Welcome to the Million Dollar Journey Sept 2009 Net Worth Update – The Pension Buy Back Edition.

As I’ve mentioned in passing before, my wife has a defined benefit pension plan that she contributes to through her work with the government.  As she was on maternity leave last year, her work recently gave her the opportunity to “buy back” her pension.  Buying back her pension allows her to retire “on schedule” instead of delaying it a year due to her leave.  Since it’s pretty typical for us to have cash on hand, we decided to pay lump sum instead of pay roll deduction (+interest) which you may notice in the balance sheet below.

The markets continue to march higher which is pushing my portfolio to higher highs.  Good in a way, but it may be a false sense of security.  Some are predicting a “W” shaped recovery which could mean the testing of March lows.  Other economists are saying that this is a “V” shaped recovery with more upward energy left.  I don’t know where markets are going, but I do know that I’m not buying many equities at this level as most securities are expensive.

Assets: $$465,900.00 (+1.87%)

• Cash: $4,500 (+0.00%)
• Savings: $13,500.00 (+3.85%)
• Registered/Retirement Investment Account: $72,200.00 (+4.64%)
• Pension: $27,500.00 (+21.41%)
• Non-Registered Investment Account: $17,200.00 (+1.18%)
• Smith Manoeuvre Investment Account: $50,000.00 (+2.67%)
• Principal Residence: $275,000 (+0.00%) (purchase price)
• Vehicles: $6,000 (2 vehicles) (-20.00%)

Liabilities: $86,900.00 (-1.92%)

• Tax Liability: $3,000 (-0.00%)
• Principal Residence Mortgage (readvanceable): $30,700.00 (-5.54%)
• HELOC balance: $53,200 (+0.19%)

Total Net Worth: ~$379,000.00(+2.78%)

• Started 2009 with Net Worth: $309,950.00
• Year to Date Gain/Loss: +22.28%

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker can prove useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence plus a rental property. The value of the principal residence remains valued at the purchase price despite significant appreciation in the real estate market that we’re in.  I will most likely be adjusting the value of the home come the new year.

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As I have done a good few credit card reviews in the past, I’ve received several emails regarding the Scotia Momentum cash back Visa (link). Usually when so many readers ask about the same product, there has to be something of value there. So off I went to dig up some information to see how it compares to my other favorite cash back cards.

The Rewards

• 2% cash back on gas, groceries, drug stores and recurring bill payments (cable, phone, internet etc.) up to $25,000 in spending per year then 1% afterward.
• 1% cash back on all other purchases up to $100,000 (including the $25,000 max on the 2%).

Insurance Coverage

• Purchase Protection – 90 days insurance in case of theft or damage (up to $10,000).
• Extended Warranty – Doubles warranty up to 1 yr.

The Downside

As the rewards seem tempting, the biggest downside of this card is the annual fee of $39/year.  However, the annual fee may be worth it if the rewards consistently pay you more (after fees) than a typical free 1% cash back credit card.  So really, it depends on your spending habits – in particular how much you routinely spend on groceries, gasoline, and recurring bills.

The Competition

The thought that may come to mind is, how does it compare to the MBNA Smart Cash credit card?  With very similar features, I would say that the MBNA card out performs the Scotia momentum in terms of rewards and insurance.  In addition, the MBNA card has no annual fee which resonates with me.  However,  there is a dark side to the MBNA Smart Cash Card.  There are current reports that they are inconsistent with their application acceptance, and clients are having trouble getting their cash back rewards (see rfd).

Another direct competitor would be the Capital One 2% cash back card ($59 annual fee).  For a few dollars more, the Capital One card offers 1% cash back up to $10,000 in spending, 1.5% to $20,000, and 2% above $20,000 with no spending limits.  As well, they have a comprehensive insurance package that includes car rental insurance and baggage delay insurance in addition to what the Scotia card offers.

Final Thoughts

Overall though, I would say that the Scotia Momentum Cash Back Visa has a lot of competition.  If MBNA could get their act together with the Smart Cash credit card, it would blow this Scotia Visa out of the water.  However, the benefits offered by Scotia are enticing, especially the 2% on recurring payments.  I can see this card being of benefit to heavy spenders, similar to those who would benefit from the Capital One 2% card.

What do you think?  Is the annual fee worth the rewards offered?

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Yes, leasing a car is frowned upon in the personal finance realm from a purely financial perspective, but there are those that swear by leasing a car despite the numbers.  Leases generally have higher interest rates, restrictions on the vehicle (limited kms, tire wear, scratches etc), not to mention a perpetual car payment. On the other hand, there are some benefits of leasing which include lower monthly payments and the privilege of driving a new vehicle every 3-4 years.  In addition, business owners can write off the lease payment in it’s entirety as it represents depreciation on the vehicle.

For me, I simply do not like reoccurring monthly loan payments that charge interest which is why we were aggressive in paying off our student loans, car loan and now our mortgage.  So if I were to lease a car, I would look for ways to keep the payment do a bare minimum.  The only way that I thought that was possible was via a down payment on the lease, but there’s another way according to a local Toyota rep that I was speaking with.

The Strategy

Not all car leasing companies allow this, but a larger security deposit may result in a reduction in the interest rate charged on the lease payments.  As well, the security deposit is refunded at the end of the term providing the vehicle is in acceptable condition.

How does it work?  With Toyota, the security deposit is equivalent to about one months payment which will give you 0.20% off the interest rate.  They allow up to 9 times the security deposit, which would give you 1.8% off the posted rate.

An Example

A 2009 Rav4 base AWD lease would cost $456/month for 48 months @ 3.9%.  However, depositing 9 times the security deposit of approximately $4100 would bring the interest rate down to 2.1% making the payments $421/month (according to toyota.ca).

This represents a difference of $35/month or $1680 savings for the term of the lease.  The $1680 in savings represents a 41% after tax return on the $4100 security deposit.

Final Thoughts

So for those of you shopping for a lease, make sure to ask the dealership about the benefits of increasing your security deposit.  It could save you thousands over the term of the lease which works out to be a very high (after tax) rate of return.

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