Sep 262016
 

When Average Isn’t Enough

Everyone knows that exotic dancers are bad at investing. After all, they always end up losing their shirts. 😆 But they are not alone. Most people in general are simply not very successful at investing.

According to BlackRock, the largest financial management company in the world with nearly $5 trillion of AUM, the average American investor managed to make only 2.11% return per year over the past 2 decades. 😱

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The saddest part is how this number is even lower than inflation, lol. So in terms of real returns people actually lost money. 🙁 There are many reasons for this low performance. Investors’ sentiments, emotions, and personal goals are all factors. But the reason I want to discuss today is the improper use of investment tools.

Why People Are Generally Bad at Investing

Reason 1 – Not using tax sheltered vehicles

The Roth IRA is a great example of a tax savings vehicle that many American investors have overlooked. In Canada we have the Tax Free Savings Account (TFSA) which has similar benefits; Any investment gains realized within this account is tax free. 🙂

The first problem is that most people don’t use it. According to the CRA, in 2013 only 38% of eligible Canadians have opened TFSAs. The second issue is those who do have this account aren’t making the most of the tax savings. Data from RBC Royal Bank suggests that its clients tend to play it safe when it comes to their TFSA with 44% of holdings in high interest savings accounts. *Yawn* Another 21% is invested in GICs which are also producing rock bottom returns right now. This means only the remaining 35% of the money in TFSAs are actually used for proper investments that hold stocks, bonds, and other asset classes that have a decent chance at beating inflation.

This essentially means that only about 13% of TFSA eligible Canadians are using the investment vehicle correctly. But even less have taken maximum advantage of it because only 7% have fully maxed out their contributions. Of course everyone has different financials goals, which alludes to my post about the debt spectrum. So it may be perfectly suitable for a retiree to put all of his savings into a GIC if it suits his investment objectives. But in general 2.11% should not be the target most investors should aim for. 😉

Taxation is one of the costliest expense on investment returns. If more investors make better use of tax advantaged accounts they can leave more money in their own pockets. 🙂

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Random Useless Fact:

33% of Harvard University students get the following question wrong.

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Sep 012016
 

Millionaire Status

After checking my balance sheet for the month of August I realized that the value of all my assets is worth $1,006,200. Great Scott! For the first time in my life I own a million dollars worth of stuff! 🙂

According to the official Oxford Dictionaries website, a millionaire is “a person whose assets are worth one million dollars or more.” The word “assets” is commonly defined as any owned items or properties that have financial value. So according to this official definition I am now technically a millionaire! ? Gosh almighty! Below is my reaction right now.

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I started investing about 8 years ago. I mostly just buy a wide range of investments and use diversification to lower my risk. I also intend to hold my investments until I retire. It sounds like a simple strategy, but it works for me. 🙂 Some readers may think I’m a good stock picker. But that’s not true.

In the last 7 years falling interest rates have pushed up asset prices across the board for stocks, bonds, and real estate. The S&P 500 index in the U.S. returned over 150% to investors since 2009. 😀 Good heavens!

My point is anyone could have randomly invested in a basket of different securities starting in 2009 and would likely see similar appreciation in their assets as I have. 😉 So I didn’t get lucky choosing stocks. But I am lucky to have started investing near the bottom of the great recession in 2008.

Continue reading »

Jun 092016
 

Living on $29/week

I thought about becoming a food taster once, but decided not to because I didn’t want to have too much on my plate. ? Most wage earners get paid either once or twice a month, but we generally have to eat food everyday. This means learning how to budget our grocery bill is an important skill to have. For some people maybe $200 a month for food is enough, but for others it might be $400 or more. Having a personalized budget that is reasonable will teach us about self control, rationing, meal planning, and will probably even save us money. 🙂 If we fail to watch our spending and plan ahead then we may run out of money before our next paycheque and find ourselves in times of scarcity. ?

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Earlier this week I started a food stamp challenge inspired by a famous celebrity. The idea is to spend no more than $29 on a whole week’s worth of food. I’m about half way through the challenge so I thought I’d give a quick update on how things are going. You can see the previous post for the full list of ingredients and detailed breakdown.

So far I’ve gone through most of the vegetables, but I’ve only eaten 5 of the 14 turkey drumsticks. I’ve been making a lot of salads, sandwiches, and roasts. Overall I’m roughly half way through my food basket. Tomorrow I’ll make a quick stew out of some potatoes, radish, and fish. I have 2 squashes remaining which I’ll probably stuff and bake. I have some left-over tomatoes and green peppers which I’m going to use up tonight lest they spoil. Below are some examples of simple dishes I’ve made so far.

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As mentioned in the previous post I’m only using salt and pepper for seasoning. I first thought this may become boring and repetitive after awhile, but so far the whole foods like tomatoes and bell peppers have quite a lot of natural flavor themselves, especially when cooked, and the salt actually helps to bring out their taste. Since I only eat two meals a day, plus snacks, I don’t have to cook very often. I think eating fewer meals is helping me with this challenge by eating less than other people would.

Continue reading »

Feb 152016
 

Complaints are Opportunities in Disguise

Picky eaters like to whine and dine. ? But food isn’t the only thing people complain about. Although whining isn’t productive, it’s a legitimate coping mechanism that shifts blame and responsibility to other people. But if handled correctly, complaints can be turned into opportunities.

In order for there to be a complaint, there must be something else we want that’s better than what we already have. Nobody complains about water being wet because that’s just how it is. So if we can complain about something then that probably means we also have the opportunity to change it for the better. 🙂 It’s just that most of the time we’re not willing to risk or sacrifice in order to obtain a better outcome, otherwise we’d just do it instead of complaining. 😛

So whenever a complaint arises, we should ask what it is that we want to change. What is a more favorable alternative? Then we just have to put together a plan and get to work. It may be risky, and it may require a lot of time, energy, and sacrifice. But if we can get through the hardship, then on the other side of our commitment is a reward that people who only whine and complain, but don’t take action, will never get to enjoy.

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By trying to solve a problem, it turns a negative state of mind like complaining into something positive. It switches our brains from the reactionary defensive mode to a more proactive offensive mode to make us more creative and productive.

This also works on larger scales since there are huge opportunities in addressing other people’s complaints. 40 years ago consumers complained that personal computers were too difficult to operate. Bill Gates realized that developing a more user-friendly operating system would solve this problem so he created Microsoft, and took advantage of his Windows of opportunity. ? Today, PCs are universally adopted and most of them run a Windows operating system. Sometimes the best opportunities express themselves in the complaints of other people. The more people complain about something the bigger the reward will be for the first person comes up with a viable solution.

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Random Useless Fact:

According to security-management company SplashData, the most popular password in 2015 was 123456. ?

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#2 – “password.” Are you f*$%^ kidding me? ?

 

Jan 012016
 

Year End Review – 2015

I remember 2015 like it was yesterday. 😛 I hope everyone is having a great New Year so far. Let’s review some of the biggest financial news and stories from 2015.

  • Falling commodity prices. – The Standard & Poor’s GSCI commodities index plunged 34% in 2015, down 80% from its peak. ? It’s now at the lowest level since 1999. This doesn’t directly affect me since I don’t work in that field, but I like how this keeps inflation at bay. Cheaper oil, metals, and other natural resources mean I pay less for transportation, furniture, groceries, and other goods.
  • China’s slowdown. – The Dow Jones industrial average dropped 11% in August on fears that everyone had underestimated China’s troubles and their global impact. This isn’t necessarily a bad thing. High rates of growth is unsustainable. And a market correction is an opportunity to buy stocks at a discount.
  • Interest rate hike in the U.S. – The Federal Reserve raised the short-term rate by 0.25% in December. This increases the value of the U.S. dollar. Meanwhile, the ECB, Bank of Japan, and China continue to go in the reverse direction to expand their money-easing policies.
  • Slide in the Canadian dollar. – Canada’s economy was weak in 2015 due to lower oil prices and we spent half the year in a recession. So naturally our loonie’s value fell compared to the $USD. This is good news for me since I collect a lot of dividends in $USD. 🙂
  • Continuing expansion of the freelance economy. – Uber, Airbnb, Etsy, contract workers, and indie app developers have helped to create an economy where more people are working in a freelancing capacity rather than a regular job in a traditional workplace. Even old trades like construction is being effected because carpenters can sell their services on sites like Thumbtack. I like this trend of becoming a more free and open society with less red tape.
  • Massive corporate mergers. – Mergers and acquisitions worldwide totaled $4.8 trillion in 2015, a new record. This may not be a big deal to some, but it has real implications for stock investors. For example, it’s how I made a large profit when Burger King bought Tim Hortons back in 2014.
  • Lack-luster stock market returns. – According to the CBC, the Canadian stock market index was down 11%. The U.S. markets did better but both the Dow and S&P500 were down. The technology heavy Nasdaq however was up 6%.
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Personal Goals

At the start of 2015 I set 2 financial goals for myself; have a net worth of $400,000, and make at least $16,000 in passive income. 🙂 Fortunately I was able to hit both by the end of the year. I’ll post my net worth breakdown next week. My pre-tax passive income came from roughly $9K in rent, $5K in dividends, and $2K in interest.

What I learned from the past year is that it is harder than ever before to predict how the markets will change over the next 12 months. This is why it’s important to have financial protection in place and to diversify our investments. Canadian stocks and bonds as a whole did not perform very well last year. But according to the Real Estate Board of Greater Vancouver, the price for a detached house in Metro Vancouver climbed 22% from the previous year. The average condo price was up 14%. The stronger U.S. dollar suggests Canadians who invest in U.S. stocks should have seen some good returns as well. 🙂 So a diversified portfolio of equities, fixed-income, real estate, commodities, and other currencies would have actually performed okay last year despite the stagnant economy in most parts of the world. On average I was able to earn a double digit return in 2015 on my overall investments. I’ll make some new goals for 2016. But first, I need to do some bookkeeping. I haven’t looked at my bank account since last year. 😉

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Random Useless Fact:

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