Feb 172020

What should your net worth be?

Author Thomas J. Stanley, first published his Wealth Equation in the book, Marketing to the Affluent. He states that your household’s net worth should equal 10% of the age of the primary breadwinner times your household’s annual realized income.
So your expected net worth = (Age)x(0.1)x(Income)

If you are in the Balance Sheet Affluent category, also known as “prodigious accumulators of wealth”, then your net worth should be twice the expected value.

In short, you will be considered affluent if your net worth is 2x the expected result based on this equation. 🙂 This is not a perfect indicator of affluence as it usually becomes easier to accumulate wealth as people progress further in their careers. But it’s a good place to start looking at how you measure up to others in similar situations. Give the Stanley Wealth Equation a try for yourself and see where you land. 🙂

When it comes to reaching a net worth of a million dollars by age 60, a good rule of thumb is to save and invest 5% of your income in your 20s, 10% in your 30s, 15% in your 40s, and 20% or more during your 50s.


A passive way to increase your wealth

Wouldn’t it be awesome to grow your net worth without having to think about it? Well there’s a practical way to do this. 😀

According to Stanley, to build up a large amount of wealth you can simply live in a neighbourhood where your income is among the highest. For example, if your household income is $120,000 then you should live in an area where the median value of a home is less than $400,000. By doing so there’s a good chance that your income will be in the top 20% in that neighbourhood. Then you can live and consume as though your income was 20% or 30% lower than it actually is. Save the difference. Accumulate your wealth. And you will not feel like you’re missing out on anything in the meantime. 🙂

Living on less than you earn is pretty easy in this situation because people who live in the same area tend to have comparable fixed costs anyway. For example, many families who on the same block will pay similar rent. Property tax rates are also similar. Many residents will drive similarly priced cars, and shop at the same local grocery stores. Do you want to be the only household on the street with a $240,000 McLaren GT parked in the driveway while everyone else drives $30,000 sedans or $50,000 SUVs? Probably not. You’ll stand out like a sore thumb. Your neighbors will be jealous and think you’re a total snob. And you’ll be the designated target for any neighbourhood crimes such as vandalism, theft, property damage, or burglary.

So living in an area where your income is in the top quintile almost forces you to live within your means and save more. The average savings rate in Canada is only 3%. It’s higher in the U.S. at roughly 8%, but still on the low side. Where you live matters a lot to your wealth building potential.  If you live in a modest neighbourhood compared to your income you can easily keep up with your neighbours, while still maintain a large savings rate. 🙂


Random Useless Fact:

Pesticides can threaten biodiversity and are harmful to the environment.

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%? 😎

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! 😀

I’m currently worth $1,024,500 😀.  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. 😀

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. 🙂 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. 😉 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. 🙂 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. 😀 It would be nice to eventually earn a six-figure passive income from my investments.

Liquid’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: (ΔMoM)

  • Total Assets: = $1,406,600 (+22,100) 
  • 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

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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. 🙂 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 2020 

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. 🙂

Random Useless Fact:

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

Oct 072019

How to spot the warning signs of a looming recession

Last year I wrote a blog post explaining that a recession may not be far away. A recession is 2 consecutive quarters of negative economic growth. The indicators at that time were still questionable. But fast forward to today and wow, the signals have become much clearer! Here are 10 economic indicators that strongly suggest a U.S. recession could be imminent.

recession indicators to keep an eye on

  1. Inverted yield curve
  2. Unemployment rate reaching an inflection point
  3. The long term unemployment is flattening out
  4. Declining GDP growth
  5. Lower expectations for corporate earnings
  6. Manufacturing index PMI falls to 10 year low
  7. Global uncertainty index at all time high
  8. Declining Cass Freight Index
  9. The Fed Bank of New York drastically raised the likelihood of a recession
  10. Rising auto loan delinquencies

Additional breakdown of each of the 10 indicators below.

The yield curve has inverted

The graph below shows the difference between the 10 year treasury yield and the 2 year treasury yield. The yield curve tends to get flatter when the economy reaches the end of an expansion cycle. The vertical gray bars on the graph represent periods of recession. How reliable is this indicator? Over the last 50 years, every recession was preceded by a yield curve inversion. 😮 The graph dropped to below 0% earlier this year in March, officially inverting the yield curve. According to Credit Suisse, a recession occurs about 22 months on average after a yield curve inversion.

US 10 year treasury against 2 year treasury yields from FRED


The unemployment rate is bottoming out

A lower unemployment rate is good for the economy. But at the end of every full employment cycle is a sharp increase in the civilian unemployment rate, usually accompanied by a recession. When we last looked at this graph in 2018 the unemployment rate was at 4% and heading down. Today it is lower at 3.7%, a 50 year low in fact. Practically speaking it cannot drop much more than this. Historically we can see in the chart that after the lowest point in each employment cycle, the unemployment rate shoots up abruptly, usually coinciding with a recession.

Unemployment rate cycle against past recessions. The correlation is very clear.


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Apr 102019

The Dow Jones Industrial Average is one of the oldest stock indexes in the world. It tracks 30 of the largest U.S. stocks traded on the Nasdaq and the New York Stock Exchange, and for this reason is also sometimes known as the US30. These stocks are picked from a variety of sectors, including industrial material, financials, telecommunications, energy, information technology, and health care.

Like its rival the S&P 500, the Dow is a representative of the U.S. stock market. It’s often called the ‘blue-chip index’ due to the types of companies it contains.

Factors That Influence the Dow’s Movement

At the time of writing, the Dow has been in an uptrend for more than 9 years. This long-term bull market has been underpinned by the good performance of companies in the Dow, and the stable economic growth of the U.S.

So, what are the factors that can affect the Dow?

Well, we can’t continue this article without mentioning the important role of the Federal Reserve – the U.S. central bank. It’s responsible for maintaining the balance of the U.S. economy and keeping it growing. Interest rate decisions and announcements from the Federal Reserve, therefore, have a big impact on the Dow’s movement.

In addition, the Dow is also affected by U.S. economic data releases as they provide the indication of the current and future state of the U.S. economy. High-impact economic reports such as Employment Change, Consumer Price Index (CPI), Retail Sales, or Non-farm Payrolls can affect traders’ sentiment and make the Dow fluctuate.

Tips For Trading the Dow

  1. Keep an Eye on Economic Data Releases

As mentioned above, U.S. economic data and interest rate decisions from the Federal Reserve can influence the Dow’s performance. Therefore, remember to track them. Use a financial calendar to stay up to date with forthcoming news. Try not to miss any important events, because one second of distraction might cause you to miss a trading opportunity.

  1. Use a 200-Period Moving Average to Visualize Trends

Stock indices tend to move in one direction because they are based on price moves of the constituent stocks. Therefore, it’s a good idea to track their trends with a long-term moving average.

Professional DJIA traders often apply a 200-day simple moving average (SMA 200) to the Dow’s daily chart to measure its trends. When prices are above this line, they look for bullish trading opportunities on shorter-term setups. Conversely, when prices turn below the SMA 200, they prepare for bearish trading setups.

  1. Don’t Trade When You Are Emotional

Emotions may be good in love but are useless in trading. They negatively influence traders’ rational thinking and reduce their ability in making accurate decisions.

Sometimes, the Dow can strongly seesaw and you might react to this by changing your trades. But don’t let its fluctuations affect your long-term strategy. Keep in mind that indices tend to move in one direction, so the major trend should return soon.

Also, don’t trade when you are not fully alert or not feeling less than 100% physically or mentally. That’s not beneficial for your finances.

The Bottom Line

You have just discovered some useful tips to trade the Dow. Everything is up to you now. If you’d like to do some trading experiments, open a demo account. Or, if you are confident enough to get instantly into trading for real, go ahead and open a real trading account.

One important note: if you just start out, do it small. That will help you gain real experience trading the US30 at a low cost.