Job seeking is not unlike other aspects of life. It is the small things that count. As someone who hires, a pool of job applicants can be classified into three broad categories: definitely interview, maybe interview and just not a good fit. In the “definitely interview” pool, in most cases, the difference between the job seekers on paper is small if non-existent. Similarly, how one moves from high up on the maybe interview pool to the definitely interview pool is quite small. What moves a job applicant from one pool to another or higher in a pool comes down to the small things.

Here are three to think about if you are looking for a job.

Customize your application. Word macros now make it very easy to insert a wide variety of potential employers’ details in the same cover letter. Generally, avoid doing this since it is easy for an employer to pick these out. For example, I once hired for an administrative position and received a resume that kept highlighting customer service skills.

Effective cover letters are customized, speaking to both the employer’s business and the position being sought. For example, if you apply for a  sales position in an IT company, highlight your technical skills and your success in previous sales positions.  If you do not have a large amount of experience, re-characterize your experience in an honest manner. The above-referenced customer service applicant could have told me about all the paperwork they had to process or they had to deal with their book-keeping and accounting department.

The interview begins before the formal interview. Assistants and receptionist tend to be good judges of character having to greet so many people every day. They also tend to have the ear of the boss (never ever under-estimate the worth of a good administrative assistant- they are not “mere” secretaries). How an interviewee treats the office staff has a critical bearing to an employer especially if an employer is finding any reason to cut a deep pool of qualified applicants.

For example, when I worked for a larger company that regularly hired summer students, an applicant showed some attitude to the person giving them a tour of the office. They were cut the second the employer was told about this incident. The morale of the story is be nice to everyone.

Follow up. In the last ten interviews I have conducted, two applicants actually followed up thanking me for my time, indicating they were interested in the position and they were a good fit. Think about that for a second. 80% of the “definitely interview” pile failed to take that one extra step to move one step closer to getting a job (or they were all not interested which I can confirm is not true). As an interesting observation, the two who did follow-up were both younger applicants which seems to dis-spell the myth that younger workers are apathetic job seekers.

Job seeking is like working your way up to the top of a pyramid. You begin at the bottom with lots of other people and other job seekers keep getting cut as one moves up to the next level. Where there are equal candidates on paper, it is often the small things that get you ahead.

Good luck.

If you are a condo owner or a condo real estate investor investor, or are contemplating investing in a condo, there are a few key factors to consider in 2010.

Maintenance fee escalation on new units: In the last 5-7 years, there have been a staggering number of new condos built in many major urban areas. As recently as 2008, 100,000 condo units were being registered a year in Toronto. In the first few years, maintenance fees can be kept low but in year 2-4, they tend to escalate as reserve funds and repairs begin to occur; condos are like new cars. They run fine for the first few years then you have to start putting money into them.

How great is the maintenance fee increase? I pulled this historical data from my own condo (which is now more than 10 years old). Here are the year to year increases in condo maintenance fees for the first 5 years: 0%, 2%, 15%, 7%, 0%. The spike in year 2-4 (I did not live here then) is probably due to reserve fund contributions given there is no pool, golf simulator or other perks to maintain.

Maintenance fees are typically included as part of rent in our local condo rental market. Thus, in newer condo units, owners may find their cash flow decreasing as maintenance fees go up. It is difficult to make up these increases since: (i) it is a renters’ market in most places and tenants can vote with their feet; and (ii) in rent control jurisdictions, an owner’s ability to increase rent is limited (for example, rent caps in 2010 are 2.1% in Ontario and 3.2% in British Columbia).

HST: Related to the first issue, HST will affect both condo owners and condo investors. The Globe and Mail summarized the issue with HST and condos very well. If you have bought a new condo which has not been occupied (i.e. you bought on plans), it may be worthwhile to consult your lawyer about the “material adverse change” or “material change” clause referenced in the Globe article.

Vacancy rates. In the U.S., rental vacancy rates rose to 8% nationally in Q4 2009- the highest in 8 years.  In markets where the vacancy rate fell (New York City), the average rents also fell. In Canada, the national apartment (includes condo) rental vacancy rate according to CMHC was 2.8% in October 2009 but, in terms of local effects, there were large increases in Alberta (3% increase) and B.C. (1% increase).

In other words, it is a renters’ market on the whole but all real estate is local in nature so please do investigate  the local vacancy rates and average rent in your market (preferably without a real estate agent who has a bias in the outcome; CMHC stats is a good start).

The above does not mean that one should not become a condo investor. Instead, it should frame an expectation of return for 2010. The one issue which is constant in condo investing is that cost control is not completely your own. The condo board sets the annual maintenance fee.

Thus, as a few practical steps, one should consider the cost side of the condo investing equation carefully by: (i) being active on the condo board; (ii) looking at the cost of financing carefully (there may be a stronger argument for condo investors to lock in mortgage rates  to give certainty of expenses especially in a rent control environment); and (iii) budget maintenance fees 5%-10% higher than they are in running your cash flow analysis.

Good luck.

There are certain things that do, indeed, go up during economic down times: unemployment rates, welfare rolls, collective insecurity and litigation. Litigation is a boom business during recessions. Suddenly, parties cannot overlook their differences knowing that another pay cheque or deal is coming since they have dried up and Court awards or settlement monies are seen as potential sources of income for litigants.

Litigation rarely, if ever, brings down a publicly traded business. Either the business is too large or the Courts limit damages based on ability to pay. After all, an overly large punitive award means little if the business itself is forced to file bankruptcy. However, what effect, if any, does litigation actually have on stock prices?

Surprisingly, studies suggest that litigation chill is one reason why initial public offers (IPOs) are consistently under-priced. The largest litigation risk in IPOs are fraudulent misrepresentation. If the issue price of the IPO is lower than it should be, it should, theoretically speaking, lower than quantum of damages which have to be paid if the allegations are proven to have merit. Studies show that IPO lawsuits can cost a new issuer up to 20% of the proceeds raised not to mention the undefinable loss of reputation and goodwill.

Perhaps the most interesting development in IPO securities litigation is the rise of class-action lawsuits against issuers of exchange traded funds, particularly of the leveraged variety. Among the allegations of numerous lawsuits against leveraged ETF issuers is that they failed to warn investors of the risk and the leverage component does not work properly since there is not a perfect tracking match. None of the allegations have been proven.

Litigation will not wipe out the leveraged ETF market but Court awards and settlements may put a dent in the earnings of ETF issuers which are  publicly traded companies (for example, iShares is owned by BlackRock, a publicly traded firm). Shareholder discontent or investors thinking twice about investing in the stock of an ETF issuer ending up on the wrong side of too many lawsuits may, in and of itself, force some issuers to be more cautious in issuing products or force regulators to act. This  is what class-action litigation, ideally, is supposed to do; it is a private remedy to drive public policy.

On a non IPO basis, I could not find any resarch that showed a consistent pattern of the effect of litigation on stock price. This is because litigation can be speculative (the ambulance chasers), perhaps have some merit but is a tough case to prove (the effect of a garage dump on a community), has merit but will take years to wind its way through the Court (asbestos related litigation when it first commenced) or the market simply brushes it off as the price of doing business (Nokia suing Apple in October 2009 did little to Apple’s prospects).

To quote Philip Morris’ latest annual report: “we and our subsidiaries record provisions in the consolidated
financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.” And therein lies the problem. In other words,  the effect litigation on the financial statements relies on: (a) the business reasonably believe they will lose; (b) the business can estimate the loss; and (c) the loss is of a material nature to report it to the public market.

This is analogous to financial institutions believing they had sufficient controls in their proprietary trading pre 2007.  Risk is a subjective concept.

The issue is that it is hard for anyone to accurately predict if they can win in Court or, if they lose, what the damages will be. Even the most seasoned of litigators will tell you that if a lawsuit has made it to trial, neither side knows the outcome because both sides believe it has a strong enough case to go before Judge and jury.   Suits with poor merits tend to settle or be abandoned relatively quickly. Cases with merit tend to become unpredictable affairs.

The exception to the rule seemed to be a small window of time when public opinion and shifting regulatory landscape line up against an industry (tobacco, asbestos) and it is clearer that loss may occur. However, given the relative gridlock of government these days, these conditions tend not to exist for most industries.

The end result seems to be that the markets are just as surprised about litigation’s impact on a stock price as the lawyers on the losing end. The knee-jerk reaction would be to attempt to invest in an industry that is not as prone to litigation but today’s markets darlings become tomorrow’s defendants.

Just a quick congrats to Canadian Finance Blog which celebrated its one year anniversary this week. Congrats and keep up the good work.

The Latte Factor is a phrase coined and trademarked by ersonal finance author David Bach to explain how the expenditure of many small things add up to a lot of money over time. The phrase itself derives from the fact that Bach showed that a latte a day at $3.50 equals $1,260.00 over a year. In essence, The Latte Factor shows us how much money we can waste and why we never get ahead financially.

However, whenever I think of the Latte Factor (assume the registered trademark sign is behind this phrase since this luddite can’t find it on WordPress), I think of the episode of the tv show Friends. Specifically, I think of the episode where Rachel’s boss kept going out for a smoke and all her co-workers except her joined her boss, giving Rachel the impression that her smoking workers were getting ahead of her with all the extra (albeit smoky and poisonous) face time.

The point being there are two large limitations to the Latte Factor. The first was recently commented on by Kathryn from Million Dollar Journey that overly focusing on cutting out all expenses would deprive a lot of little pleasures of life. The second is, as Rachel found out, that spending a little for a purpose can go a long way.

To use the sports analogy, our personal finance basically compromises of offense (generating income or human capital) and defense (saving money). Some can succeed on all offense. Some can succeed on all defense.  But it is hard to maintain the discipline to do both (and kudos to those of you who do). One tends to get ahead using a bit of both.

Businesses succeed by their ability to market and sell effectively. Why should you be any different? A $3.50 latte with a colleague who may give you a job lead or vital market intelligence, with your boss to get to know each other better, with a mentor to teach you about investing is worth infinitely more than the immediate loss of $3.50.  Some of the best advice I got was over a coffee and building a book of business is sometimes done one coffee and affordable lunch at a time.

If you are gainfully employed and do not think you have to market yourself, think again. What is sometimes referred to pejoratively as a co-worker playing office politics is actually a person marketing themselves. Whether this is perceived as right or wrong is in the eye of the beholder but all relationships are based on shared experiences and your boss and co-workers may think well of you sharing those $3.50 latte experiences. It is a tough job market out there so hanging onto your job through networking may be worth those small expenses.

As a magazine wrote recently, employees who worked from home were more likely to be let go not because they were more or less productive but because the boss did not see them as much and out of sight is out of mind. A $3.50 latte to save your job or to find a new one has a real revenue recognition quality about it.

The point is not to spend money but to spend it for a purpose. Bach is right in the sense that small things do add up but I would modify this general statement with spending on small things without a purpose is wasteful. However, spending on things that will advance your career, your business and your life, as long as it is reasonable and for a clear purpose, can be worthwhile expenses.

If I was to pinpoint a time of the year when I made most of my investing mistakes, I would pick the January- February period when I contributed or topped up my contribution to my RRSPs. The mistake is not so much contributing to my RRSP (and although research does indicate TFSA may be more tax efficient than RRSP, do not turn the TFSA/RRSP issue into an either or debate. Contribute to both). My mistakes happened in the 24-48 hours immediately after the contribution or contributions (see #1, #2 and #4 below).

Besides not contributing, 5 common mistakes made during the RRSP season include:

1. A rush to buy. This is the equivalent of your Mother telling you not to spend all your allowance on the first day. It is perfectly acceptable to contribute and to invest your RRSP contribution to a money market fund until you figure out (i) what exactly is your investing strategy? (ii) what am I buying to execute this strategy? If you don’t have an over-arching plan in mind, you end up with multiple holdings (often with over-lap) with no rhythm or reason between them. The key is find an accurate solution and not an expedient one.
2. Being fully invested. Fully invested in plain English for you have no cash on hand or, to continue, the analogy, you spent all your allowance.  This is problematic in accounts where your contribution is capped like an RRSP. The largest reason being you have no flexibility, you cannot take advantage of bargains and you cannot reallocate your allocation properly. The temptation is to take 100% of your RRSP contribution and to use all of it: a bad outcome if you have a plan, a terrible outcome if you do not. Your allocation of cash will depend on your risk tolerance. I tend to peg mine at 10-15% of my portfolio.
3. Trying to get advice during this time. Your investment advisor is probably working 10-14 hour days for most of February. It is going to be hard to garner first rate advice from them during this time. Yet, strangely, everyone calls their investment advisor during this time expecting first rate advice. The better alternative is to have your strategy in place before the rush and buy according to the strategy. In this manner, the decisions tend to fall into place easily.
4. Buying yesterday’s champion. If you actually do happen to reach your advisor, they may try to sell you yesterday’s champion which is, statistically speaking, often tomorrow’s loser. But if you combine #1 and #3, the temptation is to look only at the performance numbers for the last year (2009 being an investing exception rather than the rule) and invest in that because you believe you need to make your RRSP investing decisions now with your entire contribution.
5. Avoid the new products. Investment products are like new cars. Every time a car maker introduces a new generation of a vehicle, the general advice is to avoid the first model year so that they can work all the problems out. In other words, let other people be the guinea pig. As Canadian Capitalist posted recently, the newest kids on the block, niche ETFs, probably are not ideal for most portfolios.

The best way to avoid these mistakes are to approach RRSP season like a project. What exactly is your plan? How are you going to achieve this plan? If you do not have time to think of a plan, then contribute to your RRSP and leave it in cash or a money market fund. Put together a plan later. In other words, try to approach RRSP season as a process which extends past this year’s deadline of March 1 rather than a mad dash to the finish.  As a business colleague once told me the only thing that happens quickly in life is losing money. Good luck.

High levels of government’s debt is universally regarded as a bad thing for various reasons including the potential loss of sovereignty if the debt is held by other governments and the crowding out effect on private enterprise. But what is its direct impact on the average household?

The direct effect is obvious. Large government debts are financed by one of two ways: increased taxes used to service or pay down debt or reduced services so that current government revenue can be redirected towards the same goal. There are also certain indirect effects.

In a Federal Reserve study of 2003, Thomas Laubach found that every 1% increase in projected debt to GDP ratio is estimated to raise long term interest rates by 25 basis points (1 basis point = 1/100 of 1% or 100 basis points equals 1%); a 2009 update of this study was issued but it is not free to access at this point.

The Congressional Budget Office, a non-partisan arm of the U.S. government, states that the debt to GDP was 53% in 2009 and is estimated to increase to 67% by the end of 2010 . With a borrower in that much debt, there will be pressure to raise interest rates to make investing in U.S. debt more attractive; politics can only with-stand reality for so long.  The eventual raising of interest rates will force other governments which compete with the U.S. on the debt market (see Canada) to also raise rates.

The implications are quite clear. Interest rates will have to go up which means several realities going forward:

• The whole “should I lock in my variable rate mortgage” debate may be convincingly answered in the affirmative if rates begin to escalate significantly.
• The mini housing boom in Canada may soon end since it relied in large part on cheap credit which begs the question whether households can afford the increased carrying costs of a mortgage (assuming it is a variable rate mortgage) and shallow the reality that newly purchased home may fall in price.
• High interest rates tends to slow down recoveries (see below).

Here’s an interesting thought. If yields on government debt begin to rise and the investors’ appetite for risk remains cautious going forward, will dividend yielding stocks have to increase dividends in order to attract investors (a situation not without precedent)?

PIMCO, the well-respected investment management firm (and my favorite source of investing information without frills or hysteria), has already predicted that it will take 5 years to see a recovery that produces jobs given the effects of heavy governmental debt and increasing interest rates.  Again, this is not without precedent. The 2010’s may indeed look a lot like the 1990’s in Canada: a brutal recession followed by staggeringly large government debt and associated high interest rates leading to a jobless economic recovery. In fact, as I posted before, it took  approximately 10 years for Canada’s unemployment rate to fall back to pre 1991 recession levels.

There has been a lot of ink split lately about how most retail investors missed the rally of 2009 and whether there’s any legs left for further growth. Although important, the stock market rally of 2009 shifted the focus away from households deleveraging themselves (not to mention advertisers do not want to advertise in publications advising readers to spend less as part of deleveraging ).

When interest rates increase (and the question is now focused only on when and not if), there may be a refocus on this issue. Regardless of the economic environment, it is important to ensure all households control their expenses (even if the same can’t be said for our governments).

Mariusz Skonieczny asks a question that many pondered in late 2008: why are we so clueless about the stock market? Written during at the height of the great recession, Skonieczny dissects the fundamental problem with most unsuccessful investors: they fail to understand the difference between stocks and businesses. Stocks are evidence of ownership but such ownership is only worth something if the underlying business is healthy and growing.

Taking this difference as a starting point, Skonieczny walks the reader through the basics of financial statements and the characteristics of a what makes a good business, quoting Pat Dorsey’s 4 factors that economic moats consist of intangible assets, switching costs, networking effects and cost advantages.

Every good investing book has one $10.00 moment. This book’s is found in advice on when to buy. Observing that most money managers are inherently short-sighted, the author notes that many institutional investors will pass up good long term deals if the short-term price movement does not play to their advantage. Money managers measure success in financial quarters whereas the retail investor should measure success in years. Therefore, a good investor should pursue opportunities with short-term uncertainty but long term certainty. In other words, avoid the noise and concentrate on the longer term.

The book is divided into short, easy to read chapters addressing issues such as how to value a company, diversification, investing in IPO’s (the short answer is don’t) and determining when to sell. This is also my criticism of the book. Some complex concepts are addressed very quickly to move onto the next topic. Some chapters could have been fleshed out a little better; for example, the diversification chapter is only 2 pages long- that’s one heck of a short free lunch. The case study chapter, arguably the juiciest portion of the book, was thoroughly educational and it would have been ideal to flesh out this section even further.

There is a little bit of math and finance in the book but it is presented in a straight-forward manner without too much reliance on complex financial equations.  Other than a brief boast in the beginning about the author’s return during 2008 and 2009, the book avoids the two big narrative cliches of investment books: the “look at me” syndrome and the “let me tell you a story” format (this format probably jumped the shark multiple books into the Rich Dad, Poor Dad series). It is to the point and concise in its writing style.

The ideal audience for this book would be someone who has mastered their budgeting and is interested in learning how the stock investing works with no fear of some simple math.

The conventional wisdom on starting your own business is that the odds are against you. The frequently cited statistic is that 75% of all businesses fail within the first 5 years. However, the devil is in the details. The typical methodology of measuring business failure is to tabulate the number of employer accounts opened with the U.S. Department of Labor and the number of employer accounts closed in any particular year and using employer account openings and closing determine how long a typical employer account will remain open. A closing of an employer account is generally marked as a business failure.

However, employer accounts close for a wide variety of reasons other a termination characterized by bankruptcy. Businesses merge. Businesses close down voluntarily. Owners retire. Businesses move. In a 1996 study, researchers found that if business failure was solely defined as bankruptcy, the business failure rate drops to under 1%. The same study found that small businesses cumulatively failed 64.2% in a 10 year period but less than 6% due to bankruptcy. This is a far cry from 75% failure rate within 5 years.

(admittedly, given the difficulty in tracking a sector as large and diverse as small business, the statistics tend to be everywhere. Entrepreneur Magazine found an average life of a small business to be 11.2 years and 40% of small businesses survive after 6 years).

What the statistics tend to bear out is something I saw quite often as a lawyer. Businesses fail because the opportunity costs of doing something else outweighed continuing to run the  current business rather than the common perspection of some cataclysmic event ending the business. Owners found jobs. People retire. People sold out.  Entrepreneurs start other businesses (serial entrepreneurship is a common “ailment” among entrepreneurs. As Milton wrote: “better to rule in hell than serve in heaven.” There is a certain addictive quality of being the fool in charge as opposed to listening to another fool).

Beyond the statistics though, my professional opinion is that many business owners bail out too quickly; a non-tech business generally does not gain traction until year 2. Alternatively, owners shut down businesses quickly for two major reasons- poor cash flow planning and a failure to appreciate sales cycles properly (the quick and dirty is if you are in a high volume, low margin business you have to measure turnover carefully.  If you are in a low volume, high margin business your expense control and cash velocity are key).

This impatience draws a certain parallel to the average investor. The Dalbar Qualitative Analysis of Investor Behavior found the average holding period of a stock fund ranges from 2.46 years on the low end to 4.31 years on the high end. In most cases, this is far too short of a period of time for most retail investors to benefit from an investment.

Regardless of whether an entrepreneur stays a short or long time, how do they end up doing? The National Federation of Independent Business estimates that 39% of businesses are profitable, 30% break even, 30% lose money and 1% cannot be determined. This statistic, like all statistics, is subject to some debate.

However, what is striking about this number is it parallels surveys of real estate profitability. The U.S. Census of property owners and managers found 41.4% of those surveyed reported they made a profit, 16.2% broke even, 26.7% lost money and 15.7% did not know how they did (not knowing whether you made a profit, broke even or lost money is probably a good indication its time to think about not being in real estate anymore).

There is clear overlap between small business owners and property owners since the latter is a subset of the former. However, the larger point being that the degree of risk of starting a business is not materially different than investing if you believe the statistics to be true.

As a society, we tend not to embrace entrepreneurship given a minority of the population are entrepreneurs (in North America, self-employed taxpayers compromise less than 20% of all taxpayers) and our ignorance tends to impart a greater degree of perceived risk. Yet, in the same breath, those who dismiss entrepreneurship as too risky turn around and flip their stocks too quickly or become real estate investors with relatively the same success rates.

Entrepreneurship is not a lifestyle choice for everyone. Certain people are destined for business failure.  However, it is unfair to gloss entrepreneurship as a riskier investment choice. It is risky if you don’t know what you are doing but the same concept applies to investing as well.

To state this another way, what determines the risk of starting a business are the same factors that would make investing risky: lack of knowledge and education, lack of emotional control, lack of understanding of the market. Just because investing in stocks and bonds is more popular than investing in starting a business does not make the venture any more or less risky.

As an editorial note, it is important to continue to nurture small businesses even if you are not an owner manager. After all, small businesses are job creation machines and the economic recovery will not coming from big business but from small business and a better indicator of a main street recovery will not be stock prices but small business hiring numbers. As I stated before, my true metric of an economic recovery will be small business hiring numbers.

One of my goals this year is to be a better employer. I have had a lot of conversations with people who recruit or hire more employees than I do about this issue. I can boil their advice down to the following: find employees who are good fits first and foremost rather than looking for a particular skill set, set expectations early- as early as the job interview and follow through on those expectations especially in the first 60-90 days. If you do not, you have lost the employee and neither side is very happy for what is typically a short stay.

How does this relate to you if you are not an employer and actually looking for a job?  What I have noticed more often than not is that employees tend NOT to ask questions about fit, corporate culture, support and expectations at the job interview. If you are looking for a job only for the monetary consideration and not necessarily for career development then I would stop reading now.

If you are looking for a career then it is important to discuss these issues during the job interview. Otherwise, although you will be gainfully employed, I suspect the employment will be unfulfilling and merely another employer on your resume.

After getting some sage advice from others about this issue, I looked back on people I interviewed for non-entry level positions who had multiple employers on their resume in a short-period of time and recalled their interviews. Most of their questions were about compensation and not expectations or fit. It is perfectly acceptable to negotiate the best deal possible but, if a potential employee does this at the expense of attempting to determine whether they will be happy and gain more skills, that job will become another short stay.

As the Financial Blogger points out, the “do you have any questions?” portion of the job interview is supposed to be an opportunity to show your prospective employer that you know something about the employer (and the linked post is a perfect example of asking questions about fit and expectations correctly). It is also in my experience the part of the interview where most potential employees need to improve. Either they ask no questions or they are not attempting to see if there is a future with the employer/overly focused on compensation.

Based on my experience, if you truly want a place to work where you will be fulfilled professionally and personally, these are some questions to ask (this works better if your interviewer is not from the HR department).

1. “What skills will I learn in this position? Will these skills be learned early on or are they part of a life-long learning experience? If it is part of a life-long learning experience, can you tell me specifically how I will learn this- do you have in-house training or an external training budget?” In other words, after the first 6 months of the job, am I just doing the same thing over and over again?
2. “Walk me through the first 60-90 days of the position. Tell me how you typically incorporate a new employee into your organizations?” In other words, do you have a plan in place to make me part of the team or am I a disposable asset in your mind who you will not devote any time or attention to unless I am doing something wrong?
3. “Without naming names, can you tell me about employees who have succeeded at your organization and why they have succeed? Can you tell me about employees who have not and why they did not fit?” Essentially, you are asking your future employer to tell you about their corporate culture and who thrives and who fails. Remember that employers hire for skill but fire for fit.

These are certain probing questions. Some of you may be reading this and saying “Are you crazy? You want me to ask these questions in this job market?” The practicality of the situation is that some job seekers need the money right now worst than career development. It is entirely understandable to ask questions to get you the position and avoid the hard questions.

However, if you are interviewing from a position of strength or want more than just a mere job, then ask the above diplomatically. It is also worth noting that in positions which require a high degree of skill there continues to be a demand-supply imbalance in favor of the employee (my colleagues continue to grumble they cannot find good lawyers, accountants or mid-level trading management). In my last round of interviewing, the leading candidate asked question #1. It set her apart from all the other candidates since it showed me she was wanted to contribute.

Interviewing is a two-way street, if your potential employer cannot answer these questions then at least you know what you are getting yourself into rather than going in with false expectations. To continue the two-way street analogy, interviewing is dating on a professional basis. You would not want to enter into a long term relationship with someone unless you understanmd the expectations and your meaning to your potential significant other’s life beforehand.

Best of luck.

Larry McDonald raised an interesting question last week: do homeowners need a greater allocation of bonds? The rationale for such an asset allocation is that housing and stocks are similarly affected by the economy and an allocation of bonds would, theoretically speaking, would not be correlated with the return on housing/stocks.

It is an interesting theory. I am not sure there are any right or wrong answers in the abstract since everyone’s situation is unique but a greater allocation of bonds for homeowners is premised on two assumptions, mainly:

1. Does housing have an equity like return? The thought that housing can produce an equity like return is a relatively recent phenomenon.  As Robert Shiller noted, housing appreciation over long periods of time has a return similar to gold; housing hedges against inflation and gives you a few points of return (there are exceptions based on local effects).
2. There is a strong correlation between the equity market and real estate. I am not certain this is necessarily true (readers?). Looking at the period of 2000-2002, Dimensional Fund Advisors found that the return of U.S. Large Stocks was -9.25%, -12.09% and – 22.23% while the return on REITs in that same period was 28.39%, 13.16% and 4.18%. In other words, equity and real estate actually headed in opposite directions (does anyone have any longer term trending? I readily admit this is much too small of a sample size).  I would take this statistic with a grain of salt since REITs are not perfect proxies for the housing market.

We are, by nature, bad historians. If the new normal is a reversion to a pre-1991 (or pre 1979 depending on whether you believe former Federal Reserve Chair Volcker or Greenspan’s policies created  the conditions for historically anomalous returns), housing should be what our parent’s thought it was; a source of shelter and security and a hedge against inflation and not an asset to be flipped and leveraged. In other words, more like bonds than equity.

However, if you believe the new normal looks a lot like the recent past, than homeowners should own more bonds as an effective asset allocation strategy.

Regardless, I would argue that homeowners should concentrate on their cash allocation- the often over-looked asset class- and debt loads. There are many things to be learned from the housing bubble popping in the U.S. One such lesson is that households who held too much debt, too little equity and too little cash were the first to be wiped out.

A recent homeowner with modest investing acumen and who has little equity in their home may be better off with an aggressive mortgage reduction plan rather than thinking about investing in the market. The counter-argument to this approach is that paying down one’s mortgage gives you lower returns in a low interest rate environment than investing in the market.

This argument is true if the homeowner is a relatively successful investor. If they are not, one may be better taking the bird in the hand and paying down the mortgage (the same argument holds true if the investor is still in shell-shock from 2008; you should not force someone to do something they are not psychologically prepared to do regardless of economic considerations).

What constitutes “aggressive” repayment of mortgages is subject to some debate. The general rule is attempt to make at least one more payment than necessary a year to your mortgage.

The more practical consideration is that housing is a cash cow. It sucks up money like crazy. Thankfully, the winter has been mild and foundation leaks and burst pipes have been few and far between. However, anyone who owns a house knows that every so often you basically burn through cash on something or another. Again, especially for older homes, the building of a large emergency fund first may be more a more practical allocation of investable income than to the bonds and stocks (remembering that bonds do carry the risk of being sold for less than face value).

Two further points about building the emergency fund. If you have to sell your house, you have to put some money in making the house presentable which requires cash. If you have to sell your home because you lost your job, where is that cash going to come from (unlike the States, Canadians cannot simply walk away from a house without some personal liability so some TLC has to be put into the home)?

Secondly, if you never use your emergency fund for housing related purposes, you still have it in the event you lose your job.

Having said all of that, one has to be careful how much of an emergency fund to keep since in a low interest rate environment funds kept outside tax sheltered accounts are basically yielding nil to negative return. They key is to find balance between security and being economically rational. The general guide is typically to keep 3-6 months of fixed costs in an emergency fund.