Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

Sep 162019

One advantage of owning real estate is being able to access the value of the underlying asset for financial gains. The more properties we own, the more equity we can use to buy additional properties. This is why it’s often easier for homeowners to grow their net worths, but harder for renters. One of the best reasons to refinance is to lower the interest rate on your existing mortgage. Historically, many lenders agree that refinancing is a good idea if you can reduce your interest rate by at least 1.00%.

As we know, a mortgage balance gets paid down slowly over time. In the beginning you might have a $300,000 mortgage. But maybe after the first 5 year term is over, your balance is only $250,000. When you go to renew your mortgage you’ll likely have a couple of options. One is to continue paying down the $250,000 balance. Assuming interest rates haven’t changed, your monthly mortgage payments would also be unchanged, because that’s how mortgages are designed. But the other option is to refinance at a higher balance so your total loan amount is increased. By refinancing, you can access up to 80% of your home’s value less any outstanding mortgages. So if the value of your property is now higher than when you bought it, you could potentially borrow more than your initial mortgage amount against your home. ๐Ÿ™‚ But your monthly payments would go up in this scenario because you have more debt.

In order to figure out when is a good time to use one method or the other, we need to consider the following factors.

  • How tight is your budget?ย 
    If you are already struggling to make ends meet, then it’s usually not a good idea to refinance at a higher balance. Just keep to the lowest amount until your income and spending situation improves.
  • Are there any investment opportunities out there?
    If you expect a good return on a potential investment, then it may be worth it to borrow more money against your home. For example, the Canadian Apartment Properties REIT (CAR.UN) has performed somewhat predictably over the years. Its 1-Year, 3-Year, 5-Year, 10-Year, and even 15-Year returns have all averaged over 10% per year. If my mortgage rate is 3% then that’s a 7% gap minimum, before taxes. It’s reasonable to assume that a margin of safety of 7% is a low level of risk, considering the stability of Canadian real estate.
  • Do you have any other debts?
    Using home equity is a great way to pay out higher interest debt through a refinance. For example, let’s say you have outstanding car loans, student loans, and credit card balances that combine to equal $50,000. Chances are these are all charging a higher interest rate than your mortgage. So instead of refinancing at $250,000 you could simply grow your mortgage debt to $300,000. And use the extra $50,000 to pay off your other debts, saving interest expenses over time.

In terms of how to get more equity out of your home, you could either take on a home equity line of credit, or blend and extend your current mortgage with your lender. Please be aware there are costs associated with refinancing. If you want to refinance in the middle of your term to access equity or lower your interest rate your lender will charge you a penalty. For fixed mortgage rates this penalty is the greater of 3 months interest or the interest rate differential payment (IRD). For variable mortgage rates this is simply 3 months interest. There may also be lawyer fees involved with a refinance. You can also have multiple mortgages from different lenders at the same time, but a 2nd or 3rd mortgage will often come with a higher interest rate and may not be worth it. So it’s important to consider which type of refinance you need before renewing your mortgage. ๐Ÿ™‚


Random Useless Fact:

Sep 032019

Gold and Silver Outshine the Equities Market

Stock markets fell in August across North America and Europe in general. ๐Ÿ™ But there is a silver lining. Precious metal companies managed to do quite well. A couple of months ago I explained why silver is a great investment for 2019, and how it’s more undervalued than gold. I disclosed buying 300 shares of Wheaton Precious Metals (WPM) in July because I thought the price of silver would continue to rise. Thankfully it did. My net worth today is $2,000 higher because of that one investment decision. ๐Ÿ™‚ Hurray!

Besides WPM I also own shares in Newmont Goldcorp (NGT.) If I didn’t have so much silver and gold related assets in my portfolio my net worth surely would have dropped in August. But diversification saved the day and I managed to grow my wealth by $4,100.

Gold had been in the dumps for several years since 2013. Its price dipped to a low of US$ 1060/oz in 2016. However things are looking very different now. Since the start of this year gold’s price has grown by 21%. It’s one of the best performing asset classes of 2019 so far, currently trading at $1548/oz. But silver has performed even better at 24% return year to date. The price of silver had a large rally last week and is now sitting at $19.17/oz. ๐Ÿ™‚ Precious metals are making a comeback this year, due to more dovish monetary policies worldwide and the uncertainty of the U.S. and China trade war.


Liquidโ€™s Financialย Update

*Side Incomes: = $2,700

  • Part time job =$900
  • Freelance = $400
  • Dividends =$1000
  • Interest = $400

*Discretionary Spending: = $2,200

  • Food = $400
  • Miscellaneous = $300
  • Interest expense = $1300

*Net Worth: (ฮ”MoM)

  • Total Assets: = $1,372,600 (+600)
  • Cash = $7,600 (+2100)
  • Canadian stocks = $189,500 (+300)
  • U.S. stocks = $135,300 (-1600)
  • U.K. stocks = $20,700 (-800)
  • Retirement = $134,800 (+200)
  • Mortgage Funds = $36,600
  • P2P Lending = $36,100 (+400)
  • Home = $367,000 (assessed land value)
  • Farms = $445,000
  • Total Debts: = $389,700 (-3,500)
  • Mortgage = $186,900 (-400)
  • Farm Loans = $163,400 (-400)
  • Margin Loans = $35,400 (-700)
  • Line of Credit = $4,000 (-2000)

*Total Net Worth = $982,900 (+$4,100 / +0.4%)
All numbers are in $CDN at 0.75/USD

I have been an advocate of gold and silver since 2011, suggesting everyone should have at least a little bit of each in their portfolios. The value of my 1 kilogram Arctic coin has held up nicely in Canadian dollars. I have been slowly buying more bullion over the years at lower prices than today and stashing them away.

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Aug 192019

Millennials swell to 73 million as Boomers decline to 72 million

This year millennials have overtaken baby boomers as America’s largest living adult generation, according to population projections from the U.S. Census Bureau. This will have implications for how financial services are consumed now and in the future.

A new report called the Apex Millennial 100 takes a deep dive into the “unique investment behavior of a new generation.” It analyzed over 658,000 accounts held by millennials, which had more than 8,000 different stock holdings.

Apex CEO says that as “millennials mature into savvy investors, their evolving interests and values will shape a new wealth management industry, one that looks a lot different from the traditional model.”

Top 10 stocks held by Gen Y

Here is a list of the top 10 stocks most favored by millennials. Notice how heavily its concentrated on the high tech industry. ๐Ÿ™‚

Maybe it shouldn’t be surprising how many digital companies are on the list. As famous investor Peter Lynch suggests, you should always invest in what you know. You must value the business in order to value the stock. And these are the type of companies you would expect millennials to know most intimately about. I personally interact with several of these companies on a regular basis. ๐Ÿ™‚ You can see the entire list of 100 stocks here.

Some trending stock themes from the report include:

  • An increased focus on Canadian cannabis companies, which demonstrates the growing role marijuana may have on the medical and lifestyle decisions of millennial investors.
  • Chinese companies are leading the pack as millennials, who consider themselves to be global citizens, take the long view on international investments.
  • IPOs: Millennials consistently show support for companies that mirror their personal ideologies and offer products and services they understand and value, and will jump to invest in companies like Uber, Lyft and Slack as soon as they go public.

I can understand why other millennials are choosing these companies since I have a similar inclination to do so. I have fewer than 100 stocks in my portfolio. But somehow I hold most of the top 10 companies from the report. One of the most recent stock I purchased was Alibaba Group (BABA) which is already 15% higher since I bought it a couple of months ago. ๐Ÿ˜€ I guess I’m an example of your typical millennial investor. ๐Ÿ™‚ The only stocks I don’t own on that top 10 list are Tesla, Berkshire Hathaway, and Microsoft.


Random Useless Fact:

According to Reuters, California and Texas are the 2 states with the highest number of school shootings.

Aug 062019

Much like raising horses, financial markets are at their best when they are in a stable environment. ๐Ÿ˜€ But when the economy starts to show signs of weakness, officials may step in to ease the situation. One way they do this is by making money cheaper to borrow.

July was an okay month for stocks. But the bond market was where all the action took place. ๐Ÿ™‚ A couple of weeks ago I blogged about buying the long term bond etf (ZLC.TO) because I thought interest rates were about to fall. Luckily that was a pretty good move. A week later, for the first time in over a decade, the Federal Reserve actually lowered rates in the U.S. This means that rates in Canada may fall later this year as well. Long term bond funds increase in value when interest rate falls because existing bonds in those funds pay more money than newly issued bonds. The price of ZLC is already up 2% since last month. It also pays 4% interest every year. ๐Ÿ™‚

My income was pretty good in July, and quite a bit higher than this time last year. Since interest rates are dropping I decided to increase my financial leverage a little bit. I borrowed $6K from my LoC to buy some new commodity stocks which I discussed in a previous post. I plan to pay back the debt before the end of the year but keep my investments for many years. ๐Ÿ™‚

Liquidโ€™s Financialย Update

*Side Incomes: = $2,900

  • Part time job =$800
  • Freelance = $300
  • Dividends =$1000
  • Interest = $700

*Discretionary Spending: = $2,200

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

*Net Worth: (ฮ”MoM)

  • Total Assets: = $1,372,000 (+19,000)
  • Cash = $5,500 (-2000)
  • Canadian stocks = $189,200 (+12600)
  • U.S. stocks = $136,900 (+6100)
  • U.K. stocks = $21,500 (-200)
  • Retirement = $134,600 (+1600)
  • Mortgage Funds = $36,600 (+600)
  • P2P Lending = $35,700 (+300)
  • Home = $367,000 (assessed land value)
  • Farms = $445,000
  • Total Debts: = $393,200 (+4,800)
  • Mortgage = $187,300 (-400)
  • Farm Loans = $163,800 (-400)
  • Margin Loans = $36,100 (-400)
  • Line of Credit = $6,000 (new)

*Total Net Worth = $978,800 (+$14,200 / +1.5%)
All numbers are in $CDN at 0.76/USD


I’m less than $22K away from a million dollar net worth. Wow. ๐Ÿ™‚ One more month of positive stock market returns and I may just hit it by the end of August. Even though many experts warn of a U.S. recession by 2020, it wouldn’t be a good idea to try and get out of stocks before a bear market hits. Simply holding on to good businesses can be very profitable over time.

Technically, falling interest rates don’t just benefit bond funds – it’s also good for the stock market. But things are looking less certain with global trade disputes, and the elections coming up. I think we may see a small stock market correction before more stabilization in 2020. But who knows. In the meantime I still like the precious metal sector. I think gold and silver will finish 2019 really strong. ๐Ÿ™‚


Random Useless Fact:

Social media companies monetize their user’s personal information.

Jul 252019

The Canadian federal election is coming up soon. And after that the U.S. presidential race will be in full swing for the 2020 election. Will the incumbent Donald Trump stay for another 4 years? It’s hard to make that call at this point. But perhaps there are some investment opportunities we can look at in the meantime.

Unfortunately the financial market as a whole isn’t particularly attractive right now. The S&P 500 currently has an Earnings Yield (EY) of just 4.45%. So if we put money in a stock market index fund today, we will likely receive an annual return of 4.45% based on corporate earnings, and assuming all other factors stay the same. This is noticeably lower than the long term average EY of 7.35%. Although 4.45% isn’t the worst return you can get, after paying maybe 1% of that in tax, and losing another 2% to inflation, the net real return on investment would be less than 1.5%.

That’s why I’ve decided to be more selective about which assets to buy. One thing you can always count on during an election is uncertainty. The market hates that word. One whiff of uncertainty and investors leave the stock market faster than a guy after hearing the results of the pregnancy test. This upcoming election comes at a time when the U.S. economy is slowing due to record amounts of debt weighing it down. According to the New York Fed, household debt increased for 19 quarters in a row, and is now nearly $1 trillion above the previous peak. Student loans have doubled since 2006 as a percentage of GDP. This will most likely lead to interest rate cuts in the United States to help bolster the economy. And my assumption is that the Bank of Canada will take similar action soon after, as it often did in the past. Lower interest rates usually boosts the stock market and commodity prices.

So for the next 6 to 18 months, I think the best asset classes to be in are bonds, prime real estate, and precious metals. Long term bond funds are highly sensitive to interest rate changes. But as long as we’re quite confident that rates aren’t moving up, then bond funds should provide a low risk option to earn some interest income, with the added potential for capital gains if the price of borrowing become cheaper.

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