Although my personal goals are to work less rather than more going forward, I realize y’all might see things differently. And since increasing your income is best way to improve your total financial picture, a side hustle often recommended by the powers to be.
There are a million different side hustles you can do. Some of my favorites include reffing sports (free exercise, tubby!), starting up a blogening (a business that scales forever), or renting out some unused space on AirBnb. The beauty of AirBnb is you can expand it by renting additional space rather than tying up your capital owning property.
I even have my own side hustle. I still work a grocery store job 1-2 days a week, mostly for the interaction with people that aren’t my cat. I also (mostly) enjoy the work and the money’s nice too. Getting a discount on groceries is an added bonus.
There’s just one problem with side hustles like mine. There’s a certain amount of commitment that comes with it. The grocery store doesn’t let me come in whenever I want. Kids sports don’t just happen when you show up either. This isn’t a big deal for me, but probably would be for someone with a more traditional full-time job.
The best side hustles are those that allow you to make money at your leisure. Ideally you’d probably also want something that stimulates the mind a bit (I said mind, you prevert) too, but ultimately the goal is making money and having fun doing it at your own speed.
This side hustle delivers. And because it’s slightly technologically advanced I’m calling it a perfect side hustle for 2019.
2019: the year technology finally makes all of your non-sexual dreams come true.
What is it?
Okay, no more teasing. 2019’s best side hustle is flipping crap you find on Facebook.
Facebook’s marketplaces are pretty much the perfect example of inefficient markets, at least in my small town. There are very few interested buyers yet people still insist on selling this stuff locally.
Smartphones are a big one. People upgrade their phones and then want to get a few bucks for the old one. They know getting more money is possible if they sell it on eBay, but they’re too lazy to create an account. Besides, that’ll take weeks to do, and they want their money today, dammit. Or maybe tomorrow. FRIDAY’S TOO LATE. I’LL STARVE BY THEN.
This creates an inefficient market, one you can exploit for monetary gain and possibly the admiration of the opposite sex (results pending on that last part). I regularly see phones that go for $250-$300 on eBay trading hands for $100 on local buy and sell groups.
This is easy money just waiting for you to come along and take.
You’ll have to do a little work to get paid, but not much. Figuring out which phones are stolen is pretty easy. There are things to look for. Or maybe you insist on buying phones with the box included. I dunno. This isn’t hard. Find some small shipping boxes and you’re in business.
Phones aren’t the only thing worth flipping. Video game systems usually sell at a big discount locally too. I’ve seen tablets that can easily be resold for a nice gain. Basically anything small that has decent sales volume on eBay can be flipped profitably. But if your local market is anything like mine, phones will be your bread and butter. It’s amazing how many of them are out there.
(Aside: the only thing more inefficient is Facebook’s used appliance market. I’ve seen perfectly good 5-year-old washers/dryers sell for 5-10% the price of a new one. This is how I’ll replace those appliances when mine crap out)
Feeling lazy? No problem. The phone flipping side hustle doesn’t require any regular hours or any physical labor. All you need is a Facebook account, a scrolling finger (pro tip: use your thumb), and a little initial capital. I guess you need an eBay account and Paypal too, but this shit ain’t hard. Get at it, sparky.
You get to go on these online auctions and do your best Dave Hester impression, bidding this stuff up when you don’t even want it. I can think of few hobbies that allow being an asshole as a fringe benefit.
OOH BABY THAT’S MY CLICKBAITIEST TITLE YET. GOOD HUSTLE.
I’m going to lose about 90% of you after this next sentence, but that’s okay. I never liked any of y’all anyway.
I continue to believe that a disciplined sports better can make money over the long-term. I’m almost tempted to throw $100 at this strategy to see if I could actually do it.
The betting market isn’t concerned with coming up with the correct odds. They want equal action on both sides of the bet. This is how they ensure a steady profit. Essentially, the odds don’t quite add up to 100%. The bookie then takes that gap as their profit. In the gambling world, this is called the vig.
This ensures there will continually be opportunities for smart gamblers to get their bets in at advantageous odds. The bookies are quite okay with this, since they know the average wagerer can’t help himself. He’ll put those winnings back on some dumb long shot in no time.
This is what we’re going to talk about today. I’ve found a unique opportunity that will allow you to make a little money in a very quick period of time. It’s hardly worth it to open up an account for such a thing, of course, but I think it’s fun to look at these inefficiencies. Think of it as a special kind of special situations investing.
We’re going to go away from the sports betting market and enter something a little more predictable — politics.
Many of the top gambling sites will let you bet on the U.S. mid-term elections, which are happening tomorrow. There are potentially all sorts of interesting bets there, but I want to draw your attention to what I think is the biggest slam dunk out there.
We already know Elizabeth Warren is going to win the Massachusetts senate race. According to 538’s prediction model, she has a greater than 99% chance to win her seat. The latest polls have her at about a 55% vote share, while her Republican opponent is in the low 30% range. A 25% lead in the polls is massive.
Warren (or as Donny Trump calls her, Pocahontas) is an extremely popular senator. Her name is often brandied about as a potential Presidential candidate in 2020. She’s also a big name among various groups of progressive voters and her consumer advocacy has earned her praise from people who care about such things. That consumer advocacy is probably when you first heard of her.
Say you wanted to bet on Liz to win her senate seat. Here are the odds you’d get for doing so.
Fun fact: I have to use decimal odds because I still can’t translate what +110 or -4000 actually means. If I was made SUPREME GOD the first thing I’d do is make everyone do things my way.
Aw, come on Nelson. 1.02 odds? That means you’re getting a 2% return on your investment. Yawn.
I’m sure I’m not the only one surprised Italics Man can actually do math.
2% is nothing. I want some better action.
This is exactly why this situation exists. Nobody is excited about winning a whole 2%. The appeal of gambling is to quadruple your money on some obscure long shot. But all you need to do is come up with a few of these slam dunk bets a year and you’re looking at a 10-15% annual return.
Aside: how terrible is the other side of this bet? You’re getting 10-to-1 odds, which implies the Republican challenger has a roughly 10% chance of winning. His actual chance is less than 1%. Anyone who bets this underdog is a maroon. PUT YOUR MONEY AWAY, ITALICS MAN.
Turning to sports
During the last 30 years of March Madness, #1 seeds went 119-1 versus #16 seeds. Yet if you bet on a #1 team to win straight up (that means all they have to do is win the game), you’ll likely get pretty similar odds as our example above.
So if you bet on an event that has a 99.2% chance of happening and you’re getting a 2% payout, your long-term advantage would be 1.2% each time you bet.
There are just a few times a year where you can put your money to work, which is what limits this strategy. And who wants to put more than just beer money on some gambling website, anyway? Even if you found a way to grow your money at 20% annually, it still wouldn’t be worth your time.
Wrapping it up
So despite my confident sounding title, this isn’t a legitimate money making opportunity. It just isn’t worth the pain. The lesson here is to know inefficiencies exist in every market, just waiting for you to exploit.
Because, hey, who should be a better credit risk than yourself? (Immediately defaults)
Here at the ol’ FU machine, we’re all about giving you kids some of the most unusual investing ideas out there. I’ve outlined everything from putting your cash to work lending dirtbags money to buying a storage locker business. And that’s just in the last month. I’ve come up with more odd investment ideas in the past six months than most people do in their lifetimes.
There’s a reason why I do this. Most investment bloggers (and, hell, personal finance bloggers too) do nothing but chronicle their very predictable actions. There’s very little to gain by retracing the beaten path. The real opportunities are in the bushes where nobody is looking. Probably because there are snakes. Or spiders.
At first glance, you may not realize the benefits of something like giving yourself a loan. Why would such a thing be beneficial? You’re literally just taking money from one pocket, charging yourself interest, and then putting less of it back in the other pocket. It seems like action for the sake of action.
But there are actually two very interesting reasons why you’d want to give yourself a loan. Let’s look at each of them.
Starting a company
Every company needs a certain amount of start-up capital.
Most people fund their companies in a very predictable way. They use their own savings as initial capital.
Say you bought a fast food joint for $200,000 and immediately incorporate the thing as its own business. You decide to put in $50,000 of your own money into the company as shareholders equity and lend the corporation the other $150,000.
Most people lend their corporation money interest free because they want the business to succeed. The business then pays back the loan as it can afford it.
But there’s no rule that indicates this loan has to be interest free. In fact you can, in theory, charge yourself all sorts of interest. As long as it’s considered to be the going rate, you’re good to go.
What most people do is research a little and see the rate a bank would charge them to do the same loan. If a bank would charge 6% in a similar situation, you could easily charge your corporation the same amount.
Remember that you’ll have to make this a legit loan. Paperwork will need to be done and the corporation would have to make the designated payments. You can’t just give yourself a loan and have the terms be “I’ll pay back whatever whenever I want.” Do you really want to make your accountant cry?
Give yourself a mortgage
This one is a little more complicated, but it can be lucrative for a very small percentage of the population. It turns out it’s possible to hold your mortgage in your RRSP.
It works something like this. There are all sorts of different investments you can put in your RRSP. It’s not just stocks, bonds, or ETFs, either. It turns out you can totally invest in certain qualified mortgages inside of your RRSP. This is how those private mortgage companies can get away with saying they’re RRSP eligible.
Even though I’m in the private mortgage business I’ve never examined the possibility of holding them inside my RRSP. As far as I can tell they need to be first mortgages only, and they need to be insured by one of the various agencies that do this.
It’s less complicated to hold your own mortgage inside your RRSP, although it’s certainly not easy. Here’s how it works.
- You pay someone to set up the deal for you. Only certain financial institutions will do so and you’ll have to pay CMHC insurance fees.
- You have to make sure that you have enough contribution room to pay for the whole house, not just the part mortgaged.
- The interest rate you give yourself must be competitive with comparable mortgages. I’m thinking you’d pretty much be locked into giving yourself a loan at 4.64% which is sure better than a GIC but could easily be beaten by stocks.
I’ve pretty much only touched on the basics. There are a number of companies that will do this for you. Do some Googling and talk to one of them before you get started. I’m not getting too involved in this because, frankly, I think it’s kind of dumb.
This is the end
It’s not that hard to give yourself a loan if you’ve got a corporation. There are a number of advantages for self-employed people to incorporate, as I outlined in this post. Getting a little interest from your own corporation is another, but you could argue that doing so is just shuffling money from one pocket to the other.
Ultimately, I won’t spend much time doing this, but it could very well make sense in certain situations. Your accountant can probably help out with this more than I can.
Many people are dividend growth investors for one big reason. They want those dividends to fund their retirement. And because all the cooooooool kids are doing it.
There are a number of reasons why this makes a ton of sense. People like the idea of spending the dividends while the capital base stays intact. One stock can always cut its dividend, but a portfolio of 30 or 50 names is pretty secure. And there are many tax advantages to limiting retirement income to dividends.
But there are also disadvantages to such a strategy. Having a portfolio of 100% stocks during retirement is risky as all hell. Most of North America’s premier dividend growers are pretty overvalued today too, suggesting they won’t do as well in the next 30 years as they did in the previous 30. And with rates so low, dividend yields kinda suck.
Instead, let me talk about a better solution.
Enter the preferred share
Preferred shares are kind of like Donny and Marie Osmond. They’re a little bit stock and a little bit bond.
Here’s how they work. A company needs cash, so they issue a preferred share. This share pays dividends, but tends to act more like debt than equity. As long as the market is convinced the underlying company can afford the dividend, they’re fine.
Preferred shares are between equity and debt on the corporate hierarchy. So if the company does run into trouble and suspends the dividend on its common shares, the preferred shareholder still gets paid. And if preferred share dividends get suspended, the company is basically bankrupt.
There are two types of preferred shares. There are perpetual preferreds, which don’t really have an expiry date. The company has the right to redeem them on a certain date at a certain price–usually par, which is $25 per share most of the time–but not the obligation to do so. There are preferred shares still floating about that have been around for 20 years. Or more. They’re like your kid who won’t leave your damn basement until they hit 35.
The other kind of preferred share is the rate reset version, which pays a fixed interest rate for five years. It then resets to a new rate, which is usually based on the Government of Canada five-year bond rate. The new rate might be the bond rate plus 2% or 3% or whatever. It depends on the credit worthiness of the company issuing the preferred in the first place.
There are many more complex details about preferred shares that we don’t need to get into right now. The point is this. If you’re looking to build an income stream using these things, you’ll want to stick with the perpetual ones.
Now the income part
Here are a few examples of perpetual preferred shares along with their yields.
- George Weston (TSX:WN.PR.E) — 5.3%
- Power Corporation (TSX:POW.PR.A) — 5.6%
- Power Financial (TSX:PWF.PR.E) — 5.5%
- Bombardier (TSX:BBD.PR.C) — 9.8%
- Bank of Nova Scotia (TSX:BNS.PR.O) — 5.5%
- Canadian Utilities (TSX:CU.PR.D) — 5.4%
- E-L Financial (TSX:ELF.PR.F) — 5.5%
- Enbridge (TSX:ENB.PR.A) — 5.5%
- Investors Group (TSX:IGM.PR.B) — 5.9%
And so on. There are a million of these things. There are even more if you want to get a little frisky and include the floating rate ones.
With the exception of Bombardier, you’ve probably seen a pattern emerge. Most preferred shares in Canada yield between 5.5% and 6%, with most on the bottom end of the spectrum. They’re also much more boring. Take a look at the difference between George Weston common shares and the preferred shares.
You might look at this chart and wonder why you’d ever own the preferred shares. Look how well the common shares did!
But the preferred shares are a whole different ball game. They’re supposed to not do much. They’re designed to protect principal, not go up.
Or buy an ETF
There are two preferred share ETFs in Canada and a few more in the U.S. The big one in Canada is the Claymore Preferred Share ETF (TSX:CPD) which has a combination of perpetual preferreds and rate-reset preferreds in it. It yields 5% on the nose.
BMO offers a laddered preferred share ETF (TSX:ZPR), which aims to limit the risk of the rate reset preferreds resetting. It has equal numbers of shares that reset in year one, year two, etc. It yields 5.05%.
What about interest rate risk?
There are two things that will cause a preferred share to crater. Either the underlying company goes all to crap or interest rates start rising.
That’s the big risk in a preferred share strategy. When rates increase, investors can get higher yields from new products. So existing preferred shares go down to compensate, boosting the yield higher.
Perpetual preferred shares are the most exposed of all to such a move. Rate-reset preferreds have interest rate protection built in. Perpetuals don’t.
There are two ways to protect yourself from interest rate risk.
The first is to commit to holding any preferred shares over the long-term no matter what the underlying price does. Remember, it’s only a loss if you sell.
You can also help protect yourself by reinvesting some of your dividends back into higher yielding shares. It’ll pale in comparison to the original investment, but at least it’s something.
Preferred shares are a way for retirees to get a nice income while taking advantage of the dividend tax credit. They’re also much less volatile than regular ol’ common shares.
They’re also a decent way for younger investors to get income too. Preferred shares will never be as safe as a GIC, but they’re boring enough that I’d consider them a very decent fixed income alternative. I own a bunch of them that very quietly churn out some very predictable cash flows. You should too.
Disclosure: Nelson owns George Weston, EL Financial, and Enbridge preferred shares.
If you believe the personal finance blog-o-net, the side hustle is the greatest thing since sliced bread. Do you know how people ate bread before they sliced it? IN CHUNKS LIKE A BUNCH OF G.D. CANNIBALS.
This seems like a good time to segue into some posts I wrote about side hustles, including 10 you can totally do and some overrated ones that you should avoid. The ones you should avoid is actually funny! Really! What, you don’t believe exclamation points!?
I’m generally in favor of the side hustle. Most people squander their leisure time anyway, and fun hobbies are expensive. Have you gone golfing lately? They literally tip you upside down and collect all the money that falls out.
But at the same time, I think people need to be smarter about what they decide to do on the side.
An overrated side hustle
I have two friends who ref sports on evenings and weekends.
One makes less than $20 per hour at his day job, the other makes at least $30 per hour and likely close to $40 per hour, depending on how many hours he works. He definitely works more than the first guy, anyway.
And yet both are driving around the country on weekends, reffing sports for $20 to $25 per hour.
The first guy should be reffing all day long. If he’s willing to exchange his time at $17 per hour at work, then $25 per hour reffing is great. Hell, reffing should almost get priority.
But how about the other guy? What’s the thought process there?
The answer is pretty simple. He likes to get yelled at by teenagers and overzealous coaches, for some reason. He’s a sports nut, and getting paid to watch sports is a good time for him. Excluding all the yelling, anyway.
And so that’s fine. There’s nothing wrong with doing something you enjoy and getting paid for it, provided you don’t piss off the $40 per hour boss.
If we look at it from a purely economic perspective though, a different picture starts to emerge. Instead of exchanging his time for $20 or $25 per hour, he should really be looking for ways to make more money at his day job. Evening and weekend hours are precious. They should be exchanged for more money, not less.
One of the reasons why we love side hustles is because they allow us to diversify our income. I’m a big fan of multiple revenue streams. That’s why I invest every spare nickel I can into cash-producing investments. I heart me some cash flow baby.
But just because diversity is important it doesn’t mean it’s the only thing.
Damn near every job has the potential to take on additional work for extra money. Overtime is very much a thing. And even if your job doesn’t offer it, there are still ways to leverage your professional knowledge into getting paid the most for a side hustle.
Overtime at work is paid at a higher rate than your normal wage. Employers get that extra hours should be paid more. Why shouldn’t regular folks demand the same for their side hustle?
Having another income source is great on the off chance you get fired from your job. But it’s super easy to create your own passive income stream by making bank working overtime at your day job and investing the proceeds.
Let’s wrap it up
Ultimately, it comes down to this. Your time has value. If it didn’t, you’d exchange it for 2-for-1 coupons at the Golden Corral. Actually, I’ve done that before. Bad example.
I realize there are often non-economic reasons for people doing what they do. Side hustles fall into that category more often than not. They’re fun, in other words. I know I felt that way about writing stuff.
But that doesn’t give people a pass on analyzing the economic viability of their favorite side hustle. Often, the best way to exchange your time for more money is by taking overtime at work or leveraging your professional skills. It’s not in doing something completely different. Remember that before taking that evenings and weekends job.