Don’s Blog

Back in November I wrote about “Peer to Peer Financing.”  As predicted, it’s now coming to Canada–and it’s a homegrown version.

CommunityLend.com has a website now–but it looks like it will be fall before they will be operational.  Not much info at the website–but the National Post has a story on the company.

Below I have outlined my current investments and briefly explained my investment style (which is probably best described as “value oriented” and “global” with a long term perspective.)

Exchange Traded Funds (ETFs)

Four years of economics in university (and many years of learning and investing since then) has convinced me that selecting individual stocks is a tough way to make money unless (1) you have a lot of time to get to know a company really, really well or (2) are in a unique position to know more about a company’s prospects than the stock analysts.  (I used to be in that unique position for many IT stocks–but then the dot com boom/bubble got everyone interested in them and now most price changes are driven by hype and speculation rather than any fundamentals.) 

As a result, much of my portfolio is invested in Exchange Traded Funds spread across the big ETF companies (both in Canada and the US.)  From my perspective their are two big benefits to investing in ETFs:

- Broad exposure to markets/economies.  I believe in both “efficient markets” and “globalization”–this means I prefer investments based on macroeconomic fundamentals and I am comfortable with 50% of my portfolio invested outside of Canada (Canada’s economy is <5% of the global economy–and there’s a lot of risk involved in limiting your investment options to what is available in Canada.)

- Lower costs/better long-term returns.   Management Expense Ratios on many mutual funds are high with little or no value added.  When compounded over 20 years, a difference in MERs of .5% versus 2.5% has a very big impact on your net worth when you go to retire.

Claymore (Canada) (CRQ/CIE)

iShares (Canada) (XIC/XIU/XMD)

iShares (US/International) (EEM/ILF,EWT, EWJ)

PowerShares (US/International) (PIV/PID)

State Street (US/International) (DGT)

Vanguard (US/International) (VWO)

Wisdom Tree (US/International) (DOO)

Mutual Funds

The mutual funds that I own are to provide me with more value/small-cap exposure.  I would really like to be using ABC Funds for this (but unfortunately they have a $150,000 minimum investment which is more than I want to invest in value/small-cap stocks at this point in time.)  I had looked at iShares CDN Value Index Fund (XCV) but a quick review of their holdings convinced me that this wasn’t the value/small-cap exposure that I was looking for.

Saxon Small Cap

Mackenzie Cundill Value

Trimark Canadian Small Companies (closed to new investments)

Mackenzie Cundill Recovery Fund (closed to new investments)

Speciality Investments

The options available to the individual investor have increased significantly in the past few years.  Using these speciality products, it is possible to better manage your investment risk–or if you would rather, you can use them to stake a position further out on risk/return curve.

DB Commodity Funds (for commodities exposure)

Rydex CurrencyShares (for decreasing or increasing your currency risk)

Horizons BetaPro Funds (for leveraged and inverse exposure)

Rydex Investments (for leveraged and inverse exposure and other alternate investments)

*Warning*

I am not a financial planning or investment professional and the above should not be construed as financial or investment advice. 
These are investments that I have made and/or am planning to make–and are probably not suitable for anyone else other than myself. 

Only one more week to make your RRSP contributions for the 2006 tax year–and then two months to file your income tax return…

Most people hate this time of year, however I’ve come to enjoy look forward to it–as I know that the government will finally give me some of my money back (between charitable and RRSP contributions I usually get enough back to justify all the paperwork and headaches.)

However, if you are one of those people that hate RRSP and tax season then you might want to check out some of the websites and blogs below that will answer some of your questions and help you make sense of the barrage of RRSP related advertising that takes place at this time of year.

taxtips.ca – Canadian Income Tax and Financial Information (the best that I’m aware of)

Canadian Capitalist

Canadian Financial DIY

Canadian Financial Stuff

Canadian Money Blogs Reviewer

Investing Intelligently

Canada Revenue Agency (the authoritative answer to any questions–but not great for advice)

…and if you don’t have enough time to review the above information in the next week, then I’ll summarize it for you:

Make an RRSP contribution this year–and start planing for next year’s contribution (for most Canadians this is one of the best financial moves possible.)

However don’t rush your investment decisions–the important part is make the RRSP contribution.  You can put it into a short-term deposit or money market account–and then take your time to decide where to invest it in the long term.  (In my next post, I’ll share some ideas on possible investments and approaches to take to your investments.)

I recently became aware of the world of “peer to peer financing” which is a very interesting concept and has the potential to really change the world of lending and borrowing.

I am not aware of any p2p financing web sites in Canada yet, however Prosper.com (US) and Zopa.com (UK) are already in the business and it’s probably only a matter of time before one of them expands to Canada (or a home-grown alternative springs up.)

The premise of p2p financing is to reduce the transaction costs associated with financing by allowing lenders and borrowers to interact directly with each other (with the p2p financing web site providing a minimal amount of services in the role that has traditionally been performed by bankers.)  The prospective borrower provides information about themselves (creditworthiness, what the money will go towards, how much is required, etc.) and the lenders then can decide how many they would be willing to lend to that specific borrower and at what rate of interest. 

Essentially this is loan syndication for the masses–borrowers can access capital at better than bank terms, and lenders can earn better returns by diversifying their investments across a variety of borrowers. 

However, there is one p2p financing web site that really interests me, and that is Kiva.org.  Their web site probably best describes what they do (no need for me to re-phrase it) so here it is:

We let you loan to the working poor

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.

At present, you won’t get rich by investing at Kiva.org.  However, it will probably be only a matter of time before these approaches merge and “Joe Investor” will be able to lend/invest money to a micro-enterprise just about anywhere in the world (wow…better than GIC rates of return plus the opportunity to do some good with your money.)