Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

Jan 062020
 

Happy New Year! ๐Ÿ˜Ž As a personal finance blogger, I celebrated New Year’s Eve properly in the traditional fashion – by looking up the new value of my home on the BC assessment website. ๐Ÿ˜€ Needless to say my condo’s assessed value for 2020 has dropped. I will update my net worth next month to reflect the new value, but today’s post is meant to highlight my December 2019 finances.

A bullish decade

The U.S. stock market has been on a bull run for 130 months now – a historical record. But who would’ve guessed? In 2010 the dreadful malaise of the great recession was still lingering on investors’ minds. The stock market was still recovering. And many people felt uneasy and hopeless as the S&P 500 index returned virtually nothing from 2000 to 2009.

But it was a completely different story over the next 10 years. From 2010 to 2019 investors saw steady gains on Wall Street, with relatively low volatility and few setbacks. The S&P’s annualized return in the 2010s was 13% according to the NY Times. Not too shabby. The 29% return last year in 2019 really helped out any boomers who are retiring this year.

On the labour front, the unemployment rate dropped from 9.9% in 2010 to just 3.5% now. Real median household incomes rose 12% during that time.

Canadians have much to celebrate as well. The TSX Composite gained around 6.7% annualized. It’s not great, but also not bad. The MLS price index shows homes are now worth 67% more across the country than 10 years ago. But that varies a lot depending on location and type of home. Bond portfolios rallied around the world as central banks competed to see who can lower their interest rates the most. Overall it had been an economically fruitful decade for many people. ๐Ÿ™‚

Increasing my cash holdings

I remember that 2018 was a rough year where the stock market fell 12% in Canada, and 6% in the U.S. But since we entered into 2019 on a fairly low point, this past year has been an absolute blessing. The market rebounded and helped to propel my wealth upwards by $261K in a single year. Which isn’t all that impressive once you take into consideration that I already had $1.2 million worth of assets going into 2019, and that all asset classes I owned went up in value. It was just a great year for investors in general. ๐Ÿ™‚

I made some adjustments over the past month in order to get ready for the new year. My plan is to increase my liquidity for a potential real estate purchase in the lower mainland in 2020. My price range is between $400K to $700K so I would require a sizeable cash amount for the down payment.

I sold all of my TD e-Series mutual funds worth about $13K and closed my fund account. I had started investing in the e-Series funds a long time ago in order to demonstrate to readers how to set up the account and how to operate it. This was before Vanguard ETFs came to Canada. So I was basically showing people how to buy index funds in 2013 before it was cool, haha. ๐Ÿ˜€ I gradually put more money into the fund over the years but have now decided to sell everything. ๐Ÿ™‚ Index funds have become too mainstream anyway.

I also sold $20K of REITs and other stocks in my TFSA and withdrawn the cash to my chequing account. I will put the $20,000 back into my TFSA this year, along with an additional $6,000 of new contribution.

Farmland Update

My farmland has been sold. I am still waiting to receive the final adjustments and paperwork by mail from my lawyer in Saskatchewan. But there shouldn’t be any issues. The total commissions and fees related to the sale add up to about $24,000 – which I’m including in today’s net worth update. ๐Ÿ™‚ Technically I didn’t pay the fees until January, so I’m including the amount as a December liability below for best accounting practices. I will write a detailed post on my farmland sale in the upcoming weeks. ๐Ÿ™‚

Liquidโ€™s Financial Update December 2019

*Side Incomes: = $2,900

  • Part time job =$1100
  • Freelance = $200
  • Dividends =$1200
  • Interest = $400

*Discretionary Spending: = $2,500

  • Food = $400
  • Miscellaneous = $800
  • Interest expense = $1300

*Net Worth: (ฮ”MoM)

  • Total Assets: = $1,434,300 (+27,700)ย 
  • Cash = $49,500 (+36,300)
  • Canadian stocks = $184,000 (-16,500)
  • U.S. stocks = $146,300 (+5800)
  • U.K. stocks = $23,400 (+700)
  • Retirement = $143,900 (+900)
  • Mortgage Funds = $37,900 (+200)
  • P2P Lending = $37,300 (+300)
  • Home = $367,000 (assessed land value 2019)
  • Farmland = $445,000
  • Total Debts: = $404,800 (+22,700)
  • Mortgage = $185,200 (-400)
  • Farm Loans = $161,300 (-600)
  • Margin Loans = $34,300 (-300)
  • Farmland sales cost = $24,000 (new)

*Total Net Worth = $1,029,500 (+$5,000 / +0.5%)
All numbers are in $CDN at 0.77/USD

Many analysts thought 2019 would be a bad year for the S&P 500 given all the worries about trade wars and recessions, but the market actually closed out its best year since 2013. January is often an accurate bellweather for the rest of the year. I’m looking forward to see what new market events 2020 will bring. ๐Ÿ™‚

 

____________________
Random Useless Fact:

Dec 232019
 

Learning from my past mistakes

As a peer to peer investor, when no one else is around I would find myself a loan. ๐Ÿ˜€

I’ve been investing with Lending Loop (LL) for over 3 years now. My first year in 2017 ended with a 10% return net of expenses. Then last year I made 11%. But in the meantime I was accumulating an unhealthy amount of delinquent loans in my portfolio. This hidden risk was not good.

So at the start of 2019 I decided to adopt a more strategic approach to choosing loans. I came up with the 10 Rules for Choosing Better Loans, which you can find here. New defaults have been in decline since I started using this more selective method. ๐Ÿ™‚

In today’s post I’ll dive into my portfolio’s 2019 performance and explain my plans moving forward with this platform, including withdrawing my money.

LL as a platform has come a long way over the years. It hit a major milestone in 2017 when it helped fund over $10 million in total loans. By the summer of 2018 it had surpassed $20 million. And by the end of this year, over $60 million. Tighter lending restriction at traditional banks is pushing businesses to find alternative lending sources.

But with Canadian delinquencies on the rise, and higher expected inflation in 2020, it remains to be seen how LL lenders will do in the foreseeable future. There are also internal issues with the platform which I’ve blogged about in the past that have not been fixed.

In today’s post I’ll be going over the following:

  • Breakdown of my 2019 return.
  • My increasing number of loans in default.
  • Recent changes to the platform.
  • What I liked and didn’t like.
  • My plans for Lending Loop in 2020.

For a general overview of how Lending Loop works, its pros and cons, and whether it’s right for you, please see my original review.

Liquid’s 2019 Portfolio Performanceย 

Assuming all the scheduled payments over the next week are made on time, I will earn a total of $4,135 of interest in 2019. Luckily there were no loans written off this year.

2019 Earnings

  • Interest earnedย  ย $4,135
  • Servicing feesย  ย  ย  ย -$443
  • Bonusesย  ย  ย  ย  ย  ย  ย  ย  ย  ย  $87
  • โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”-
  • Net earningsย  ย  $3,779

Altogether my income for 2019 is $3,779 net of fees. By comparison last year I earned $3,369 net. So things are going in the right direction.

I began 2019 with $33,563 in my account. By the end of the year I’ll have $37,205. So my annual return isย 11%. ๐Ÿ™‚ Not too shabby. Despite using a more conservative approach choosing loans this year, the return ended up being about the same as in 2018. The new companies I’ve been lending to appear to be more diligent paying on time. ๐Ÿ™‚ Here’s a snapshot of my current dashboard.

And here is my total earnings summary.

I’ve contributed a total of $28,000 into this platform, and it has made me over $9,100 of profit so far. ๐Ÿ™‚ In the graph below, the difference between the purple and grey lines is my net earnings. It’s really satisfying to see a portfolio growing by itself. ๐Ÿ˜€

On the surface everything looks pretty rosy. But the devils are in the details. Behind the headline 11% annual return hides a slough of bad loans. Since there is no secondary market for Lending Loop loans, investors are often left holding toxic debt that are still marked at their original value, but are actually worth much less.

Continue reading »

Dec 162019
 

I attempted to join Mensa. What happened next wont surprise you.

So I ran a Twitter poll asking what topic people would like me to write about. The top 2 picks were my Mensa test results and financial plans for next year. ๐Ÿ™‚

In today’s post I will discuss all 4 topics from the poll, but focus primarily on the 2 that got the most votes.

Mensa: The smart people club

So out of vanity I decided to take the Mensa exam earlier in the fall. ๐Ÿ˜Ž Mensa is a non-profit international organization for the intellectually gifted. Only the top 2% smartest people in the world can be accepted into this private club. In Vancouver there are only about 200 Mensa members. There are other high IQ societies out there, but Mensa is the oldest, and most well known with over 130,000 members worldwide. Mensa members can attend local meetups and enjoy exclusive intellectually stimulating social events. I decided to join this club because I wanted to feel special. ๐Ÿ™‚ So I handed over the $90 to take the formal Mensa exam.

There were 4 other applicants that day. We had a chance to make some small talk. They all seemed to be smarter than me. I felt like a Morty in a room full of Ricks. The test was 50 questions, and we only had 12 minutes. In the end I managed to answer 30 questions correct. Not bad. But unfortunately I needed 35/50 to pass.

How it feels to fail the Mensa exam.

So I failed to get into Mensa. ๐Ÿ™ Oh well. I guess I’m just an ordinary peasant after all. Apparently I can re-take the test after a year. But I don’t think I can handle the rejection a second time. ๐Ÿ’”

 

The Real Estate Market

Sales is a leading indicator for price. Both Vancouver and Toronto saw strong sales in the last couple of months, signalling potential higher real estate prices in the new year. In a typical cycle the market goes through 3 stages: from boom, to slump, to recovery, and then repeats.

In Vancouver I believe we are currently in a real estate slump. However we are either nearing the bottom of this slump, or have already hit the bottom and are now transitioning into the recovery stage where prices will start to climb again. If you plan to buy property around the Greater Vancouver area, the latest data from the Real Estate Board suggests the window to get in at the lowest point of this real estate cycle is closing fast.

Finding Neverland real estate meme

Toronto is a bit of a different story. The low point was already hit last year in 2018. The recovery has been strong, and average prices now rival the 2017 peak. I anticipate interest rates will fall early next year. If that happens, property prices in major Canadian cities will become more expensive by the summer of 2020.

Continue reading »

Dec 022019
 

Best Bull Market Ever

Stock markets are at record highs. The year to date return of the S&P 500 is 25% – a staggering performance! But of course making money from companies isn’t just about percentages. Otherwise everyone would simply invest in hard liquor. Because where else can you get 40%? ๐Ÿ˜Ž

In 2008 my net worth was $0. But thanks to the strong market performance over the last 11 years I’m finally a legit millionaire! Hurray! ๐Ÿ˜€

I’m currently worth $1,024,500 ๐Ÿ˜€.ย  Apparently only 1% of self-made millionaires become wealthy before the age of 40. So I feel very fortunate to have this experience now. But my journey is far from over. In about 3 years I will be 35 yrs old. By then I hope to realize my ultimate goal of becoming financially free – hence this blog’s name. ๐Ÿ˜€

Every few years I update my financial freedom progress. The last time I fully inspected my finances was in 2017. During that update I calculated my net worth to be $610,000. I guess I should post another update soon to see if I’m still on track.

In terms of which investments got me to where I am, the biggest heavy hitters I have in my portfolio are stocks and real estate. ๐Ÿ™‚ Both asset classes have performed tremendously over the last decade. That’s the wonderful thing about investing. You don’t have to be highly educated or technically skilled. You can simply buy something and wait for it to go up. Then you automatically go along for the ride and watch your money grow. ๐Ÿ˜‰ As a buy-and-hold investor of dividend stocks and real properties I’m able to keep my trading and management fees to a minimum. Here is my current asset allocation breakdown.

Why have investments gone up so much in value since the great recession? It’s primarily thanks to the central banks. Around the world they have quadrupled the money supply in the financial markets from $5 trillion, to over $19 trillion. Apple cannot issue shares via a new IPO, and nobody is making new land out there. So nearly all the newly printed money is chasing after existing, finite resources. The result? Investors win. Investors who use other people’s money to invest win more. And savers lose.

Although my wealth hasn’t changed much month over month, there’s something visceral about that $1 million figure that makes me feel like a proper Bourgeoisie. ๐Ÿ™‚ Maybe it’s all in my head. But it feels pretty amazing to have this level of financial security.

However I have to be careful. With great wealth comes great temptations. The average millionaire goes bankrupt at least 3 times, haha. Both Henry Ford and Walt Disney lost all their money and filed for bankruptcy before achieving a more permanent level of success. I hope I can keep the moment going and continue to build up my portfolio. ๐Ÿ˜€ It would be nice to eventually earn a six-figure passive income from my investments.

Liquidโ€™s Financial Update November 2019

*Side Incomes: = $3,200

  • Part time job =$800
  • Freelance = $500
  • Dividends =$1200
  • Interest = $700

*Discretionary Spending: = $2,400

  • Food = $400
  • Miscellaneous = $700
  • Interest expense = $1300

*Net Worth: (ฮ”MoM)

  • Total Assets: = $1,406,600 (+22,100)ย 
  • Cash = $13,200 (+4100)
  • Canadian stocks = $200,500 (+5400)
  • U.S. stocks = $140,500 (+5600)
  • U.K. stocks = $22,700 (+800)
  • Retirement = $143,000 (+5300)
  • Mortgage Funds = $37,700 (+600)
  • P2P Lending = $37,000 (+300)
  • Home = $367,000 (assessed land value)
  • Farms = $445,000
  • Total Debts: = $382,100 (-3,000)
  • Mortgage = $185,600 (-500)
  • Farm Loans = $161,900 (-500)
  • Margin Loans = $34,600 (-200)
  • Line of Credit = 0 (-1800)

*Total Net Worth = $1,024,500 (+$25,100 / +2.5%)
All numbers are in $CDN at 0.75/USD

Continue reading »

Nov 252019
 

investment ideas for 2020

Looking Ahead – What to Expect in the new year

The last decade has been one of the best times for investors of any generation. ๐Ÿ™‚ It didn’t matter if you had money in stock, bonds, or real estate. Almost every major asset class delivered terrific returns on average. But I think 2020 will be a very pivotal year.

The U.S. will hold a presidential election. Stock markets are about to head into the new year at record highs. And there’s a greater than 50% chance Canada will fall into a recession according to Oxford Economics.

The U.S. is even more likely at 64% probability to hit a recession in 2020 according to the New York Fed.

Data seems to indicate consumer spending in North America will almost certainly slow down next year. The U.S. government will spend a buttload of money to desperately prop up the economy. Deficit spending will go through the roof. But the market demand for U.S. bonds won’t be there unless interest rates rise. But rather than let natural market forces drive up interest rates, the Federal Reserve will step in and buy up the newly issued bonds at lower rates. This will likely create some inflation which will be felt in Canada as well.

Protecting Your Net Worth

No matter how we look at the financial markets it’s not hard to see how overvalued most asset classes are. A straightforward way to reduce our exposure to the markets right now is to become more conservative with our investment strategy. If you’re worried about a financial crisis here are some ideas to consider…

  • Emphasize investing new savings into value stocks and dividend stocks rather than growth stocks.
  • Sell some equities and hold onto short term bonds or cash.
  • Stay away from IPOs and ICOs.
  • Find value in alternative investments such as peer to peer lending.
  • Write covered calls or buy some put options.

Any of those methods should help reduce portfolio losses in the event of a stock market correction.

My Strategy for 2020ย 

We can’t predict the future. But there are events we can anticipate ahead of time and be ready to make the correct decision when the time comes. Given what we know so far, I think one of two scenarios will happen next year.

1st scenario: The current course of expanding asset bubbles will accelerate – widening the wealth gap between the haves and have-nots even more. Private and public debts will grow.

2nd scenario: We see a dramatic economic slowdown followed by a recession in the U.S. first, and then probably in Canada. Central banks inject over $100 billion a month of new liquidity into the markets. Public debt grows. Private debt shrinks through paydowns and defaults.

Right now it’s impossible to know which scenario will play out. But I don’t see an in-between scenario happening. This isn’t financial advice or anything, but if I’m right about next year, then here are some investment opportunities to watch out for.

  • Real estate.
  • Silver stocks.
  • Telecom stocks.
  • Investment grade corporate bonds.

If either of the 2 scenarios play out then there will be a lot more debt owed by governments. This will cause inflation, especially if the money makes it into financial markets and trickles down to the consumer level. Inflation is also good for precious metals, and silver appears to be undervalued compared to gold right now. Phone and cable companies should also perform well next year as telecommunications tends to be an inelastic service. Canadian real estate prices have been cooling off since 2018. Meanwhile the TSX/S&P composite index climbed to an all time high last week. Compared to the stock market, the real estate sector seems like a bargain. Personally I will be looking at buying an investment property around the Greater Vancouver area. The expected return on investment for real estate about 7% under current conditions. If I see something I like and the price is reasonable then I will buy it. ๐Ÿ™‚

____________________
Random Useless Fact:

Facebook’s content moderators make about $29,000 per year.