January is one of my favourite months because I tend to benefit from the New Year’s bump phenomenon which earns me a lot of money without requiring me to do any work. A typical monthly net worth increase for me is roughly $4,000. But in January this number can easily double. This annual boon is the product of two main factors. 1) High quality financial assets that I often write about like my recent REIT investment. And 2) natural market forces that occur at the beginning of every year.
Part-Time Work =$700
Debt Interest = $1500
*Net Worth: (MoM)
Assets: = $847,300 total (+9,900)
Cash = $3,200 (+400)
Stocks CDN =$88,400 (+500)
Stocks US = $56,100 (+2800)
RRSP = $52,600 (+1200)
MICs = $15,000 (same)
Home = $259,000 (+5000)
Farms = $373,000 (same)
Debts: = $516,700 total (-1,100)
Mortgage = $195,400 (-300)
Farm Loans = $203,000 (-500)
Margin Loan CDN = $26,800 (-100)
Margin Loan US = $26,300 (+1200)
TD Line of Credit = $29,800 (-200)
CIBC Line of Credit = $10,000 (-400)
HELOC = $18,200 (same)
RRSP Loans = $7,200 (-800)
*Total Net Worth = $330,600 (+$11,000 / +3.4%) All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.79 USD
A couple of months ago my investment in Tim Hortons came to an end as the company was purchased by Burger King and I realized a profit of over 100% in less than 2 years. In the end I was given some shares of the new holding company, and a handsome payout of $1,700 in cash. If you also bought some Tim Hortons after reading my previous post about why I decided to invest in the world of coffee then congrats on your gains!
So I’ve been itching to invest the new $1,700 in my TFSA. But the problem was TINA. The stock market in general is grossly overvalued relative to historical price to earning ratios. The Canadian real estate market doesn’t look any cheaper, and the capitalization rates (expected return on rent) in most cities here are embarrassingly low at the moment. Furthermore, Canada’s economy just suffered a net loss of 11,300 jobs last month, which pushed up our unemployment rate to 6.7%. All major banks in this country have lowered their Prime lending rates to 2.85% in an attempt to encourage more economic growth. In times like these it may be prudent to hold off on investing in Canada.
So does that mean there’s nothing worth investing in right now?
Nein! By thinking outside the box I have found a solution to still put my extra cash to good use.
Dream Global REIT (TSX: DRG.UN), formerly Dundee International Real Estate Investment Trust, is an investment trust that basically buys office and retail buildings in Germany, and then rents them out to make money. Its portfolio consisted of 279 properties, comprising approximately 15.8 million square feet. Dream Global enables investors like us to diversify our holdings, as major pension plans and other large institutional investors have done, by incorporating international commercial real estate into our portfolios.
Rich people dream of the future. They prioritize setting goals and planning ahead. Meanwhile the poor and middle class often dwell on the past, which holds them back and prevents them from being happy and productive. The wealthy are financially successful because they spend more time thinking about their future than their past. They believe their circumstances are not a matter of chance, but a matter of choice. Their future is not something they wait for. It’s something they plan for.
We can’t turn back time or change the past, but we can all fight for a better future. Our past provides the foundation for our future, and our present defines what kind of future we want to build on that foundation. Every waking moment in the present is an opportunity for us to make better decisions that will help our future selves. Wallowing in regret or past mistakes will not help us in this respect. Whenever we become woeful we should try to acknowledge our emotional state, and then ultimately realize that our despairs or recollections about what happened in the past are simply ephemeral memories.
The past can be useful, but only if we learn from it. If we failed a driving test, told an inappropriate joke, or didn’t get that promotion we wanted, we should absolutely think back and learn from our experiences, but more importantly strive to do better in the future. Instead of puzzling over what we could have done differently, we should instead be asking how can we do better next time. This shifts the focus from the past – a fleeting memory – to the future, where we’ll actually have an opportunity to do something about it.
Today’s post is about something of interest to a lot of people. Earlier this week the Bank of Canada surprised just about everyone with an interest rate cut from 1.00% to 0.75%. The Canadian dollar dropped to the lowest it’s been in years. Over 20 economists were surveyed prior to the Bank’s bomb shell reveal and not a single one of them expected the news, lol. Maybe economists are just there to make weather forecasters look good.
Even our country’s most prolific real estate blogger, Garth Turner, was taken by surprise. Just last week a commentator on his site named BlackDog pointed to a report which predicted this week’s interest rate cut, and Mr. Turner promptly replied to dismiss the report. Not even a best-selling Canadian author of 14 books on economic trends saw this announcement coming. It just goes to show how difficult it is to read the minds of central bankers.
The Rate Cut is good for:
Debtors who have variable rate mortgages, lines of credits, car loans, student loans, or other types of floating rate debts. Every $100,000 of debt one has will translate to about $20 a month of LESS interest one has to pay.
Investors in the stock market. Lower cost of borrowing is a type of monetary stimulus that has the same effect of printing money. The U.S. stock market has gained 100% over the last 6 years since it began it’s Q.E. programs.
Existing bond holders. Lower coupons on new bonds mean existing bonds are worth more.
Industries like manufacturing, exports, hospitality, tourism, companies with primarily $USD revenue, or any other businesses that benefits from a lower Canadian Loonie.
People who have debt in general. Lowering interest rates is inflationary which diminishes the value of one’s debt.
Home owners. Rate cuts drive real estate prices higher.
The Rate Cut is bad for:
Savers. High interest savings accounts are looking less attractive with the threat of inflation.
Consumers. Canadians import a lot of food and staple items from the U.S., which will cost more for us with a lower $CAD.
Cross border shoppers. Trips to the U.S. will become more expensive.
People living on a fixed income, like pensioners.
Retailers who’s suppliers are from outside of Canada
Thank you Stephen Poloz for this rate cut. I appreciate your continuing support to prop up the already inflated housing market in Vancouver and increasing my home’s value. You’ve successfully penalized all the savers and risk adverse members of the investing community by lowering the returns on their GICs and term deposits. You have instead rewarded the speculators and heavily leveraged investors, such as myself, by leaving more money in our pockets, and encouraging even more borrowing activity! Hurray for cheaper financing and more incentive to use debt because that’s exactly what Canadians need more of right now. I applaud your push for higher inflation with this rate cut. The 2% CPI in 2014 just wasn’t high enough. I’m sure making it even more expensive to live in this country is exactly what consumers want, especially when more people are out of work now than a month ago.
“We can’t get the numbers to work and would appreciate some help,” pleads Eric, a 41 year old physician who lives in Vancouver, B.C. and makes $300,000 a year. His wife is a dentist and together they typically earn a combined household income of $450,000. Eric regrets “not having bought a house years ago.” He further admits that he has “no pension whatsover.” It’s clear that the couple in this Globe & Mail article has trouble making ends meet.
Furthermore, Eric and his wife do not have life nor disability insurance, which is a dangerous and unnecessary risk, especially when they have five children. With annual expenses totaling $300,000 a year, this desultory family is basically living paycheque to paycheque. So far they’ve put their lifestyles ahead of their financial matters and now, like a crab in financial difficulty, they are starting to feel the pinch. Oh woe is them.
Vancouver may not be the cheapest city to raise a family in, but no amount of money can fix the problem of living carelessly beyond one’s means. Money can buy a lot of things, but ironically it cannot buy financial freedom, which is where financial literacy comes in. Having money alone is not enough to be complacent. Financial literacy is also paramount to our financial security, and helps us discover what money truly represents. Because what does $1,000,000 in the bank actually mean if we don’t even understand the value of money.
We can also learn to spend with value in mind, prioritizing what’s important to us over the non-essential expenses. We can use these strategies to experience satisfaction and the raptures of life without spending an arm and a leg. Unfortunately no one ever told Eric and his wife about this because they spend $24,000 a year on family vacations, and send their kids to private schools, yet they can barely afford to keep their heads above water, let alone save for their own retirements.
Many celebrities, professional athletes, and lottery winners who were once wealthy are now facing financial difficulties. All those people, just like Eric, have one thing in common; they lack basic financial management skills like budgeting, investing, and financial planning.
Medical professionals are some of the hardest working, and smartest people I know. And they deserve every dollar they make. But having money alone clearly isn’t enough. We must also be financially literate to survive in today’s economy. Intelligence and talent will only affect our abilities to earn a living, but they DO NOT determine our aptitude to keep any of it. Hard work leads to money, but financial literacy shows us what to do with the money once we get it.