Apr 152019
 

Actionable Advice – From Rags to Riches

I recently came across Quora contributor Kevin Yue’s response about the best financial advice he had ever received. The surprising answer comes from his dad, who escaped to the U.S. as a broke, war refugee. Over time Kevin’s dad turned his life around and eventually became part of the top 1% richest in the country. So here are some of his financial rules.

1. When making a purchase ask questions from an investment point of view instead of one based on consumption

There are financial ramifications to every spending decision. If you buy that new laptop, will you also need a case for it? What about extended warranty? If you buy that car, will you need to buy premium gasoline every time you fuel up? Will the vehicle hold its value well over the next 5 years? If you buy a house, how will that impact your taxes or gas bill? Will your maintenance and repair costs go up over time?

What is the potential for land appreciation in that neighborhood? The point is just because you buy something once doesn’t mean it will only cost you once.

Kevin warns that people usually ask all the wrong questions when they shop. For example, “when buying a new pair of shoes, do not ask how good they look or what brand they are. Instead, ask how long will they last, and in what kind of weather, and what the warranty is. If you get a good pair of warm waterproof boots with a lifetime warranty, they could literally be the last pair of boots you’ll ever buy. It is much better to buy a $400 winter jacket which will last you 20 years than a $200 one which will last you 6.” And both of those options will be better than the $800 jacket that will be out of fashion in 2 years.

2. A dollar saved is $20 earned

$1 invested will become $20 in 40 years.  “This is the magic of compound interest,” Kevin explains. “In practical terms, it means that your go-to option should always be to tighten your belt. Put away some money every week, and it will eventually pay itself back 20 times over.”

3. Never lose money for free

“Paying extra tax is losing money for free. Never pay your credit card late. Late fees are losing money for free. Paying interest is losing money for free. Always comparison shop. Why pay more for the same product? That’s losing money for free. Turn off your heat when you leave the house. Leaving the heat running is losing money for free.” Kevin’s dad used to turn off the heat entirely, but left his apartment door wide open to steal heat from the hallway.

Although going into debt is generally not advised, “there are some occasions when borrowing money is not losing it for free.” For instance, investment loans, HELOCs, and mortgages in the U.S. can be tax-deductible. “In these cases, sit down with a calculator. Doing the math wrong (or worse, not doing it at all) is losing money for free.” Another thought is to not leave any money on the table when negotiating.

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Apr 022019
 

Getting out of 21st Century Fox 

Five years ago I wrote about purchasing 26 FOXA shares for $34 USD each. At that time the stock was trading at 20 times earnings, so it wasn’t exactly cheap. However I saw great potential in this company because it had a lot of popular brands and intellectual properties. I had planned to hold this stock for decades. But I didn’t have to.

Fox shareholders approved the acquisition by Disney, and last month I was forced to sell all my FOXA stocks for $1,843 CAD. That’s a tidy 83% return on investment, before even adding on the dividend income I received over the years. 🙂 Plus, there’s no capital gains tax because it was held in my RRSP. Yay!

Overall March has been a really positive month for my finances. All my liquid assets went up in price.

Liquid’s Financial Update

*Side Incomes: = $3,300

  • Part time job =$700
  • Freelance = $600
  • Dividends =$1200
  • Interest = $800

*Discretionary Spending: = $2,400

  • Food = $300
  • Miscellaneous = $700
  • Interest expense = $1400

*Net Worth: (ΔMoM)

  • Total Assets: = $1,340,100 (+8,200)
  • Cash = $12,200 (+1000)
  • Canadian stocks = $171,400 (+800)
  • U.S. stocks = $124,600 (+4000)
  • U.K. stocks = $21,700 (+900)
  • Retirement = $128,800 (+1000)
  • Mortgage Funds = $34,900 (+200)
  • P2P Lending = $34,500 (+300)
  • Home = $367,000 (assessed land value)
  • Farms = $445,000
  • Total Debts: = $411,000 (-900)
  • Mortgage = $188,800 (-300)
  • Farm Loans = $178,600 (-500)
  • Margin Loans = $43,600 (-100)

*Total Net Worth = $929,100 (+$9,100 / +1.0%)
All numbers are in $CDN at 0.75/USD

 

Preparing for Interest Rates to Drop

It’s been several years since the Bank of Canada lowered interest rates. The last cut was in 2015. Central banks around the world dropped rates near zero as a reaction to the global finance crisis in 2008 and rates have been low since. Policy makers expected the economy and rates to rebound back to normal in short order. But they discovered an inconvenient truth to the markets; low interest rates are addictive. Once consumers get a taste of easy credit, it’s very difficult for them to pull back.

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Mar 122019
 

Lending Loop Update

I’ve been investing with Lending Loop for over 2 years now. My first year in 2017 was better than expected, ending with a 10% return net of expenses. I was only expecting an 8% return. In today’s post I’ll dive into my 2018 performance with Lending Loop and also explain how the site has changed over the last year.

 

Liquid’s 2018 Portfolio Performance (11% return)

My 2018 average loan interest rate after fees was 12.7%. A loan write-off shaved away 0.7%. And a bunch of delayed payments costed me another 1%. Which means my actual net return came out to be 11%, or $3,369. Score! 😀 I started 2018 with $30,400 in my account, and the end of year balance grew to $33,700.

Here is my 2018 earnings statement.

Income

  • Interest earned   $3,968
  • Servicing fees       -$421
  • Bonuses                    $25
  • —————————-
  • Total earnings    $3,572

Loan Losses

  • Principal defaulted    $204
  • Principal recovered       -$1
  • —————————
  • Total charged-off       $203

Unfortunately I did have one loan write-off in 2018. But it was a relatively small loss of $203. The borrower, a street sweeping business, owed significantly more taxes to the CRA than the value of its assets. The CRA would naturally have priority over other creditors in any bankruptcy or insolvency proceedings. This was the first loan write off in my portfolio, but it likely won’t be the last.

 

Portfolio at a Glance

Here are some quick stats about my Lending Loop portfolio.

  • I have made 87 loans in total over 25 months.
    • 18 of those loans have been paid off in full. Hurray!
    • 1 has defaulted, and I lost 81% or ($203) of my principal on this loan.
    • 68 loans remain ongoing for now. 60 of these have no major problems, but 8 are either delinquent or in default.

As of this week in March 2019, I’ve made a lifetime earnings of $6,300 from Lending Loop. 🙂

As with dividend or real estate investing, having patience is a key element to the fixed income game. Due to compound interest, my total lifetime earnings should hit $10,000 by this time next year, assuming portfolio performance remains consistent. 🙂

In terms of what types of loan I hold, they’re mainly B and C+ grades, which has an expected yield range of 10% to 13% after fees. This mixture hasn’t changed much for me over time. Most of the loans I participate in have a 3 to 4 year term.

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Mar 042019
 

Slowing Economy and Rising Insolvencies

It was a pretty good month for stocks. The Dow Jones actually gained 11% during the first 2 months of 2019, its best 2 months in a decade. 🙂

But not everything is looking positive. Bond yields have been falling since December, suggesting slower growth. And the number of Canadians who filed for insolvency rose dramatically last year due to higher interest rates and mounting household debt. 🙁 The Bank of Canada governor Stephen Poloz has stopped hiking rates since October of last year to give debtors some breathing space. But it may already be too late. According to the Office of the Superintendent of Bankruptcy, 125,266 Canadians became legally insolvent in 2018, the second highest number since 2011. The Canadian Association of Insolvency and Restructuring Professionals (CAIRP), which represents 90% of Canada’s licensed insolvency trustees, said Canadian bankruptcies are set to spike in 2019. It appears that some people weren’t aware that there is always a lag between interest rate changes and the impact on household finances.

Overall February was a pretty good month for myself, with an above average net worth increase. This was mostly due to the strength in the financial markets. 🙂

Liquid’s Financial Update

*Side Incomes: = $3,200

  • Part time job =$1200
  • Freelance = $500
  • Dividends =$1000
  • Interest = $500

*Discretionary Spending: = $2,300

  • Food = $300
  • Miscellaneous = $600
  • Interest expense = $1400

*Net Worth: (ΔMoM)

  • Assets: = $1,331,900 total (+10,600)
  • Cash = $11,200 (-600)
  • Canadian stocks = $170,600 (+4400)
  • U.S. stocks = $120,600 (+3700)
  • U.K. stocks = $20,800 (+200)
  • Retirement = $127,800 (+2500)
  • Mortgage Funds = $34,700 (+100)
  • P2P Lending = $34,200 (+300)
  • Home = $367,000 (2019 assessed land value)
  • Farms = $445,000
  • Debts: = $411,900 total (-5600)
  • Mortgage = $189,100 (-400)
  • Farm Loans = $179,100 (-500)
  • Margin Loans = $43,700 (-4700)

*Total Net Worth = $920,000 (+$16,200 / +1.8%)
All numbers are in $CDN at 0.75/USD

The higher cost of debt has personally increased my monthly interest payments. 🙁 However, it has also increased my interest income from certain investments. Hurray for interest rate hedging. 🙂 For example, below is a part of an email I received last week from one of the private mortgage funds I’m invested in.

As interest rates increase and loan losses remain historically low our top-up dividend was growing close to 1%. We are expecting the rate of return to shareholders for the year ending June 30th 2019 to be higher than last year.” – Portfolio Manager of Antrim MIC

I made a lump sum payment towards my margin account to pay down some of my margin loan. I would like to get my total debt balance to below $400,000 by the summer. This is to prepare for future rate hikes that could be coming later this year.

 

__________________________________
Random Useless Fact:

It looks like someone used a black marker to draw glasses on the left kid’s face.

Feb 212019
 

Hundreds of millions gone missing affecting 115,000 clients

The country’s most widely used crytocurrency trading platform, QuadrigaCX, recently filed for creditor protection as it had lost access to nearly $200 million in Bitcoin and other cryptocurrencies. Altogether including Canadian cash, the company owes $250 million in assets to its 115,000 customers. Jeebus! 😮

According to statements from his family last month, Quadriga’s 30 year old CEO, Gerry Cotton allegedly died suddenly in December due to complications of Crohn’s disease while traveling in India. Cotten’s wife, Jennifer Robertson, claims her husband was the only person with access to the company’s cold wallets. Cold wallets are similar to savings accounts, used for storing and accumulating currency. On the other hand hot wallets are like checking accounts, used for frequent transactions. People who hold cryptocurrencies often have both. Hot wallets are connected to the internet and are used to facilitate transactions. Quadriga has some of its clients money in hot wallets for liquidity purposes, like when someone wants to withdraw funds. But it keeps most of the assets offline in cold storage, to avoid hacking.

This is roughly how QuadrigaCX's wallets operate.

Cotten basically ran the exchange on his encrypted laptop. He was the sole person responsible for transactions between the company’s hot and cold wallets. And apparently only he knew the passwords and recovery keys to access the cold wallets.

Court documents revealed the company had been recently facing liquidity problems. The website went offline at the end of January and clients can no longer log in to their accounts. Currently the only content on the site quadrigacx.com is a letter from the company.

Unfortunately any attempts at trying to access Cotten’s laptop to retrieve the keys to the wallets haven’t been successful. But in the latest twist of this unusual story, last week Ernst and Young (EY), the monitor of the QuadrigaCX case, stated that an additional sum of Bitcoin had disappeared from the company. This is because QuadrigaCX “inadvertently” transferred $468,675 worth of Bitcoin to cold wallets controlled by CEO Gerald Cotten, who is supposed to be dead.

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