They acknowledge the fact that at some future date, gold could become overvalued. Turk goes on to ask Sprott – “what would make you sell?”

Sprott’s response is that he would sell under three conditions:

1. If he sees a mania in the market (e.g. Nasdaq circa 2000)
2. If governments and central banks become responsible (fat chance)
3. If it becomes the reserve currency.

Sprott goes on to note that the probability of a mania in gold is very high. Interest in the metal is building all around the world. But we’re not there yet.

For the silver lovers out there, Sprott does not disappoint – going on to claim that, in his opinion, silver today is what he would consider a very safe investment.

I still believe that an investment in silver is a very safe investment today. When we look at the data points, they scream at us that it’s undervalued. -Eric Sprott

Enjoy the interview.

While financial advisors are telling you to diversify, Warren Buffett has this to say:

Diversity is protection against ignorance. It makes very little sense for those who know what they’re doing.

One of the common problems in the current financial and investment paradigm is that the socially accepted method to investing is to hand your money to your banker or financial advisor and let them invest the money for you. We could talk all day and night about why (in my opinion) this is downright insane, but I’ll leave that for another post.

Today what we want to talk about is learning how to trade certain ETF’s that will earn you profits based on the direction (up or down) of a stock index. This is useful for people who read the news, follow events and have fairly strong conviction about the general direction of the stock market on any given day. So let’s talk about these leveraged ETF products.

In Canada, the best options are the Horizons BetaPro Bull (HXU) and the Horizons BetaPro Bear (HXD). These products are leveraged, which stated simply means:

1. When the TSX goes UP in value, the HXU will go UP approximately twice as much (percentage-wise) as the TSX.
2. When the TSX goes DOWN in value, the HXD will go UP approximately twice as much (percentage-wise) as the TSX goes DOWN.

Notice that. One of them goes UP when the TSX goes UP, and one of them goes UP when the TSX goes DOWN. This is an extremely easy way for an inexperienced investor to take advantage of short-selling, without having to know a lot of details about what short-selling actually is or how to do it.

Just to make it perfectly clear, take a look at the chart below. This is a day that the TSX (red line) increased in value. You can see the the HXU (the Bull) was up slightly more than the amount that the TSX was up. You can also see that the HXD (the Bear) was down substantially more (percentage-wise) than the TSX went up.

If you have a brokerage account (with Questrade or Qtrade or ETrade or whatever else you use), you can buy and sell HXU and HXD just like any other stock. So if you have a lot of confidence that the market is going to tank, then buy the HXD (Bear). If you have a lot of confidence that the market is going up, buy the HXU (Bull).

These particular ETFs are often used as short-term trading vehicles in market swings, so you’ll want to think carefully and plan ahead as to how you utilize these in your overall portfolio. Set goals. Don’t get greedy.

I was really glad to see an article out of the Financial Post the other day by Jon Chevreau quoting William Robson of the C.D. Howe Institute that put in very plain terms what his thoughts on the Canada Pension Plan are:

The CPP is a gamble, not a guarantee: expanding the plan would raise the stakes on a bet most Canadians do not know they have made.

Have you ever thought to yourself that betting on the Canada Pension Plan being around to pay for your retirement is akin (in some respects) to taking a coin that says “retirement” and dropping it into a slot machine. It’s either going to pay out enough for you to get by on a somewhat meager existence, or it’s going to kick you to the curb and wish you good riddance. Neither of these sound like particularly tasty outcomes.

For the past three years, when I’ve told people that I do what I can to not contribute to the Canada Pension Plan (more on that in a moment) because I don’t have a lot of faith that it’s going to be around when I hit retirement age (~35 years from now), most of the time I get a few chuckles along with a “oh, you’re one of those people”. So it’s great to see some articles hitting the mainstream media indicating that I might not be off my rocker after all.

This is just one more great reason to start a business. Any business that you will love and could possibly make profitable. When you incorporate a business in Canada, you can opt to pay yourself in dividends instead of a salary. All salaried employees are required by law to contribute to the CPP (and the employer is required to contribute a portion as well). However, if you pay yourself a dividend from your company, you are not required to pay into the CPP for that money. In addition, money paid to yourself as a dividend is taxed far more favourably (on approximately the first $40,000) than a salary.

The disadvantage (if you consider it so), is that paying yourself in dividends as opposed to a salary will not increase your RRSP contribution room. Most accountants (that I’ve spoken to) recommend paying yourself in a blend of salary / dividends to create the optimal tax scenario while still allowing a person to take advantage of the tax-deferred growth that an RRSP offers. This is something that each person has to analyze carefully for themselves as to what their plan is for retirement savings.

Hopefully this has given you a bit to chew on. If you have questions, post them in the comments!

Debt is an enormous psychological burden that influences life’s major decisions. It’s why so many people stay committed to jobs that are unfulfilling in cities they detest under conditions they find disheartening.

-Simon Black

In a recent video post from the Financial Times¹, they discuss how recently a small number of investors lent money to the US government at a loss – meaning that the short-term US bills had a negative interest rate. I mean, in real-terms (with inflation factored in), US bills have had negative real returns for a long time now, but according to the Financial Times, these bills were sold with a negative interest rate off the bat.

When people are willing to lend to the US government at a loss, as some have been over the past few weeks, it doesn’t reflect well on their view of other investment opportunities.

What do you say to this? These can’t be real investors. Federal Reserve? Large bailed-out institutions? Ridiculous.

While we’re on the topic of interest rates, I’d love it if you could stop for a minute, and consider that inflation is very, very real. You should see this everywhere you go, from the gas station to the grocery store.

Below is a graphic that I snapped from the Bank of Canada web site² (you can go to the web site yourself, and view inflation rates year over year). You’ll notice that according to the Bank of Canada (not some crazy goldbug doom & gloomer) the inflation rate from 2010 to 2011 was 3.29%.

I also took the liberty of snapping two additional shots. One from ING Direct, and another from CIBC. These indicate the current rates for the savings accounts they offer. I chose ING Direct because they’re a decent bank that offers better rates than pretty much any other Canadian bank. I chose CIBC because I generally dislike them and their rates are rubbish.

Savings Account Interest Rate From ING Direct

Savings Account Interest Rates From CIBC

Now here is the extremely important and undeniable fact: In 2010 if you invested $100 in a savings account at ING Direct, one year later you would have $101.50, minus the tax you have to pay on the $1.50 you earned interest. If you withdrew that money from the bank to pay for an item that cost $100 in 2010, that same item right now (according to Bank of Canada inflation rates) would cost $103.29. I don’t know how to make it any clearer that if you store your money in a savings account, you are losing money every single day.

Also, if you don’t have anything better to do with your money than pay someone to hold onto it for you, I suggest it might be time to pick up a book or find a few financial mentors, and learn something new!

1. http://video.ft.com/v/950603097001/Peak-passed-down-we-go
2. Bank of Canada Inflation Calculator

My husband’s retirement account is losing money. What can we do to turn that around? We don’t know anything about investing or trading stocks, so we’re in the dark here.

Originally, I titled this post “Just Say No to Apathy”, because I felt “Apathy” sounded a little less harsh than “Ignorance”. But on further consideration, given a working definition of apathy being:

A lack of interest, enthusiasm, or concern

I realized that “Ignorance” really was the correct word. This person does seem (at least modestly) “concerned” about the fact that they are losing money. What this person doesn’t do is take even one bit of initiative to pick up a book, read an article, search, seek and scour until they have acquired the education necessary to invest in things that are not perpetually losing money.

Three years ago, I woke up and smelled the coffee, and realized how asinine it was to hand over my hard-earned savings to a banker to “invest” it on my behalf in a limited set of investment products that have been created by their employer (the bank). There is no onus on them to not lose your money. I could probably even argue that there isn’t even motivation for them to not lose your money. There certainly isn’t any real consequence. What’s the worst that can happen to them? You’re going to take your $25,000 (or $250,000) from CIBC over to the Royal Bank, because you’re ticked that CIBC keeps losing your money. But the guy you passed on your way out of CIBC with a huge scowl on his face is in the process of bringing his $25,000 (or $250,000) over to CIBC from the Royal Bank because the Royal Bank has been losing his money. They can just keep the customer-tennis-match going. Don’t forget, they get their fees and commissions regardless of whether you’re making or losing money.

I have a better idea. How about you pick up a few books, do some reading, and say no to ignorance.

There isn’t a single person in this world who faces more direct consequences in losing your money than you do.

And there shouldn’t be a single person in this world more motivated to not lose your money than you are.

Start acting like it.

The first thing investors generally ask me is: “Aren’t alternative investments risky?” This reflects the widespread practice of equating “alternative” with “exotic”. It is true that many alternative investments are exotic and risky, just as many “traditional” investments such as small-cap stocks, options and junk bonds are extremely volatile. Risk and volatility are certainly elements of an investment that must be considered, but not simply assumed by the asset class they occupy.

via financialpost.com

Are alternative investments finally going to make it to the mainstream? Here’s hoping.

The massive plunge and quick recovery for the Dow Jones Industrial
Average might have been the result of a glitch.

Excellent. And yet this is where our government tells us we should have our retirement money.

One in four [28%] Canadians flunked a test on the new Tax Free Savings Accounts, failing to answer any of five questions on TFSAs, according to a poll released by Mackenzie Investments today.

via network.nationalpost.com

This is absolutely brutal. Canadians: learn about TFSAs and take advantage of it.

The problem that I identified a number of years ago, and this is something that people rather have to stand up and take responsibility for and do a little bit more research and education themselves, is that the entire financial services community is designed based on marketing. [...] 

This is awesome truth about investing spoken by Tim Paziuk. Check out his interview by Jon Chevreau. He goes on to say…

The financial services community has empowered itself to steal from people as long as they put it in writing.

Find the video interview here.

For a computer-literate investor, the result is a cornucopia of investment research riches, assuming they can trust their sources. This is by no means assured in the wild Web world of anonymous identities and get-rich-quick hustlers.

via Jon Chevreau (aka Wealthy Boomer) asks if you’re better off alone.