May 062019
 

Another Strong Month for Stocks

The age of monetary tightening is on pause, at least for now. Central banks have pumped the brakes on increasing interest rates. This has been great for the U.S. and Canadian stock markets, which have both hit new highs in April. But does that mean it’s time to sell and take profits?

Probably not. It’s really hard to predict market movements, and record high stock prices can continue to climb higher before starting to fall. So I’ve opted to go for another strategy; Park some savings in bonds and wait for a better opportunity to jump into stocks again. 🙂

So at the end of last month I used about $25K of my cash savings in my RRSP to purchase 1500 units of BMO Mid Corporate Bond Index ETF (ZCM.)

It has a 3.2% yield, so I shall be earning an additional $67/month of investment income going forward. Not a big change, but better than nothing. 😀 The cash in my RRSP to make this investment came from my old work pension. I transferred the money to my personal retirement account after I was let go.

Liquid’s Financial Update

*Side Incomes: = $2,800

  • Part time job =$700
  • Freelance = $500
  • Dividends =$800
  • Interest = $800

*Discretionary Spending: = $2,300

  • Food = $400
  • Miscellaneous = $500
  • Interest expense = $1400

*Net Worth: (ΔMoM)

  • Total Assets: = $1,353,200 (+13,100)
  • Cash = $11,400 (-800)
  • Canadian stocks = $175,000 (+3600)
  • U.S. stocks = $131,800 (+7200)
  • U.K. stocks = $22,500 (+800)
  • Retirement = $130,300 (+1500)
  • Mortgage Funds = $35,400 (+500)
  • P2P Lending = $34,800 (+300)
  • Home = $367,000 (assessed land value)
  • Farms = $445,000
  • Total Debts: = $410,300 (-700)
  • Mortgage = $188,400 (-400)
  • Farm Loans = $178,200 (-400)
  • Margin Loans = $43,700 (+100)

*Total Net Worth = $942,900 (+$13,800 / +1.5%)
All numbers are in $CDN at 0.75/USD

 

I’m not selling any stocks because despite the uncertain direction in the relatively volatile equity market I’m still earning nearly $1,000 in dividends every month, and I don’t want to sacrifice real dividend income for a hypothetical crash that may not happen in the near future. So it makes sense to buy some fixed income assets such as the corporate bond fund, ZCM. My intent is to hold ZCM for the 3.2% annual interest income. Then sell this fund, and replace it with stocks once the stock market goes into a correction. 🙂

 

Since ZCM is a bond fund, it’s a natural hedge against equities. When stocks go down, bonds often stay flat or sometime even go up. That doesn’t mean there’s no risk in this investment. But the potential reward is much greater. Here’s a curve below to demonstrate the idea.

Since interest rates don’t affect medium term bonds that much, I’m not concerned about the risks associated with rates climbing too quickly. As historical evidence points out, ZCM investors enjoyed positive returns in 2017 and 2018 even as the Bank of Canada was aggressively hiking interest rates.

 

__________________________________
Random Useless Fact:

How to take a slice of pizza, without it looking like you took a slice of pizza. 😉

 

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Jeremy WongJeremy WongGYMToddLiquid Independence Recent comment authors
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S Arun
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Hi Liquid,

It is good idea to stay defensive when others are greedy as markets are trading near all time high despite the uncertain surrounding the economic.

If things go well, you will likely hit the millionaire status in this year. Advance Congratulations 🙂

Wish you all the best,

Todd
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Todd

Hey is there any chance you might be able to share a copy of your networth tracker, it looks like its built on google sheets. I am glad for your website for helping myself reach my goals and am wanting to track it better than what I have been!!
Thanks so much!

GYM
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Congrats you are getting so close to the 7 figure number!

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[…] from Freedom Thirty Five Blog is very close to the 7 figure mark, is at $943,000 and will likely hit 7 figures this year provided the markets are still the same or […]

Jeremy Wong
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Jeremy Wong

Inter Pipeline issued a new bond in late March with a 6.5% yield, which is the highest for an investment grade bond. The 6.875 coupon is fixed until 2029; then it resets to banker’s acceptance rate + 5.01% until 2049. The prospectus can be downloaded from Sedar.com.

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[…] term bonds can help provide stability in a portfolio when the stock market has no clear trend. The BMO bond fund I wrote about last month is one example of this simple approach. It climbed in value during May […]