How to Hedge Your Bills

While there are many schools of thoughts when it comes to investing, a common one is “Invest in what you know”. The rationale behind this is that if you use products or services from a company regularly or see them doing business in your neighborhood, you can understand how the business works. While this should not be the only approach for investing, as I have discussed earlier in the importance of diversification, investors should also invest keeping geographical allocation in mind. Staying invested in companies only local will cause you to take on risk that could otherwise be mitigated. However, this does not rationalize investing in companies that you do not understand. Whenever I’m asked for investment my advise, I always have the following to say: Every investment should be well understood. If you do not understand how a company generates revenue and don’t understand its business model, then you shouldn’t be investing in it.

With that established, lets look at how investing in companies that you are intimately familiar with. What better way to understand a company’s business model but the ones you are a customer of, and contributing to its revenue regularly. When you are a customer of a company, you have probably done your research on the products or services offered and compared with their direct competitors. For whatever reason you chose the company for your business, every other customer goes through the same process. This can be a powerful thought process when it comes to investing.I am not dropping any revolutionary new knowledge or viewpoint here. There have been various other bloggers and investing professionals that have explored this idea. What I like to explore here is how you can use the investment in a company as a hedge those very bills.Always do your research before investing in companies. You may be a customer simply because they have the best rates in the market, but it could well be that the business isn’t being run well. 

In my case, I am a customer at BCE Inc (BCE) and Bank of Nova Scotia (BNS), both very strong dividend growing companies with a spectacular track record. As a customer, I chose them because they provide good service (albeit at a premium) and think the prices charged are fair and on par with market value. As an investor, I have researched enough to come to a conclusion that they are reliable businesses and have a bright future and great long term prospects. These companies are the type of companies that people may grumble about, day-in-day-out, but are great companies to invest in. People may hate them, but cannot live without them and the competition space is limited. Customers are provided with good service, but they are also charged a hefty sum of money unless well negotiated.


Bell Canada, as it is commonly known, is the lifeline for millions of Canadians. The company owns a major stake in supported land lines across the country. In addition to cell phone service, Bell is also our internet service provider (ISP). Not only do we fork over $100 per month in cellphone and ISP bills, but Bell also charges us something called a dry-loop rate for our internet connection which is a very convenient $10 a month. The dry-loop is simply Bell activating our phone line port at home without a real phone line and charges customers for it. This is the kind of move that I hate Bell as a customer, but love it as an investor. Customers can grumble and whine about it all they want, but will eventually simply pay up – as it is non-negotiable.

BCE Inc is the largest Canadian telecom service provider including landlines, wireless services, and internet services. BCE is a dividend challenger, having raised dividends consecutively for 5 years and has a 5-yr DGR of 25.6%. In 2008, BCE suspended its dividend growth when it was a target of a leveraged buyout offer. That deal fell through and BCE and continued raising its dividends aggressively since.

Bank of Nova Scotia

Scotiabank, as it is commonly known, is one of the Big Five banks. In addition to our bank accounts, we ended up with our mortgage at Scotiabank as well, simply because they had a great product that fit our needs. We used a mortgage broker while purchasing our home and we ended up picking Scotiabank which had the best product offering. I have had a couple of friends who work for some of the other big banks in Canada but end up getting mortgages at Scotiabank simply because they offer the best products (even after getting an employee pricing discount on their own bank products). Stories such as these can be incidental, but cements my faith in Scotiabank as being  very competitive.

The Bank of Nova Scotia is the third largest of the Canadian banks by deposits and market cap. BNS is also the most international of the Canadian banks with exposure in 55 countries outside Canada. BNS has been paying dividends since 1832 – the second longest streak of paying dividends in Canada (first place goes to BMO which started in 1829). BNS saw a pause in its dividend growth during the financial crisis. However, BNS has started raising dividends after the crisis with a 5-yr DGR of 5.15%.

Full Disclosure: Long BCE, BNS. My full list of holdings are available here.

A Scam Called Mutual Fund

If there is any universal piece of advice in the investing world, it should be – “Stay away from mutual funds”.
Mutual funds come with a a little hidden number called MER – the Management Expense Ratio – which looks measly to begin with ranging from 1%-3% (some mutual funds may be as high as 5%).

Do not get fooled by this number because this number is a recurring annual fee and is taken off the overall returns of the fund, so you never see it anywhere on your semi-annual or annual statements reminding you that you just gave a major part of your savings to the fund company.

The Solution

  1. If you are looking for diversification without picking individual stocks, invest using an ETF – Exchange Traded Fund. The ETF fees normally vary from 0.05% to 0.8%. 
  2. A better option is to build your own portfolio. You pay a one time trading fee and no other recurring fees. You have two options – either direct investing via a DRIP plan or through an online discount broker.

Use Case

To best illustrate my point, lets assume you decided to invest in a mutual fund:

  • Initial investment: $10,000
  • Subsequent investments: None
  • Rate of investment return: 5%
  • Mutual fund MER = 2%  (which is a conservative estimate of the funds available in the market).
  • ETF MER = 0.5%
  • Stock investing via DRIP – assuming you buy 10 companies and setup direct investing – the only expense would be the cost associated with obtaining the first share from your peers (which is usually $10).
  • Stock investing via discount brokerage – assuming you buy 10 companies and a trading fee of $4.95 per trade (as offered by Questrade).
Mutual Fund Fees ETF Fees DRIP Investing Brokerage Fees
After 1 year $807 $52 $100 $49.50
After 5 years $1,444 $315 $100 $49.50
After 10 years $2,605 $796 $100 $49.50
After 20 years $6,849 $2,530 $100 $49.50

ETF fees also add up over time, but no where near the rate of mutual fund fees. So, if you are looking for diversification with a fund, it is no brainer to choose ETFs.
If keeping your fees down is your ultimate goal, direct investing either via DRIP or online discount broker is your best option.

If you own mutual funds and wish to find out how much your funds are costing you, click here for a great tool.

Disclosure: I owned about 6 mutual funds until I started realizing the snowballing effects of the fees. I have started trimming them down and currently own two mutual funds. I am hoping to cut back on those two funds in the near future.

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.

Getting Started – Active Income

Active income is any income obtained by “working for it”. You are paid for your time and skills in exchange for a service. This may include salaries, wages, tips and commissions.

Depending on your education and starting point when you joined the workforce, you may have 40-50 years of your life in period of active income. Some people may have shorter timespans depending on their savings rates, investment returns, multiple sources etc. Irrespective of that, the goal most people have in retirement is to live off the savings and generate enough passive income to continue living a similar lifestyle as done during the years of active work.

This blog covers all the points mentioned above in order to transform our active income to passive income.

< Back to Getting Started

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.

Welcome to Roadmap2Retire!

Hello World!

Who I am

I work in the High Tech industry with a passion for personal finances and investing. I consider myself a DIY investor and wish to share my experiences via this blog.

OK. How about a little more context?

  • I live in Ottawa, Canada
  • I am in my early 30’s. I started saving and investing in 2007
  • I am engaged and will be getting married later this year (2013)
  • I work in the High Tech industry

Why this blog?

I have been contemplating on starting a blog for a while but my procrastinating-self has always gotten the better of me. I spend a large portion of my day reading and already maintain a huge collection of stats/notes. I decided that by making this public, others may benefit from it and in the process, I get to learn more 🙂

What’s my investment style?

I have experimented with a lot of different investment styles over the past few years. From investing in index funds, mutual funds, ETFs, stocks of blue chip companies, penny stocks, options etc. I intend to cover pros and cons of different investing styles and share some of my experiences. I also intend to share my portfolios and track my overall returns here.


All posts on this blog are my personal opinions and should not be taken as professional advice. Posts here are for educational purposes only. All investments should be assumed inherently risky. Please consult with your financial advisor before making any major financial decisions.