Is A Dawn Journal The Best Personal Finance Blog?

Is A Dawn Journal The Top Personal Finance Blog?

First Published: ADawnJournal.com May 4, 2010

Is it possible to rank a personal finance blog or website “The Best” based on its traffic or content? I don’t know how many personal finance blogs exist today on the Internet; however, I do know that there are roughly 130 million blogs live these days and this number will only grow in the future. Among the total number of blogs, even if only a few percentages are personal finance blogs, that makes the total number of financial blogs a significant big number. And claiming one particular blog, such as A Dawn Journal to be “The Best Personal Finance Blog or Website” or “The Top Personal Finance Blog or website” would be preposterous. However, I would not hesitate to claim A Dawn Journal to be a very “different kind of personal finance blog or website” and I can claim that with confidence.

Here are some facts that make ADJ fairly distinguishable from its peers, different from any other financial blogs. Let’s go over some of these facts:

o You will come across many personal finance blogs these days; however, you will hardly come across situations in which the authors of these blogs have both education and work- related financial background. I come from both an educational and work-related strong financial background. My extensive education, training and experience have enabled me to develop the knowledge and skills required to write this and many other blogs.

o Most other financial sites have something in common – they are for professional investors; hardly will you find a personal finance blog which is easy to absorb and written in clear and simple English for regular and simple readers who are trying to enhance personal finance knowledge to build a secure financial future – just like you.

o Repetition of subjects is what you will find in many other personal finance blogs. How many times you can read articles in same subjects over and over? Do you really want to hold an MBA on TFSA account, discount brokerage ratings, ins and outs of smith maneuvering, how to do wash trading in your brokerage account and so on?

o I try to balance articles on ADJ on a variety of topics ranging across a wide array of subjects. You will come across articles from different viewpoints and every walk of life. The reason I do this? I would like to keep you informed and entertained without boring you and keeping things simple.

o I am one of the few financial bloggers who is also a Financial Author, an Internet Entrepreneur, and a full time Analyst at a Canadian Wealth Management Corp. trying to achieve my goal of living a Dot Com Lifestyle. My interest varies on a broad range of topics from International Real Estate to Green Living. I own lots of domains and many websites. At the end of this post, I will give you a list of my sites for which I write and update manually by myself.

After considering all the facts I presented above, it is up to you to see A Dawn Journal as the best or top personal finance blog or website, a different financial blog, or the worst personal finance blog ever. Regardless of what you think of ADJ, I appreciate your time for reading A Dawn Journal and hope to see you again.

What Is Asset Allocation?

Asset Allocation, Diversification, and Your Portfolio

First Published: ADawnJournal.com March 3, 2010

Asset allocation is an investment strategy which simply entails allocating your assets (your investment portfolio) among different categories of investments, such as stocks, bonds, money market funds, cash etc. Asset allocation helps to minimize risks and maximize gains because it diversifies your portfolio among various types of investment or investment products instead of keeping them in one place.

What Types of Asset Allocation Will Work Best For Me?

Although there are many rules of thumb regarding asset allocation, no one can tell you exactly which one is right or which one is wrong for you – as this is a very personal matter which largely depends on various factors as described below:

·   Time Horizon: Time horizon is how much time you have ahead of you to invest in reaching your financial goals. An investor with a longer time horizon has time on his side and will be able to choose volatile or riskier products for maximum returns – because if markets go down, this investor can wait to ride out the volatility. On the other hand, an investor with shorter time horizon will not be able to afford risky product, as he will not have the luxury to wait for the market to go up if he falls into financial meltdown.

·   Risk Tolerance: Risk tolerance is your ability to take risks for better returns. In the investment world, risk and reward are inextricably entwined. If you are young (like in your 20s or 30s), you may not care that much about losing 35% of your value, as you know you have a long way to go. But when you are in your 40s or 50s, with kids’ education and retirement in mind, a 20% drop in your portfolio may be enough to lose sleep at night.

·   Investing Is An Ongoing Learning Process: In my book Invest Now, I have mentioned that investment is nothing but a discipline, and it has to be orchestrated with great passion and care. Investment is not like going to the shopping mall and buying a few things impulsively – it is a lifelong learning process. Asset allocation or any other investment ideas are not set in stone and these will change as time changes. Always upgrade yourself with financial changes in the broad global perspective and you will have to change your investment strategies to bridge the gap between the present and the future.

·   Individuality Counts: Although you will find there are many rules of thumb or pre-made portfolios when it comes to asset allocation, there is no single allocation or portfolio available that will be right for everyone. Everyone is different and so should be their asset allocation. The onus is on you to find out the best asset allocation that suits your needs.

What Are Some Major Asset Categories?

These days, a wide array of investment products exist to give you a wide range of asset allocation with a broad diversification. However, there are only three major asset categories I will mention here:

·   Equities or Stocks: The word “stock” is interchangeable with “share,” “equity,” “security” and so on. Stocks represent ownership in a company and historically offer the greatest risk and highest returns among other asset groups mentioned here. Stocks should not be used as a short term investment as it can be very volatile to hold for a short period of time.

·   Fixed Income Investments or Bonds: Some other fixed income investment products are government savings bonds, bond mutual funds, etc. These types of products are less volatile than equities and offer modest returns as well. Fixed income products can offer steady flow of income – depending on its objective.

·   Cash Equivalents or Cash: This can be plain cash or products like savings accounts, money market funds, treasury bills, etc. These are considered the safest investments with minimal returns with almost no risks.

Why Asset Allocation Works?

Due to economic and market conditions, no one can predict the best performing assets and it varies year to year. Time has proved that during bad and good economic times, all asset classes do not move in the same direction. By diversifying your assets among various categories, you are minimizing your risks. If one asset class goes down, the other asset class is there to protect you by averaging out. Also, to reach your financial goals, you need to balance your portfolio by keeping both high-return and low-return investment products. If you keep only one type of product in your portfolio, you may never be able to reach your investment objectives – as it will be either too risky or too safe. Asset allocation helps you to diversify and balance your portfolio.

What Are Some Common Asset Allocation Rules of Thumb?

There are so many rules of thumb on this topic that it can be overwhelming. Many consider a neutral asset allocation should be 60% stocks and 40% bonds. Another rule of thumb goes like: subtract your age from 100 and you will get the percentage to hold in stocks. For example, if you are 40, 100-40 = 60% of your portfolio should be in stocks and 40% should be in bonds.

Is Diversification Same As Asset Allocation?

The old saying “Don’t put all your eggs in one basket” was good advice 100 years ago, and it will be good advice forever. Whether you are a first-time or a veteran investor, you always need to spread out your investments to minimize your risks. Diversification refers to the process of spreading investments among various equities. Asset allocation refers to the process of spreading investments beyond multiple equities and over several asset classes such equities, bonds, cash, etc.

Asset Allocation is a diversification strategy that helps you to offset decline in any particular asset classes by gains in other asset classes – thus reducing the fluctuations of performance of a portfolio. It is unlikely that all asset classes will go downhill at the same time.

Do You Have Your Own Asset Allocation Model Portfolio?

Yes, to make investing simple and worry-free, I have invented a model portfolio called “A Dawn Timeless Portfolio” or simply ADTP. You can read more about ADTP here – (I am still working on this project and will add a link once done)

To find many other online asset allocation calculators, do a search by entering these keyword phrases: “asset allocation calculators,” “portfolio asset allocations tools,” etc.

Last Word

Model portfolios and asset allocation tools are to help you understand asset allocation. Do not blindly follow any model portfolios or tools just because it looks cool. You are different than anyone else – make an educated decision based on your time horizon, risk tolerance, financial goals, and your overall financial situation.

How to Build an Investment Portfolio

How to Create an Investment Portfolio

First Published: ADawnJournal.com March 14, 2010

What Is An Investment Portfolio?

An investment portfolio is nothing but your collection of investments. You can hold a wide range of investments such as stocks, bonds, money market instruments, and so on in your portfolio. The objective of building a portfolio is to minimize risks and maximize return by diversify it among variety of investments. Diversification can be made within same asset class or across different asset classes. Research has shown that a diversified portfolio spreading across different classes always is the key to build a successful portfolio.

What I Need To Consider Before Building A Portfolio?

There are various factors you should consider before start building a portfolio. These factors are:

– Your time horizon
– Your risk Tolerance
– Your investment objects etc
I discussed about these in another article. Please follow this link to read it – What Is Asset Allocation?

Are There Any General Rules of Thumb Building An Investment Portfolio?

There are too many, actually. I would have to say, the most common rule is the 100 – age rule. This is simply getting the percentage of stocks and bonds you should hold by subtracting your age from 100. For example, if you are 30, you should hold (100 – 30) 70 per cent stocks and 30 per cent bonds. As you grow older, you should be reducing your stock portion according to this rule. When you are 60, you should be holding 40 per cent stocks and 60 per cent bonds.

Another simple portfolio building approach is the Neutral Allocation – which is holding 60 per cent stocks and 40 per cent bonds. Two other portfolios worth mentioning are Lazy man or couch potato portfolios by Scott Burns and The Permanent Portfolio by Harry Browne.

To find many other portfolio ideas, do a search by entering these keyword phrases: “investment portfolio mix,” “portfolio asset allocations tools,” “model investment portfolio,”etc.

Do You Have Your Own Investment Model Portfolio?

Yes, to make investing simple and worry-free, I have been invented a model portfolio called “A Dawn Portfolio” or simply ADP. You can read more about ADP here – (I am still working on this project and will add a link once done)

To find many other online asset allocation calculators, do a search by entering these keyword phrases: “asset allocation calculators,” “portfolio asset allocations tools,” etc

Last Word

Of course, you need to decide if the recommended allocations match with your personal risk tolerance and market views. Investments must be considered in context

If you are at all interested in asset allocation strategies, I strongly recommend that you read about the science. Don’t just follow conventional thinking and rules of thumb.

What Is A GIC (Guaranteed Investment Certificate)?

What Is A GIC (Guaranteed Investment Certificate)?

First Published: September 13, 2009 ADawnJournal.com

GICs are investment product (like mutual funds, bonds) that guarantees you to protect your principle (the amount you put in) with a guaranteed income for a particular period of time.

How Do GICs Work?

When you buy GICs, you are lending your money to the financial institution at a fixed or a variable interest rate, or based on a pre-determined formula (or arrangements) for a certain period of time. In return, at the end of the term, financial institution is giving you back the money you originally invested (called principle or capital) plus the interest you earned.

How Many Types Of GICs Are There?

Financial institutions will try to confuse you by giving many fancy names for their GICs. However, there are mainly two types of GICs. The first type pays fixed interest rate, and the second type pays variable interest rate. The second type can be linked to an index, a stock market, or a prime interest rate to pay you variable interest rate. Now let’s look at some other common terms institutions use:

Cashable GICs – You can cash it any times based on the terms provided by financial institutions. This may also be known as Redeemable GICs.

Non-Redeemable GICs – You won’t be able to redeem it until your GIC matures.

Index-Linked GICs – GICs that are linked to stock markets. This may also be known as Market-Linked GICs.

Where Can I Buy GIC?

Various financial institutions sell GICs such as banks, credit unions, discount brokerages, and other financial institutions. Also, your financial advisors are able to sell GICs through the institutions they are affiliated with.

Advantages of GICs

Here are the main advantages of GICs:

Principle Protection: Depending on what you buy, money invested in GICs can be safe and secure. At the end of the term, you will get back your capital you original invested. However, if you have security in your mind, it is recommended that you talk to a qualified financial professional.

Safe Parking: If you are not sure where to invest your money for the long term, you can park your money in short-term GICS while you can search for other options.

Higher Interest: GIC pays higher interest than traditional savings account.

CDIC Protection: Some GICs offered by CDIC insured institutions are protected for up to $100,000. Talk to your financial institutions to investigate this further.

Easy and Simple: GICs are easy to understand and simple to manage. You don’t need to have an MBA to invest your money in GICS.

Disadvantages of GICs

Here are the main disadvantages of GICs:

Liquidity: GICs aren’t very liquid (easy to withdraw) when you need your money
right away. A high interest savings account offers better liquidity than
GICs in most cases. With a GIC, your money is tied up for a specific period of time, i.e.,
one to three years.

Interest Income: If held in a non-registered account, interest earned on a GIC is
is taxed at a higher rate, for example, taxed at your full marginal tax rate.

Don’t Forget Inflation: Let’s say your GIC is giving you 2% interest. And consider that the annual inflation rate is 3%. If you keep $100 in your GIC for one year, you should have $102 in your hands after one year, right? Well, yes, technically, but that $102 is less than you started with. Due to inflation, you need $103 to buy same goods you would have bought with $100 a year ago. So actually, you lost money-$1, to be exact. Yes, real rates of return GICs can be negative or lower than what you actually see.

Final Word

I am not a fan of GICs. In Invest Now: A Canadian’s Guide to Investing I have discussed how to invest without being a financial guru in non-GIC products such as mutual funds. If the idea of losing money makes you lose sleep and you absolutely can’t take the slightest risks, may be GICS are an option for you. Talk to a qualified financial professional – before making any decisions.

Real Return Bonds (RRB) and Treasury Inflation-Protected Securities (TIPS)

Real Return Bonds And Their Place In Your Future

First Published Date : October 25, 2009 ADawnJournal.com

With governments around the world insisting that their recessions are over and that the green shoots of economic recovery are now visible, there is an increasing line of opinion holding that there is no better time than now to start investing – or to call a halt to a self-imposed period of no investment – in order to see the benefits of this recovery period for all they are worth. However, caution is also a concern for many given how recent the recession’s lowest points were. At this time, a secure investment with a reasonable return is the absolute ideal for anyone looking to secure a bit of money for the future.

When it comes to secure investment, it is tricky to be absolutely sure of getting what you need for your money. While the economic indicators show that the recession has finished to all intents and purposes, buying shares at the present time is still a little perilous, with companies still having to make cutbacks to deal with the realities of a post-recession age. A secure investment, it must be said, is also an investment which is unlikely to bring a massive pay-off. High returns are still only likely from high-risk investments.

If you are in a position where a comparatively low return for no risk sounds like a good idea, however, then your best choice may well be a real return bond (RRB). Very similar in nature to the American TIPS (Treasury Inflation-Protected Securities), the real return bond is an investment which links your savings to the rate of inflation. As well as this interest is paid on the bond to the rate of interest. Practically speaking, this means that if you buy a $1,000 bond and at the six-month mark the interest rate is 4% and inflation at 2%, the principal of your bond will rise to $1,020 and you will receive a further interest payment of $20.40. As the interest rates climb, payments will continue to accrue based on the principal of your bond.

The important thing for an investor with an RRB is to hang on to it until it matures. If you do that, the realization price is based on the interest rate at maturity while if you sell it prior to maturity you will find that the price is based on the prevailing interest rate – and may be less than you originally invested. This poses problems for some, as the typical life of an RRB is thirty years. If you have the patience to wait this out then the return at the end can be considerable – although it is possible for the RRB to return less than face value if, over the life of the bond, there has been a net deflation.

The above warnings are simply worst-case scenarios however, as the fact of the matter is that should you invest in an RRB you will most likely be in it for the long run, and there have been almost no 30-year periods which have seen a net deflation in the market.

What RRBs should guarantee you is an above face value payout on maturity. This is useful if you are looking to support a future venture. With the 30 year life of most RRBS, many people buy them in their mid-thirties as a potential cushion for their retirement. As no-one is quite far-sighted enough to predict market behavior by the year for the next three decades, there is little benefit in assuming exactly how much you will get for a matured bond after it matures, but it is enormously unlikely to be any less than its face value and, with interest and inflation behaving normally, it can be considerably more.

Buying an RRB is something worth doing if you have a pot of money for investment and are content for it not to be liquid for an extended period of time. As long as you fit these criteria, it is an excellent way to feather your nest for the future. Most usually, the face value of a new RRB is $5,000, but there are many available for a lower price. There is also nothing to stop you from holding several bonds if you have the liquidity to invest in them. If you decide to invest in a real return bond, then your first stop should be the Bank of Canada website to consult the figures there for a bond’s “real yield” and “real price”. This will enable you to calculate the amount that you will have to pay for a bond, and how much you will get on maturity if the market behaves realistically.

Once you have gleaned this information it is time to call your broker and have a conversation, asking for information pertaining to the current and potential future benefits of buying the bond that you have identified. Once you are invested, settle in to see what the market has in store for you and be conscious that this is a long game.

As mentioned at the beginning, RRBs are not dissimilar to the American TIPS. It is possible for Canadians to cut out the middleman and directly purchase a TIPS from an American broker or the US Treasury. However, unlike an RRB, a TIPS bought from the US Treasury cannot be held inside a tax-sheltered account such as an RRSP, so it makes little sense to do things this way. It makes considerably more sense to buy direct from a broker. The major substantive difference between these bonds is that TIPS are guaranteed to pay out at least face value on maturity. Additionally, the US and Canada have different tax rules and regulations, so when deciding which you should buy it is beneficial to check the market rates in both countries.

Naturally, each possibility has its advantages and disadvantages, and the two countries will often see different economic performance over the course of an economic period. Both should, however, see you with a creditable return on your investment for very little risk.