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.

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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Dec 032015
 

Sick Days

A recent Financial Post article suggests that the most important determinant of your sick leave use is whether or not you work for the government. On average, public sector employees take about 10.6 sick days annually, which is a 47% increase from 7.2 sick days back in 1987. Meanwhile, sick leave use in the private sector is only up 5% from 6.1 days to 6.4 days over the same time period.

15-11-ron-swanson-working-government

Of course the mainstream media does not get into the underlying cause of this dramatic gap between public servants and private sector workers. But I think we all know what’s going on here. 😉

Obviously government jobs are so demanding and stressful that they cause public sector employees to become sick more frequently than their private sector counterparts. It’s either that, or people are taking advantage of privileged opportunities. But your guess is as good as mine. 😝

Market News

Speaking of uncertainty, we have received some unprecedented market signals lately. Oil closed lower than $40/barrel. Yet the banking sector announced record profits again. The financial markets have been overwhelmingly bullish over the past 5 years even though the underlying economy has been worryingly weak. That’s why it pays to be financially prepared. Anything can happen. So always maintain a diversified portfolio of fixed income and equities. Stay away from high-fee, actively managed mutual funds. Stick to dividend stocks or index ETFs. :)

My Personal Finance Update

I’d like to give a big shout out to the Smart REIT units I purchased a few months ago. This investment is already up 10%. 😀 Yay! Real estate is a major part of the Canadian economy so it makes sense to have at least some exposure to it. Railways also keep the economy chugging along. :) I’m really grateful for our railroads, for keeping us on the right track. 😆

November was a great month for my finances. Luckily I live in Vancouver, B.C., where the cost of living is quite low, so I managed to save about $1,200 from my full time job. The rest of my net worth increase this month came from a combination of currency fluctuation, part-time job, passive income (dividends and interest), and appreciating share value. Details below.

*Side Incomes:

  • Part-Time Work = $500
  • Dividends = $500
  • Interest = $200 [bond interest]
*Discretionary Spending:
  • Fun = $200
  • Debt Interest = $1400

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

  • Assets: = $923,400 total (+9,500)
  • Cash = $2,500 (+300)
  • Stocks CDN =$101,800 (+5900)
  • Stocks US = $71,900 (+3000)
  • RRSP = $61,400 (+300)
  • MICs = $15,800
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $502,000 total (+2,700)
  • Mortgage = $191,300 (-500)
  • Farm Loans = $198,300 (-500)
  • Margin Loan CDN = $30,500 (+2800)
  • Margin Loan US = $29,000 (+2000)
  • TD Line of Credit = $23,500  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $1,200 (-600)

*Total Net Worth = $421,400 (+$6,800 / +1.6%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.75 USD

I picked up two new positions in November: 100 shares of TransCanada in my Canadian margin account, and 100 shares of Match Group in my U.S. margin account. The stock market was pretty flat overall. I did receive $200 of interest from my Sherritt bonds which was nice. The growing strength of the U.S. dollar was helpful as well since I hold many U.S. equities.

Speaking of stocks, here’s a look at my TFSA portfolio at one of my brokers, TD. I like how its online software can track the performance of my account over time. Due to the purchase of more defensive stocks since 2014, my TFSA has experienced positive returns while the S&P/TSX Composite index has fallen.

15-11-tfsa-performance-nov-2015-sick-days

I try to be mindful about what I put in my TFSA so it complies with my tax efficiency plan. I don’t have any secrets to picking winners or beating the market. But if anyone is curious to know, here are all my holdings in this TFSA.

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Nov 022015
 

Big Turnaround

It was a huge win for the markets in October. :) Most stocks performed very well. The technology sector in particular experienced the most appreciation. Intel shares increased 12% over the past month. Alphabet (Google) shares jumped 15%. And Amazon shares soared 22%. Both GOOG and AMZN prices are now at new highs. As a shareholder of many technology companies, including the names just mentioned, my portfolio saw some awesome gains in October. 😀 I also received a rental paycheque of $4,600. So that was a nice bonus on top of the stock market rally.

*Side Income:

  • Part-Time Work = $500
  • Dividends = $600
  • Interest = $200
  • Rent = $4,600
*Discretionary Spending:
  • Fun = $200
  • Debt Interest = $1400

*Net Worth: (MoM)15-10-networthiq_chart

  • Assets: = $913,900 total (+20,600)
  • Cash = $2,200 (+200)
  • Stocks CDN =$95,900 (+10100)
  • Stocks US = $68,900 (+5500)
  • RRSP = $61,100 (+4600)
  • MICs = $15,800 (+200)
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $499,300 total (-2800)
  • Mortgage = $191,800 (-400)
  • Farm Loans = $198,800 (-500)
  • Margin Loan CDN = $27,700 (-200)
  • Margin Loan US = $27,000 (-600)
  • TD Line of Credit = $24,000  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $1,800 (-600)

*Total Net Worth = $414,600 (+$23,400 / +6.0%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.76 USD

This was one of the best months of the year. :) It was mainly thanks to the positive stock market performance, especially the high single-digit gains on the U.S. stock exchanges. The farm rent helped a lot as well. I used it to pay back the $4K I borrowed to buy some new Royal Bank shares. I took on debt hoping my investment would pay off. So far RY shares are up 5% since I bought them, and I’ve paid 0.35% interest on the loan. So my plan to make money using other people’s money is working.  I hope things continue to go smoothly for everyone’s investments for November as well. 😀

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Random Useless Fact:
China is ending its one child policy.

china ending one child policy. they'll need more space.

Oct 032015
 

Stocks Continue to Fall

Stock markets in September continued to head lower. The Dow Jones dropped 2% during the month. The S&P500 fell 3%. And up here, the TSX Composite fell 5%. This isn’t inherently good or bad. It’s good for beginner investors who are thinking about buying their first index fund. But it can be bad for retirees who are counting on their nest eggs to outlast their lives. I’m somewhere in between that spectrum. I already have some skin in the game, but most of my investing years are still ahead of me. :)

*Side Income:

  • Part-Time Work = $300
  • Dividends = $500
*Discretionary Spending:
  • Fun = $200
  • Debt Interest = $1400

*Net Worth: (MoM)15-08-networth-chart

  • Assets: = $893,300 total (-5400)
  • Cash = $2,000 (-1000)
  • Stocks CDN =$85,800 (-3000)
  • Stocks US = $63,400 (-2100)
  • RRSP = $56,500 (+100)
  • MICs = $15,600 (+600)
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $502,100 total (-2600)
  • Mortgage = $192,200 (-400)
  • Farm Loans = $199,300 (-500)
  • Margin Loan CDN = $27,900 (-1000)
  • Margin Loan US = $27,600 (+400)
  • TD Line of Credit = $24,500  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $2,400 (-600)

*Total Net Worth = $391,200 (-$2,800 / -0.7%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.75 USD

I wouldn’t read too much into the recent market performance because September has historically been the worst performing month on average. And since the country has been in a technical recession for the first half of the year it’s not surprising investors have a more bearish outlook for stocks lately, even though the economy and stocks are not really correlated in the short term.

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