Air Miles Calculations

I did some annoying Air Miles calculations tonight. We are planning a trip to Cuba and we are trying to determine whether it makes sense to use our Air Miles or not. There are many annoying little details to think about. Since all Air Canada flights from Vancouver (YVR) to Havana, Cuba (HAV) are routed through Toronto (YYZ) (at least through Toronto, sometimes other cities as well) there are 3 options to consider: 1) using Air Miles for the YVR->HAV route, 2) the YVR->YYZ route, or 3) the YYZ->HAV route and obviously paying full price for whatever route is not covered by Air Miles in options 2) and 3). Also, because of the number of miles we have, some of these options work for both people, others work for only for one person. In some scenarios, our miles aren’t quite enough to meet the requirement but extra miles can be purchased for $0.30 + GST per mile. Also, I wanted to take into account the value of the remaining Air Miles (if any) associated with any of the scenarios. Also note that Air Miles only covers the base cost of the flight, not the fees (at least according to the lady I talked to on the phone).

Initially I ended up valuing the Air Miles at a very low price. I was valuing them according to what flights YVR-YYZ or YVR->HAV or YYZ->HAV were costing me in miles (works out to a valuation of $0.11-0.16/mile). But if we do have leftover miles after this trip we most likely will not be using them on those routes. My wife has a friend in Calgary and a flight there is likely in the near future so I checked how much miles were worth on that route. They are worth much more, at $0.23/mile. Also, the next time we fly anywhere (if at all) will be in November when we will take the rest of our vacation days. November is considered low season and a mile gets you much further at that time of year (on some routes the value of a mile goes from $0.11/mile to $0.16/mile). So I ended up assuming leftover miles were worth $0.16/mile. Here are the results:

Vancouver to Havana Air Miles Scenario Calculator

Well it’s not really that illuminating. The cases which split the flight into two segments are bad deals all-around because the split flights are a lot more compared to the single round-trip flight for YVR<->HAV. The “without Air Miles” option is better because I have valued the leftover air miles at $0.16/mile which is higher than the cost of using them for that YVR<->HAV flight. If I value the leftover miles at $0.11/mile the gap between the “without using Air Miles” option and the “Using Air Miles to HAV for 1” option becomes less than $100. That is something I am willing to pay in order to save the $638 on one of the flights now ($638=$808 base price of flight minus cost of lacking miles of $170) leaving more money in our pockets (or savings account, rather).

The other advantage of this is that using our Air Miles fully will bring our balance down to 0. I like that because it means we will not have any significant balance leftover in our Air Miles account. I am seriously considering getting rid of Air Miles account. The 10 years (yes I have been a collector since 1996 and have only redeemed once, for 750) it took me to get 7750 miles was not worth the hassle and I do not want any Miles hanging around in my account.

Homeless Man Gets Five Fannie Mae Loans In Florida

Funny news story out of Florida last week: Homeless Man Gets Five Fannie Mae Loans In Florida:

The St. Petersburg Times found a homeless man who had bought a few houses. “After struggling much of his adult life with unemployment, homelessness and drug addiction, Johnny Moon Sr. died last year on a dirty mattress on the floor of a small home near Tampa’s College Hill district. Moon left behind a watch, a flashlight and a wallet containing a solitary dollar bill. And more than a half-million dollars worth of real estate.”

One of the comments caught my eye:

I don’t see why loans to the indigent are such a big deal. In a booming real-estate market, when the vast majority of prices are rising, why shouldn’t banks loan to everyone, and anyone, who wants to borrow against a house? The vast majority of the properties are gaining 20% a year, so who cares if a few outliers are actually duds? You will make money on volume (i.e. there will be quite a few properties that do appreciate). And it doesn’t matter that a given borrower is unable to make good on the payments. Just sell the house six months later, and the loan is paid off. Everybody wins!

Anyway, don’t blame the lending institutions. They only market mortgages that are acquired by after-market investors. It’s the pension funds and foreign invstors who are really eager to give their money to anyone buying US real-estate. They know that US real-estate prices always rise substantially, so any potental losses from loans are minimal.

Tax Return Finished

Finally got the tax return all done. We will get a refund of $4,772.46 total for my wife and me combined thanks to RRSP deductions and tuition credits. It would have been even more had we not reduced the amount of tax deducted on my wife’s paycheques for part of last year. We are planning on applying the entire tax refund to the student line of credit. It is a good investment as it will save us not only over $200 in interest over the coming year, but over $200 every year going forward until the line of credit is completely paid off.

We have actually decided that rather than keep our payments to our line of credit constant (ie. after paying down $4,772 having less go towards interest and more towards principal, hence paying off the loan sooner) we will only pay just the interest every month (which is what we have been doing up until now) and allow the interest payments to decrease. This will be a motivating factor, motivating us to apply the entire tax refund to it. If, after applying the entire refund to the line of credit, there were no change in our monthly payments (only a change in the length of time until it is paid off), I think we would be less motivated to apply the refund to it. I think the bank is going to force us into an amortization schedule eventually but even then we’ll still apply our tax refund to it every year (assuming we have maximized our RRSP contributions, which we have so far).

Portfolio Update: Settled In

Back on March 5th, I mentioned a proposed portfolio my advisor and I were working on. We finally came to an agreement on my allocation and what to buy, and this is what I bought on March 10, 2006:

RRSP holding Type Account %
Value Trust
US Equity 11.3%
International Stock Fund
International Equity 26.3%
Canadian TSX60 index Canadian Large Cap 33.7%
Growth Opportunities
Canadian Small Cap 3.8%
TD Canadian Bond Fund Fixed Income 25%

The percentages don’t work out to nice even numbers because we took my advisors original numbers for the equities and multiplied them by 0.75 to make up the equity component of my 75-25 equity-bond split. We will find some nice round numbers to target eventually and then rebalance around those as need be.

You will notice two major differences between what my advisor had originally proposed, and what we ended up getting. The Canadian Energy Index is absent and the TD Canadian Bond Fund is in there as a significant fixed income component. The only change I wanted but I didn’t get, was the use of the Rydex Equal Weight ETF (RSP) instead of CI Value Trust. He seemed to really want to go with that so I let it be. He is interested in RSP though and will look into it some more. He felt it was not much different from a mid-cap index like MDY. If you look at a past performance comparison between MDY and RSP (before dividends) they look pretty similar.

Costs: I paid $75 commision (advised trade to get the iUnits S&P/TSX 60 ETF) and $0 for the mutual funds. As I said in a previous post, mutual funds at Clearsight are all essentially no-load because they buy front-load funds and charge no front-load sales charge.


Saw an interesting ad on my site today. It was to a sign-up page for an ICICI HiSAVE Bank account. I have never heard of them before, but they offer a high-interest rate savings account (HiSAVE) paying 3.5% (ING Direct Canada is currently paying 3.0%) and they offer a one-time $20 credit for signing up. Here is the fine-print on the $20 bonus:

$20 Bonus Offer valid only for new HiSAVE Savings Account opened online, by phone or by mail. Accounts opened through branches are not eligible. Limit one bonus per new account (including joint account). Minimum initial deposit of $100 required. Deposit bonus for U.S. Dollar HiSAVE Savings Account is paid in U.S. Dollar. Bonus will be credited within 30 days from the date the initial deposit is cleared and the account is officially opened by ICICI Bank Canada in its sole discretion. Application criteria apply. Offer may be modified or cancelled at any time. May not be combined with other offers. Only Canadian Dollar deposits are covered by CDIC.

What is ICICI bank? Apparently ICI is India’s second largest bank. You can read all about ICICI and its history here. Will ING Direct soon outsource it’s customer service department overseas in an effort to compete with a company like ICI, based out of India? Or does ICICI have a customer service department based in Canada?

Capital Gains Tax Not Eliminated Anytime Soon

According to this article in the Globe & Mail,
Capital gains tax to stay?” it doesn’t look like the capital gains tax will be gone any time soon, as the Conservatives promised while on the campaign trail early this year. They had promised specifically for “the elimination of the tax on capital gains reinvested within six months.”

Cutting the capital gains tax is such a complex undertaking that it may not be finalized in time for the federal budget expected next month, Finance Minister Jim Flaherty suggested yesterday.

The elimination of the tax on capital gains reinvested within six months was a key Conservative Party election promise, aimed at driving economic growth by rewarding Canadians who reinvest their money to create jobs.

After a speech to the Surrey Chamber of Commerce yesterday, Mr. Flaherty would not confirm that the capital gains proposal would not be in the budget. But he admitted that the government is still holding consultations on how to make the changes.

“I would be less than candid with you if I said that that was not quite challenging to accomplish in the short term,” he said.

Hints of a delay follows recent speculation that the capital gains tax program needs to be reworked or narrowed in scope, otherwise it could end up costing Ottawa between $1-billion and $2-billion annually.

Still, Mr. Flaherty said the Conservatives are committed to keeping all of their election promises on taxes, which included reductions in the good and services tax.