Friday, October 03, 2008

Becoming an investor again

My six month probation review period is coming up at the end of this month. I hope I can clear it. It's pretty crazy what's going on in the financial world these days. Every job I've had I've been a bit nervous around the end of probation time.

Anyway one of the things we have to do for post probation is fill out a form around the RRSP payroll deductions. My employer has a generous program where they will 100% match your RRSP payroll deductions up to 3% of your gross pay. The deductions go to a group RRSP managed by Manulife. A simple calculation shows how lucrative this is to the employee.
money out of your pocket    $1.00
employer 100% match         $1.00
group RRSP 2% gain          $0.04
income tax credit 50%       $0.50
total                       $2.54
As you can see for every dollar the employee spends out of his own pocket his personal wealth increases by $2.54. That's a sensational 154% return.

So given that obviously I should be putting in the max 3%. However my plan is to start at 1% for now and reevaluate after 6 months with the intent to increase it to 3%. One step at a time. It's nice to finally be in a position where I can set aside even the token 1% of my gross pay. It's been a while and it feels good. The last time I did any investing was 1999 I think with some mutual funds. Those investments were later withdrawn and wiped out with nothing to show for them.

Although it is more profitable to minpay the debts and put any extra money into this I want to still focus on eliminating the consumer debts and just getting them out of my life, hopefully forever. It's just a personal emotional thing about wanting them gone and never to come back.

I had an opportunity like this before. Back at xwave in 2001 they introduced 100% matching as well. Unfortunately at that time that was in the dark period financially and I couldn't even think about participating. It makes me sad to think about the past, the missed opportunities. How things could have turned out if better choices had been made along the way.

As part of the registration I did the online retirement calculator. It turns out that if I retire in 25 years [which is gross, so depressing] at age 65 then I'll have a projected income of around $23,000 a year. That's not very good. Enough to live by myself in the city. I'd probably have to go carless [assuming I'm even capable of driving at that age]. I should target increasing it to at least $30K a year which would be more comfortable and I could still drive at that income level. Now assuming I even live 25 more years it's far from certain I can be employable that long. I wouldn't want to ask an actuary the probability that I'll be actually able to work full time up to age 65.

As part of the registration I had to do an investing profile. They said I was a 'balanced' investor. That pleased me in some way. Now I don't know or really want to know much about investing. I know the Fundamental Theorem of Investing by the great man David Sklansky. But I'm not sure how to apply it to my own investments. Of course being balanced seems good, per the Nash equilibrium. But again I'm not sure how to apply it. So I just give money to the "experts" [who the great thinker NNT has debunked] to manage, and hope for generally positive variance. If I had any meaningful wealth it might not be horrible to be 80-90%+ in Canada Savings bonds from here on out. But I guess I don't have that problem right now.

I had to pick the allocation for the balanced strategy as part of the registration. I may not have got it right [since I was basically guessing]. This is what I went with. I should probably go over it and check somewhere if I have the funds and percentages right for my time frame and objectives.
2001 - ML Conservative AA a4   15%
2002 - ML Moderate AA a4       25%
2003 - ML Balanced AA a4       35%
2004 - ML Growth AA a4         15%
2005 - ML Aggressive AA a4     10%

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