Newsletter June 20, 2009

InvestorsFriend Inc. Newsletter June 20, 2009

An RRSP Account that has Quadrupled this Decade.

This Site has now been live for 10 years and of course I have used our Stock Analysis in investing my own money.

A fair question to ask is how I have done with my own investments?

Consider one of the two RRSP accounts that my wife and I hold. Almost ten years ago, at the end of 1999 this account was worth $23,584 consisting of $21,799 in total contributions and a gain of $1785 or 8.2% (not annually but in total), which was not very impressive.

Fast forward almost ten years to today and we have added another  $34,923 for a total contribution of $58,507. While the amount of money contributed has gone up by about 2.7 times, the value of this RRSP has gone up by 10 times! to $234,765.

Every $1.00 invested in this account has on average turned into $4.00. The average dollar in this account has been invested for 9.0 years. When invested money has been quadrupled in nine years, that is impressive.

The average annual return on this RRSP during the 2000’s has been has been 18.3% per year. The highest loss year was 2008 with a 17% loss and the biggest gain was 2002 with a 42% gain.

I think that is clearly an impressive performance over any ten year period. But consider that the 2000’s featured the tech wreck stock crash and a crash in 2008 and into early 2009 that is of ten described as the worse since the 1930’s.

My investments are in four accounts and the RRSP account above has the best performance. Overall the average compounded return going back to 1989 has been 13.8% per year. Those first dollars earnings 13.8% compounded for 20 years have gained over 1300%. Overall the average dollar in my investment accounts has been there for only 6.6 years and has gained 133%.

The two of my four accounts that have done best are the two oldest. It takes time for money into compound in the market.

It is unfortunate that the market is not a get-rich-quick scheme. It does take years and decades to accumulate truly significant amounts in the market. But, as has often been said, those years and decades are going to roll by anyhow. So you may as well have something substantial to show for it.

As to more recent performance during the greatest stock crash since the 1930s, I am am pretty close to even over 2008 and 2009, with a 21% loss in 2009 and a 24% gain in 2009 to date. Over that same period the TSX lost 35% in 2008 and gained 14.5% in 2009 to date and therefore has a long way to go to return to break-even for the two years.

There are no guarantees but I expect to continue to grow wealthy based on our analysis here at InvestorsFriend.

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Recent Analysis

In the March 1, 2009 edition of this newsletter, which turned out to be just prior to the market bottom, I said the following:

No ones knows if stocks will continue to go down. But it does seem that many stocks and corporate bonds are at very attractive levels. Buying now is likely to work out well in the long-run.

Well, the long term remains to be seen, but in the short term stocks are up an average of about 40% since the lows reached on March 9.

Dividend Reinvestment Plans

Dividend Reinvestment Plans (DRIPs) allow you to automatically use your dividends to buy additional shares in companies that offer such plans.

DRIPs can allow you to avoid trading fees on the shares purchased. That advantage seems less important now when the trading cost at discount brokerages is generally about $10 per trade.

A few companies offer a discount in the range of 2 to 5% on shares purchased through DRIPs. Usually this includes not only shares purchased from dividends but also additional amounts can be purchased at the discounted price. The additional amounts at the discounted price tend to range from about $10,000 per quarter all the way to about $1 million per year.

To take full advantage of DRIPs I understand that you have to use a taxable investment account (not RRSP, RESP) and I believe you have to deal with the stock transfer agent for the company and the shares will not end up in your brokerage account.

My impression is that participating fully in DRIPs is a lot of work. For taxable accounts it gets complicated because you are buying shares at different prices. You might not be able to quickly sell such shares since they may be held directly by you and not be in a brokerage account. My view is that dealing with DRIPs in this way would only makes sense for a small number of companies that offer a discount on purchase and where you plan to hold the shares for many years and where you are prepared to deal with any book keeping complexities.

It might also make a lot of sense if you dealing with a lot of money, there may be money to be made by purchasing shares at a 5% discount and then selling at the market. However there would be tax payable and you likely would face a delay in selling the shares and so there would be risks involved.

There may be some brokerages that have programs set up to make participating in DRIPs easier.

For those of us using discount brokerages my understanding is as follows:

TD Waterhouse allows you to select the option for each account to participate in DRIPS for all eligible shares or for selected shares within the account.

I recently selected to automatically participate in all available DRIPs in my non-taxable accounts. I decided not to participate in any DRIPs in my taxable accounts because it would complicate my tax return as I would be buying shares at difference prices. My non-registered account is small and I tend to use it for buy and hold and rarely sell anything in it so that no capital gains taxes are payable and to limit the complexity of my taxes. (I have enough paper work to do as it is).

TD Waterhouse has told me (only after I asked) that some of the DRIP shares are purchased from each company’s treasury and for other companies TD purchases the DRIP shares on the market.

TD indicates that I will get any discounts where the shares are purchased from Treasury. Unfortunately it appears that only one of the companies I hold offers a discount, Canadian Oil Sands Trust provides a 5% discount for DRIP purchases.  Most unfortunately, TD informs me that I am not eligible though TD to purchase additional shares of Canadian Oil Sands Trust at the 5% discount. I would be able to do that if I dealt in a taxable account and dealt directly with the share transfer agent, which gets complicated.

Overall, I see an advantage to participating in the DRIPs through TD but only where a discount is offered by the company. There are few companies that offer such discounts and it seems I only own one such company. I will likely contact TD and cease to participate in DRIPS except for Canadian Oil Sands Trust.

A list of companies offering DRIPs and the discount offered is available at the following link.

Details on how to participate more fully in DRIPS through stock transfer agents are available here:

Also the investor relations sites of individual companies that offer a DRIP will have information on that.

Market Outlook

I have never claimed to be able to predict short-term market moves. Personally however, I am moving to a defensive posture reducing my exposure to equities. Markets are up about 40% since the lows of March 9. We are still in a deep recession in North America. It does not seem like a good time to be be overly optimistic about the markets in general at this time.

Of course there are always individual stocks that remain attractive.

Example Report / Free Report

We usually don’t provide any of our recent stock research reports with subscribers to this free investment newsletter.

However at this time we are providing you with our recent report on Wal-Mart.

Wal-Mart is the largest and most successful retailer in history. It might make sense to own it.

Click to access our report on Wal-Mart.


Shawn Allen, President
InvestorsFriend Inc.

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