May 052016
 

The Pessimism in the Markets

Corporate profits have been disappointing lately. Apple (AAPL) recently said its revenue fell for the first time in 13 years due to a decline in iPhone sales compared to the same time last year. Apple shares are worth 26% less now than a year ago. Investors are warned the decline could continue. 🙁 Other publicly traded companies are experiencing similar challenges. Top line growth is slowing down, and its becoming harder to maintain profitability levels.

A recent article on Bloomberg.com suggests that future investment returns for millennials will be lower than prior years. It cites a study by consulting firm, McKinsey & Co, which proposes that “the forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing.” So maybe it’s time for investors to lower our expectations. 😕

Lower Investment Returns for Millennials

The last 30 years was actually a bit of an anomaly because on average we’ve had a couple of percentage points better annual returns when compared to the past 100 years in general. Falling inflation rate has helped drive real returns, and bond prices increased substantially as interest rates fell for the last couple of decades. 🙂 But going forward we may face secular stagnation and a lack of economic growth due to an older population. Let’s take a look at the study’s findings, and future return estimates.

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Regarding U.S. equities for the time being, it appears growth in the following 20 years will be 1.4% to 3.9% lower than in the past 30 years. The director of the study, Richard Dobbs, warns that the people who will lose out the most are the millennials. Oh no. That’s me! 😱 It appears we’ll have to either work longer or find other ways to put more money in our retirement accounts. The alternative is to retire poorer and live off government cheese, which is actually a luxury in Canada considering the expensive tariffs we have on dairy products, haha. 😀

Preparing for the Next 20 Years

So here are a few of things I’m doing to deal with all this information. They may not work for you, but I will share anyway.

First, the most important thing is to lower the cost of investing. This is even more crucial if market returns will underperform in the future. Using the numbers from the graph above, the average return on U.S. equities over the last 30 years was 7.9%. So if our management fee and other combined costs were 1%, then our actual return would be 6.9% after fees. The 1% fee would effectively eat away 13% of our actual market return.

But the “slow-growth scenario” claims that over the next 20 year period the annual return of U.S. equities will be only 4%. If we still pay the same 1% portfolio fee as before, then this cost will eat away 25% of our future annual return, nearly twice as high in percentage proportion to a 7.9% market return. Bummer. 🙁

So how can we lower pesky fees and reduce the overall cost of investing? It’s simple. 🙂

How do we reduce the long term costs of plumbing? We learn some basic DIY plumbing skills. How do we reduce the cost of food? We learn to cook and meal plan. 🍗 How do we reduce the cost of car repairs? We learn some basic knowledge about car maintenance like how to check the tire pressure, change the oil and air filter, etc. We can reduce the cost of any aspect of our lives by simply educating ourselves on the subject. 😉

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So if we want to lower our investment fees, we just have to better understand how to invest and manage our own money. With the advent of ETFs and robo-advisors, I hope everyone reading this blog is paying less than 1% management fee on their portfolio.

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May 022016
 

My net worth increased $64,000 so far in 2016 

Goodness gracious me! 😀 That’s even more than my annual gross salary. Maybe I should quit my full time job already. Haha. 😜

But here’s the caveat. My net worth is measured in dollars. So I’m only becoming richer relative to the local currency. But as we shall discuss below, currency depreciation can be a real PITA. 😛 Policy makers from around the world are covertly initiating inflation to see which country can print the most money to improve their economy’s competitiveness. But by doing so, the devastating knock-on affects will financially destroy millions of lives in the years to come. 😱

Higher Living Expenses in 2016

If you’ve purchased car tires before you are probably familiar with inflationary pressures. 😆 Inflation has been fairly high in 2016 so far. The government won’t admit it for political reasons, but regular folks like you and I have most certainly felt the effects of rising expenses in our wallets. Over the last year nearly all types of spending in Canada have become more expensive.

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Crude oil was trading at US $35 per barrel when the year started, but now it’s just over $45, a 29% increase. Coincidentally the price of silver bullion has also increased by 29% over the same 4 month period. The price of oil affects the price of many consumers goods, not the least of which is food, due to transportation costs. And since we use silver in photography, x-rays, solar panels, mirrors, cars, medicine, smart phones, and other consumer electronics, we can expect higher costs in these related fields moving forward.

Then there’s the largest monthly expense for most people – housing. 🏠 The most recent S&P/Case Shiller index shows that U.S. home prices in February grew 5.3% year over year. I don’t even have to mention how crazy hot the Canadian real estate market has been lately. 😛 CREA forecasts the national average price this year will probably increase by 8%.

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So house it going on the west coast? you might ask. Well let’s just say February was a record-shattering month for home sales in British Columbia, with a 45% increase in volume compared to a year ago.

How Investors Hedge Against Inflation

A few years ago I wrote a post detailing how prices of different goods increased 100% to 200% between 1990 and 2010. But if we were to store our net worth 20 years ago in real tangible assets such as oil, land, fixed properties, silver, and profitable businesses, instead of simply holding on to money or “savings,” then we could keep all of our purchasing power.

The reality is that life doesn’t cost more over time. In the 1990s if we needed fuel, we could buy 2 or 3 barrels of oil with 1 ounce of silver. Today in 2016, we can still pretty much do the same thing. On the other hand, buying oil with dollars would cost us 150% more today than in 1990. In other words, the costs of time, labor, skills, commodities, goods and services, which are all things that have intrinsic value, tend to stay fairly constant across multiple generations for the most part. But it’s the currency that is usually the clear outlier and it tends to lose value over any extended period of time.

One way we can hedge against inflation is through investing. Here are some choices that I’ve made in the past that have made 2016 one of my best years so far!

  • Buying precious metals stocks: I own metal mining stocks such as Goldcorp (G) and Silver Wheaton (SLW) which have outperformed the general stock market recently. But I’m in no way a good stock picker. 😛 The Market Vectors Gold Miners ETF (GDX) on the NYSE is an index fund that tracks the performance of global gold mining firms that are publicly listed in the U.S. This ETF has climbed 88% year to date! 😲 So anyone who holds a basket of gold/silver stocks or owns this GDX fund should be dancing on cloud nine right about now. 🙂
  • Buying physical commodities: I occasionally purchase silver and gold directly from the Royal Canadian Mint and bullion exchanges. For example, about half a year ago I bought a 100 oz silver bar which has appreciated in value since then. 🙂 I also practice earning silver wages, which basically means I make a portion of my money in silver to diversify my income. I’m not suggesting everyone should go out and do this too. I’m just saying from my personal experience this has been profitable for me.
  • Buying farmland: My down payment was less than 15% so this amplifies my return on investment by many folds. Canadian farmland prices have grown on average by 10% last year, which boosted my net worth by more than $30,000 as I’ve explained last month.
  • Buying real estate: I purchased a condo here in Vancouver when many people warned of a real estate bubble. Maybe they’re right, maybe they’re wrong. All I know is Vancouver condos have increased in price by 10% over the last year, adding over $25,000 to the market price of my property.

As we can see all these investments represent real, tangible assets that have economic value, and therefore do not suffer at the hands of inflation. Everyone wants to know the secret to investing. But it’s really quite simple. All we have to do is look at historical patterns in the economy and apply common sense. 🙂 Piece of cake, right? 🍰

Liquid’s Net Worth Update

My investment income is really starting to grow now thanks to 7 years of compounding. I received $360 in interest payments in April between my Air Canada bonds and Antrim MIC. Plus I made $720 in dividend income from my stock portfolio. That’s nearly $1,100 of passive income that I made without any effort. 🙂

*Side Incomes:

  • Part-Time = $800
  • Freelance = $700
  • Dividends = $700
  • Interest = $400
*Discretionary Spending:
  • Fun = $300
  • Debt Interest = $1300

*Net Worth: (MoM)16-04-stock-fiscal-update-networth

  • Assets: = $971,900 total (+23,900)
  • Cash = $5,200 (+2700)
  • Stocks CDN =$113,900 (+3800)
  • Stocks US = $65,600 (-3800)
  • RRSP = $68,100 (-1000)
  • Mortgage Funds = $23,100 (+200)
  • Home = $263,000
  • Farms = $433,000 (+22,000)
  • Debts: = $487,500 total (-2,800)
  • Mortgage = $189,200 (-400)
  • Farm Loans = $195,900 (-500)
  • Margin Loan CDN = $28,300 (-100)
  • Margin Loan US = $24,500 (-1400)
  • TD Line of Credit = $20,600  (-400)
  • CIBC Line of Credit = $11,000
  • HELOC = $18,000

*Total Net Worth = $484,400 (+$26,700 / +5.83%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.79 USD

Stocks were pretty much flat in April. But my net worth increased by over $26,000 mostly due to the updated farmland value. The most recent FCC assessment report shows Saskatchewan farmland value rose 9.4% in 2015. The average inflation rate (CPI) in Canada in 2015 was about 1.4%. To be on the conservative side, I have adjusted the farmland value on my net worth statement by taking the average of these two figures, which is 5.4%, or an increase of about $22,000.

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Apr 282016
 

A 50 Dollar Lesson in Personal Responsibility

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I’d like to share this joke I found on tumblr.

I recently asked my friend’s little girl what she wanted to be when she grows up. She said she wanted to be President some day. Both of her parents are liberal Democrats who support Bernie Sanders. They were standing there beside her.

So then I asked the little girl, ‘If you were President, what would be the first thing you would do?’

She replied, ‘I’d give food and houses to all the homeless people.’

Her parents beamed with pride.😁

‘Wow…what a worthy goal.’ I told her. ‘But you don’t have to wait until you’re President to do that. You can come over to my house and mow the lawn, pull weeds, and sweep my yard, and I’ll pay you $50. Then I’ll take you over to the grocery store where the homeless guy hangs out, and you can give him the $50 to use toward food and a new house.’

She thought that over for a few seconds, then she looked me straight in the eye and asked, ‘Why doesn’t the homeless guy come over and do the work, and you can just pay him the $50 directly?’

I said, ‘Welcome to the Republican Party.’ 😛

Her parents still aren’t speaking to me.

The point of this allegory is clear; There’s an untapped market of homeless people who could be doing yard work & making $$$ 🙂

It also addresses the hapless reality of economic inequality even in developed countries. If we want the poor to succeed we need to give them the opportunity to pursue their own dreams instead of enabling them to continue living in poverty. Government run redistribution programs are part of the problem. Giving money to the homeless without any strings attached robs them of their dignity, economic potential, and the chance to develop the internal motivation to succeed. Besides, the government doesn’t have money in the first place so when it gives money to the poor it has to take that money from somewhere else.

Some children think that their parents are all no-ing. 😆 Even so, we understand it’s wrong and destructive for parents to do their children’s homework. It undermines their children’s intelligence, sets them up for failure in life, and is not fair to other students. We also understand it’s wrong to feed fauna at the local park.

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It’s hard to say no to a begging squirrel, but we resist the urge to feed it because we don’t want it to be dependent on our generosity. We don’t want to rob these hungry creatures of their ability to be self reliant. So I think we should help the homeless through education rather than simply giving them free money with no obligations.

The ultimate freedom in life comes from being able to internalize personal goals that give us meaning and purpose. 😀

If we are kind enough to offer these gifts of self-discovery, personal accomplishment, and self worth to children and animals, then I think we ought to extend this same offer to financially unfortunate people as well. 🙂

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Random Useless Fact:

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Apr 252016
 

How to Think About Retirement Planning

Some people are reluctant to accept change, especially cashiers because nobody likes to count nickels and dimes. 😂 But the world is constantly changing and the retirements of generation Y will look very different than generation X. The trend towards a gig economy has only just begun. In the private sector less people are working 40 years at one company, and more are doing contract work, starting side hustles, and becoming self employed. According to Intuit, in just 4 years from now up to 40% of American workers could be independent contractors. Wow, what other changes will we see in 4 years? I don’t know, because I don’t have 2020 vision.😆

So as we adapt to changing economic strategies, by growing our income streams for example, our retirement plans must also reflect this new world of mobile apps, and short-term work that is long on flexibility, but short on benefits. When it comes to making smart retirement decisions today we should separate the things we can control, from the things we cannot.

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We start by thinking about the factors that we have full control over, such as how much we need to save (and therefore, spend) in order to meet our long term goals. For example, I want to reach financial independence by age 35, which means I need to save about 1/3rd of my income right now. Although diet and exercise habits aren’t directly related to personal finance, they’re extremely relevant in the big picture because healthcare can be a major cost, especially for Americans, when we reach retirement age.

According to the National Council on Aging, about 92% of older adults have at least one chronic disease. Jeez Louise! 😱 Chronic diseases account for 75% of the money America spends on health care. Diabetes alone affects 23% of Americans over the age of 60. According to Statistics Canada, more than half of all Canadian adults are overweight or obese. 🙁 Although certain aspects of our health revolves around genetics, we also rely heavily on epigenetics, and the idiosyncratic personal choices we make today to determine how we live our golden years. Just like with a motor vehicle, proper maintenance can extend our life expectancy, and keep the repair costs down in the long run. This way we can save our money and spend it on meaningful experiences rather than on medication and treatments. 🙂

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Apr 212016
 
cooking steak with Liquid

If you have a beef with inflation, you’re not alone. It’s becoming frustratingly hard these days to shop for food on a budget. But there is no reason to get ourselves in a stew about it. Oh wait. Maybe there is. 😉 Welcome to another fun edition of cooking with Liquid! 😀

One of the most delicious yet affordable meats to buy is beef made for stewing. It could come from the shank, blade roast, or a number of other cheap cuts for $14/kg or less at your local supermarket. Today we’ll be making a simple beef stew that will make 2 servings from roughly $3 worth of ingredients. Let’s get started. 🙂

 

Beef Stew Recipe for $3

Ingredients:

  • 1 cup (150 grams) each of cubed beef, potatoes, and carrots
  • 2 cups water
  • 2 tsp salt
  • 2 Tbsp ketchup

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Cooking Instructions:

  1. Put all the ingredients together in a pot and mix well.
  2. Simmer on medium-low heat for 1 hour with the lid on, stirring once halfway through.

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