Author Archives: BetCrooks

A Better Bit of Bonds Banter

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My pension plan bond fund continues to sink slowly below the horizon. As it does, I went out in search of solace and support. Here are some articles that illuminate the many facets of bonds.

Who knew that bond rates could determine whether or not you could afford to buy a first home? This connection had escaped my notice, till I read The Star’s article “Higher bond yields trigger hike in mortgage rates.”

Rob Carrick at the Globe and Mail offers advice on “How to navigate a stormy bond market.”  Apparently, we could see a 9% drop this year in my Bond fund, but I should also sit tight and wait it out. Easy to say, harder to do!

If I’m so nervous, why do I have any money in bonds? I explain my choices (or lack thereof) in “Why Defined Contribution Pension Plans are a Pain: Fixed Income Choices or Lack Thereof.”

If you do drop bonds, where do you put the money? The Passive Income Earner provides food for thought in the “Difference Between Bonds and Preferred Shares.” Specifically the comparison is between corporate bonds and corporate issued preferred shares, rather than, say, government bonds.

Michael James on Money explored why you really have to scrutinize proposed financial plans closely in The Futility of Leveraging Bonds. At first, the idea seems reasonable. Take out a loan; Invest a portion in the stock market and a portion in fixed income. Pay the interest on the loan and keep the balance. But what if the fixed income investments are paying less than the interest costs?

The Wall Street Journal warns Bond Slump Saddles Big Banks: Large Banks Can’t Avoid Trouble When Interest Rates Rise.  It’s hardly encouraging news. In a fascinating accounting twist, apparently “The second-quarter losses didn’t affect banks’ earnings because of a quirk in accounting rules that allows institutions to keep any paper losses on long-term bonds out of the profit-and-loss equation.” I wonder how many quarterly bonuses were paid without the average share owner knowing how large those losses were?

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Have you found a recent article on bonds that makes the murky depths crystal clear? Please share an insight or a link with a comment.

When Can I Spend a Dividend or Distribution Payable into my BMO InvestorLine Account?

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Recently, I checked when a dividend paid to a shareholder is actually credited to a BMO InvestorLine account. I discovered it is reported in the transaction history and in the cash balance for the account the day after it is payable but the transaction was back dated to the correct day. That left me wondering when I could spend a dividend or distribution: on the day it should have been paid into my InvestorLine account or the day after.

I Asked InvestorLine Using the Secure MyLink Email Function

I like getting answers to my investing questions in writing whenever possible. It gives me more time to reflect on what is said and to decipher the meaning. It also gives me a paper trail, or at least an electronic trail, in case things don’t happen the way I was told they should.

So I wrote a note using MyLink to ask, among other things, “If I tried to buy stock or a GIC on July 31 using the dividend I should have been paid on July 31, would the transaction go through properly?”

BMO InvestorLine Says the Dividend or Distribution Can be Spent on the Day It’s Earned

A bit to my surprise, the reply from the Client Correspondence Specialist said if “…you wish to trade using the proceeds, and you may certainly do so online. Kindly ensure to accept the warning message that may prompt you about insufficient funds for the trade.”

My understanding based on this email is that I can spend the dividend on the day it was payable, in this example on July 31, provided I accepted any warning messages from the system cautioning me that I was short by the amount of the dividend on the amount I required to complete the transaction.

A Cautious Investor May Prefer to Wait for the Dividend or Distribution to be Posted

It is usually clear what amount you should be receiving in a dividend or distribution payment. The source usually issues a press release stating what the amount will be per share.

That said, a very cautious investor might prefer to wait one more business day to be sure the payment arrives as planned into their InvestorLine account before re-investing the money.

If, however, there is an investment opportunity available immediately that may be gone by the following day, it’s encouraging to know InvestorLine will permit the purchase to proceed based on acceptance of the warning message.

Why Does It Take an Extra Day for the Dividend or Distribution to Appear in an InvestorLine Account?

I did also ask why it takes an additional day for the cash to show up in an InvestorLine account and for the Transaction History to be updated (and back dated.) The answer is a simple computer system requirement. According to the MyLink Client Correspondence Specialist, “it takes an overnight update to reflect the change in the account online.”

In other words, the account cash balance is not working in real time. There are other examples of this. For example, if you place an order to buy a GIC, your InvestorLine cash account balance does not debit the purchase immediately.

My Conclusion
I’m somewhat reassured to discover that InvestorLine just has a cumbersome computer system and not that it is deliberately withholding access to my distributions and dividends for a day for their own purposes. Sometime, I would like to test this process and see what warning message one receives if purchasing an investment using a distribution on the same day it is paid. Right now, however, I’m not in a buying mood.

Related Reading

 

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Have you ever re-invested your dividend or distribution on the day it was earned? Did it proceed smoothly? Please share your experiences with a comment.