Little Money Lab

When I got my credit report about a year ago from Equifax, I have noticed several errors on it. On my credit report, there are some credit card accounts which do not belong to me. It has also indicated that I have a middle name while I do not. Obviously, the report from Equifax has mixed my file with others. I immediately check my credit report from Transunion. Not surprisingly, I have found the same errors on it. Clearly, I do not want somebody else’s record, good or not, on my credit report. Therefore, I make a request to correct those errors from both credit bureaus. If you have found errors on your credit report and would like to correct it, here is how you can do it: Read More

Yesterday when I logged into my Questrade account and saw one of my holdings, XIU, go down by almost 75%, I almost freak out. Later, I realized that it was due to the unit spliting by iShares Canada. What is a unit split? According to Investopedia, stock split is:

“A corporate action in which a company’s existing shares are divided into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because no real value has been added as a result of the split.”

Using the XIU split as an example, there is a 4-to-1 split yesterday. 50 shares at the price of $80 per share prior to the split will end up with 200 shares at $20 per share. As you can see, the total amount of assets before and after the split actually remain the same at $4000. Then you might ask why the companies want to split the unit at the first place? Read More

It is ideal that you order your credit report once a year to see if there is any mistakes on it. If you are buying a new home soon, it is strongly recommended that you order your credit report before you start the mortgage application.

There is a common misunderstanding that you need to pay for your credit report. This is not correct. Credit report is always FREE for you to request by mail(If you would like to get it online, you need to pay for that). Only if you want to know your credit score, then you have to pay. TransUnion and Equifax are two major credit bureaus in Canada. The process to request the credit report is very similar between these two. I would pay special attention to the report from Equifax since I believe most of the creditors in Canada use the copy from Equifax.

To obtain the credit report from Equifax, Read More

It has been a big news yesterday in Canada about the credit card fraud fears in one of the biggest airport in the country, Toronto Pearson International Airport. It’s feared the security features of the kiosks at Canada’s largest airport may have been compromised, and that sensitive information may have fallen into the wrong hands. For this post, I would like to share some ideas about how to protect yourself from credit card fraud.

• Reduce number of credit cards you have: I used to have around seven credit cards in total until one day I realized that I was crazy to carry so many credit cards at the same time. I called my credit card company to cancel four of my credit cards and keep the other three( one VISA, one MasterCard, and one AmericanExpress). With less number of credit cards, it is much easier for me to make sure none of them has been lost, misused and so on. Also, it reduces my chance of being a victim of potential identity theft. I think most of the time people will need only one credit card. But just in case some places will only accept one or the other, you can try to keep one of each of the major cards just like I do. There is one thing you need to pay attention to when you cancel your credit cards. You do not want to cancel the one with the longest credit history,in other words, the oldest card you have since it might hurt your credit score.
• Check your credit card statement more frequently and online: most of the credit card companies allow their users to check their credit card statements and recent activities online. Checking your statements and recent activities more frequently allows you to identify any unauthorized purchase much earlier to achieve a solution that is much favorable to you if it did happen!

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TAGS: credit card;credit card fraud;credit report;paypal

I was a little bit bored today and start to day dreaming in the office. I know it has been discussed many times in personal finance world about how much you need to retire. But just for fun and to kill some time, I brought up a spreadsheet and did some calculation to see how far can a million dollars get me going. Here is the details:

Assumption:

1. I have my place paid off before retirement
2. The period in my retirements are 40 years
3. I have one million dollars in today’s dollar
4. The inflation rate is 4% per year
5. The return on my money is 4% per year as well
6. I would be withdrawing $30,000 per year before tax and the amount will increased every year in the pace of inflation rate (that will be equivalent to about $24000 after tax I think)

The numbers:

You might think one million dollars are a lot of money especially if you have had your place paid off. But as you can see from the numbers above, with my assumptions, if I retire at age of 40 and IF I have one million dollars(in today’s purchasing power) by that time I retire, I will be running out of money at year 40, just about the right time for 40 years in retirements. In other words, one million dollars are just about the right amount to make your ends meet.

You might argue that the rate of return and the inflation rate I have had in my assumption are very conservative. Yes, they are. But the withdraw amount I have set up is also very realistic too. It is not an amount you can use to afford a luxury life style, but a very moderate one. So I guess one million dollars does not get you too far these days, at least not if you decide to retire early.

Everybody likes to have great return on their investment. However, Many of us just do not have time and knowledge to follow the market. Thankfully, there is one simple method to construct your portfolio to gain great return in a lazy easy way. Couch potato portfolio was first introduced by MoneySense magazine in Canada. It is the simplest way to achieve good performance with relatively low risk for your investment. For the past 30 years, if you have constructed your investment by following the couch potato method, you would have realized more than 11% annual return. According to MoneySense, couch potato portfolio is based on three ideas:

1. Keep your investment cost low. Every investment comes with some sort of cost and fee. If you buy stocks directly, you need to pay commission. If you buy mutual funds, there is management fee. By following the couch potato portfolio, it allows you to keep your investment cost in a very low level.
2. Diversify among different types of assets. It is a portfolio. Therefore, you are not just buying one stock or stocks in just one market. Your investment will be spread among different industries and countries to keep your risk at minimum.
3. Rebalance once a year to get back to your original asset allocation. This is the control part in couch potato portfolio. Although it is a pretty much auto pilot investment type, it still require some attention from you. But do not worry. There is not much work, probably 15 minutes per year.

Sounds interesting and think you can handle this? Alright, the following is a step-by-step guide on how to implement it: Read More

Asset allocation has been discussed many times in personal finance world. If you go to a financial advisor for the opinions about how to manage your money, I am sure you will hear about it as well.

What is asset allocation? According to Wikipedia, asset allocation is a term used to refer to how an investor distributes his or her investments among various classes of investment vehicles (e.g., stocks and bonds). It basically means how you will allocate your money(asset). For example, if you have $1000, you put $500 in bonds and the other $500 in stocks. Then your asset allocation is 50% bond and 50% stocks.

Why asset allocation is important? Imagine you are preparing a dinner for your family. Will you only get meat but no vegetables? You sure can, but that probably won’t be healthy for your family, at least not in the long term. It stays the same for your investment as well. To put 100% of your money in bonds or in stocks are both not healthy for the long term growth of your money. Having all of your money in bonds might hurt your long term return since historically bonds have lower return than equities(stocks). On the other hand, allocation of 100% stock is simply having too much risks. In a bear market, You might lose the majority amount of money you have if you have put all of your money in stocks. Basically, you do not want to put all your eggs in one basket.

There is no right or wrong asset allocation. How you want to invest your money largely depends on your risk tolerance level. If you are risk averse meaning you do not like risk, capital preservation is very important to you and you are not comfortable seeing your money going down in the short term while trying to achieve long term growth, you would probably like to choose 80% fixed income and 20% stock for your assets allocation. If you are risk neutral and do not mind your money going down for a bit, you might want to consider having 50% in bonds, GICs, and so on and the other 50% in stocks. For people who fall in the category of risk seeking, they would probably choose to invest more than 70% of their money in the stock market and the rest in the fixed income investments. In summary, how you choose your assets allocation will be determined by your risk tolerance level.

There are several ways to diversify your investment. The followings are the examples of assets class: Read More

As for the first post of Little Money Lab, before we discuss anything else, let’s first look at the investment basics.

What is investment?

Investment is a set of money engaging activities with the expectation of profit. In other words, investment is the use of money in the hope of making more. In business, investment usually refers to buying assets such as equipments, raw materials and so on to produce goods and services in the hope of making more money. In human capitals, people pay for school to acquire new knowledge. In return, they hope to increase their earnings by doing that. In personal finance world, investment involves the activities of buying equities, bonds, GICs and so on to gain income or increase capital, or both.

What are different types of investment?

When it comes to investment, it is natural for people to think of stock market immediately. Equity/stock is an important type of investment. But there are more. Based on the stability of future income, there are two major categories for investment, fixed income and variable income investment.

Fixed income investments include:

• Savings Account: you put money into high interest rate savings account such as ING Direct Savings Account, ICICI Bank Account and so on. You can access to the money whenever you want. It gives you the most flexibility among all kinds of different investments. On the other hand, the return on investment tends to be lowest compared with other investment instruments as well.
• GIC: GIC is a three letter acronym for Guaranteed Investment Certificate. Similar to savings account, you can easily purchase the product in all most all banks. The difference is that the money is usually locked in for three months to five years depending on the term of GIC you purchased.
• Bond: Bonds are long term debt sold to investors by companies. It is is simply an ‘I Owe You’ in which an investor agrees to loan money to a company or government in exchange for a predetermined interest rate. Bonds can be issued by either a company or government.
• Personal Lending: Instead of lending to companies and governments, investors can choose to lend the money to individuals who are typically looking into a relatively cheaper loan to consolidate their debts. The risk associated with personal lending is usually the highest among all the fixed income investments.

For variable income investments, it usually consists of the following: Read More