With the 2009 stock picking competition over and done with, the same group of bloggers wanted try it  again in 2010.  As my last years result was mediocre relative to the market, I’ll still take the 20% that I gained.  This years picks will be along the same lines, but perhaps a little more aggressive.

What do I expect from the market in 2010?  I’m still waiting for that pullback, but I’m not so sure that we’ll see a test of the March 2009 lows.   Having said that, we may see some gain in the TSX in 2010, but I doubt that it will be anywhere close to the 30% returns of 2009.

My Top 4 Stock Picks for 2010

1. Hanwei Energy (HE.TO) – This Chinese company provides products and services for the oil pipeline transportation, wind and coal energy industries.  Even though they have been oversold, they maintain a strong balance sheet.  They currently trade at less than half their book value, carry no long term debt, and have $0.28/share cash on their balance sheets.  Trading price as of Dec 31, 2009: $0.82.
2. Manulife Financial (MFC.TO) – Most of you have probably heard of Manulife Financial as they are the largest insurance company in Canada (in terms of market cap).  I believe that Manulife has been oversold but hopefully return to strength in 2010. Trading price as of Dec 31, 2009: $19.33.
3. Cenovus Energy (CVE.TO) – I picked Cenovus as my oil play.  Never heard of them?  Neither did I until I looked up the constituents of the energy index.  Encana recently split into two companies; ECA is now a natural gas company while all the oil and gas assets have gone to CVE. Trading price as of Dec 31, 2009: $26.50.
4. QLT Inc (QLT.TO) – This is a riskier play of the batch as I picked them solely on their financial statements.  QLT is a pharmaceutical company that creates and commercializes eye treatments.  They trade below their book value, have no long term debt, and carry $3.81/share in cash on their balance sheet.  Trading price as of Dec 31, 2009: $5.23

Note that I own some of the stocks listed above and they are not recommendations to buy.

Here are some stock picks from other bloggers:

• Where Does All My Money Go
• Dividend Growth Investor
• Four Pillars
• Zach Stocks
• The Wild Investor
• The Intelligent Speculator
• The Financial Blogger
• My Traders Journal
  

What are your favorite stocks for 2010?

Popular Posts:

• Canadian Discount Brokerage Comparison
• Top 6 ways to Save on Auto Insurance
• High Interest Rate Savings Accounts
• MBNA SPG Credit Card Review
• Questrade Review
• Are Hybrid Vehicles Worth it?
• Tax Free Savings Account (TFSA)

Mark is an IT contractor residing in Alberta and needs some advice about what to do with excess capital and general tax optimization.

Here is the story:

We’ve got a rental property which we decided to try and sell. We located an investor who is interested. We’ve agreed on a price of $25,000 ‘cash to mortgage’. Once we pay legal fees, cancel the management company contract, and pay for title insurance, we’ll walk away with about $23,500. Here is our tentative plan for the cash (all numbers rounded for simplicity), but this is where I’d love some feedback.

• Credit card debt repayment $4500
• Line of Credit repayment $9500
• Leftover $9500

Paying off these two debts will leave us with no debt except for our principal mortgage. So, the question is, what to do with the $9500 extra?  Here are some other relevant details:

• I work as an IT contractor, earning approximately $80,000 per year in income through my corporation. I do not earn any “employment” income.
• Wife does not work.
• Most of the income is dividended from our corporation to my wife and I would like to have a nest egg in place to protect against job loss, as I am not protected by EI as a contractor.
• I have lots of RRSP contribution room from previous years as an employee, but I’m thinking this might not be the best, as I would like to keep the money accessible as an emergency fund.
• I’m in Alberta.
• My mortgage is approx $260,000 with a 35 yr amortization at 3.89%, 5 year term started in August. Regular payment is $267 weekly, currently we’re paying $325 weekly, with plans to increase that amount to the $400 a week range once the other debt is repayed.
• $11,000 in RRSP account.
• We have 2 kids under 3 and are planning to have at least 1 more, maybe 2 more, in the next 5 years.

As far as goals, we want to have enough money to enjoy life, take the odd vacation, and be able to retire comfortably (not expecting to be wealthy, although of course that would be nice.

Right now of the approx $1,600 per week I earn, we save $300 for taxes, $75 for healthcare (since I have no benefits).  The rest of the expenses are; $150-$300 goes to debt repayment,  groceries, utilities, property taxes, and all the rest ($4,500/mo total).

So the question is, what to do with the $9,500 windfall?  Before we get to that, lets take a step back.

Lets start with the rental property.  Typically speaking, selling a rental property for a profit would result in capital gains tax.  That is, 50% of the profit would be added to income and taxed accordingly.  But Mark’s situation is a bit unique where they have no T4 income to report as Mark is a contractor with his own corp, and his wife is a stay at home mom with no other income.  If we were to assume that the profit was split evenly between spouses, it would result in about $6,000 in income for the year (each).  Depending on how much is “dividended” out from the corp to the wife, it will most likely result in very little tax to be paid.

If they were to pay out all of the corporate income in the form of dividends, they would report $6,000 income each, along with $33,800 each ($80k after tax and assumed split in two) in dividends from the Canadian Controlled Private Corporation (CCPC), which would result in $4,700 family income tax.  The $4,700 family income tax is about $2,300 more than if they never sold the rental property.  Having said that, the $9,500 windfall is now $7,200 after tax.  Alternatively, they could reduce the payout from the CCPC equal to the amount that they will receive from the sale of the rental, which will result in about $200 tax payable on the rental.

Another tax issue that Mark might want to consider is paying himself a salary instead of dividends only.  Why?  Paying himself a salary will enable him to make CPP contributions along with build his RRSP contribution room.  Even though he would pay more tax personally, the corporation would get a tax deduction which generally evens things out in the big picture.

I’d also like to say that it’s generally a very good move to pay off consumer debt first.  Not only does it release the burden of those monthly payments, it offers a psychological and financial confidence boost.

Options

So lets go through some options on the windfall amount assuming all consumer debt has been paid off with the old payments going towards the mortgage:

1. RRSP – An RRSP contribution is an option, but in this situation, it’s perhaps not the most efficient choice.  I would avoid RRSP contributions as both Mark and his wife are in low tax brackets due to their corporate structure.  In addition, it’s not as liquid as other options should they need the cash.
2. Emergeny Fund TFSA – With 2010 here, people 18 and older now are permitted to contribute $10,000 to their TFSA.  With very little savings, a single income and 2 young children, I would highly recommend an emergency fund that can cover expenses should the need arise.  $7,200 is definitely a good start.  With the TFSA providing a tax shelter, it’s the first place that comes to mind.  Even though rates are low right now, he would want to have the cash easily accessible, like in a cashable GIC or a high interest rate account.
3. Corporate Account – As I mentioned above, instead of withdrawing everything out of the corporation, they could withdraw less and use the capital gains from the rental sale to cover regular expenses, thus get taxed less in the current tax year.  This would result in keeping the cash amount within the corporation until it is needed or withdrawn in a more tax efficient manner.  Note though that interest earned within a CCPC is taxed at the highest possible corporate rate which is close to 50% in most provinces.
4. Mortgage Paydown – To continue paying off debt, Mark could put the $7200 towards his $260,000 mortgage balance.  Although this option provides a guaranteed return higher than a savings account, it doesn’t provide his family with any liquidity.  The liquidity problem could be solved by obtaining a HELOC (providing he has enough equity) and using that if an emergency arises.

Conclusion

Personally, because of the financial scenario, I would use the rental sale windfall as an emergency fund.   There are a couple options for the emergency fund.  He could simply open a TFSA and deposit the money in there while withdrawing from his corporation as they normally do to cover expenses.  However, this causes additional personal income tax to be paid.

The alternative would be to withdraw a little less from the corporation for the year equivalant to the amount of the windfall to reduce overall taxation.  This would keep the emergency fund within the corporation temporarily until withdrawn during more tax efficient years.  At which point, a TFSA should be used.

What do you think?  What would you do with the extra money?

Popular Posts:

• The Smith Manoeuvre – A Wealth Strategy – I
• The Smith Manoeuvre – A Wealth Strategy – II
• Canadian Discount Brokerage Comparison
• Top Cash Back Credit Cards in Canada
• Child Care Tax Credits
• Are Hybrid Vehicles Worth it?
• Tax Free Savings Account (TFSA)

Copyright 2009 MillionDollarJourney – All Rights Reserved

Every year I make out a list of goals or resolutions for the year to come. I keep my list in google spreadsheets so that I can track my progress and see how I’ve done at the end of the year. I try to make the list reasonable and attainable.

Here are 8 Ideas for Financial Resolutions for 2010. It gets overwhelming to do them all at once. Pick two or three high priority ones and work on those first.

1. Track your spending.

Tracking your spending is one of the best ways of finding out if your money is going where you want it to go. Every time I work with someone and they do this exercise they are surprised at how much they spend on something. Love going out for dinner? Great! Go out more often. Find out you are spending $4000 a year on it when you’d rather spend it on something else? Suddenly making dinner at home becomes a lot more exciting.

2. Open and max out your TFSA

If you haven’t opened a TFSA yet, now is the time to do it. For the first few years of savings (you get $5000 a year contribution limit each) it’s a great plan for your emergency fund. After that you may want to sit down with a professional to decide which you should max out first, your RRSP or your TFSA. I happen to agree with Ed Rempel’s advice.

3. Track your net worth

The vast majority of the people I meet with have no idea the value of their total net worth. Nearly all are surprised one way or another when they do this exercise for the first time. Some are shocked at just how much debt they have and others are pleasantly surprised that they have more than they thought they did. Tracking your net worth every month is a great way to motivate yourself to keep on track financially.

4. Write or re-write your will

You need a will. If you have children or dependents, you really need a will. Some people argue that it’s easier to download a will online or order a will kit that does all the work for you. I’m a strong believer in getting a will done by a lawyer. For those who already have a will, read it over to make sure it doesn’t need updating since it was last done.

5. Max out your employer matching

I am amazed at the number of people that miss out on free money. Some companies have an employer matching program where for every dollar you contribute to your RRSPs, they will match it up to a certain percentage. You want to make sure you are maxing this out. Call your HR department and check. I’ve worked with several people who were amazed that they answer was yes, and they’d been missed out on an employer match for years.

6. Pay off the credit cards

Don’t just make minimum payments. The faster you can pay off your high interest debt the more cash you’ll have to spend now and save for the future. Make a plan to get the cards paid off quickly and if it’s too tempting to buy on credit, consider switching to cash or debit.

7. Build your Emergency Fund

Most financial professionals recommend having between 3 and 6 months living expenses in an emergency fund. If your job is volatile, a baby is in your near future or you highly value security, you may want to make it more. Many couples I know like to have between 9-12 months of living expenses in their emergency fund. Money in your emergency fund shouldn’t be invested. It should be in a high interest savings account or short term GIC. This is money you may need in the short term. It’s not for long term investing.

8. Save up for something fun

Getting your financial life in order doesn’t mean it has to be boring. Life is about finding the balance between saving for the future and living in the now. Want to go on an exotic vacation? Set up a vacation fund. Looking for a Vespa or a Harley? Start saving now. There is nothing wrong with spending money on fun things. Just save up for it first.

Our resolutions for 2009 were to pay off the car and max out our TFSAs. For 2010, our goals are to save up for a potential move or second car depending on whether we decide to relocate or commute and increase our savings by a certain percentage.

What are your financial resolutions for 2010?

Kathryn works in public relations and training for a non profit. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Her passions include personal finance and adult education. Kathryn, along with her husband and two children live in Ontario.

Popular Posts:

• Canadian Discount Brokerage Comparison
• Top 6 ways to Save on Auto Insurance
• High Interest Rate Savings Accounts
• MBNA SPG Credit Card Review
• Questrade Review
• Are Hybrid Vehicles Worth it?
• Tax Free Savings Account (TFSA)

Copyright 2009 MillionDollarJourney – All Rights Reserved

A Christmas Carol is one of my favourite redemption stories. Charles Dickens introduces Ebenezer Scrooge as a wealthy but miserly man whose quest to save money hurts himself and others around him. In the end, he is a changed man. Scrooge gets a bad reputation because we tend tend to focus on who he was before his transformation rather than after. I want to be more like Scrooge after he changed his ways.

3 Ways to be more like Scrooge

1. Reflect

It wasn’t until Scrooge looked back on his life; the mistakes, the regrets and the opportunities missed could he truly understand who he was. When he took some time to reflect back, he realized he wasn’t the person he wanted to be.

There was a time when I was too careful with my money. We allowed no margin for enjoyment. It wasn’t until I reflected on my life and realized I wasn’t the person I wanted to be that I was able to create more financial balance in my life. For me that meant saving for the future as well as spending money now in ways that aligned with my values.

2. Give

Generosity is the best antidote to selfishness and a miserly attitude. Scrooge made the decision to change but it was only when he gave that his attitude changed.

When we’re under financial stress our deepest desire is to hold on tighter to everything we’ve got. Yet, when we make the conscious choice to give some of it away, it’s incredibly freeing. It’s counterintuitive but it works. The next time you’re feeling miserly, give to someone in need or to your favourite charity and watch how it changes your thinking.

3. Appreciate

Scrooge realized through his ghostly journeys that he had a family who loved him, a hardworking loyal employee in Bob Crachit and good health. He also saw that despite Tiny Tim’s illness, Bob Crachit appreciated everything he had, even his miserly employer.

On days when your feeling particularly miserable about finances, take the time to think about everything for which you’re grateful. It is no surprise that ‘miserly’ and ‘miserable’ have the same etymological root. Too often we can focus on what we don’t have rather than appreciating everything we do have.

Wouldn’t we all like the opportunity to project ourselves into the future and see the possible outcome? I’ve often though it would be rather convenient to know the exact date of my death. It would make retirement planning a whole lot easier if I knew exactly how many years my savings needed to last. If I had the opportunity to stand at my grave and watch the mourners around me, I wonder if there is something I’d want to change now.

More than 150 years after A Christmas Carol was written, its themes are still relevant. It doesn’t have to take a midnight haunting to change the way you live. It’s possible to change now. If you don’t like your miserable miserly ways, try being more like Scrooge by reflecting, giving and valuing what you already have.

Kathryn works in public relations and training for a non profit. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Her passions include personal finance and adult education. Kathryn, along with her husband and two children live in Ontario.

Popular Posts:

• How capital Gains Tax Works
• How Dividend and Interest Income Tax Works
• Registered Education Savings Plan (RESP)
• Top Cash Back Credit Cards in Canada
• Questrade Review
• Are Hybrid Vehicles Worth it?
• Tax Free Savings Account (TFSA)

Copyright 2009 MillionDollarJourney – All Rights Reserved