Equity vs Debt

There are two ways a business can fund its operations (and thus, two ways someone can invest in the operations of a business). The first is debt, and the second is equity.



What is debt?


Debt is an obligation owed by one entity to another. When a business issues debt, it is borrowing assets from the lender now, and entering an agreement to repay the original assets at a future time, plus interest.

Thus, when we lend capital to a business, we are giving the business our money now, and in exchange, we will be paid back the same sum in the future (debt maturity), plus interest payments while the debt is outstanding. This is investing in the debt of a business.

Cash Is Not As Risk Free As People Think

TFSA is one of the best investment vehicles that exist in Canada. Contributions are made with after-tax money, but capital gains and income from investments inside a TFSA are completely tax free.

The TFSA program was started in 2009, and that was the year I started mine. Unfortunately, in what otherwise would have been a fantastic year to invest, I kept my TFSA in an interest bearing account for the first year. I remember I happily placed my $5k inside an ING TFSA account with a few months left in 2008, as there was a special offer at the time.

It turns out that would be one of the biggest mistakes I made in the last 4 years. While I didn't lose any money, I also missed out on opportunities in 2009. I probably could have transferred the account to an investment one, but the inter-institutional transfer would have been a hassle and potentially costly.

Good Ol' USA, Best House in a Bad Neighborhood

As the data continues to come out for February and March, we're continuing to see strength in the USA. This morning we saw two more pieces of information that give us some insight into the state of the US economy. One of the advantage of living on the east coast is you get to see these events live, observe market reactions as they happen, and make pre-market decisions based on them. Something you cant do while living in the west...unless you want to get up at 5am.

First at 8am was the ICSC Retail Store Sales report, which showed a 3.8% w/w increase and a 4.2% y/y increase. While some parts of this was likely due to warm weather and holidays, the trend in retail sales over the last half a year has been remarkable. As most investors know, consumer spending in general is one of the key drivers of GDP, and retail sales is a big component of consumer spending.


Around 10am this morning, we got the March ISM New York Report on Business, which showed 67.4 vs 63.1 in February. The report says "March marked the fifth straight month that the Current Business Conditions index grew faster than the prior month, unprecedented in the survey's 19-year history"

There are now more indicators telling us there is a storm brewing across the Atlantic as well, and not just in the debt troubled nations of the Mediterranean.

Dividend Growth Portfolio, April 2012 Update

As March wraps up, its time to do a monthly review of my Dividend Growth Portfolio.
Here is the April 2012 update for my Dividend Growth Portfolio.


New Purchases
There were no new purchases this month.


Sales
There were no equities divestitures this month.

Intrinsic Dividend Changes
Scotiabank - $26.76 (quarterly dividend raised from 52 to 55 cents)
JPMorgan Chase - $27 (quarterly dividend raised from 25 to 30 cents)