Financial Crooks

Buy low, sell high, right? Ah, if only we knew exactly when the market was at an all time high and about to go down, or at an all-time low and about to power up, we’d all be billionaires. Unfortunately, while it is dead easy to see you should have sold around May 2008 and bought around February 2009, there’s no “future performance” chart to look at to know what to do over the next few months. Given that markets are in retreat right now and prices are falling some of us are left trying to decide should I buy now or wait a bit longer? Have prices reached the bottom yet?

Market Timing Isn’t Possible

Ok everyone has agreed on that right?

But if, like me, you have some money sitting in cash ready for your next round of investing, you still have to pick a moment to click Buy.

And while the detached analytical types will just say “I always buy on the 15th of the month” or something similar, many of us will stare at the day’s chart and dither. Now? Tomorrow? What if the TSX rebounds 200 points in the next hour? I’ll be mad I didn’t buy now. But what if it drops another 500 over the next 2 days? What’s the rush to lock in if it’s going down?

Let’s be clear about this: There is NO WAY to know when is the best time to buy.

Wishy Washy Investors Suffer GREATLY from Buyer’s Remorse

Unlike the detached analytical types, who admittedly are most likely to end up with the highest overall portfolio value for the same number of dollars invested, Wishy Washy Investors spend a lot of time agonizing about their mistakes. They beat themselves up for buying when the TSX is at 14 900 if the next day it drops to 14 700.

They also end up waffling a lot trying to avoid Buyer’s Remorse by procrastinating. Obviously, that can have an even worse impact on their investing decisions.

So they need a strategy to buy (and sell) that lets them blame the strategy, not themselves.

(Yes, I know at least one reader is screaming: the strategy is buy immediately when you have money to invest and you have reached the efficient point at which to buy based on commissions. However, many of us just don’t live our lives that way. Yes, some of us are also fat.)

A Wishy-Washy Investor’s Guide to Buying Low

So what do I intend to do?

Do You Have Enough Capital to Invest More than Once?

Well, I’m in the enviable position of having a tidy sum to invest, should I want to. My fixed income has grown higher than I need so I can re-balance by taking the profits of a few recently matured GICs and popping them into the equity market.

Normally, though, you have to consider the size of the trading commission versus the amount you have to invest as part of your decision process. Michael James on Money, for example, did the math to figure out how often to invest if you are a small investor.

If you only have a small amount to invest, say, $500, just use a “jumping into cold water” rhyme, hold your nose, and click on Buy. At least you’re buying when the market is somewhat down, which should feel a bit good.

If you have a large amount to invest, you can probably split it into 2 or more parts and invest each separately.

How Much Do You Have to Pay Per Trade?

I have another blessing: right now I have free trades available at both CIBC in my unregistered account and at RBC Direct Investing in my RRSP account.

If you don’t, take a look at the amount you have to invest and the trading commission you would have to pay each time you click Buy. If the market is down, say 5%, but you would have to pay 9% of your investment as a commission, that’s not really a good choice. Even 1% of your investment seems a bit steep. Do the math and think about how many commissions you can reasonably accept.

Then divide your capital into that many chunks (up to some reasonable number like 4. If you’re dividing your money into 3500 pieces it’s getting a bit bizarre.)

Execute one Buy immediately with the first chunk.

So for me, the Wishy Washy Buy Low Strategy says: invest 25% of the money now. The TSX composite is already down about 1500 points (over 9%) from its 52-week high.

Then, if the market retreats another 250 points, I’ll buy in another tranche of 25%. And repeat till all 100% is invested.

What if the Market Starts to Climb Again and I Still Have Uninvested Capital?

Well, you’d better think about that from the start, because it’s bound to happen. Look at the way the Dow bounced (in the week of October 6-10, 2014.)

Just because it goes up a bit doesn’t mean it won’t come down again, either.

So you should set yourself limits and stick to them. Perhaps you’ll pick, buy each time the market drops 1%. If the market climbs 2%, invest all the rest immediately.

The percentages don’t actually matter as much as having a clear plan. You need to have a plan, even if you’re Wishy Washy and can’t stomach just putting all of the money in the market at once and hoping for the best.

What Should You Do After the Money Is In the Market?

Walk away from your computer.

Turn off your stock alerts.

Flip the channel if the radio or TV starts reporting on the equity markets.

Don’t look again until it’s time for your annual re-balance.

I dare you!

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It’s back! Once again, Tangerine is offering a savings account bonus rate for people who set aside money to be transferred immediately into their Tangerine TFSA Savings Account on January 1 2015. So if you have money you plan to put in your TFSA January 1 that is not earning much interest, you may want to open a Tangerine TFSA Kick Start Account and earn an expected annual rate of 2.6% for the next 2 plus months.

UPDATE: Please be aware that as of January 2015, Tangerine has started charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

Given that change, I would no longer recommend the Kick Start program unless you plan to keep your TFSA money at Tangerine for the long term.

Why Does the TFSA Kick Start Account Pay “Double” Interest?

You can’t put your 2015 money into your TFSA in 2014 without paying a big penalty to the CRA. So Tangerine can’t really offer you an early start on your 2015 TFSA.

However, most people are in a tax bracket where they pay a tax rate of 50% or less on their savings account interest. So if Tangerine pays you twice as much interest on your savings as they normally would, they consider that they are paying you the money you will need to pay your taxes on that interest. So the Kick Start account mimics a tax-free account.

For example, say you would normally earn $2 in interest on your savings account funds from October 1-December 31. If you are in a 50% tax bracket, you would have to pay $1 of that money to the government when you file your tax return in April.

Now if Tangerine paid you $4 in interest instead of $2, you would have to pay $2 to the government, but you would be left with $2—that’s the same amount as if you had not had to pay any taxes on your savings account funds.

Of course the real reason Tangerine is paying you extra interest is that they would like you to put your 2015 TFSA contribution into one of their financial products. The Kick Start account will automatically transfer your TFSA savings into your TFSA account on January 1 (up to $5500.)

Tangerine is hoping you’ll leave your TFSA money in that account or use it to buy one of their TFSA GICs or TFSA mutual funds.

They won’t be really happy with me: I will transfer (for no fee!) my TFSA money out of my Tangerine account on January 2, 2014, and send it to my brokerage account.

UPDATE: Since Tangerine is planning to charge a fee for transfers out of its TFSA to another financial institution starting January 2015, there is no longer any value to me in using the Kick Start program. I am withdrawing my contribution immediately. I will not earn any bonus interest, but I will be able to contribute my 2015 TFSA contribution without any fee in January to my brokerage account.

Why Go To So Much Trouble to Earn an Extra Couple of $$?

Personally, I don’t find it much work to enroll in the Tangerine TFSA Kick Start program. It takes about 3 minutes. What I’m putting into the account is money that would otherwise be earning only 1.3%. (It’s money that was not eligible for the recent interest rate promotions from PC Financial and Tangerine, partly because some of it had not been earned yet!)

It doesn’t matter to me if I have to wait a couple of weeks for my TFSA money to transfer from Tangerine to my brokerage, either. I like to study what I want to invest in, and I often find things are overpriced during TFSA and “RRSP Season.”

Last year, by the way, it took 11 business days for my TFSA money to transfer from Tangerine to my brokerage, including the time my request spent in the mail. It took 18 business days for my husband’s money to move.

UPDATE: Please be aware that as of January 2015, Tangerine plans to start charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

Given that change, I would no longer recommend the Kick Start program unless you plan to keep your TFSA money at Tangerine for the long term.

How to Open a Tangerine TFSA Kick Start Account

Click on the tab: Open a new Account
Look for the Tangerine 2015 TFSA Kick Start Account section.
Click on the button: Learn more
Read through the program details. Click on the Enroll Now button.
Click on the link: Legal Terms and Conditions. Read through the details. Click on the Back link.
Click on the Open an Account button.
If you don’t already have a TFSA savings account at Tangerine, you will have to give Tangerine permission to open a new one on January 1, 2015. Consequently, the following page will open.

The Open a Tax-Free Savings Account Page

Review your name, address, SIN and date of birth in the Client Information section. If they are not correct call Tangerine to fix them before continuing. If they are ok, continue.

In the Account Information section

The fields in this section are a bit confusing because they’ve combined two different activities: opening and funding your Kick Start account and opening a TFSA daily interest savings account on January 1, 2015. I confirmed what should go in each field with Tangerine.

For example, it seems to say “how much should Tangerine put into your TFSA on January 1 2015” but what it means is “how much do you want Tangerine to put into your TFSA Kick Start account today?”

In the Amount field, type the amount of money you want to contribute to your Kick Start TFSA account today.
If desired, change the Nickname for the account. They have pre-typed a name of: 2015 TFSA Contributions.
From the drop-down list for Fund from this Account, select where you want the money to come from to fund your TFSA Kick Start account.
Note the new TFSA account will be set up with the displayed Effective Date of January 1, 2015.

In the Legal section

Answer Yes or No to the question: Will a third party of any other person benefit from this Account?
From the drop-down list, select the intended use of your TFSA Kick Start account.
Read the statement about how Tangerine will be applying to create a new TFSA savings account for you to begin in January 2015. If you agree that they can do this, click YES. If not, click No.
Click on the Next button.

The You’re almost done…here’s what’s going to happen Page

Review the information provided.
If it looks correct, click on the Confirm button.

The You’re All Done! Page

Copy down the confirmation number and other information from screen for future reference.
Click on the button: Continue banking
On the My Accounts page, under the heading Saving you should see your new
Tangerine TFSA Kick Start Account – 2015 TFSA Contributions
account with the balance you asked to transfer into it.
If you’re finished banking, click on the Log me out link.
For increased security, empty your cache and close your browser session.

UPDATE: I recommend you only apply for the Kick Start program if you intend to leave your TFSA money at Tangerine for the long term.