May 022016
 

My net worth increased $64,000 so far in 2016 

Goodness gracious me! 😀 That’s even more than my annual gross salary. Maybe I should quit my full time job already. Haha. 😜

But here’s the caveat. My net worth is measured in dollars. So I’m only becoming richer relative to the local currency. But as we shall discuss below, currency depreciation can be a real PITA. 😛 Policy makers from around the world are covertly initiating inflation to see which country can print the most money to improve their economy’s competitiveness. But by doing so, the devastating knock-on affects will financially destroy millions of lives in the years to come. 😱

Higher Living Expenses in 2016

If you’ve purchased car tires before you are probably familiar with inflationary pressures. 😆 Inflation has been fairly high in 2016 so far. The government won’t admit it for political reasons, but regular folks like you and I have most certainly felt the effects of rising expenses in our wallets. Over the last year nearly all types of spending in Canada have become more expensive.

16-05-inflation-cost-of-living-canada

Crude oil was trading at US $35 per barrel when the year started, but now it’s just over $45, a 29% increase. Coincidentally the price of silver bullion has also increased by 29% over the same 4 month period. The price of oil affects the price of many consumers goods, not the least of which is food, due to transportation costs. And since we use silver in photography, x-rays, solar panels, mirrors, cars, medicine, smart phones, and other consumer electronics, we can expect higher costs in these related fields moving forward.

Then there’s the largest monthly expense for most people – housing. 🏠 The most recent S&P/Case Shiller index shows that U.S. home prices in February grew 5.3% year over year. I don’t even have to mention how crazy hot the Canadian real estate market has been lately. 😛 CREA forecasts the national average price this year will probably increase by 8%.

16-05-home-price-canada-crea-forecast

So house it going on the west coast? you might ask. Well let’s just say February was a record-shattering month for home sales in British Columbia, with a 45% increase in volume compared to a year ago.

How Investors Hedge Against Inflation

A few years ago I wrote a post detailing how prices of different goods increased 100% to 200% between 1990 and 2010. But if we were to store our net worth 20 years ago in real tangible assets such as oil, land, fixed properties, silver, and profitable businesses, instead of simply holding on to money or “savings,” then we could keep all of our purchasing power.

The reality is that life doesn’t cost more over time. In the 1990s if we needed fuel, we could buy 2 or 3 barrels of oil with 1 ounce of silver. Today in 2016, we can still pretty much do the same thing. On the other hand, buying oil with dollars would cost us 150% more today than in 1990. In other words, the costs of time, labor, skills, commodities, goods and services, which are all things that have intrinsic value, tend to stay fairly constant across multiple generations for the most part. But it’s the currency that is usually the clear outlier and it tends to lose value over any extended period of time.

One way we can hedge against inflation is through investing. Here are some choices that I’ve made in the past that have made 2016 one of my best years so far!

  • Buying precious metals stocks: I own metal mining stocks such as Goldcorp (G) and Silver Wheaton (SLW) which have outperformed the general stock market recently. But I’m in no way a good stock picker. 😛 The Market Vectors Gold Miners ETF (GDX) on the NYSE is an index fund that tracks the performance of global gold mining firms that are publicly listed in the U.S. This ETF has climbed 88% year to date! 😲 So anyone who holds a basket of gold/silver stocks or owns this GDX fund should be dancing on cloud nine right about now. 🙂
  • Buying physical commodities: I occasionally purchase silver and gold directly from the Royal Canadian Mint and bullion exchanges. For example, about half a year ago I bought a 100 oz silver bar which has appreciated in value since then. 🙂 I also practice earning silver wages, which basically means I make a portion of my money in silver to diversify my income. I’m not suggesting everyone should go out and do this too. I’m just saying from my personal experience this has been profitable for me.
  • Buying farmland: My down payment was less than 15% so this amplifies my return on investment by many folds. Canadian farmland prices have grown on average by 10% last year, which boosted my net worth by more than $30,000 as I’ve explained last month.
  • Buying real estate: I purchased a condo here in Vancouver when many people warned of a real estate bubble. Maybe they’re right, maybe they’re wrong. All I know is Vancouver condos have increased in price by 10% over the last year, adding over $25,000 to the market price of my property.

As we can see all these investments represent real, tangible assets that have economic value, and therefore do not suffer at the hands of inflation. Everyone wants to know the secret to investing. But it’s really quite simple. All we have to do is look at historical patterns in the economy and apply common sense. 🙂 Piece of cake, right? 🍰

Liquid’s Net Worth Update

My investment income is really starting to grow now thanks to 7 years of compounding. I received $360 in interest payments in April between my Air Canada bonds and Antrim MIC. Plus I made $720 in dividend income from my stock portfolio. That’s nearly $1,100 of passive income that I made without any effort. 🙂

*Side Incomes:

  • Part-Time = $800
  • Freelance = $700
  • Dividends = $700
  • Interest = $400
*Discretionary Spending:
  • Fun = $300
  • Debt Interest = $1300

*Net Worth: (MoM)16-04-stock-fiscal-update-networth

  • Assets: = $971,900 total (+23,900)
  • Cash = $5,200 (+2700)
  • Stocks CDN =$113,900 (+3800)
  • Stocks US = $65,600 (-3800)
  • RRSP = $68,100 (-1000)
  • Mortgage Funds = $23,100 (+200)
  • Home = $263,000
  • Farms = $433,000 (+22,000)
  • Debts: = $487,500 total (-2,800)
  • Mortgage = $189,200 (-400)
  • Farm Loans = $195,900 (-500)
  • Margin Loan CDN = $28,300 (-100)
  • Margin Loan US = $24,500 (-1400)
  • TD Line of Credit = $20,600  (-400)
  • CIBC Line of Credit = $11,000
  • HELOC = $18,000

*Total Net Worth = $484,400 (+$26,700 / +5.83%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.79 USD

Stocks were pretty much flat in April. But my net worth increased by over $26,000 mostly due to the updated farmland value. The most recent FCC assessment report shows Saskatchewan farmland value rose 9.4% in 2015. The average inflation rate (CPI) in Canada in 2015 was about 1.4%. To be on the conservative side, I have adjusted the farmland value on my net worth statement by taking the average of these two figures, which is 5.4%, or an increase of about $22,000.

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Apr 072016
 

Market Bounce

Woohoo! Investors can rejoice as March 2016 was one of the best months for the stock market in recent memory. 😃 The S&P 500 and Dow Jones gained 6.9% and 7.1% respectively. Even the commodities-heavy S&P/TSX Composite in Canada managed to end the month 4.9% higher than it started. What do all these numbers mean? Well let’s pretend to be architectural drafters for a moment so we can put things in perspective. 😆 A broad North American equity index fund portfolio worth $250,000 would have returned about $15,000 during March. That’s not too shabby at all. 🙂

16-04-stock-performance-march-tsx-2016

I made a couple of new investments in March, such as buying Air Canada bonds in my RRSP, and adding more Antrim MIC units to my existing holding in my TFSA. In other news, as many people already know, earlier this year Suncor reached a $4.2 billion deal to buy out Canadian Oil Sands. My COS shares were finally tendered in March. This means my 123 COS shares were replaced by 34 new SU shares. 🙂 This brings my total Suncor holding to 200 shares, or $7,200 in market value. Wow that’s a high concentration of money in just one stock. 😰 Thankgoodness Suncor is a high quality company. 😀

*Side Incomes:

  • Part-Time = $800
  • Freelance = $500
  • Dividends = $600
  • Interest = $200
*Discretionary Spending:
  • Fun = $200
  • Debt Interest = $1300

*Net Worth: (MoM)16-04-stock-fiscal-update-networth

  • Assets: = $948,000 total (+17,400)
  • Cash = $2,500 (-5000)
  • Stocks CDN =$110,100 (+8100)
  • Stocks US = $69,400 (+900)
  • RRSP = $69,100 (+6,300)
  • Mortgage Funds = $22,900 (+7,100)
  • Home = $263,000
  • Farms = $411,000
  • Debts: = $490,300 total (-4,300)
  • Mortgage = $189,600 (-400)
  • Farm Loans = $196,400 (-500)
  • Margin Loan CDN = $28,400 (-100)
  • Margin Loan US = $25,900 (-3,700)
  • TD Line of Credit = $21,000  (-600)
  • CIBC Line of Credit = $11,000 (+1000)
  • HELOC = $18,000

*Total Net Worth = $457,700 (+$21,700 / +4.98%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.77 USD

Thanks to the large gains in the markets my net worth almost increased 5%. Furthermore, it’s another month where I earned over $2,000 from side incomes. 🙂 My dividends and interest payments are getting bigger each quarter! But it’s no big deal. 😅 All I did was consistently invest in dividend growth stocks and high interest fixed income securities for the past 7 years.

But is this recent market rally sustainable or is it on borrowed time and we’re past due for a correction? I think it doesn’t hurt to be cautious when stocks are trading beyond their fundamentals, so I’m preparing for a potential pull back by keeping some cash around. My immediate plan for April is to save more money, pay down some debt, and fight any urge to buy a new stock that happens to catch my attention. I realized that I should probably divest away from the stock market a bit as it’s taking up too much of my asset allocation.

I’ve been corresponding with a venture capital firm in the U.S. about investing my money in some start-up companies. 😉 I haven’t decided to do anything with this yet, but I think it’s a worthwhile opportunity to explore. Providing seed money for small businesses can have big payoffs with the right management team and execution, but it is also much riskier than investing in the S&P 500. 🙈

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Random Useless Fact:

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Mar 042016
 

Wall Street Cuts S&P 500 Estimates

One reason investors have made so much money in the last 7 years is because the stock market has done well since the great recession. The total annual returns for the S&P 500 stock index have been positive every year from 2009 to 2015 inclusive. But recent earnings reports suggest that the bull market cycle may be coming to an end soon. 🙁

Seven banks recently reduced targets for the U.S. stock market for 2016. This comes after the 3rd straight quarterly earnings contraction of the S&P 500, which hasn’t happened since 2009. Based on historical data negative earnings growth of the stock market often comes with a high probability of an economic recession.

16-03-earnings-growth-sp500

There are even some analysts who believe America’s economy is already in a recession, much like Canada’s was last year. But we won’t know for sure until the GDP numbers come out months from now. Despite the weak earnings data however, North American stock markets still managed to end the month of February pretty much flat. But this could be the beginning of a down turn.

*Side Incomes:

  • Part-Time Work = $1100
  • Freelance pay = $400
  • Dividends = $600
  • Interest = $200
*Discretionary Spending:
  • Fun = $200
  • Vacation = $500
  • Debt Interest = $1400

*Net Worth: (MoM)16-02-net-worth-january-volatile

  • Assets: = $930,600 total (+5,100)
  • Cash = $7,500 (+2000)
  • Stocks CDN =$102,000 (+4800)
  • Stocks US = $68,500 (-1500)
  • RRSP = $62,800 (-200)
  • MICs = $15,800
  • Home = $263,000
  • Farms = $411,000
  • Debts: = $494,600 total (-3800)
  • Mortgage = $190,000 (-500)
  • Farm Loans = $196,900 (-500)
  • Margin Loan CDN = $28,500 (-1000)
  • Margin Loan US = $29,600 (-1400)
  • TD Line of Credit = $21,600  (-400)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,000

*Total Net Worth = $436,000 (+$8,900 / +2.1%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.74 USD

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Feb 012016
 

The Current State of Canada’s Economy

The economy isn’t so hot these days. Oil is down and so is the Loonie. The issue isn’t that we’re at a low point in the economic cycle. The problem is how quickly this happened and caught most people off guard. The price for a barrel of oil fell from $100 to $30 in just 18 months, which triggered big layoffs in our resource based economy, forcing many desperate folks to search for other means to make a living. Luckily my major oil holdings like Chevron is still doing okay.

16-02-current-state-canada-economy-moose

But it’s not just this country that’s struggling. The entire global economy is slowing down and there are problems in the jobs market across every continent. The Bank of Japan recently announced the use of negative interest rates. This is a pretty big deal. The 3 most used currencies in the world can be manipulated by the European Central Bank, the Bank of Japan, and the Federal Reserve. Both the ECB and BoJ have played the negative interest rate card to devalue their respective currencies. The only bank remaining is the U.S. Fed. Will the U.S. try to stimulate its economy by lower rates into the negative? I think there’s a good chance it will. But since I can’t predict monetary policy I’m just going to focus on my long-term financial plan and stick with what I know. 😀

Maintaining a Long-term Perspective in a Volatile Market

Since my investment portfolio is based on my risk tolerance, short-term events should have little effect on my long term retirement and savings goals. There are many Investment Personality Questionnaires (IPQs) which can be found for free on the internet. Their purpose is to help people determine their propensity to take on risk, which is a good place to start for any novice investor. 😉

Historically, there have been tons of major events that have had dramatic impacts, at least initially, on the markets. But looking back, these are now mere blips on the financial market radars. Those who stay invested and contribute regularly generally have the biggest gains in the long run. 😉

Net worth results from the first month of the year are usually pretty interesting. This year was no exception. Many equity investors experienced quite a roller coaster ride, lol. At one point in January my net worth was down ~ $20,000! That’s naturally what happens when I have over $200,000 invested in equities and North American stock markets drops 10%. Fortunately, by the end of the month they regained most of the loss. 🙂  Phew.

*Side Incomes:

  • Part-Time Work = $900
  • Freelance pay = $400
  • Dividends = $700
*Discretionary Spending:
  • Fun = $200
  • Debt Interest = $1400

*Net Worth: (MoM)16-02-net-worth-january-volatile

  • Assets: = $925,500 total (+3,100)
  • Cash = $5,500 (+2000)
  • Stocks CDN =$97,200 (-500)
  • Stocks US = $70,000 (-2700)
  • RRSP = $63,000 (+300)
  • MICs = $15,800
  • Home = $263,000 (+4000)
  • Farms = $411,000
  • Debts: = $498,400 total (-3500)
  • Mortgage = $190,500 (-400)
  • Farm Loans = $197,400 (-500)
  • Margin Loan CDN = $29,500 (-1000)
  • Margin Loan US = $31,000 (+200)
  • TD Line of Credit = $22,000  (-1000)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,000 (-200)
  • RRSP Loans = $0 (-600)

*Total Net Worth = $427,100 (+$6,600 / +1.57%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.71 USD

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Jan 042016
 

No Santa Clause Rally

The economy is struggling. The bad news is my net worth dropped a little in the last month of the year. But the good news is it still managed to climb higher overall in 2015, so that’s a relief. 🙂

*Side Incomes:

  • Part-Time Work = $1100
  • Dividends = $600
  • Interest = $200
*Discretionary Spending:
  • Fun = $900 (holiday shopping)
  • Debt Interest = $1400

*Net Worth: (MoM)15-11-networthiq_chart

  • Assets: = $922,400 total (-1,000)
  • Cash = $3,500 (+1000)
  • Stocks CDN =$97,700 (-4100)
  • Stocks US = $72,700 (+800)
  • RRSP = $62,700 (+1300)
  • MICs = $15,800
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $501,900 total (-100)
  • Mortgage = $190,900 (-400)
  • Farm Loans = $197,900 (-400)
  • Margin Loan CDN = $30,500
  • Margin Loan US = $30,800 (+1800)
  • TD Line of Credit = $23,000  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $600 (-600)

*Total Net Worth = $420,500 (-$900 / -0.21%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.72 USD

Using OPM To Get Ahead Financially

It’s easy for the rich to make more money because they already have a lot of productive financial assets. Since I don’t have that level of wealth yet I choose to use other people’s money (OPM) in order to acquire those same productive assets for myself, without having to save a huge amount of money first. This allows me to potentially shorten the number of years it would take to become a millionaire.

Since using OPM is risky, I only buy assets that have a high probability of generating long-term, profitable gains. Most loans will be paid back using regularly scheduled payments so the debt will eventually take care of itself. 😀 Since this blog finally has some history we can see how effective this leverage strategy can be. Below is a look at my net worth over the past 6 years. Feel free to dig through the blog archives for more info.

Dec 2015Dec 2014Dec 2013Dec 2012Dec 2011Dec 2010
Assets$922,400$837,400$742,500$497,500$317,900$279,200
Debts$501,900$517,800$533,600$357,200$215,600$216,300
Net Worth$420,000$319,600$208,900$140,300$102,300$62,900

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The basic premise is that whenever I purchase a new investment using debt, an equal amount of value is added to both my Assets and Debts. However, simply through the passage of time the nominal value of my new asset grows while my debt naturally shrinks. 🙂 It’s only over 10+ years that the magic can really shine, but even in a 6 year window we can already tell it’s working. Time in the market will beat any attempts at timing the market. 😀

This plan works best in a low interest rate environment like in Canada today. In terms of managing debt, I pay about $16,000 a year of interest on my $502K total debt load. My passive income from my invests can easily cover that. Over time as my debt balance slowly falls, the annual cost to service my debt will decrease too! Not only that, my passive investment income is expected to increase every year thanks to the compounding effects of DRIPs and the dividend growth stocks in my portfolio. When the Prime lending rate climbs back up to 4% I may change my plan, but I have no immediate reason to deleverage. 😉 I monitor interest rates twice a year.

Breaking Down my $100,000 Net Worth Growth in 2015

I’m a bit surprised by how much my net worth has grown. After all, the stock market didn’t even perform that well. But then again, I don’t invest like a couch potato and throw everything in index funds. 😛

Real estate, farmland, and mortgage funds all had positive returns in 2015. Lucky for me about 75% of all my assets are invested in these 3 categories. 😀 Even though my Canadian stocks are slightly down, my overall investment portfolio still performed very well. Phew. The biggest winner last year was actually the U.S. dollar! The rise of the U.S. currency alone added $15,000 to my wealth because I calculate my net worth in $CDN. Let’s break down the $100,000 increase. All numbers below are rough estimates.

  • $16K – Net debt repayment. I paid down some higher interest debt.
  • $38K – Farmland appreciation. I adjusted my farm’s price by a conservative +10% for 2015.
  • $5K – Apartment appreciation. Inflation rate was 2% in 2014 so I adjusted my home’s value in 2015 by the same amount.
  • $15K – Currency fluctuation. The CDN$ went from $0.85 USD in Jan to $0.72 USD by Dec, an 18% devaluation.
  • $23K – New investments. Buying new stocks & bonds using personal savings.
  • $3K – Investment portfolio appreciation. Small increase thanks to fixed income assets and huge gains from tech giants like Alphabet and Amazon.com. Technology was one of the few sectors that outperformed last year. By the way, does anyone like computer jokes? I certainly don’t. Not one bit. 😝
  • Total = $100K

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