Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

Oct 292018
 

Short Term VS Long Term Bond Funds

Earlier this year I put together a list of high quality bond funds for readers to check out. There was a lot of good feedback, but some people questioned why I didn’t include any short term bond funds in my list. More recently reader Carla also asked about my indifference to them.

Well, to be Frank, I would have to change my name. 😎 But rather than doing that I will answer Carla’s question. 🙂

Retirement portfolios are usually associated with long term planning. Short term bonds tend to be less volatile and less sensitive to interest rate movements. But since I don’t plan to sell any time soon, short term volatility doesn’t really affect my bottom line. On the other hand, long term bonds pay a higher interest rate (or coupon) which more than compensates for the higher volatility in the long run. For evidence of this, let’s compare 2 bond funds with different durations.

Comparing Returns of ZCS and ZLC

For consistency purposes we’ll isolate the duration variable and look at the following 2 funds.

  • BMO Short Bond ETF (ZCS)
  • BMO Long Bond ETF (ZLC)

Both funds are from the same company, and hold corporate bonds. The only key difference is the duration of bonds they hold. Below shows the annual total return of these funds from Morningstar, highlighted in yellow.

bond fund comparison between short and long

As we can see, over the last 5 years the short term bond index fund (ZCS) returned only 2.21% per year. The latest inflation rate number from Statistics Canada is 2.2%. So holding a short term bond fund such as ZCS would have earned an annual real return of 0.01%. I think we can all do better than that. 🙂

Meanwhile the long term bond fund (ZLC) returned 6.21% per year on average. Even the 1 year return shows that long term bond fund ZLC came out ahead. Keep in mind this is during a rising interest rate environment, which should hurt long bond funds more. But short bond fund ZCS currently has a weighted average coupon of only 2.91%, while ZLC’s is at 5.29%. The longer investment time horizon we have, the bigger the difference in returns we should see between ZLC and ZCS. 🙂

Continue reading »

Oct 172018
 

Last week I lost nearly $20,000 in net worth. 🙁 Parts of the stock market slipped into correction territory. My Amazon shares lost up to 6.2% on a single day, the worst performance since 2016. The market has recovered a bit this week, but I am still in the red for the month. The recent volatility is a stoic reminder that the market can be fickle, and doesn’t care about how much we pray or like it on Facebook.

Stocks and bond funds move up and down without our control. But the one investment that can not be taken away from us is personal development.  When it comes to building wealth, human capital is more valuable than money in the long run. 🙂

Developing useful knowledge and skills is the best way to maintain a prosperous life. Ideally you want to become so valuable that the company can’t afford to give you the pink slip. 🙂 But even the most stable careers are susceptible to a labor shake-up or restructuring. I was employed by the same company for about 10 years. My position certainly felt safe, until I was suddenly let go earlier this year without any warning.  :/

If anyone is nervous about potentially being laid off, below are 8 suggestions to help you prepare for the unexpected.

  • Keep your LinkedIn profile and resume up to date. Recruiters often use online tools to help them look for potential new hires. 🙂
  • Save up your vacation time and treat it like an insurance policy. Any unused vacation days must be paid out if a worker is laid off in my city. I always try to keep at least 10 working days of vacation stored up. This amounts to 2 weeks worth of extra termination pay. That’s a pretty good parting gift. Yay!
  • Build up some cash liquidity or savings to give yourself time to look for other opportunities. Many experts believe saving enough to withstand 6 months of living expenses is enough. I personally prefer longer. According to my stress test calculations (under the employment risk category) I currently have 36 months.
  • Collect work achievements. I have been periodically saving projects throughout my career to demonstrate my thought process and problem solving skills. I keep these files at home with permission so I can update my resume and show off my skills to future employers.
  • Don’t burn bridges. Be nice to everyone because you never know who can help you get your next job. One coworkers who was laid off the same day I was received a call from the same company a few days later. Apparently they wanted to hire him back. He even got to keep his termination package lol. 🙂 #bonusmoney
  • Practice solving problems. Our productivity is correlated with how many problems we can solve. If we are good at finding solutions to big problems then more people will want to employ us for our skills.
  • Explore new careers options. I worked at an Amazon warehouse making about $14.50 per hour, which is less than half of what I was making at my old job. The experience made me appreciate my old desk job a lot more. I also developed more respect for physical laborers.
  • Create a side income. My part time job kept food on the table while I was looking for another full time job. Other side hustle ideas include giving music lessons, selling t-shirts online, or building up a dividend stock portfolio.

Continue reading »

Oct 012018
 

2018 is passing by quickly. We are already in the final quarter. 🙂 My stock portfolio’s value dropped a little in September. But I still managed to grow my net worth by half a percent for the month thanks to my multiple income streams. By January 2019 my goal is to have a net worth of $1 million. 🙂

A stock market dip in September is normal – perhaps even expected. Since 1896, when the Dow Jones Industrial Average was created, the Dow has lost an average of 1.03% in September. That compares to an average gain of 0.76% across all other months of the year. The funny thing is the Dow actually climbed higher this September. But it was the S&P/TSX Composite in Canada that dropped 1.8% lol.

Liquid’s Financial Update

*Sidel Incomes: = $2,800

  • Part time job = $600
  • Freelance = $300
  • Dividends = $900
  • Interest = $500
  • Solarshare payment = $500
*Discretionary Spending: = $1,700
  • Food = $300
  • Miscellaneous = $500
  • Additional Interest = $900

*Net Worth: (ΔMoM)

  • Assets: = $1,240,100 total (+1,500)
  • Cash = $12,800 (+1600)
  • Canadian stocks = $176,800 (-1000)
  • U.S. stocks = $126,900 (+900)
  • U.K. stocks = $21,600 (unch)
  • Retirement = $115,300 (-500)
  • Mortgage Funds = $34,100 (+200)
  • P2P Lending = $32,600 (+300)
  • Home = $275,000
  • Farms = $445,000
  • Debts: = $423,700 total (-2,700)
  • Mortgage = $191,200 (-400)
  • Farm Loans = $181,500 (-400)
  • Margin Loans = $49,500 (-400)
  • CIBC Line of Credit = $1,500 (-1500)

*Total Net Worth = $816,400 (+$4,200 / +0.5%)
All numbers are in $CDN. 

Inflation in Canada is picking up. We are at roughly 3% this year compared to 2% in 2017. Higher inflation will have a positive impact on real estate prices. I’m thinking about buying another property either next year or in 2020. Home prices will likely continue to increase in Vancouver and Toronto, at least in the long run. So getting more real estate now is probably a good idea.

Due to the nature of my new job I will not disclose my annual salary from now on. I was able to negotiate a relatively high salary for myself, about 20% more than my previous employer which shut down recently. Lest any of my coworkers stumble upon this blog I don’t want them to know how much our company is paying me. But I’ll continue to share all other sources of income such as from investments and freelance graphic design. 🙂

 

 

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Random Useless Fact:

The hospital you were born in is the only building you leave without entering.

 

Sep 192018
 

Freedom 35 Blog’s Growing influence

It’s been a few years since the last post featuring mean comments. I hope this time people will be nicer. 😳

Most of my regular visitors have positive and encouraging discussions in the comment sections on the blog. Thanks guys! 😀 But of course it’s also important to hear opposing views to understand personal finance through different life experiences. I’m not sure if you guys know this, but I’ve been told that my articles can rub some people the wrong way. I know – this was surprising for me to hear too.

Over the last few years this blog has been mentioned on different websites and internet forums, often met with some interesting feedback. I’ve gathered some of those comments today to share with my regular readers so we can look at some fresh perspectives, and perhaps learn something new. 😀

Below are comments written by random people online after they have read my blog posts.

Continue reading »

Sep 102018
 

Billionaire investor Warren Buffett recently celebrated his 88th birthday and told CNBC in an interview that he thinks stocks are still more attractive than bonds or real estate. In fact his company Berkshire Hathaway recently picked up some more shares of Apple Inc (AAPL) making it the largest position in the holding company.

The value of BRK.A shares increased by an astonishing 1,000,000% between December 1964 and December 2015. Meanwhile the S&P 500 market index increased by only 2,300% during that time. This is a testament to the will and dedication by Buffett & his team to create wealth for shareholders. I suppose you can say that if Berkshire has a will, Berkshire Hathaway. 😎

One thing to remember when investing is to keep it simple. You don’t have to be a genius to be good at it. 🙂

When we keep track of something it tends to grow. Building up investment experience is no different. That’s why every investor needs to track their investment decisions. This is going back to basics but it’s crucial to becoming better investors.

Investment Tracking 

This can be done by creating a simple table or spreadsheet like the following, and updating it over time. You can think of this like an investment journal. 🙂 I will demonstrate using the 2 new companies I blogged about purchasing earlier this year.

InvestmentTypeActionReasons for decisionDateExit plan
  • Parkland Fuel Corp (PKI.TO)
StockBuy 100 shares
  • Large network of retailers
  • Stable dividend yield (with growth)
  • Recession resistant
01/02/18Hold into retirement
  • Automotive Properties (APR.UN)
REITBuy 190 units
  • High 7% dividend yield
  • Relatively low payout ratio (60%)
  • Canadians love to buy cars
01/02/18Hold into retirement

 

Here are some additional columns we can add to track our investment decisions even more closely:

  • Timeline horizon (how long we plan to hold something)
  • Current market value of said investment
  • How to measure the success or failure of our decision
  • Any concerns that go against our final decision
  • Does the original reason for buying a stock still apply in the present day
  • What process did we use to evaluate the investment, eg: P/E ratio, Graham formula, or analyst predictions

No matter how good we are at evaluating investments, we’re eventually going to be wrong. Sometimes we may be wrong due to unpreventable reasons. But there are many factors that we can control, such as our own psychology and behavior.

Keeping a detailed investment journal of our decisions is the best way to remind us in the future of the feelings we had at that time to avoid making the same mistakes again. We’ll understand why we made the choices we did, whether or not it was worth it, the process behind our decisions, which strategies worked and which didn’t, and do our best to hopefully replicate past successes. 🙂 Hindsight is 20/20, but only if we remember how we thought and what we did in the past that lead to the current moment.

 

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Random Useless Fact:

What it’s like having a motorcycle.