Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

Jan 152018
 

How to Prepare for Higher Borrowing Costs

My debt to income ratio is about 500% while the national average is around 173%. Readers sometimes email me and ask what I will do when interest rates rise. My answer is simple.

I tell them I will pay down my debts in an accelerated manner prioritizing the highest interest loan first. I will limit my monthly interest expense to no more than $1,500. Doing this will adequately protect myself from interest rate risk. Sounds like a solid plan, right? 😉

But I know not everyone will agree. :/ Back in 2014 I noticed some people were concerned that I had taken on excessive risk because my debt level was too high. This sentiment echoed around various internet forums. Here are some examples I’ve saved.

The last commentator wanted to know how I’m doing now. That’s what I’ll be discussing in today’s post. 🙂

But first, here’s a look at my debt summary in 2014. The numbers are taken from my net worth update 4 yrs ago.

Liquid’s 2014 Debts Balance Interest Rate Annual Interest Cost
Mortgage$200,0002.95%$5,900
Farmloans$208,3003.40%$7,082
Margin Loans$52,9004.25%$2,248
HELOC$17,9003.60%$644
TD Line of Credit$33,7005.25%$1,769
CIBC Line of Credit$14,0004.50%$630
RRSP Loan$5,0004.00%$200
Total Debt Balance$531,800  
Average Weighted Interest Rate 3.47% 
Total Cost of Debts$18,474

 

Back then I had nearly $532K of debt, charging me an average interest rate of 3.47% per year.

I was paying $1,540 per month in interest. But I was cash flow positive and saving about $1,000 per month. I felt like I had everything under control. So I didn’t understand why people claimed I was overly leveraged. I thought maybe I was missing something. But as Bobby McFerrin would say, “don’t worry, be happy.” 😀 So that’s what I did.

And here’s what my debt looks like today, 4 years later. 🙂

Liquid’s 2018 DebtsBalance Interest Rate Annual Interest Cost
Mortgage$180,3002.80%$5,048
Farmloans$185,3004.30%$7,968
Margin Loans$57,0002.40%$1,368
HELOC$14,9003.70%$551
TD Line of Credit$5,0005.45%$273
CIBC Line of Credit$17,5005.00%$875
Total Debt Balance$459,000  
Average Weighted Interest Rate 3.49% 
Total Cost of Debts$16,083

 

So my debt costs me $16,083/yr or $1,340 per month right now. This is actually $200 per month lower than in 2014, despite interest rates being higher today.

Yay. Bobby was right. There was no need to be worried. 😀

Nearly every asset class I hold long positions in has produced decent returns since 2014. Had I not borrowed and used other people’s money to invest I would have missed out on all the investment gains.

 

Continue reading »

Jan 092018
 

Summary of Financial Market Returns

2017 was a great year for investors, particular for those with long exposure to emerging markets overseas. 🙂 Nearly every asset class experienced positive returns. The best performing one was cryptocurrencies. It grew from a market capitalization of $20 billion to $800 billion in the last 12 months. To put that into perspective that’s about 1% of the global stock market which is valued at roughly $80 trillion.

North American Markets in 2017

  • Canadian dollar stronger by 7.0%
    (This means more purchasing power and cheaper imports, such as produce from California. Yay!)
  • U.S. dollar weaker by 6.6%
    (U.S. investments are on sale.)
  • The average CAD/USD exchange rate was 0.77
    (This may be important for tax filing purposes if you traded U.S. securities.)
  • Canadian S&P/TSX stock index total return = 9.1%
    (6% from price appreciation + 3.1% from dividends.)
  • S&P 500 U.S. stock index total return = 21.8%
    (Amazing! But the Nasdaq index which contains technology stocks was up 30%.)
  • Canadian Aggregate bond index ETF (ZAG) total return = 3.0%
    (Interest rates are still very low.)

Foreign Markets in 2017

The MSCI group contains thousands of stocks from 24 developed markets around the world. Data below courtesy of Yardeni Research.

  • Average change across all MSCI countries in 2017 = 17.5%. Up from 8.2% in 2016.
  • EMU refers to the European markets specifically.

In December I sold some Bitcoin and Litecoin to pay down some of my debt. I’ve saved up a cash cushion of $10,000 because I intend to pick up some new stocks over the next few weeks.

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $1100
  • Freelance = $1200
  • Dividends = $900
  • Interest = $300
  • Trading income = $2,500
*Discretionary Spending:
  • Fun = $500
  • Debt Interest = $1300

*Net Worth: (ΔMoM)

  • Assets: = $1,158,900 total (+8,200)
  • Cash = $10,500 (+2000)
  • Canadian stocks = $168,200 (+4000)
  • U.S. stocks = $107,000 (+1200)
  • U.K. stocks = $21,400 (+400)
  • Retirement = $91,300 (+200)
  • Mortgage Funds = $32,200 (+200)
  • P2P Lending = $22,200 (+200)
  • Home = $270,000
  • Farms = $436,000
  • Debts: = $462,300 total (-6,400)
  • Mortgage = $180,600 (-300)
  • Farm Loans = $185,800 (-500)
  • Margin Loans = $57,500 (-1400)
  • TD Line of Credit = $5,500  (-1200)
  • CIBC Line of Credit = $18,000 (-3000)
  • HELOC = $14,900

*Total Net Worth = $696,600 (+$14,600 / +2.1%)
All numbers above are in $CDN. 

My net worth has increased $126K year over year. Not too shabby. 🙂 This gain was mostly thanks to the Canadian and U.S. stock markets reaching record highs.

Many experts suggest to rebalance one’s portfolio once a year to ensure it still matches up with long term goals. Stocks outperformed bonds last year. So here is what my asset allocation currently looks like.

My liquid investment portfolio contains 82% equities, and 18% fixed income, while a year ago it was at 90% and 10% respectively. I have increased my fixed income exposure because I’m closer to retiring. Yay.

As we head into 2018 I plan to reduce my debt while continuing to max out my tax advantaged investment accounts. By the end of the year I aim to be collecting $18,000 in forward dividend and interest income. 🙂 My liquid asset allocation goal is to be somewhere between 75% to 80% equities, and the rest in fixed income.

My 2018 watchlist includes the corporate bond ETF (TSE:ZCM), Parkland Fuel Corp (TSE:PKI), North American Preferred Shares ETF (TSE:XPF), and more Lending Loop loans. 😀

 

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Random Useless Fact

Jan 022018
 

Hello friends. It’s a new year. 😀 My investment strategy for 2017 was simple; to buy dividend growth stocks and alternative investments. Dividend stocks and alternative assets tend to grow in bull markets but also hold up well in recessions. The plan is to earn respectable returns while reducing risk to the downside. Here are my 2017 results.

Average return on investable assets = 18.9%

Overall I am quite thrilled with this outcome. 🙂 The broad Canadian stock market index (S&P/TSX Composite) returned about 9% in 2017. I remain convinced that a dividend based investment strategy works better than index funds.

Another variable that worked to my advantage is geographical diversification. Most equity markets in foreign countries performed extremely well. For example, the S&P 500 index in the U.S. gained 20%. Holding U.S. and European stocks helped me a lot this year.

The Best of 2017

Liquid’s Top 10 Best performing stocks of the year:

  1. Canopy Growth Corp (WEED) +213%
  2. Match Group Inc (MTCH) +82%
  3. Caterpillar (CAT) +64%
  4. Avigilon Corp (AVO) +63%
  5. Dollarama (DOL) +59%
  6. Amazon.com (AMZN) +58%
  7. Premium Brands Holdings (PBH) +55%
  8. Deere and Co (DE) +55%
  9. Blackberry (BB) +54%
  10. Netflix (NFLX) +53%

The Worst of 2017

Liquid’s Top 10 Worst performing stocks of the year:

  1. Crescent Point Energy (CPG) -45%
  2. High Liner Foods (HLF) -23%
  3. Cineplex (CGX) -22%
  4. Cameco Corp (CCO) -14%
  5. Viacom (VIAB) -10%
  6. Halliburton (HAL) -8%
  7. Keyera Corp (KEY) -7%
  8. Boardwalk REIT (BEI.UN) -7%
  9. Target Corp (TGT) -6%
  10. Goldcorp (G) -5%

We can’t win them all. But as long as we get it right most of the time then everything will work out eventually. 🙂

 

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2017 Investment Breakdown

All returns mentioned below are internal rate of returns (IRR) unless otherwise stated.

TD Portfolio 
Annual return = 16.3%
Net Asset Value = $190K

This includes my entire RRSP portfolio, most of my TFSA and a small cash account all held within TD Direct Investing. The combined return over the last 12 months was 16.28%.

I hold about 15 individual securities in my TD TFSA, and another 30 in my RRSP account. If you are interested to see exactly what they are I’ve listed all the stocks on my portfolio page. 😀

Note: Past performance doesn’t guarantee future results and readers should not take any stocks I buy as recommendations.

 

Interactive Brokers – Non Registered Portfolio
Annual return = 25.3%
Net Asset Value = $158K

This is where I have my margin account. I hold Canadian, U.S. and U.K. securities in here – mostly preferred stocks and dividend stocks due to the preferential tax treatment of their returns. One reason the return is so high in this portfolio is because I am using leverage (borrowing money to invest.)

Continue reading »

Dec 262017
 

Year In Review

It’s been a year since I began investing in the peer to peer lending platform Lending Loop. I was anticipating a return of 8% when I first wrote about it. However things turned out better than I expected. I started the year with $20,000 and have earned just over $2,000 in interest now. So my year to date return is currently about 10%. I’m really happy with that! 🙂 Here’s a recent snapshot of my account.

Here’s what my account looked like back in June.

I currently hold about 40 different loans. I usually commit about $500 to $1,000 per new loan. Each company has a different credit rating based on its likelihood to pay back debt. The table below shows how Lending Loop categorizes the risk bands.

I generally invest in the range between B and C rated loans. The interest rate I receive on the investment should be high, but I don’t want super risky loans with high rates of default. I do my research on a company before I invest so I do not automatically put money into every C+ loan that Lending Loop offers. I don’t have any A or A+ rated loans because the rates of return on those after fees are too low for me.

The reason I was expecting only 8% annual return is because I had factored in loan defaults that would cut into my gross interest earnings. However, across my ~40 different loans not a single one has defaulted yet. 😀 Phew. Thank goodness for that. *Knocks on wood* But I’ve only been on this platform for 12 months. Most loans in my portfolio have a lifespan of 24 to 36 months. So as time goes on I should probably expect to see some defaults, but hopefully not a lot.

 

Continue reading »

Dec 182017
 

Significant Inheritance Coming for Half of Households

According to data from Statistics Canada, nearly 50% of households can expect to inherit a significant amount. In fact, the aggregate net worth in 2012 of all senior households was $2.18 trillion while the number of households headed by someone between 45 and 65 was 5.8 million. Dividing the numbers, each household would receive an average inheritable amount of $375,000 prior to factoring in taxes. And studies have shown that seniors over 70, and even more so over 80, are net savers (probably mostly from pension benefits,) which means their net worths are likely to get even bigger before passing down their inheritances. 🙂

In a more recent survey of about 1,500 people, investment firm Edward Jones reported that 49% of Canadians are not expecting a “significant” inheritance. I’m not sure what defines significant in this case. But that would also mean 51% of Canadians do expect a meaningful inheritance. Yay! The survey also found that “61% of those aged 55 to 64 and 57% of those aged 65 and older are expecting to leave a “significant contribution” after they die.” This is good news. It means most of us are getting some kind of inheritance. 🙂

Don’t Screw Up Your Inheritance

For those of us who are lucky enough to receive an estate windfall, it is important that we know how to move money safely. Be sure to avoid what Lorette Taylor did in this CBC article. After her father passed away she was tasked with disbursing the inheritance money. This includes giving $846,648 to her brother who lives 5 hours away from her by car. So she obtained a bank draft for $846,648 which was addressed to her brother and sent it to him via UPS.

However, UPS lost the package. 🙁 It became an uphill battle for Lorette, but after nearly a year TD has finally agreed to settle the matter and write her another bank draft.

Something silly like this should never happen to anyone. In terms of who was at fault, I think everyone made some mistakes. UPS messed up because it failed to deliver a basic service and lost the client’s bank draft. TD screwed up because it didn’t train its worker properly to advise a wire transfer or EFT in this situation, instead of a bank draft. And Lorette also should do some research and ask more questions before handling the inheritance money. A bank draft is as good as cash. Unlike a regular cheque, the money is immediately taken out of a client’s bank account as soon as the bank draft is created. You can’t cancel an existing bank draft in the same way you can a personal cheque. If Lorette understood how bank drafts works in the beginning she probably wouldn’t have trusted it to UPS. This is why no matter how much money we have, we also need financial literacy if we plan to hold onto our money.

The lesson here is to use wire transfers (which is traceable) when moving large sums of money, such as an inheritance. And also, never send a bank draft in the mail. 🙂

 

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Random Useless Fact:

Superstition in Bangladesh leads to overweight crocodiles.