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So last week I planted the first round of seeds (excluding the seeds I started indoors a couple of months ago which I plan to cover when I actually put those plants in the ground). I have put in radishes, beets, spinach and peas. I have also left room for carrots, beans, zucchini and maybe cucumbers which I plan to plant in the next week or so. I also left room for the plants I started indoors (3 varieties of tomatoes, peppers and eggplant).

So this is the current state of the garden. In the next post will show some plants actually coming up. Any bets on which plants will come up first?
Vegetable garden as of May 15, 2009.]]> The Garden Project http://intthree.com/index.php?itemid=332 Thu, 21 May 2009 09:48:25 -0400 http://intthree.com/index.php?itemid=331
We planted a vegetable garden last year which was the first full summer we had at this house. Our last house didn't really have a garden and one of the things we were looking for when looking for a new house was some property that would allow us to have a garden. We found that with this house. The overall property is just under a quarter acre and the backyard is about 80 feet deep by 130 feet wide. This allows for a few good sized flower beds as well as a 16 foot by 12 foot vegetable garden. Last year we didn't make full use of the garden but we were still able to get three kinds of tomatoes ('Early Girl', Roma and cherry) a whole bunch of zucchini (or courgette), some beets, some peas and a stray pumpkin. This year we will be looking to balance some things out (planting 15 zucchini seeds and then not thinning them out means you end up with a LOT of zucchini and zucchini bread) and try some new stuff.

So this year we are considering planting spinach, radishes, green beans, peas, beets, carrots, cucumbers, pumpkins, tomatoes, peppers and eggplant (or aubergine). I have already started three kinds of tomatoes from seed (Roma, Beefsteak and a cherry variety), one kind of pumpkin (small sugar), eggplant and peppers. The tomatoes are doing well as are the pumpkin but the peppers and eggplant are really taking their time coming up. I hope to be putting the tomatoes and pumpkins in the garden in the next couple of weeks as well as starting the spinach, radishes (which may be too late already) and peas in the garden in the next week.

Last weekend I got the garden into the blank slate state by doing a full double digg and adding compost from our composter as I did that. So now I have a blank slate pictured below. Again, this is a 16 foot by 12 foot garden. It gets about 9-10 hours of direct sunlight a day (from about 9:30-10:00am until about 7-8pm). The camera is looking basically north in the picture below.

Vegetable Garden May 6, 2009

I hope to post almost weekly updates on the garden over the summer including pictures. It should be fun to see how the garden develops over the summer.]]> The Garden Project http://intthree.com/index.php?itemid=331 Fri, 8 May 2009 11:54:52 -0400 http://intthree.com/index.php?itemid=330
What am I talking about? Let's take a look at the current annual dividend payouts of the top 5 Canadian Banks:
Royal Bank: $2.00
TD Canada Trust: $2.44
Scotiabank: $1.96
Bank of Montreal: $2.80
CIBC: $3.48

Ok, now what are the stocks trading at (as of 9:50am February 20, 2009):
Royal Bank: $26.75
TD CanadaTrust: $33.46
Scotiabank: $25.23
Bank of Montreal: $24.96
CIBC: $39.43

That gives us yields of:
Royal Bank: 7.48%
TD Canada Trust: 7.29%
Scotiabank: 7.74%
Bank of Montreal: 11.21% (!)
CIBC: 8.83%

Prime is currently at 3% and I think has a fairly good chance of moving to 2.75% on March 3 when the Bank of Canada sets the target for the overnight rate, provided the banks pass a BoC rate cut along to consumers. So currently the spread between the prime rate and the yield on Canadian banks at a minimum of 4.29% and as high as 8.21%.

So the question is does the market have it right and will we see at least one Canadian bank cut their dividend (I'm looking at you BMO) or is the market just totally out to lunch? One way to get a feel for that is to take a look at the payout ratios of the banks and their payout ratio targets. The payout ratio is the percent of income the bank uses to fund the dividend. The Canadian banks vary in their target payout ratios but their target ranges fall in the 35%-55% range. Based on Q1 2009 earnings estimates (as predicted by TD Newcrest) here's what the target payout ratio ranges and the projected Q1 2009 payout ratio will be:

Royal Bank: Target: 40%-50%, Expected Q1 2009: 56% (based on 90 cents/share earnings)
TD Canada Trust: Target: 35%-45% Expected Q1 2009: 47% (based on $1.49/share earnings, which isn't a TD Newcrest estimate because they have a conflict in covering their parent)
Scotiabank: Target: 35%-45% Expected Q1 2009: 54% (based on 90 cents/share earnings)
Bank of Montreal: Target: 45%-55% Expected Q1 2009: 67% (based on $1.05/share earnings)
CIBC: Target: 40%-50% Expected Q1 2009: 58% (based on $1.50/share earnings)

So it looks like all the banks are going to be outside their target payout ratio range with TD Canada Trust being the closest and BMO being the furthest from their range. I would expect that a bank that is within up to 5% of their payout ratio target wouldn't want to move their dividend at all but a bank like BMO that could be almost 12% outside their range (and their range is the highest of all the banks) might want to make some adjustments.

Now the question is what would it take to get their payout ratio back into their target range? Well 55% of $1.05 is 57.75 cents. They are currently paying out $2.80 a year or 70 cents a quarter so a move to 57.75 cents would be a 17.5% reduction. Of course my bet would be that if they did decide to cut the dividend they would give themselves way more room than just hitting the top end of their target range. After all, if you are going to disappoint investors by cutting the dividend at all you might as well give yourself some breathing room and an opportunity to really increase the dividend once earnings start to recover. So if and I really mean if BMO does decide to cut their dividend I would expect to see a 20 or 21 cent per quarter reduction which would be about a 30% drop (21 cents/ 70 cents = 30%). That would put them in the low end of their target payout ratio range (at around 46%) and it would also put their yield down in the 7.85% range (based on the $24.96 price listed above) which isn't too far off the other banks.

So out of all the banks I think that BMO is in the worst shape with respect to dividend payout ratios vs. their target payout ratios and I think that if any bank has a slim chance of cutting their dividend it will be BMO. Even if BMO does cut their dividend I think they will cut it by at most around 30% (which will give them lots of room to increase their dividend when earnings finally start recovering) and the yield of the stock will fall roughly in-line with the other banks at around 7.85% based on a stock price in the high $24 dollar range. I'll take an almost 5% above prime yield from a Canadian Bank after a dividend cut thank you very much.

In short, I don't see too much more downside in Canadian bank stocks based on the lows that they hit this morning. The earnings releases for the big 5 Canadian banks are scheduled to take place of the next couple of weeks ( starting on Wednesday next week and going into the first week of March). We could be in for an interesting ride on the bank stocks.]]> Personal Finance http://intthree.com/index.php?itemid=330 Fri, 20 Feb 2009 10:52:05 -0500 http://intthree.com/index.php?itemid=329 Bank of Canada announced it was lowering the overnight target rate by 50 basis points (0.5%) to 1.0%, a level not seen since the summer of 1958 (as a side note it may be interesting to take a look at what happened in the economy and markets in the 10-15 years after that to get some insight into what we may be looking at now). For the first time in months the Canadian banks lowered their prime rate by the same 50 basis points within minutes of the Bank of Canada's announcement. The banks still haven't passed on all the interest rate cuts since December 2007 to consumers (they are still 0.25% behind) but at least this time they didn't hold anything back.

The Bank of Canada made some interesting comments in their statement and they have Monetary Policy Statement due out on January 22 that could be even more interesting. I don't know how often this happens but they actually used the word recession in their statement saying that "Major advanced economies, including Canada's, are now in recession". They also say they are expecting the Canadian economy to shrink in 2009 by 1.2% "Canada's economy is projected to contract through mid-2009, with real GDP dropping by 1.2 per cent this year on an annual average basis.". For 2010 they are looking for real GDP growth of 3.8%. The Bank isn't concerned about inflation right now and in fact expects some deflation in the next 6 months or so because energy prices have come down so far from a year ago (remember $1.30/litre gas last summer compared to the 78-80 cent/litre we are seeing right now?).

So my question is, does anyone know of a good resource (book, website, whatever) that goes through historic economic conditions? I would really like to look into what happened in the 1955-1985 (or maybe 1987) time period in terms of the economy and the markets to see if there can be any lessons learned for what we may be seeing over the next 10-20 years.]]> Personal Finance http://intthree.com/index.php?itemid=329 Tue, 20 Jan 2009 12:39:40 -0500 http://intthree.com/index.php?itemid=328
The first resolution that I want to discuss is simple expense tracking. I believe that expense tracking provides the foundation of any personal finance planning. Without having a solid understanding of your cash flows, how much money comes in and where that money seems to disappear to so quickly, there isn't a context to frame all the major aspects of financial planning.

The first thing that expense tracking does is point out where money is being wasted. Are you spending $80/month on a cell phone contract for a cell phone that you only use for emergencies? Is your habit of getting a coffee on the way into work every morning (when you could drink the free coffee at work) in addition to buying lunch everyday showing up as a $100/week cash withdrawal (that's a little more than $400/month)? Is that gym membership that you never use (there's another resolution) really worth that $60/month? Do you keep on paying it hoping you will feel guilty enough to actually go to the gym? Are you spending over $100/month for cable/satellite TV? How many of those extra channels (that all seem to be running episodes of the same shows) do you actually watch? I know you got that HDTV for Christmas last year but do you really need to pay that $12/month to rent the HD decoder box thing? For that price you could get a 1-DVD at a time unlimited rental plan with Zip.ca (you pay $11/month and like Netflix they mail you DVDs that you want to see and you mail them back when you are done and then get the next one on your list).

The second thing that expense tracking does is allow us to realistically estimate those once-in-a-while-but-not-every-month sort of expenses. How much did you spend on car maintenance last year? How about the year before that? Were those expenses surprises when you actually had to shell out the money for them? I'd be willing to bet that from year to year your car maintenance costs are fairly consistent (except in the year where your car crosses the 100,000km odometer mark, that year will be a little more expensive). How about gas for the car? Did your gas expenses go up last year? Have they gone down in the last couple of months? Do you expect those to go up again as we get closer to the summer driving season?

The most important thing that expense tracking does is give you information. The information that you get from tracking expenses is priceless. What happens if your spouse gets laid off? That emergency fund that you have put a little bit of money in (you have started a TFSA for that, right?), how many months of living expenses will that cover? What are the first things that you could cut out of your monthly expenses if your household income dropped for some reason? Long-term expense tracking (over 5 or more years) should start to give you good insight into what your expenses might look like as you approach financial independence. If you track your expenses you should get a very good feeling for when you will actually achieve financial independence. Once your investments start generating greater absolute returns than your annual expenses then depending on the stability of those returns that is pretty much the definition of financial independence (which some people like to call retirement but there isn't anything that says that financial independence means stopping work although it could).

So tracking expenses seems like a daunting task, doesn't it? You have to go out and buy some software and then spend hours in front of the computer trying to figure out how the software works and entering in all your bills. Or you have to save all your receipts and plug all the exact amounts into some software that comes up with some strange numbers that you don't understand. It doesn't have to be that complicated. I have a made up a fairly simple spreadsheet that you can get from here: Expense Tracking Spreadsheet. There are pre-defined categories for spending categories in that spreadsheet which you can modify to suit your situation. The numbers that you enter in that spreadsheet don't have to be exact. If you start by just trying to track to the nearest ten or twenty dollars what you are spending for one month I think you will be able to find some areas that you could adjust your spending slightly. At the very least after one month of expense tracking you will have a better idea of where your money seems to go so quickly. You will have the beginnings of the foundation you need for planning out your personal finances.]]> Personal Finance http://intthree.com/index.php?itemid=328 Mon, 19 Jan 2009 13:41:07 -0500 http://intthree.com/index.php?itemid=327
I wanted to do a quick little recap of how things went through the end of 2008 and how things have started to go for 2009.

So for 2008 our portfolio had a return of right around -38%. Lovely. The TSX was down around 35% so we underperformed the TSX a little bit, the S&P 500 was down around 38% as well so we weren't too far off that. and the Dow was down around 33%-34%. Things looked pretty good from an investment income perspective though (despite some issues as we approached the end of the year). Our total investment income grew by a little more than 30% in 2008 (compared to 2007) and the overall increase in investment income was a little over 5% (compared to what we would have received if there were no dividend increase over the year). That 5% growth in investment income was a little less than I was hoping for, it was on track to be just over 9% until the energy companies started cutting their distributions late in the year. If the BCE deal had gone through at the full $42.75 per share purchase price we would have beat the TSX over the year. There was a silver lining to that deal falling through though. BCE has re-instated its dividend.

Looking forward I think 2009 is going to be quite a volatile year, much like the end of 2008 was. I have no idea where to expect the markets to be at the end of this year. I can say however that from an investment income perspective things are looking pretty good in 2009. It looks like we should be able to increase our investment income at least 30% over what our portfolio generated in 2008. There are some risks to that though. We have already seen one energy company in our portfolio reduce their distributions (Bonavista Energy) and I suspect we will see a few more in the next few months if oil prices don't get to the $50 a barrel range soon. The nice part about owning energy companies is that although distributions are probably going to go down our budget for fuel can also go down. Overall for the income aspect of our portfolio I don't think we will see any significant increase in distributions or dividends from companies in 2009 which I hope means that 2010 or 2011 will see some very nice increases.

I hope to start posting a little bit more regularly in the coming weeks. In the meantime if you haven't already you should look into opening your Tax Free Savings Account. Remember, it probably makes the most sense for the first couple of years to use the TFSA to build up an emergency fund (or transfer your existing emergency fund into a TFSA).]]> Personal Finance http://intthree.com/index.php?itemid=327 Thu, 15 Jan 2009 15:54:21 -0500 http://intthree.com/index.php?itemid=326
Trying to make a lump sum payment on our mortgage is a different story. First I wanted to just take a look at our accounts online so I entered my login information into the Easyweb login screen. I got a message saying that "Your request could not be processed, please try again. If the problem persists please call Easyline." I tried again and got the same problem. So I called the Easyline number and was cheerfully greeted with... a busy signal. Ok, so it seems like everyone is having this problem. Hang up. Redial. Busy. Hang up. Redial. Busy. Hang up... After about 5 minutes of back to back redialing I finally heard a phone ring instead of the busy signal and the automated system picked up and asked me to enter my card number and access code. I then navigate through a couple layers of menus to get to the selection that I think will allow me to make a lump sum payment. The automated voice tells me that I am being transferred to a credit specialist and the next thing I hear is a fast busy tone. Nice, Easyline just hung up on me.

I go through the whole redial-busy-hangup-redial exercise again and after a few minutes I get through again (I should note that every other time that I can remember every calling Easyline I get through with no problems at all on the first try) and I navigate through the menus again to get connected to a credit specialist. This time I get properly put into the call queue and after a couple more minutes waiting on the line I get a live person on the phone. I tell them that I would like to make a lump sum payment on my mortgage and he tells me that he can't help me with that right now because their systems are down.

Lovely. Easyweb (and WebBroker, the web access to TD Waterhouse) is down and Easyweb is referring people to Easyline. I didn't try any of the automated features of Easyline but my bet is that if a live person can't do anything because their systems are down the automated system won't be able to do anything either. I could have saved about half an hour of time if the Easyweb screen said that they are having technical difficulties impacting Easyweb and Easyline account access (and I wouldn't be surprised to hear that branch account access is down as well) that they are working on resolving.

Hopefully they can resolve these issues quickly. I wonder if the TSX and TD Canada Trust have some systems from the same vendor...

Anyway, Happy New Year and I wish all me readers a prosperous 2009!

Update(@ 14:40): Easyweb seems to be up and running now so they resolved whatever issues they were having fairly quickly.]]> Personal Finance http://intthree.com/index.php?itemid=326 Wed, 31 Dec 2008 14:16:53 -0500 http://intthree.com/index.php?itemid=325 I took a look at the interest rates were on some high interest savings accounts. It seems that the interest rates on these accounts have quietly dropped since the Bank of Canada dropped the overnight target rate by 0.75% on December 9. Let's take a look at the interest rates from the end of October compared to now.

First on the list is the PC Financial Interest Plus Savings account. At the end of October it was paying a 3.05% interest rate for balances over $1000. Now that is down to 2.75%.

Next is ING Direct's Investement Savings Account. At the end of October it was paying 3% with no minimum balance. That rate has dropped to 2.70% now.

Back at the end of October I also looked at HSBC Bank's Direct Savings Account. It was paying 3% at the end of October with no minimum balance and it is paying 2.75% now but they seem to be offering a 1% bonus for new deposits.

I also took a look at ICICI Bank's HISAVE Savings Account which was paying 3.4% with no minimum balance and it is paying 3.10% now on Canadian dollar deposits (and 2.5% on US dollar deposits).

An interesting thing that I found while looking around at mortgage options for that mortgage post earlier this week is that Scotiabank has what appears to be a new savings account called the Scotia Power Save account. On balances of less than $5,000 this account pays no interest but on balances $5,000 and over it is currently paying 3%. So if you have more than $5,000 sitting in one of the other popular high interest savings accounts it looks like you can increase your interest payout by at least 0.25% by moving to this Scotiabank account (unless you are with ICICI bank). What would be very interesting is if Scotiabank offered a Tax Free Savings Account version of this account.]]> Personal Finance http://intthree.com/index.php?itemid=325 Fri, 12 Dec 2008 06:30:00 -0500 http://intthree.com/index.php?itemid=324
We can take advantage of these lower interest rates by using the lump sum pre-payment option that is built into our mortgage. Most mortgages have two 'accelerated payment' options built into them (when you are shopping for a mortgage you should make sure the mortgages you are considering have both of these options or some variation of these options built in even if you don't think you will ever use them). The first option is the lump sum pre-payment option. This option generally allows you to pay down some specified percentage of your original mortgage amount on a yearly basis. The typical lump sum pre-payment limits are 10%-20%, so every year you can choose to put up to that amount of your original mortgage amount directly into your mortgage. The other option is the increased payment option. This option generally allows you to increase your monthly payments either by some fixed percentage every year or by a fixed percentage over the whole term of the mortgage. The yearly payment increase limits are typically 10%-20% and the payment increase limit over the term of the mortgage is up to 100%. So if you started with a $1500/month mortgage payment you could increase that by either between $150 and $300 every year or by up to $1500 over the whole term of the mortgage.

Ok, that's great we can put a lump sum into our mortgage or we can increase our payments, how does that help us take advantage of current lower interest rates? It isn't like we have a pile of cash laying around and even if we did that wouldn't let us take advantage of the lower interest rates (we would just be getting out of our higher interest rate, not using the lower interest rate). Well, we can take advantage of the lower interest rates by using the variable portion of our HELOC. Currently the interest rate on the HELOC is at prime which is 3.5%. The way our total HELOC works is we have a fixed portion with a 4.55% interest rate that works like a regular mortgage, we have fixed payments and every month a little less of that payment goes towards interest and a little more goes towards principle. We also have a variable portion of the HELOC that has a floating interest rate which right now is equal to prime (although the bank could change that if they wanted to). Every month we make a payment to our fixed portion of the HELOC the principle that we pay off that becomes available to us on the variable side of the HELOC. So say we had a $150,000 total HELOC and we had the full $150,000 fixed when we started. So our fixed mortgage is for $150,000 and we have $0 available in the variable portion of the HELOC. The first month we make a payment of say $1000 and say $600 of that is interest, $400 is principle (which is about a 15 year amortization, not the typical 25 year amortization). Then at the end of the first month the balance on our fixed portion would be $149,600 and we would have $400 of credit available in the variable portion of the HELOC. We don't pay anything for that $400 of available room in the variable portion of the HELOC, it is there for us to use if we want to (and we would have to pay interest on it if we did use it) but we don't have to do anything with it.

Now the picture might be starting to get a little more clear. We have been paying off the fixed portion of our HELOC for about three and a half years now. We also haven't been using the available room in the variable portion of our HELOC. We also chose a fairly short amortization of around 10 years when we set up the fixed portion of our HELOC so every month more than half of our mortgage payment is going to pay down principle and less than half is going towards interest (in fact I think that around 30% is going towards interest currently). So we are now in the position where we have about 30% of our original mortgage amount available on the variable portion of our HELOC which currently carries an interest rate of 3.5% and at the same time we have a portion of our HELOC fixed at 4.55% that has a lump sum pre-payment option. So what we can do is take a lump sum out of the variable portion of our HELOC and put it into the fixed portion of our HELOC and cut the interest rate on that lump some from 4.55% to 3.5%, a savings in the interest we pay of 23%. The only slight wrinkle is that we can only make lump sum payments of up to 15% of the original mortgage amount per calendar year. Lucky for us we are in the last three weeks of the calendar year so we could make one lump sum payment of 15% this month and another 15% lump sum payment next month.

There are actually two advantages to doing this. The first is that the interest paid on the money transferred from the variable portion of the HELOC has been reduced. The second is that since the payments on the fixed portion of the HELOC are fixed and the balance has been reduced there is less interest interest every month so more of the fixed payment is going towards principle instead of interest. Of course the downside is that the total payments that are made to the overall mortgage are higher because the interest on the variable portion of the HELOC has to be paid every month in addition to the regular payment made to the fixed mortgage. So even though from a net worth point of view making a lump sum payment from the variable portion to the fixed portion of the HELOC looks good, from a cash flow point of view it doesn't look as good. Every month the cash flowing into the total combined mortgage (fixed mortgage and interest payments on the HELOC) will be higher than before doing the lump sum transfer.

However, before we jump right in and do this mortgage pre-payment, we need to ask whether we even want to take advantage of these lower interest rates. There is some risk involved in attempting to do this. The 4.55% interest rate that we have on the fixed portion of our HELOC is fixed until the middle of 2010. So we have a year and a half left of a guaranteed rate of 4.55%. The current prime rate of 3.5% is only guaranteed for today. It could change tomorrow or next week or next month and it could change by a lot. There is no protection on where the prime rate could go or how fast it could move. So we have to ask ourselves, do we think that either the prime rate is going to stay below the 4.55% rate we have on our fixed mortgage between now and mid-2010 or do we think that we could pay off the portion of the HELOC we used to pre-pay the fixed mortgage if interest rates went over 4.55% in the next 18 months or so? It isn't an easy question to answer. The current economic, market, and interest rate environment is very volatile and has already shown us how quickly situations can change. A year ago I thought that the 4.55% interest rate we had on the fixed portion of our mortgage was pretty good because prime was at 5.75%. Where prime will be 12 months from now is anyone's guess. So making a lump sum payment in order to take advantage of a lower prime rate requires some careful consideration.]]> Personal Finance http://intthree.com/index.php?itemid=324 Thu, 11 Dec 2008 06:30:00 -0500 http://intthree.com/index.php?itemid=323
Let's take a quick look back over what has happened to interest rates during the last few months. On September 3 the Bank of Canada in its scheduled interest rate announcement kept the target overnight rate at 3%. At that time most Canadian banks had a prime rate of 4.75%. So the spread between the prime rate and the overnight rate was 1.75%. On October 8 in a move coordinated with central banks across the globe the Bank of Canada cut the target overnight rate by 0.50% to 2.5%. Canadian banks balked at this move and only lowered their prime rate by 0.25%. On October 10 the Canadian federal government announced that through the CMHC (Canadian Mortgage and Housing Corporation) they would be providing funding to insure $25 billion worth of mortgages, basically taking the banks off the hook for mortgages that may go bad. This prompted some interest rate moves by the Canadian banks, some of them lowering their prime rate by 0.25% and others lowering by 0.15%. Then on October 21 the Bank of Canada released a scheduled interest rate decision lowering the target overnight rate by 25 basis points to 2.25%. While the Canadian banks took their time announcing interest rate cuts by 6:00 on October 21 all the banks had lowered their prime interest rate to 4%, maintaining the 1.75% gap between the prime rate and the overnight rate target. Yesterday was the next Bank of Canada interest rate move and the banks have decided that they need a 2% spread between the target overnight rate and their prime rate, the prime rate is at 3.5% and the target overnight rate is now at 1.5%.

This 0.75% move by the Bank of Canada was slightly unexpected so I wonder if the banks were prepared to do a 0.5% cut at most, only counting on a 0.5% move by the Bank of Canada. The next scheduled interest rate announcement by the Bank of Canada is on January 20, 2009. It will be interesting to see what happens between now and then in the economy and how the Bank of Canada and the Canadian banks respond on January 20.]]> Personal Finance http://intthree.com/index.php?itemid=323 Wed, 10 Dec 2008 09:27:13 -0500