

ING STREET WISE FUND

It has been more than three months since ING Direct Canada introduced its new and first Index fund series (it is actually a fund of index funds), ING StreetWise Fund. I have been thinking if I should put some money into it every month as my investment outside RRSP.
After I did some more in-depth study of the fund, I think it is NOT a good idea to hold it as an investment outside RRSP. One simple reason is that the StreetWise Fund will be balanced every quarter to maintain its original assets allocation. In order to be rebalanced, this wrapped fund will have to sell one or more index funds within it. That will force the investor to realize some unnecessary capital gains. Hence, there will be more tax payable at the end of the year.
If you know how to buy ETFs and rebalance them once a year, it will be better to go with the ETFs route. It is cheaper and more tax efficient.
Just my 2cents.