I dont know about you, but applying for a mortgage can be frustrating and time-consuming. From our perspective, we were just another number applying for a bunch of numbers. Insert a great mortgage broker into the equation.

Heres a short (but not inclusive) list of great things a great mortgage broker can do you:

Give you customer focus – Unlike banking representatives, mortgage brokers are not tied to any one bank. Sure, they might have some favourites, but great brokers canvas the full field. Our guy was looking out for the customer (us), our terms, conditions and pre-payment options. He was working to find a product that fit our needs and situation, not his agenda. In brief, our mortgage situation is not ideal, we have a hefty penalty to pay if we break our existing mortgage and go with another lender within the next two years. (This is a reminder to look at the detailed print of your mortgage agreement before you purchase a new home .) In our case, a great opportunity arose and sometimes you simply cant pass those up regardless what the fine print says – life happens, choices need to be made and chances need to be taken. Back to my point, you can certainly make a strong argument that mortgage brokers work for themselves, not you, however without attention to personal detail, they wouldnt be in business. Our broker put our needs and requirements #1. He was always very responsive. He never said he didnt have time for us or needed to take another call.

Give you leverage The way I see it, using a mortgage broker to fund a mortgage, youre going to get more attention because the lender wants that broker to continue sending business their way. As an individual customer, were just a number apply for a bunch of numbers. In talking with our broker, I know if he sensed any run around from a prospective lender hed move on and our mortgage prospects would go with him.

Save you money No doubt mortgage brokers are compensated by the lenders they strike the deal with but a) that means you dont pay them and b) as long as the rate and conditions of the mortgage are better than what you could have obtained youre saving money. Potentially lots. Like I mentioned earlier, our broker worked hard to get us a good deal. He knew his stuff and actively monitored bond yields for us. We more than appreciated that because without our new great rate and its associated terms, we wouldnt be coming out ahead over our hefty mortgage penalty. Weve taken our lumps and learned from them. My advice? Dont take a five-year mortgage term if theres even a chance you might move within that term period. Sure, you can sometimes port your 5-year fixed term to your new home (it doesnt cost anything but the mortgage appraisal and sometimes a small discharge fee) but that wasnt ideal for us. In hindsight, we should have taken a shorter fixed term a few years back or instead, given historical research, a variable rate. Click here to read more about variable mortgage rates and how more often than not, you come out a winner over a fixed rate mortgage.

In closing, mortgage brokers can be a tremendous resource, if you have the right one. Were glad we worked with our guy. Actually, we still are.  He’s still checking in with us to ensure all the rebates we were able to take advantage of are coming our way, including one for the mortgage appraisal.

I know if I have mortgage question going forward, Ill drop him a line. Hell take my call, hell listen, hell provide good customer service and objective feedback. I dont mind sharing who we used because the experience was very positive.

Thanks very much Rob!!

Click here if you want his contact information.

Do you agree or disagree what a great mortgage broker can do for you?
Any positive or “other” experiences youd like to share?

Cheers,
Financial Cents

In 2003, Investor Intelligence percentage of bulls hit 60%.
Bullish sentiment moved to 60% in December 2004; the market had close to three more years of bull market.
The bulls hit 60% in December 2005the bull market lasted another 2-3/4 years. In the past, there have been occasions when the market has been able to move meaningfully higher even in the face of a relatively high number of bulls. During some periods when monetary conditions were favorable for stocks, a higher level of bullishness was required to be considered excessive versus a hostile monetary environment. Currently, the monetary environment is clearly on the side of the bulls.

Over the past several weeks, many names have enjoyed bullish breakouts as stocks in general have moved up considerably. We have enjoyed some very nice profits during the recent rally and continue to hold a relatively high number of stocks in the MPA portfolio.

While a pullback is certainly possible on any given day or week, our work suggest that reactions should be normal and limited to 2-3% in the major average before this rally continues higher.

Mark Minervini

In my October 8, 2010 commentary, I warned that attempts to sell overbought conditions as a trading strategy can be risky business. Since then, short sellers have learned this lesson the hard way. Most traders that expected an overdue pullback since mid-September have been confounded as the market has marched considerably higher with little pullback or breather.

Since September 20, 2010 I have focused my commentary on the fact that the markets refusal to pullback in the face of an overbought condition is a positive, and that strong bull markets always begin with such a condition. More recently on October 13, 2010, I pointed out a particular overbought condition that has had a perfect track record as a forecaster of future stock prices (see October 20, 2010 Market Commentary http://is.gd/gJq8W).

While this commentary may sound redundant keeping with the strength begets strength theme; what has changed since our risk model turned bullish on September 9, 2010 is the market continues to be overbought and thats a good thing.

The markets continued strength has now triggered our long-term indicators to the buy side. Based on our work, this simply indicates the odds favor a continued bull market advance. Pullbacks over the near-term should be contained to 4-6%, give or take a percentage point or two.

Based on our models, the primary trend of the market is up.

Mark Minervini

The current market has shown considerable strength. Most traders are expecting a pullback which is widely viewed as overdue. While I would agree the market has come a long way with little pullback, I would also point out that so has every great bull market during its early phase.

During the initial leg up in a new bull market an overbought condition is a bullish event. As a matter of fact, the more overbought the better. During the initial leg we want to see the market stay overbought for a while, resisting significant pullback.

At such a point, if the market is truly strong, market pullbacks will generally be contained to 3-5% in the major averages. This pullback could be sharp and quick; the key is to see if the market can come right back in short order and how well individual stocks hold up in bases.

Right now, the key is to follow the stocks. As long as sound stocks set-ups continue to proliferate, buy the set-ups. It is possible that this market could be headed directly to new highs with little reprieve.

Current advice: buy the breakouts and stick to your stops religiously.

Currently our portfolio holdings include: ADTN, AGP, AHD, AKRX, ALTR, BJRI, CNI, COHR, DECK, FCFS, HGSI, HRC, IFSIA, IIVI, INTX, LTD, MCRS, MDCO, NKTR, PANL, PCYC, SHOO, SRCL, THI, VICR, WYNN, XTEX.

Mark Minervini

No, not ADHD (Attention-Deficit Hyperactivity Disorder) or ARDS (Adult Respiratory Distress Syndrome) or AAA (American Automobile Association) although the latter is a great membership to have.

But AAAD (Asset Allocation and Asset Diversification)?

I think every DIY investor should know about it and strive for it to match their investment objectives. First, my definitions:

Asset Allocation (AA) involves deciding the right mix of asset classes for your investments.

Personally, I think the mix should include some risks for some rewards. For example, the classic asset allocation is 60% equities and 40% fixed-income. If your retirement day is at least 20 years away, like me, you may want to have more than 60% of your holding in equities. I say may because you must be prepared for the risks of having a high-equity asset allocation. Just look at the TSX today (down over 250 points)! Conversely, if you’re within five years or so of your retirement, you might want to stay closer to the “classic” asset allocation recipe or hold ever closer to 50% bonds.

Asset Diversification (AD) involves deciding the right types of investments to hold within each asset class.

In my example above, you might want to allocate your 60% equities to dividend-paying stocks, mutual funds or ETFs. Similarly, you may want to have your 40% fixed-income in government investments certificates (GICs), corporate bonds or bond funds.

Unlike ADHD and ARDS, you want AAAD because its one of the tenants of good investing. A quick analogy if you will. Ever seen a street vendor sell different products, say hamburgers, hotdogs, sausages and french fries from his wagon? Mr. Vendor knows without proper allocation and diversification, its harder to make a buck; harder to make his margins. By deciding on the right mix of grilled foods and sides Mr. Vendor is offsetting his risk of losing money on any given day. You and me should do the same in our investment portfolios. Mr. Market is just like the customers of Mr. Vendor, not predictable.

For the DIY investor, here are a few takeaways for you and me to remind ourselves about AAAD:

Asset Allocation (AA):

Your asset allocation is largely personal and it should change over time. I know mine will. It should depend on your investment time horizon and your ability to tolerate risk (i.e., more time = more risk to live with and recover from economic cycles).
When it comes to investing, always remember risk and reward are intertwined.
Its well-known that stocks have historically had a greater risk than bonds and higher returns amongst the big three asset classes: stocks, bonds and cash. Investors who hold good, quality, well-known, established blue-chip companies should be able to ride out volatile economic conditions and yield dividends over time. That’s my plan…
Real estate, gold and commodities are other types of assets, but like most purchases in life, you should be comfortable with what you buy and know why you are buying it.

Asset Diversification (AD):

If you cant afford to buy many major stocks in a market, who can really? – consider a low-cost mutual fund or an ETF that tracks the market you want to invest in, say the TSX/S&P 60 Index or TSX Composite Index. Either option hold plenty of companies so thats immediate diversification.
Know that different investments, in different classes, will perform differently under different market conditions. Huh? For example, bonds are good to hold, no doubt, but bond prices have an inverse relationship with interest rates. Rates go up, bond prices go down.
While some mutual funds are great, know these products are designed to offer diversification for a fee and it doesnt always offer diversification. For example, the fund you are picking might focus on a particular industry sector, say energy, and charge a hefty management expense fee for managing the energy stocks in fund. There could also be fees at the front-end or at the back end of mutual funds. (I prefer ETFs myself so I don’t have to worry about this.) Again, my message to myself and others is the same: know what youre buying and why youre buying it.

As I become more mature at personal finance, AAAD is definitely something I want to get better at.

I know if I improve at it, it will help me reach my long-term financial goals but also to offset risk and keep the pillow soft at night. If the TSX is down 250 points or up, it won’t matter – I’ll have AAAD.

Im getting closer to having AAAD, are you?

I could be writing about Italys former national currency before the euro took over and what remains the national currency for Turkey, but thats another post better served by currency analysts. What Im writing about today is my Locked-In Retirement Account (LIRA), part of my investment portfolio:

-what is it?
-what I did with it recently, and
-what Im doing with it going forward as part of my retirement strategy.

What is a LIRA and where does it come from?

A LIRA is better known as a Locked-In RRSP. They originate from money held within a company pension plan. As long as youre employed with that company your money may be invested (and vested) in a defined benefit or a defined contribution plan. When you leave the company you may have the choice to move the money accumulated into a personal plan. This is what happened in my case. I left my former employer almost 10 years ago and was able to…take the money and run. Problem was, I couldnt contribute to that pool of money. Too bad too, but its the nature of the locked-in account.

This is one of the main differences between a LIRA and a RRSP:
LIRAs hold pension money and because of this you cannot contribute money to it.
The second main difference is:
With RRSPs, you can take money out when you want (taxes will apply) and there are no limits how much you can take out if you do. With LIRAs, you are restricted on withdrawals.

Only some provinces allow the unlocking of LIRA monies. Certain circumstances must apply. Some of those conditions include: small balances in the account, becoming a non-resident of Canada, shortened life expectancy or financial hardship. Taxtips.ca has a great page about LIRAs if you want to know how, or if, you can unlock your LIRA.

My LIRA: Then and Now.

Then
Soon after leaving my former employer in early 2001, I invested the money in a dividend growth mutual fund and never looked back. That is until about a year ago. The dividend growth mutual fund performed OK, even after the most recent bear market. I guess I got lucky. After learning more about ETFs, index and dividend-investing in recent years, I decided my dividend growth mutual fund had to go. This year, amongst other portfolio changes, became the year to get my LIRA finances in order.

Now
Early in 2010, I transferred my LIRA account from a mutual fund account into a brokerage account. I was able to make this transfer in-kind, no fees involved. Next, I sold my dividend growth fund. I kept the money for a few months in cash until I saw an opportunity to buy XBB with some of the cash. I now hold enough units to provide me about $30/month in dividends. Compare that to the $30/quarter I was getting with my mutual fund, and I know I made the right decision. Additionally, I wanted more U.S.-exposure so I decided to pick up Coca-Cola (US:KO). Until this transaction, I didnt own any Coco-Cola stock but I knew it would be a good holding; theyve paid dividends to investors on its common stock since 1893. I know historical performance is not indicative of future performance but heck, hard to argue with that track record.

My LIRA: Going-forward.

In holding XBB and some Coca-Cola in my LIRA, I figure Ill have a steady stream of dividends coming in allowing me to buy more shares as I see fit, as the cash accumulates. XBB will provide long-term fixed income stability, something I was looking for as a compliment to my growing number of unregistered Canadian dividend-paying stocks. Coca-Cola will give me desired U.S.-exposure. Since I want to keep my dividends as a source of pleasure and not pain, I bought Coca-Cola for my LIRA instead of keeping it unregistered, since there is no withholding tax on U.S. dividends inside an RRSP or RRIF. You can read more about that here. Since the same tax rules apply to LIRAs and RRSPs, I believe I shouldnt get hit with U.S. withholding taxes. My financial hypothesis has yet to be validated though. Ive written and talked to at least seven departments at Revenue Canada about thiswith no direct answer yet but the experiment is on and hopefully I am correct. It’s not the end of the world if there are withholding taxes, simply, I’d like to avoid them. Im optimistic the entire US:KO dividend of $0.44/share will land in my account when the next payment date arrives. I will keep you posted.

Closer to retirement, Im considering converting my LIRA into another tax-deferred vehicle such as a Life Income Fund (LIF) or a Locked-In Retirement Income Fund (LRIF). An annuity is probably another choice, but I havent done tons of research on any of these products yet. I cant retire tomorrow or next year (sigh…) so I figure I have a few more years of work (and to work) on those retirement options. Im just glad to have learned what I have in recent years so I can take better control of my finances. I know I might make mistakes, but that’s OK. The more I learn, the more I know and the more I know, the more I can improve.

Do you have a LIRA? If so, how do you manage it?

The market has been in a pronounced correction since April 26, 2010. Temporary bounces and bear market rallies entice people into buying just before it punishes them with hard sell-offs thereafter.

While there are a few high ranked SEPA stocks setting-up technically, the problems that still exist is the fact that all four components of our market risk model are currently ranked negative. As a reminder, our proprietary Key Market Risk Model turned negative on April 27 (1-day after the peak in the market), and we went into cash at that time accordingly.

The four components rank the following:

General market averages
Leading stocks
New highs new lows
Up/down volume

As far as the general market is concerned, the research shows that EVERY bull market in history has had an accumulation day (also referred to as a Follow Through Day, or FTD) as a prerequisite. So, there is little reason to look for a new bull market without first having the FTD occur. Trying to pick the bottom turning point is a fruitless exercise, so we wait for the market to prove to us that a bottom may be in place.

Yes, we will always miss the first few percentage points of a new bull market, by definition; however, if it is a true bull market, then there will be much more to be gained ahead. Id rather miss the first few percentage points than try to pick the bottom and be stopped out over and over until the bottom is truly established. This could invariably lead to a death by a thousand slices no one loss can hurt you, but together can add up to severe damage to your account.

Its important to note that all FTDs do NOT lead to a bull market; we already had one meager FTD occur in only the NASDAQ Composite Index, and it has failed.

During a bear market decline one must be very careful of chasing short-term strength and breakouts that occur during oversold “bounces. These rallies can produce convincing price action in certain names only to have them fail on subsequent declines that often will occur just shortly after you go long.

Furthermore, of the few stock breakouts occurring from time to time, volatility remains high which increases the risk of being stopped out. This is not the ideal market conditions that we look for to have the odds in our favor.

The goal is to be in the market when dollars are plentiful and trouble-free and out when pennies are hard earned. This is how you manage risk prior to managing risk within a trade.

Think of it this way, a good poker player sits at a table with equally skilled poker players. How much could he or she expect to earn under such a scenario. Now, take that same player and sit him down at a table where the players are inferior; then you have the conditions for meaningful success. Think of the table with equally skilled opponents as a bear market and the table with lesser skilled opponents as a bull market. Its important to pick the right table to sit at BEFORE you even play a single hand.

There are three types of market environments:

1. Markets you should be long
2. Markets you should be short
3. Market you should be in cash

At this point, Im still leaning to the cash side and taking a wait and see approach. I still think we should give the benefit of the doubt to the bears until we see some material evidence that a bottom is in place. This could occur in a few days, weeks or perhaps even months from now. The important thing is to let the market guide you, which is far more often correct than the numerous “expert” opinions out there.
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Mark Minervini

These leading stocks will break into new high ground while the major indexes are just starting to come off their respective lows, during which overall market conditions still look bleak to most investors and the news is still, for the most part, negative or cautionary. Later, the rally broadens, pushing up the indexes, which propels the frontrunners even higher. At that point, sentiment begins to shift from fear to optimism.

Few investors buy the true market leaders and fewer buy them at the correct time. They focus on the market instead of the individual market leaders and often end up either buying them late or owning laggards.

Adding to the distraction is the fact that the overall news media is usually wrong at major turning points. At a market bottom theyll predict the end of the world, and at a top the same people will say you cant go wrong investing in stocks.

It can be very confusing if you listen to what other people are saying instead of paying attention to what the leading stocks are telling you. If you want to make big profits in the stock market, learn to track and invest in the true market leaders.

In the example above, PCYC emerged into new high ground on 2/4/10. On that same day, the general market as measured by the Nasdaq Composite Index hit a new low. This is a clear example of market leadership. Over the next 48 trading days, PCYC advanced 90%, during which the Nasdaq Composite only rallied about 18%.
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Mark Minervini