Sep 022015
 

The R Word

Stock markets fell about 5% in August and my assets have dropped in value. Canada is technically in a recession now. :( Oy vey.

But we investors are deep thinkers. For example, if pencils came with erasers at both ends, what would be the point? 😝 So we understand that recessions are necessary for economic growth to be meaningful. The boom and bust cycle is what makes the economy interesting because it creates long-term opportunities to those who are prepared. Besides, why is a recession so bad anyway? It makes the cost of living less expensive, which is good if you’re a consumer. 😀

*Side Income:

  • Part-Time Work = $800
  • Dividends = $500
*Discretionary Spending:
  • Fun = $400
  • Debt Interest = $1400

*Net Worth: (MoM)15-08-networth-chart

  • Assets: = $898,700 total (-4900)
  • Cash = $3,000 (-500)
  • Stocks CDN =$88,800 (-3700)
  • Stocks US = $65,500 (-5300)
  • RRSP = $56,400 (+4600)
  • MICs = $15,000
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $504,700 total (-2400)
  • Mortgage = $192,600 (-400)
  • Farm Loans = $199,800 (-400)
  • Margin Loan CDN = $28,900 (-1000)
  • Margin Loan US = $27,200 (+500)
  • TD Line of Credit = $25,000  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $3,000 (-600)

*Total Net Worth = $394,000 (-$2,500 / -0.6%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.76 USD

It will be interesting to see how markets perform over the fall. September and October are historically the worst months to be a stock investor, lol. I’m just glad I still have a job, unlike so many people in Alberta right now. 😐

Embracing the Recession

Recession tends to have a negative connotation because people associate it with job losses, falling profits, and high unemployment. But for a large part of the population recessions can be quite beneficial. Retirees and the financially independent should embrace recessions. 😉 They don’t have to worry about losing their jobs since they don’t have any to begin with. High unemployment means fewer of their friends and relatives are working, so they have more opportunities to socialize. With a slowing economy and deteriorating household incomes, there will be less competing buyers. :) Falling profits mean cheaper prices! If you’re in the market to buy a house, low demand means more affordable options.

When the price of food, fuel, housing, and other goods falls it directly benefits everyone because we all have to eat and live somewhere. For the majority of us who are still employed a recession means we can spend less money, and save more for retirement. Personally I’m enjoying the cheap $1.20/L gasoline around here ⛽. I can’t even remember the last time gas was this cheap in Vancouver. 😀

15-09-petroleum-harry-potter

Continue reading »

Aug 302015
 

Sunshine Blogger Award Nomination

I’ve been recently nominated for a blogging award by roadmap2retire. Thanks R2R. :) The person being tagged has to share some information about themselves, based on the questions posed by the person nominating. Let’s begin.

1. Name the top three experiences from your past, that help form who you are today. 

  • In the past I’ve played a handful of online role-playing games like Runescape. You earn money by doing jobs and spend money on food, and weapons to make your character stronger. It taught me the basic principles of economics and the importance of saving up to buy expensive things – useful skills I still use today. 😀 I don’t play them anymore because they are a huge time sink, lol.
  • I started investing in 2009, when the markets were on sale. The S&P 500 stock market index is 140% higher now than in 2009 so it’s hard to lose money investing over this period. I’ve never experienced a bear market before and have no idea how I would react in the middle of one. My lucky timing has given me an unrealistic expectation towards long-term investing.
  • I worked at Safeway making $8.50/hr when I was a teenager. My boss at the time told me he was once in my shoes and worked his way up to become the manager. I learned that it doesn’t matter who you are or where you start from. Anyone can become successful if they try hard enough. This belief gave me the confidence to pursue early retirement and start this blog. If I had continued to work at Safeway I’d probably be a mid-level manager today and earn $60,000 a year.

2. If you have one piece of advice for investors starting out, what would it be?

  1. Have a purpose for your investments so you can find the appropriate assets to put into your portfolio. Investing isn’t scary if you understand what you own, and know why you own it.

3. What was your worst investment so far in your life? How do you avoid making the same mistakes?

I spent $7,000 on university tuition and never even graduated. I enrolled because it’s the socially acceptable thing to do for young adults. I enjoyed the university experience, but the applied sciences program I was in has nothing to do with my career now. Today I practice purposeful financial management. I only spend or invest money if I believe there is a good reason for me to do so, not because everyone else is doing it. 😛

Continue reading »

Aug 272015
 

Comparing Household Incomes from 2006 to 2011

I recently watched a CBC video report that looked at how incomes have changed for different types of households. According to Statistics Canada, during the years between 2006 and 2011, family households saw their incomes increase by 7% on average. :) However, single people have been left behind as their incomes only rose 0.6%. It appears having a stable family with two parents has great financial benefits for everyone involved. These stats measure after-tax income, and is properly adjusted for inflation.

Let’s break down these households even more.

15-08-stable-family-are-more-money-you-better-off-income

So basically single senior men and two-parent families are doing much better now than nine years ago. 😀 Single senior women and single moms didn’t fair too badly either, with 7% and 5% income gains respectively. On the other hand, single women who don’t have children have seen almost no growth to their net incomes. And single men have actually experienced deteriorating incomes from 2006 to 2011, especially if they also happen to be a single dad. Since financial independence is one of my long term goals I think the lesson for me here is try not to become a single dad, lol.

Of course all these numbers are averages and there is always a range of possibilities for personal finance. It’s interesting how this study demonstrates the closing income gap between single women and men. It also suggests that seniors, for the most part, are doing great on their own. When a new baby comes into a family, many changes are necessary. 😎 But it’s worth it because the family will likely be making more money. I wonder what these numbers look like for other countries.

————————————————————————
Random Useless Fact:

“Be more concerned about your character than your reputation. Your character is what you really are, while your reputation is merely what others think of you.”

Aug 242015
 

How to make money in oil regardless of market conditions

Drilling for oil can be such a boring job. 😝 At least it provides a good income, though. But it’s becoming harder these days to find work in the oilfields. A year ago oil was trading at $90/barrel. Today, WTI has fallen below $40/barrel. Canadian crude is selling for even less, at around $30/barrel. Ouch!

15-08-crude-oil-price2015-1-year

Many oil producers are currently operating at a loss because $40/barrel is below their break-even point. It can take many years for oil prices to turn around. The problem is we don’t know exactly when the recovery will happen. If we did, we would probably all be retired right now. :)

15-08-break-even-price-oil-profitable-business

Oil stocks are not doing so hot these days. However, there are other ways to still make money from the oil industry, despite the bleak market conditions. :) One way is to write covered calls. But today I’d like to discuss a different approach.

Since the start of this year, Western Energy Services Corp (WRG), has lost about 23% of its value. It could be worse, considering the price of crude oil has fallen about 27% over the same period. But who knows how much lower WRG shares can fall if the price of oil drops further? Fortunately, this company also issues bonds.

When Stocks Underperform, Look Towards Bonds

So last week I bought $5,000 face value of Western Energy Services bonds, with a 7.875% coupon interest rate, maturing in January 2019. I was able to buy it pretty much at par value, which is nice. :) Even though the company is barely making a profit, it’s still obligated to pay me 7.875% every year. Interest is paid to bond holders before dividends are paid to shareholders. 😁

15-08-western-energy-services-bond-buy

Related Post: What is a bond?

Thanks to the new bond investment my passive income is now $393.75 a year higher. Woohoo! 💰  The yield to maturity for this high yield bond is about 8% a year. This rate of return is safe :) as long as the company doesn’t file for bankruptcy protection before January, 2019. Here are some benefits of buying the bond of this company rather than its stock.

  • The bond pays 8% annual return. The stock only pays a 6.5% annual dividend.
  • Bonds are inherently less risky than stocks.
  • The stock dividend might get cut if the price of oil remains at these low levels. But the bond interest rate does not change.
  • If the company goes bankrupt the stock holders will lose all their money. But the bond holders can liquidate the company’s assets to recoup some of their losses.

Continue reading »

Aug 202015
 

Best Cities In the World

The Economist recently released its new livability scale report. This study compares 140 cities across the world and ranks them based on factors such as political stability, healthcare, safety, and educational resources. Canadian and Australian cities dominated the top 5 spots for having the best koala-ty of life! 😀 Below are the top five cities in the list.

  1. Melbourne, Australia
  2. Vienna, Austria
  3. Vancouver, Canada
  4. Toronto, Canada
  5. Calgary, Canada and Adelaide, Australia

Similarities Between Canada and Australia

This is probably not a big surprise as both countries have a lot in common. We both export boat loads of natural resources. We have low population density and most people live in small to medium sized cities. Our economies are similar as well with national GDP in the $1.5 to $2.0 trillion range.

15-08-australia-canada-economy

Even our currencies are roughly the same in value. $1 CAD currently trades for about $1.04 AUD, lol. The stock market returns between the Canadian TSX Composite index and the Australian S&P All Ordinaries index (XAO) over the past 5 years are practically identical. Both stock markets returned about 18% since August 2010.

15-08-australia-canada-stock-market-comparison-5yrs

I’m not sure if it’s even necessary for Canadians to buy Australian stocks for diversification purposes, and vice-versa, because it might not make any difference in the long run.  😕

Continue reading »