Friday, November 16, 2007

Update on CC Arbitrage Experiment

Yesterday, I received my first monthly statement for the credit card I used for my arbitrage experiment.

The good surprise was that I was charged no fee to use the balance transfer cheque. Whoo-hoo!

As I expected, I will have to do a minimum payment each month, which for this month is $105. This is not too bad, at 2.1% of the current balance.

I will pay this out of my regular income, as if I was putting money aside for investment. However, this means that if I had wanted to run this with no impact on my regular cash flow, I would have to put aside a part of the initial amount for these monthly payments. This could be segmented by 3-month periods (since ING Direct offers GICs for 90, 180 and 270 days).

The exact run-down of this, with a $1000 arbitrage for 12 months (to keep things simple and make it easy to multiply the amount), would be something like:
  • Leave $62 in the regular savings account -- this will cover the first 3 monthly payments.
  • Put $57 in a 90-day GIC -- to cover minimum payments for the next 3 months.
  • Put $54 in a 180-day GIC -- minimum payments for months 7 to 9.
  • Put $51 in a 270-day GIC -- for the last 3 minimum payments.
  • Put $776 in a 1-year GIC -- this will be the final balance at the end.

All of this assumes that the minimum payment is based on the running balance of the account.

Of course, this would somewhat reduce the total interest gained for the arbitrage. But like I said, this would eliminate the impact of the arbitrage on my regular cash flow.

Thursday, November 1, 2007

Net Worth Update

As of November 1st, my net worth was $46 579 (down 2.5% from $47 780). The decrease was due to the replacement of the car shelter.

If I exclude house-related assets and liabilities (that includes the car shelter financing), my net worth is $37 367 (up 2.9% from $36 316).

Assets ($124 747, up 5.4% from $118 321)
  • Bank Accounts $3 747 (down 12% from $4 246)
  • Emergency Funds $3 747 (up 37% from $2 729)
  • RRSP Accounts $31 999 (up 3.3% from $30 974)
  • Non-Registered Investments $4 542 (up 7.8% from $4 214)
  • Home $75 600 (stable)
  • Arbitrage $5 000 (new)
Liabilities ($78 168, up 10.8% from $70 542)
  • Credit Cards $6 171 (up 93% from $3 195)
  • Student Loan $2 911 (down 7.8% from $3 156)
  • Mortgage $56 785 (down 0.2% from $56 890)
  • Heat Pump Loan $7 198 (down 0.7% from $7 247)
  • Arbitrage $5000 (new)
This month, instead of moving $500 directly to my RRSP account, I parked it in my emergency fund. Since I would not have a big enough amount to make a purchase, this way it will generate some interests. I'll do the same in the future, until the amount is big enough to matter. Then I will transfer it to my RRSP account, where it will be available when an opportunity presents itself. Since I have until February 2008 to max out my 2007 RRSP contributions, putting my money straight into my RRSP account where it does not generate much interests would not be as efficient.

Obviously, the replacement of the car shelter had a big impact on my net worth, since I am financing it on my credit card (12 monthly payments without interest). However, since this is a house-related expense, Princess will be transferring me her share of it every month, which increases my cash flow.