Aug 172017
 

Holding some cash for emergencies or opportunities is a sound idea. But having too much cash sitting around instead of putting the money into investments can be financially unwise.

Like most things in life, there is a cost component to cash – which is that cash usually produces lower returns than other asset classes such as stocks or bonds. One advantage of holding cash is to deflect volatility in a portfolio. But with a longer time horizon investors can manage volatility by using fixed income vehicles instead of cash. Long term corporate bonds from large, stable companies such as Enbridge pay 3.5% or higher annual returns, easily beating the interest earned in a savings account. 🙂

According to investment management company, BlackRock, people who have allocated their money towards cash or cash equivalent assets actually lost purchasing power in the past. The value of their savings slowly whittled away at 0.8% per year on average between 1926 and 2014. This gives a whole new meaning to cash poor.

Holding cash for one or two years isn’t a big deal because the loss is very small. But over time it can build up to significant loss of buying power. The longer the investment time horizon, the less cash investors should consider holding. For a multi-decade horizon and high return objectives, which is the strategy I’m personally using, having excess cash savings would be a liability because it produces negative real returns. Sometimes the risk is not being aggressive enough with our investment plan and losing out on easy gains.

According to a survey by State Street’s Center for Applied Research, globally retail investors are holding 40% of their assets in cash. Uh oh. If someone has 60% of their portfolio in bonds, and the rest in cash then they could be making zero progress with their portfolio after inflation and tax.

If I’m sure I won’t touch my money until I retire, then I should take advantage of my long time horizon. This is why I don’t keep more than 1% of my net worth in cash, unless I’ve earmarked savings for a large, specific purchase. 🙂

 

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Random Useless Fact

Aug 092017
 

It was a slow month in July. But  at least I’m back in the black. 🙂 Household expenses were pretty normal, but incomes were above average; I received $800 of interest payments from a variety of loans such as P2P lending contracts and mortgage investment corporation funds. Yay!

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $1100
  • Freelance = $700
  • Dividends = $800
  • Interest = $800
*Discretionary Spending:
  • Fun = $300
  • Debt Interest = $1100

*Net Worth: (ΔMoM)

  • Assets: = $1,111,700 total (-2,000)
  • Cash = $2,500 (-2800)
  • Canadian stocks = $146,400 (Unch)
  • U.S. stocks = $91,400 (-200)
  • U.K. stocks = $19,900 (-200)
  • RRSP = $83,100 (+500)
  • Mortgage Funds = $31,500 (+500)
  • Peer-to-Peer Lending = $21,100 (+200)
  • SolarShare Bonds = $9,800
  • Home = $270,000
  • Farms = $436,000
  • Debts: = $481,600 total (-4,400)
  • Mortgage = $182,500 (-400)
  • Farm Loans = $188,300 (-500)
  • Margin Loans = $57,900 (-2400)
  • TD Line of Credit = $12,400  (-600)
  • CIBC Line of Credit = $24,500 (-500)
  • HELOC = $16,000 (unch)

*Total Net Worth = $630,100 (+$2,400 / +0.4%) 
All numbers above are in $CDN. 

I took some savings in July and paid down some of my higher interest debts. Now that the cost to borrow is 0.25% higher I have to lower my overall debt to not become overwhelmed by interest payments.

 

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Random Useless Fact

Sometimes tough love is the best way to learn.

Jul 312017
 

One of the best thing we can do with our incomes is to deploy it as efficiently as possible. This means spending money on the highest priorities before paying for less important things. In 2015 I created a priorities list detailing how to spend one’s income to maximize financial success. The last time I updated that was chart was last year.

I recently came across another flowchart on the internet created by Reddit user u/atlasvoid. It has a lot more information than mine and is worth a read because there might be something in there that we didn’t think of before. Of course since everyone has different values and priorities, there can never be a once-size-fits-all income allocation flowchart. 🙂 They are only a reference point at best, based on people’s average financial situation. Feel free to move around certain nodes in the flowchart to better suit your own individual circumstances.

Here is the Canadian version. Click the flowchart to make bigger.

 

Click here to download the income flowchart for Americans, created by the same Reddit user.

 

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Random Useless Fact

Some bartender added 1 cent to this customer’s bill in order to make the total come to $69.69

Jul 272017
 

A recent poll from Harvard University points out that 51% of young adults between 18 and 29 years of age do not support capitalism. 🙁 Only 42% said they support it. Of course the results of these kinds of surveys are not easy to interpret. Capitalism doesn’t have the same meaning for everyone. One explanation for the outcome could stem from the fact that not all millennials understand what capitalism is. They may be frustrated with crony capitalism or corporatism, which is rampant in the world today. But those are not the same as capitalism.

The idea of capitalism simply means a free market system where individuals have the rights to personal property and the enforcement of their contracts. 🙂 That’s it. Another survey that included people of all ages found that only respondents who are at least 50 years old supported capitalism for the most part. Older people understand that capitalism works well because government intervention was measurably less in North America before the 70s so there were less lobbyists and public bailouts. The ratio of government employees to the general population in the United States has grown under Obama and Bush.

It’s ironic that the cohort most against capitalism is generation Y. They of all people are most dependent on the advantages offered by the free market system. 🙂 Millennial don’t really care about government pensions or public health insurance all that much. But they will be become very upset if you take away private services like Facebook, Amazon.com, Netflix, or any of Google’s services (Google Search, Gmail, etc.)

Popular TV personality Jim Cramer once created the acronym FANG. It represents 4 of the most popular and best-performing technology companies on the stock market. FANG stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOG) (GOOGL), which has now become Alphabet.

Last week I purchased 8 shares of Facebook at $164 each. 🙂 It’s a U.S. stock and doesn’t pay a dividend, so for tax purposes I bought it inside my TFSA at TD. Year to date all the FANG stocks have returned at least 25% to investors. Yay! I already had the other 3 stocks so by picking up FB I now have a full FANG portfolio. 😀 Amazon has grown to a market capitalization worth half a trillion dollars as of writing this post!

Millennials in general may say they don’t support capitalism. But they sure spend a lot of money, time, and attention helping some of the most capitalist entities in the world become even more profitable. As the saying goes; actions speak louder than words. And the trend is clear. For the sake of my financial goals I will continue to invest in large tech stocks and trust the free-market will provide growth over the long run. 😉

 

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Random Useless Fact:

Carrots were originally white or purple. Then a yellow carrot appeared through mutation and the familiar orange carrot we see today was bred from it.

 

 

Jun 152017
 

We’re Living Longer

I don’t know how the term “aging gracefully” can be a compliment. To me it just sounds like a nicer way of saying you’re slowly looking worse. 😛 When the government pension (CPP) was first introduced in the 1960s, the average life expectancy was about 71 years old. The idea was that most workers would retire at around 65 years old, and receive 5 to 10 years of CPP benefits in retirement. And that was the case for awhile. 🙂 But today, the average life expectancy in Canada is over 80 years old which puts more pressure on the CPP investment board to perform well. It’s not unreasonable to assume that my generation of workers (millennials) could have a life expectancy on average of 90 years or older.

According to a Telegraph article, we could witness in our lifetime a world where most babies will have a life expectancy of 100 years or longer! 😀 It’s nice that people are living longer than previous generations. But it’s also kind of sad to think about getting old. Can you imagine having sex when you’re 90? It’ll probably be like trying to shoot pool with a rope. 😕

Young adults are also starting careers later today than in the 60s. So with relatively less money going into the sovereign wealth fund, and more people withdrawing, many economists are worried about the future sustainability of government benefits on the local, provincial, and national level – not just in this country, but all around the world.

If generation Y folks are likely to live to 90 years old, then planning to retire at 65 may not be financially feasible unless a large amount of wealth is saved up first. For those who are planning to retire early like myself, it is even more difficult. Assuming I reach financial freedom by 35, I will have 55 years of living in retirement if I choose to. That sounds great. But the reality is I will most likely be working on and off, or on a part-time capacity throughout my 40s and 50s because there are only so many non-productive activities I can do before I get bored and start working on something economically productive again. 🙂

So instead of planning to live until 80 years old, most healthy people my age should be aiming for 90 as the starting point. And with that it means accumulating more personal savings for retirement. But also keeping in mind that there is no set retirement age anymore, so plan to be flexible with work schedules to accommodate a balanced lifestyle.

 

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Random Useless Fact: