Indices such as the TSX Composite Index and the S&P500 track the performance of large-cap companies from Canada & the United States, respectively. The indices move up or down with the stocks that they track. Here’s why I’m not a fan of technical analysis on indices: Stocks trade irregardless of the indice.

• Therefore resistance and support levels for an indice are coincidental. Investors are generally not consulting the indice when making an individual trade.
• Today the TSX blew through 10,000 points. Were the investors aware that they were pushing it over such a big round “psychological” number? Nope. They were simply buying an individual stock. Its different when it comes to something like gold; $1000 / ounce may be a natural resistance level on the way up.
• Moving averages on an indice can’t really be used to help an investor. Heavily weighted stocks or entire sectors within an indice can be down on bad news, yet the indice may still go up.

Overall, the market indices are just used to track overall market optimism or pessimism. If your trading an ETF that tracks an indice, I guess the trend is your friend. Obviously fundamental analysis cannot be performed on an indice, but technical analysis isn’t much help either. Indices are not subject to psychological barriers, support, or resistance levels. Patterns may appear, but they don’t necessarily shine light on the direction of the individual stocks. What are your thoughts on technical analysis for the major indices? Significant, or completely useless?

Socialism

A socialist society is characterized by economic and political equality for all individuals. It is a classless society in which the means of production and property are commonly owned. Private ownership is abolished and capital is valued based on the labour theory of value. What would happen to a society that had an egaltarian method of capital distribution and economic compensation? The lazy would get lazier, and the ambitious would get frusterated. Take any stream of socialism from communism to social anarchism. Here are the problems:

• People are not the same! Some are ambitious and creative, while others are lazy and indolent. The majority are in between. How could you explain to the first group of people that they will have the same standard of living as the second group of people? Does that even make sense?

• The only true value of capital is what somebody is willing to pay for it. This is basic supply and demand, the foundation for modern economics. I don’t care if you’re using Dollars, Gold, donkeys, or monopoly money; there must be a currency which is exchanged when a buyer and seller agree. Capitalism is practical and fair: Freedom & safety for everyone, get what you put in, skies the limit. Everyone should be entitled to their own “American Dream.”

Capitalism

I am a true capitalist because I live by the ideals rooted in hard work and a dream. A democratically elected, strong, transparent government is very important to the foundation for a solid country. Canada provides many of the sociological, economic, and political values that I agree with. A damn fine country if you ask me, and I’m proud to call it home.

So, money is essential; but it’s not everything. Unfortunately, many people are controlled by money in a cycle of work & consumption. Addictions, frivolous spending, material accumulation, keeping up with the jones’, living beyond their means… This is not me. I strive everyday to be in control of my money, and therefore in control of my life. I’m not impressed by name brand designer clothing, expensive leased cars, and big ridiculous mansions. I love money because of the flexibility, security, and comfort that it provides for my life. Every morning I wake up thankful that the day ahead is entirely up to me.

Money = Happiness

Who ever said money can’t buy happiness? Lets get things straight. Money may not be mandatory for happiness. Some people live paycheque to paycheque, blow their money at the bar on Friday night, and can’t even afford a beer on Saturday. Yet, they are happier than a pig in shit. You know the people I’m talking about - happy go lucky, live day-to-day, always down the their last buck but couldn’t care less. Great people, great friends, a blast to hang out with - but its just not me. Anyways, with that concept being humbly admitted, I really believe money all but guarantee’s happiness. Disagree if you will, but ask yourself this question: “How many rich, sad, depressed, introverts have your ever met / seen / heard about?” Not too many. On an unrelated note, I whole heartedly believe that money cannot buy love. Time to conclude.

Do you think money is the root of all evil? What are your driving forces in the pursuit of wealth? Can money buy happiness / love?

Main Features

You can contribute up to $5000 every year to your TFSA. Most people will only need to open up 1 TFSA. That being said, it is fine to open several TFSA’s with different institutions, however, the sum of your contributions into all accounts still cannot exceed $5000 for the calendar year. If you break this rule, there are financial penalties.

Any interest, dividends, distributions, yields, capital gains, or other income of any kind that is earned within a TFSA is exempt from income tax. That means, you do not have to claim the money earned inside a TFSA as part of your taxable income. The money can be withdrawn at any time for any reason. The only tricky part to remember here is that you cannot recontribute money withdrawn until the following calendar year.

Example: You contribute $2000 to your TFSA on January 1st, 2010. On May 15th 2010 you withdraw $1000 from your TFSA. Your contribution room for the remainder of the 2010 calendar year is still only $3000 (not $4000). However Your contribution room for the 2011 calendar year now becomes $6000 ($5000 every year + $1000 withdrawn in the previous year). Any gains made within the TFSA during 2010 are yours to keep tax free.

How Does a TFSA Differ From a RRSP?

They are quite different actually. Money contributed to a RRSP is deferred from income tax, whereas money gained within a TFSA is exempt from income tax. The idea behind a RRSP is to defer paying income tax until later in life when ideally, you will be in a lower tax bracket. As a retiree, you can withdraw your RRSP savings to live off. The RRSP withdrawals are treated like regular income, and are taxed accordingly. Make no mistake, you will still be required to pay income tax on your RRSP contributions; just later on down the road. The important thing to remember here is that RRSP contributions are made with before-tax dollars.

On the other hand, TFSA contributions are made with after-tax dollars. Therefore money that you put into your TFSA is not exempt from income tax, or deferred from income tax. Rather, the gains you make inside the TFSA are tax free.

You can open up a TFSA and RRSP at the same time. Which one you should contribute to depends on your level of income. High income earners should max out both, every year, for maximum tax savings. But if you earn $20,000 or less annually, you must answer the following question. Will the interest earned inside a TFSA be greater than the tax savings from a RRSP on a year by year basis? If so, contribute to the TFSA and try to earn as much money inside of it as you can. Else if deferring income in a RRSP will result in significant tax savings, definitely go with the RRSP. Available tax credits for that year will play a big factor in your decision. In summary:

RRSP contributions and gains are income tax deferred.
TFSA contributions are taxed normally but gains are tax exempt.

Why is a TFSA So Powerful?

Some people are quick to judge that a TFSA is just a joke; another pathetic kickback from the Canadian Government. They insist that the “savings” from a TFSA are so minimal that its almost negligible. Well, perhaps within the first couple years. But wait…

5 years down the road. Here is where the power of a TFSA really shines through. If you contribute the maximum of $5000 to your TFSA every year for 5 years, you will have saved at least $25,000. If you are earning a 10% return throughout that 5th year, paid monthly, you will earn $2,617.83 tax free! Not to mention you will be making even more in the 6th year, 7th, 8th, etc. I don’t care who you are, that’s a nice chunk of tax-free change!

Do you have questions about the TFSA? Ask away in the comment section below. Don’t delay, open a TFSA today!

Sadly, there is a large population of people who make adequate amounts of money yet have nothing to show for it. The problem lies herein the wasteful spending, and material purchases. Theoretically the more money you take home, the more credit you have access to. This spells bad news for high earning habitual spenders.

Net worth has nothing to do with annual earnings! You can make a modest salary of $20,000 and be on course for positive net worth increases via prudent saving. Conversely, the guy who makes $500,000 can spend himself into negative territory. Money is just money - it comes, and it goes. How much money we make is insignificant compared to how we spend that money. This way of thinking gives hope to everyone who wants a better life for their family - through saving and discipline you really can get ahead regardless of your income. Yet, the cycle of working and spending continues across all “class” levels.

North American culture has people working harder and longer to pay for the nice house in the suburbs, shiny cars in the driveway, and numerous expensive material possessions. If we get a raise, its like a green light to borrow more, and consume more. We spend so much of our time paying for the things we deem important. Why are so many people maxed out with little regard for saving? Whats wrong with making less and enjoying the increased free time? Many live under the false pretense that we need to spend in order to enjoy.

Greedy lending & irresponsible borrowing has now caused the greatest economic recession since the Great Depression. Is this what North American society would like to be known around the world for? A lot of eyes have been opened, and I believe it was a necessary wakeup call.

We continue to work harder, picking up overtime shifts and second jobs. Then when we do have a minute to ourselves, we are out there spending it on things that end up in the closet. Our income statements are fruitful, yet our balance sheets are embarrassing. I question whether people are truly happy with their financial decisions. Have we forgotten to enjoy life?

Coffee and a Biscotti, $2.50. Bypass that twice a week and you’ve saved the equivalent of a $5 bill. Does the paper aspect of money make a difference? No, its still worth 5 loonies. But its strange how we have a harder time parting with our paper money - $5, $10, $20, $50, $100, $1000. Much easier to put something on debit, credit, or just use pocket change. Anyways, continue this pattern of saving for a whole year and you will have saved $260. Invest that money as described here and you will later be sitting on several thousands! Just a buck eh?

What are the implications of wasting a dollar? Well, we must go back to work to replenish the missing money. And if we really think about it, there are numerous different expenses that we must incur just to work! This is called the cost of working. Consider the following list of expenses that may apply:

• Public transit fares

• Gasoline for vehicle

• Oil changes and maintenance expenses for vehicle

• Parking expenses

• Income tax

• Unemployment insurance that is mandatory yet you may choose never to use

• Proper dress attire suitable for the workplace

• Cosmetic expenses in order to appear as desired on the job

• Expensive meals due to being away from your fridge at home

• Babysitter expenses since you can’t be there to greet the kids after school

• Education expenses required to attain and maintain your job

• Pharmaceutical expenses required to fight sickness received at work

• Massage therapy and gym memberships needed for de-stressing after work

• Physiotherapy needed to combat posture-related conditions caused at the workplace

• All other expenses that you incur in order to successfully do your specific job!

The reality is that our wages and salaries are not what they appear. In fact, they are often reduced to half. If you make a million dollars in your lifetime, but had to spend $500,000 in order to make that money, what did you really make?

A dollar saved is two dollars earned. You have to make two dollars for every dollar that is wasted.

I hope this will change the way you view the almighty loonie. Don’t be your own worst enemy in the pursuit of financial independence; save your money for a better tomorrow. If I have overlooked anything in the cost of working expense list above, please speak up. Share your thoughts and chime in, it would be great to hear from you!

Wealth is a successful financial position in which sustainable income generated from assets exceeds a persons expenses which are necessary to live their particular lifestyle, over any given period of time.

What we have presented here is a very dynamic definition of wealth. Depending on your level of income generated from assets, as well as your idea of a comfortable lifestyle, anybody can be wealthy. Yes, that means that any working class, average Joe / Jane can become wealthy. Whether you invest your paycheque as opposed to wasting the money will determine your financial future.

An interesting part to the definition is the word “exceeds.” This guarantees that the wealthy individual will continue to move in an upward direction as they continue to strengthen their net worth. The excess money between monthly income versus monthly expenses should ideally be used to purchase additional assets, thus further powering the cycle of wealth.

Wealth can also be seen essentially as retirement. Yet, its not exactly retirement in the classical sense. The two biggest differences is that you are not receiving a pension, and hopefully you are younger than 65. That being said, wealth will enable you to say goodbye to your day-job. You will still have to oversee your investment properties, stock portfolio, etc. but the “9 to 5″ part will be gone. To me this is freedom, and doesn’t seem like work at all.

The picture we are creating here is clearly not of riches beyond desire. To be rich means you are in possession of excessively large sums of money. So much money that, within reason, couldn’t possibly be spent during your lifetime. Again this is subject to interpretation, but being a numbers kind of guy… I would argue that for the majority of people, riches would be defined as a net worth exceeding $10,000,000 ($1,000,000 home, $500,000 cottage, two $250,000 cars in the driveway, which leaves $8,000,000 left over. AKA $100,000 to spend per year for the next 80 years…). The important distinction to make here is that riches, if not invested wisely, will eventually run dry - no matter how big the number. For example, the acquisition of $15,000,000 cash (say through a lucky inheritance) would make somebody rich overnight. However, they would have to convert that cash to income producing assets in order to be considered wealthy. Wealth is sustainable, but riches are expendable.

Now that we have a solid definition of wealth, we can begin to examine our own goals for financial freedom. If you want more money than you could possibly spend, riches will be your final destination. Continue to re-invest the difference between expenses and income and purchase new assets. On the other hand, if you are satisfy the definition of wealth and are content with your financial position, just spend the rest on the extra’s in life. The choice is yours. Either way, you will be free from the confines of your 9 to 5. Know what you want, dream about it, and go for it everyday. Wealth is attainable for all of us!

1) The Basics

You will need a stock broker to trade stock. InvestAssetWealth uses Questrade as a cheap, no-frills online broker. This is a good place for you to learn the ropes and get your feet wet. Once you have an account setup and have deposited a minimum of $1000, you are ready to begin trading.

Here are the basics of trading: For every buyer, there is a seller. A seller submits an order to sell at a specific price - this is called the “ask” price. A buyer submits an order to buy at a specific price - this is called the “bid” price.

When the ask price and bid price match, the stock changes hands. The agreed upon price is displayed as the “last” price paid for a particular stock; this is the stock price as valued on the open market. As buyers and sellers come together at different prices, a stock price will move up and down constantly during the trading day. These are the moving numbers that run across the screen during business news television broadcasts.

Some companies pay dividends as a way to distribute earnings back to the shareholders. Look for companies that pay dividends in the 5% to 10% range, and you can make a small income along side the hopeful capital appreciation.

2) Necessities

Read, listen, watch, and absorb. Devour the business section of your daily paper, and listen to the business news as much as possible. In Canada, the Business News Network is an invaluable resource for stock investors. The professionals they bring onto the program are worth their weight in gold (no pun intended); absorb what they have to say. A lot of information presented pertains to the Toronto Stock Exchange. After staying in constant touch with the business news for a month or so, you will begin to pickup on trends and patterns. Things that were once foreign to your brain will start to make sense. If you stay focused and committed, you will begin to use your new-found knowledge to form opinions on your own - and thats where the magic happens. At this point, you are ready to take some calculated risks on the open market.

3) Tips

Buy low and sell high; that is the name of the game. You don’t always have to buy at the bottom of the curve, and sell at the top. Many investors have gotten rich by taking profits without getting greedy. Remember, you only realize your profit when you sell. Just because your stock is now worth a tonne, it doesn’t mean its money in the bank. If you feel like the stock is near the end of its run, its better to get out then wait for the last penny of growth. Equally important is understanding that you only realize losses when you give up on a losing stock and sell. Markets are cyclical, and many times a stock price will bounce back a year down the road. Try to set aside “investment” money that you can afford to live without; that way you can keep a declining stock through hard times if you still believe the long term future is bright. That being said, sometimes it is good to set technical stopping points corresponding to a particular moving average. For example, if a stock drops below x amount of dollars, sell no matter what. Choosing a long term horizon is always a good strategy to negate the daily ups and downs in the market; anticipate a 3 to 5 year time horizon. Picking strong companies that have clean balance sheets and proven track records is usually a safe bet.

Hopefully this small tutorial will give inspiration and insight to beginners thinking about investing in the stock market. We will intentionally leave this blog post open-ended. Lets continue the discussion below in the comments section. I encourage stock market beginers and intermediates alike to ask questions and get involved in the discussion below. Professionals also please get in on the action and lend your expertise. I will certaintly do my best to provide advice where possible and answer any questions. Lets chat!

You invest 1 Canadian Dollar on your 15th birthday. The investment pays an annual interest rate of 10% compounded monthly. 50 years later on your 65th birthday you are ready for retirement. How much is that 1 Dollar investment now worth? $145.37… Unbelievable!

I know what you’re thinking: 1 dollar today will be worth nothing 50 years later due to inflation. True, this must be taken into account. Lets assume the %4.09 average rate of inflation throughout the 50 year period between 1959 and 2009 in Canada. 1 “1959 Canadian Dollar” would be worth 7.44 “2009 Canadian Dollars.”

So back to our example. Dividing 145.37 by 7.44 equals 19.54. This tells us that our investment, even after inflation, has still grown by over 19 times!

Let me say it again. Every dollar we spend today is really costing way more down the road. Similarly, every dollar we spend now means we have much less to spend later. This is true thanks to the power of investment and compound interest. Understanding this will make you think differently about that $1.50 Tim Hortons Coffee, or those $20 shoes that are on sale. You’ll think, wow if I pass on that $1.50 coffee and invest the money instead, I will have an additional $218.05 to spend when I’m retired.

There is a very valid argument that is quite common against this way of thinking. Many people spend money to enjoy it today, in their youth, knowing that there is no guarantee of a tomorrow. They seek instant gratification from their hard work in the form of a unnecessary purchase. They live from paycheck to paycheck, and preach “you can’t take money with you when you leave this Earth. Besides our health may be suffering in later years.” This is all admitingly very true; there are no guarantees in life.  There is inherent risk in saving for a better tomorrow; it takes foresight and discipline. Unfortunately, this way of thinking makes you a perfect candidate to fall into the “financial trap”

The financial trap is the perpetual cycle of spending every cash dollar you make, and possibly more than you earn via credit.

The financial trap is a viscious circle that guarantees 1 thing: you never get ahead. You work so hard, take care of your necessary expenses, then blow the rest on wasteful purchases. Further worst, the trap can get really ugly when you start purchasing on credit. Interest payments in the 20% range for consumer credit cards can quickly eat away at your paycheque. If spending habits are not changed, a financial spiral out of control is imminent.

How can we avoid the financial trap? Do we need a great job earning $500000 annually? No; keep your existing job if you are content with it. In fact, you don’t have to work 1 Joule harder. Everyone can do it: simply live below your means and invest the difference. Keep your necessary expenses as low as possible, and cut down on wasteful purchases. The key to wealth is to consistently move upward and forward - never downward and backward. Getting ahead in life is hard enough, so don’t sabbotoge your own financial future through wasteful spending.

The moral of the story ties everything together. Turn wasteful spending into investments, and the rewards will be tenfold. Hold off on that fast food today, and you can buy a McDonalds tomorrow. If its you’re goal is to travel once every year, consider working hard for 5 years without travel: this may enable you to take 2 vacations per year for the rest of your life - a large difference at the end of the day. Pass that purse sale without second thought. Years later, you will get the exact same one packed full with cash. Avoid the financial trap: Save & Invest today to reap the financial freedom tomorrow.

As a general word, an asset is used to define something positive, beneficial, or advantageous. A talented addition to a sports team is commonly referred to as an asset. We can also look at assets from an accounting point of view. Accountants term assets as anything that has a store of value and can be liquidated if necessary; this includes cash. The business balance sheet typically lists equipment such as vehicles and electronics under the asset column. All of the aforementioned interpretations of an asset are legit, and contextual in meaning. Let us explre the word “asset” as defined by InvestAssetWealth.

An asset is any purchase by which the net total of  capital appreciation + (plus) generated income - (minus) necessary associated expenses increases over a realistic period of time.

Typically the “realistic timeframe” is much less than 10 years, but can be up to a maximum of 50 years thus allowing the investor to “realize” the increased value within their own lifetime. Necessary associated expenses are incurred as a direct result of the asset purchase, and may exist for the entire life of the asset.

So, lets talk about some examples of assets.

1) A stock is purchased for $10. Commission to buy or sell the stock is $5. The stock pays a yield of 15%. 1 year later the stock is worth $30. The net value is $30 (value of stock) + $1.50 (yield) - $5 (commission to buy) - $5 (commission to sell) = $21.50. This is indeed greater than the original value of $10, thus confirming the stock was an asset. Selling would be necessary in order for the investor to realize the profits.

Important: Obviously there could have been points in time during the year the stock was held in which the net value had decreased (for example, if the stock price dipped down within the first couple days of the purchase). During this depressed period of time, the stock would not have been an asset to the investor. However since the net value of the stock had increased by the time it was sold, it was indeed a solid asset.

2) A business is purchased for $10000. During the course of 1 year, the business generates $5000 in profits. At the end of the year, the business is sold for $7500 due to a recession in the economy. The net value of the asset at the time of sale is $7500 (value of business) + $5000 (profits generated by business and paid to the investor) - $0 (no additional expenses to the investor) = $12500. We have a net value that has increased by $2500; an asset to the investor.

An investment is simply the purchase of an asset.

Investments are made with the expectation of returns. Investors assess the risk vs. reward of every purchase they make with the expectation of a net value increase, while understanding the possibility of a net value decrease. There are no guarantees in life, but the intent of all true investments is to simply make money. And what makes money? Assets make money!

A liability is any purchase by which the net value decreases over time. It is essentially the opposite of an asset.

Liabilities are often items which depreciate quickly - things such as vehicles and computers. An accountant see’s an asset, yet an investor see’s a liability. Not convinced that your new vehicle is a liability? I know its shiny, goes fast, and looks expensive. But just add up the insurance, maintenance, and fuel expenses alone. Did I mention that your new car depreciated 25% when your drove it out of the dealership parking lot? Ouch!

Note: Some liabilities are further classified by InvestAssetWealth as necessities. A modestly priced base-model vehicle is understandably seen as necessary in North American society. Conversely, a $500000 Ferrari Millechili would do serious damage to ones net worth! Unnecessary liability!

In closing, lets think back to those new shoes that we’ve all bought on impulse. Did they increase in value? Not a chance (although they may have increased in smell :D). Did they generate income by themselves? I’d wager a bet of “no”. So were the shoes an asset? Nope. Therefore, the purchase of the shoes was not an investment; it was simply a purchase. That being said, if you walked into the store barefoot, the shoes would be a necessity. Necessary liabilities are unavoidable, and we all must purchase them from time to time. But make no mistake, we never invest in liabilities. An investment is the purchase of an asset, with the intention of making money.

Investing (in) Assets = Wealth

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