Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

May 022016
 

My net worth increased $64,000 so far in 2016 

Goodness gracious me! 😀 That’s even more than my annual gross salary. Maybe I should quit my full time job already. Haha. 😜

But here’s the caveat. My net worth is measured in dollars. So I’m only becoming richer relative to the local currency. But as we shall discuss below, currency depreciation can be a real PITA. 😛 Policy makers from around the world are covertly initiating inflation to see which country can print the most money to improve their economy’s competitiveness. But by doing so, the devastating knock-on affects will financially destroy millions of lives in the years to come. 😱

Higher Living Expenses in 2016

If you’ve purchased car tires before you are probably familiar with inflationary pressures. 😆 Inflation has been fairly high in 2016 so far. The government won’t admit it for political reasons, but regular folks like you and I have most certainly felt the effects of rising expenses in our wallets. Over the last year nearly all types of spending in Canada have become more expensive.

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Crude oil was trading at US $35 per barrel when the year started, but now it’s just over $45, a 29% increase. Coincidentally the price of silver bullion has also increased by 29% over the same 4 month period. The price of oil affects the price of many consumers goods, not the least of which is food, due to transportation costs. And since we use silver in photography, x-rays, solar panels, mirrors, cars, medicine, smart phones, and other consumer electronics, we can expect higher costs in these related fields moving forward.

Then there’s the largest monthly expense for most people – housing. 🏠 The most recent S&P/Case Shiller index shows that U.S. home prices in February grew 5.3% year over year. I don’t even have to mention how crazy hot the Canadian real estate market has been lately. 😛 CREA forecasts the national average price this year will probably increase by 8%.

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So house it going on the west coast? you might ask. Well let’s just say February was a record-shattering month for home sales in British Columbia, with a 45% increase in volume compared to a year ago.

How Investors Hedge Against Inflation

A few years ago I wrote a post detailing how prices of different goods increased 100% to 200% between 1990 and 2010. But if we were to store our net worth 20 years ago in real tangible assets such as oil, land, fixed properties, silver, and profitable businesses, instead of simply holding on to money or “savings,” then we could keep all of our purchasing power.

The reality is that life doesn’t cost more over time. In the 1990s if we needed fuel, we could buy 2 or 3 barrels of oil with 1 ounce of silver. Today in 2016, we can still pretty much do the same thing. On the other hand, buying oil with dollars would cost us 150% more today than in 1990. In other words, the costs of time, labor, skills, commodities, goods and services, which are all things that have intrinsic value, tend to stay fairly constant across multiple generations for the most part. But it’s the currency that is usually the clear outlier and it tends to lose value over any extended period of time.

One way we can hedge against inflation is through investing. Here are some choices that I’ve made in the past that have made 2016 one of my best years so far!

  • Buying precious metals stocks: I own metal mining stocks such as Goldcorp (G) and Silver Wheaton (SLW) which have outperformed the general stock market recently. But I’m in no way a good stock picker. 😛 The Market Vectors Gold Miners ETF (GDX) on the NYSE is an index fund that tracks the performance of global gold mining firms that are publicly listed in the U.S. This ETF has climbed 88% year to date! 😲 So anyone who holds a basket of gold/silver stocks or owns this GDX fund should be dancing on cloud nine right about now. 🙂
  • Buying physical commodities: I occasionally purchase silver and gold directly from the Royal Canadian Mint and bullion exchanges. For example, about half a year ago I bought a 100 oz silver bar which has appreciated in value since then. 🙂 I also practice earning silver wages, which basically means I make a portion of my money in silver to diversify my income. I’m not suggesting everyone should go out and do this too. I’m just saying from my personal experience this has been profitable for me.
  • Buying farmland: My down payment was less than 15% so this amplifies my return on investment by many folds. Canadian farmland prices have grown on average by 10% last year, which boosted my net worth by more than $30,000 as I’ve explained last month.
  • Buying real estate: I purchased a condo here in Vancouver when many people warned of a real estate bubble. Maybe they’re right, maybe they’re wrong. All I know is Vancouver condos have increased in price by 10% over the last year, adding over $25,000 to the market price of my property.

As we can see all these investments represent real, tangible assets that have economic value, and therefore do not suffer at the hands of inflation. Everyone wants to know the secret to investing. But it’s really quite simple. All we have to do is look at historical patterns in the economy and apply common sense. 🙂 Piece of cake, right? 🍰

Liquid’s Net Worth Update

My investment income is really starting to grow now thanks to 7 years of compounding. I received $360 in interest payments in April between my Air Canada bonds and Antrim MIC. Plus I made $720 in dividend income from my stock portfolio. That’s nearly $1,100 of passive income that I made without any effort. 🙂

*Side Incomes:

  • Part-Time = $800
  • Freelance = $700
  • Dividends = $700
  • Interest = $400
*Discretionary Spending:
  • Fun = $300
  • Debt Interest = $1300

*Net Worth: (MoM)16-04-stock-fiscal-update-networth

  • Assets: = $971,900 total (+23,900)
  • Cash = $5,200 (+2700)
  • Stocks CDN =$113,900 (+3800)
  • Stocks US = $65,600 (-3800)
  • RRSP = $68,100 (-1000)
  • Mortgage Funds = $23,100 (+200)
  • Home = $263,000
  • Farms = $433,000 (+22,000)
  • Debts: = $487,500 total (-2,800)
  • Mortgage = $189,200 (-400)
  • Farm Loans = $195,900 (-500)
  • Margin Loan CDN = $28,300 (-100)
  • Margin Loan US = $24,500 (-1400)
  • TD Line of Credit = $20,600  (-400)
  • CIBC Line of Credit = $11,000
  • HELOC = $18,000

*Total Net Worth = $484,400 (+$26,700 / +5.83%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.79 USD

Stocks were pretty much flat in April. But my net worth increased by over $26,000 mostly due to the updated farmland value. The most recent FCC assessment report shows Saskatchewan farmland value rose 9.4% in 2015. The average inflation rate (CPI) in Canada in 2015 was about 1.4%. To be on the conservative side, I have adjusted the farmland value on my net worth statement by taking the average of these two figures, which is 5.4%, or an increase of about $22,000.

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Apr 282016
 

The start of the unofficial U.S. driving season begins on Memorial day which is a U.S. holiday that generally kicks off the summer season.  The date generally falls in late May on a Monday allowing vacationers a 3-day weekend to drive to the beach, or mountains or other destinations.  Ahead of the summer driving season, gasoline prices generally rise as refiners begin the maintenance of their distillation units.

Over the past 8-years, gasoline prices have generally increased as reflected by the ETF UGA (United States Gasoline Fund).  Price rise on a seasonal basis approximately 75% in April for an average increase of 4%.  This year should be no exception as refiners begin to draw down their gasoline.

The Energy Information Administration expects the retail price of regular-grade gasoline will average 2.04 per gallon during the 2016 summer driving season which is down from an average of 2.63 per gallon last summer. This should help buoy demand which is currently up approximately 5.7% year over year. A summer average of 2.04 per gallon would mark the lowest summer average since 2004.

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Daily and weekly national average prices of gasoline can differ significantly from monthly and seasonal averages. There are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 40 cents per gallon or more. Unplanned refinery outages or other disruptions to supply can also increase regional product prices to above forecast levels in the short term. In addition, higher overall gasoline demand in 2015, along with changes in the U.S. vehicle fleet in response to fuel economy standards

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are primarily the result of changes in both crude oil prices and wholesale margins. Oil prices have recently come off their lows at WTI printed at 26 per gallon in March and has climbed nearly 55% over the course of the last 6-weeks.

The Energy Information Administration expects wholesale gasoline margins will average 47 cents per gallon this summer, about 12 cents per gallon lower than last summer. Wholesale margins are forecast to be lower this summer compared with last summer because of higher gasoline production, and because the severe refinery outages from last summer.

The EIA reported that gasoline production decreased in April, averaging about 9.6 million barrels per day. This accounted for the recent draw that occurred in gasoline by refiners. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 4.1% above the same four-week period last year. This accounted for the build in crude oil.

Gasoline inventories decreased by 4.2 million barrels last week, but are well above the upper limit of the average range. Demand remains robust, as total products demand over the last four-week period averaged 19.7 million barrels per day, up by 3.2% from the same period last year. Over the last four weeks, gasoline demand averaged 9.4 million barrels per day, up by 5.7% from the same period last year.

The summer driving season will be off to a strong start as low prices should spur demand but if CFDs on crude oil prices continue to rise, the demand destruction will occur quickly making the issue of elevated gasoline inventories a reason to push prices lower.

Apr 282016
 

A 50 Dollar Lesson in Personal Responsibility

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I’d like to share this joke I found on tumblr.

I recently asked my friend’s little girl what she wanted to be when she grows up. She said she wanted to be President some day. Both of her parents are liberal Democrats who support Bernie Sanders. They were standing there beside her.

So then I asked the little girl, ‘If you were President, what would be the first thing you would do?’

She replied, ‘I’d give food and houses to all the homeless people.’

Her parents beamed with pride.😁

‘Wow…what a worthy goal.’ I told her. ‘But you don’t have to wait until you’re President to do that. You can come over to my house and mow the lawn, pull weeds, and sweep my yard, and I’ll pay you $50. Then I’ll take you over to the grocery store where the homeless guy hangs out, and you can give him the $50 to use toward food and a new house.’

She thought that over for a few seconds, then she looked me straight in the eye and asked, ‘Why doesn’t the homeless guy come over and do the work, and you can just pay him the $50 directly?’

I said, ‘Welcome to the Republican Party.’ 😛

Her parents still aren’t speaking to me.

The point of this allegory is clear; There’s an untapped market of homeless people who could be doing yard work & making $$$ 🙂

It also addresses the hapless reality of economic inequality even in developed countries. If we want the poor to succeed we need to give them the opportunity to pursue their own dreams instead of enabling them to continue living in poverty. Government run redistribution programs are part of the problem. Giving money to the homeless without any strings attached robs them of their dignity, economic potential, and the chance to develop the internal motivation to succeed. Besides, the government doesn’t have money in the first place so when it gives money to the poor it has to take that money from somewhere else.

Some children think that their parents are all no-ing. 😆 Even so, we understand it’s wrong and destructive for parents to do their children’s homework. It undermines their children’s intelligence, sets them up for failure in life, and is not fair to other students. We also understand it’s wrong to feed fauna at the local park.

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It’s hard to say no to a begging squirrel, but we resist the urge to feed it because we don’t want it to be dependent on our generosity. We don’t want to rob these hungry creatures of their ability to be self reliant. So I think we should help the homeless through education rather than simply giving them free money with no obligations.

The ultimate freedom in life comes from being able to internalize personal goals that give us meaning and purpose. 😀

If we are kind enough to offer these gifts of self-discovery, personal accomplishment, and self worth to children and animals, then I think we ought to extend this same offer to financially unfortunate people as well. 🙂

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Random Useless Fact:

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Apr 282016
 

Anyone who is looking to potentially buy a house already knows how important the journey to home ownership can be. There is certainly a lot to do in the process, but when it comes to buying your own home there are also some very good points that you will want to remember before you sign the papers or even make an initial offer. When it comes to getting the home of your dreams, remember that some things are easily replaced while others you really don’t have the opportunity to change at all. The old adage is location, location, location for a reason, and if you don’t remember these key points about your potential location you could be stuck with a place that doesn’t quite meet your needs.

Know the Neighborhood

The thing about a neighborhood is that you know it is important, but you just don’t know how important it actually is until it is time to truly deal with it. A neighborhood can include multiple items ranging from crime statistics to school districts, and then there are a lot of other things which can range from political and public services to amenities and even more. The simple answer on neighborhoods is that you want to be sure you have enough to satisfy your needs, and then you also want to be sure you can get everything your future self will want as well. You may not care about schools for example, but if you think children are in your future then you had better keep an eye on school systems.

Another thing to consider is the neighborhood demographics from a financial point of view. A nice house might seem like a good thing to jump into because of the price tag. However, where will the neighborhood be down the line? If the neighborhood is young and up and coming, then you could easily invest in a home that will grow in value over the next few years. That is clearly an intelligent financial decision and you will be swimming in equity. At the same time, if your buy a house with DDProperty decision is because it’s a great location now, but due to things like unemployment rates rising, people moving away, or other factors, you could buy a house that will actually be worth less than the mortgage you paid on it in a few years if you aren’t careful.

Having a Yard

Speaking of having a yard, the fact of the matter remains that some people just want to be able to go outside. If you have pets, children, or even a hankering to do some barbequing and sunbathing then you already know how important a deck, patio, or some green grass beneath your toes can be. That being said there are more than enough individuals who will go shopping and searching for a new place and then before they know it they end up settling on something where the yard is community owned because they are in an apartment (or something like an apartment).

This might not seem like a big deal, but when you try to go out with your children and you wind up stepping in a neighbor’s dog’s feces you can become upset. You can also wind up becoming quickly irritated if you notice things like cigarette butts, trash and other remains from neighbors, or even have to deal with the other general annoyances that accompany having to share community space. As simple as these things might seem, they can certainly become awfully annoying when you are trying to get some rest and relaxation after a long days’ worth of work. This is all before you consider the value of a yard.

Have Access to What Is Important

If you happen to work at a job, then great; make sure your home is near where you work. If you and your family like to go to a specific type of area (parks, movies, shopping outlets, or etc.), then you also have to be sure your home is by those things as well. Location is important not just because of the value that a given location brings and what others see it to be from a market value point of view, but location matters because if you are going to buy a house then it might as well be close to where you spend most of your time.

People in general don’t seem to realize the true costs of being stuck behind the wheel of a vehicle. Aside from the fact that they need to waste more time in general commuting that they won’t get back, they also are at increased risk for health reasons and they face increased costs for using their vehicles as well. It might be easy to fall in love with a home that is a few miles farther than you would like it to be, but when you add up all of the costs of both time and money that a daily commute will cost you, you can see how simple it is to just say no and find a house that is closer.

Looking for a given home isn’t a chore, but you do need to be meticulous. Rather than just accepting the first thing that pops into your head as somewhat decent, make sure you take all of your options into consideration. And, while most people think solely about the home and structure itself, you also have to consider all of the outside factors of purchasing a property. Make sure you consider everything when making the transition into your first home.

Apr 252016
 

How to Think About Retirement Planning

Some people are reluctant to accept change, especially cashiers because nobody likes to count nickels and dimes. 😂 But the world is constantly changing and the retirements of generation Y will look very different than generation X. The trend towards a gig economy has only just begun. In the private sector less people are working 40 years at one company, and more are doing contract work, starting side hustles, and becoming self employed. According to Intuit, in just 4 years from now up to 40% of American workers could be independent contractors. Wow, what other changes will we see in 4 years? I don’t know, because I don’t have 2020 vision.😆

So as we adapt to changing economic strategies, by growing our income streams for example, our retirement plans must also reflect this new world of mobile apps, and short-term work that is long on flexibility, but short on benefits. When it comes to making smart retirement decisions today we should separate the things we can control, from the things we cannot.

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We start by thinking about the factors that we have full control over, such as how much we need to save (and therefore, spend) in order to meet our long term goals. For example, I want to reach financial independence by age 35, which means I need to save about 1/3rd of my income right now. Although diet and exercise habits aren’t directly related to personal finance, they’re extremely relevant in the big picture because healthcare can be a major cost, especially for Americans, when we reach retirement age.

According to the National Council on Aging, about 92% of older adults have at least one chronic disease. Jeez Louise! 😱 Chronic diseases account for 75% of the money America spends on health care. Diabetes alone affects 23% of Americans over the age of 60. According to Statistics Canada, more than half of all Canadian adults are overweight or obese. 🙁 Although certain aspects of our health revolves around genetics, we also rely heavily on epigenetics, and the idiosyncratic personal choices we make today to determine how we live our golden years. Just like with a motor vehicle, proper maintenance can extend our life expectancy, and keep the repair costs down in the long run. This way we can save our money and spend it on meaningful experiences rather than on medication and treatments. 🙂

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