Feb 242015
 

In self defence class we learn to fight… so that we won’t have to. Personal finance is very much the same way. :) The best thing that money can give us, is the freedom to not worry about money anymore. Sometimes we can become so focused on our finances that we can easily forget about actually living a life. To me financial wealth is not simply about having money. It’s more about having better options in life. A lack of money is a great disadvantage. Poor people have a greater affinity to stay poor. Their lack of resources keeps them from having access to better opportunities and choices that many middle class and rich people take for granted. Having a limited amount of choices can lead to further unsatisfactory circumstances, so it becomes a self-reinforcing cycle.

We spend a lot of time planning our budgets, building up our savings, and looking for profitable investments, but in the end we should realize that doing all this work is not about the money. It’s about the freedom and the awesome choices we’ll be rewarded with! :D We do not want to become obsessed about “money,” in and of itself. We don’t want to turn into those kinds of people who think that the best thing about wealth is that it allows them to buy material things. :| If that’s what they really want to believe then I wish them good luck in life. :P

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There’s a popular story that demonstrates the silly nature of materialism in the world today:

A successful businessman bought a brand new BMW M6 convertable. He parked it right in front of his office so that he could show it off to his fellow co-workers. As he got out his vehicle a passing garbage truck lost control and side-swiped his car, ripping off the door on the driver’s side. The police quickly arrived and the businessman began ranting hysterically that his new BMW was now ruined.  :-x After 10 minutes of profuse shouting and cursing, the businessman was finally able to calm down. The police officer then said to him, “You are so focused on your car that you don’t notice anything else. I can’t believe how materialistic you are.” The businessman looked confused. “What do you mean?” he asked. The police officer explained; “Haven’t you noticed that your left arm is missing? It must have been torn off in the accident.” The businessman’s face went white. “OH NO!” he screamed. “My Rolex!!”

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Dec 282014
 

When it comes to successful investing the guidelines are pretty straight forward. Start as early as possible and do it often, because compound interest is one of the greatest discoveries known to mankind. Match the markets and don’t try to pick individual winners and losers. Index investing is the way to go for a majority of people out there. Keep the cost of investing low, meaning don’t pay unnecessarily high fees and taxes. Diversify your risk without hurting overall returns. Some investments go up, others go down, but in the end balance will pay off.

Just getting into investing in the first place can seem like a difficult task to some. But thankfully a relatively new service called Wealthsimple will help people invest using all the important principles outlined above.

Recently I was invited by a friend to attend dinner with himself and the CEO of Wealthsimple, a portfolio management company that combines technology with prudent financial strategies to make investing smart, simple, and low cost to everyone. :) The 3 of us had a great meal. And after speaking with the CEO, Michael, I realized that his company can provide a great option for many investors today.

How Wealthsimple works.

It’s basically an investment management service but it makes investing accessible to everyone, regardless of net worth or financial knowledge. First, an investor would sign up for an account online and be guided through the entire process: from assessing his risk tolerance and determining his investment goals, to setting up regular monthly contributions. Next, after a conversation with a dedicated Wealth Concierge, the company would build the investor a customized portfolio and start investing for him.

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The investor’s portfolio is then automatically optimized for taxes and rebalanced over time using a computer algorithm. The client can see in real time the value of his portfolio, total fees paid to date, and total principle growth.

Wealthsimple recently launched its mobile app which can be found in the Apple App Store and the Google Play Store. The company has also expanded its services recently into Alberta, Manitoba, and Quebec.

I think Wealthsimple’s system works really well for the average investor and it makes managing money very simple and hands off. The company has a very competitive fee structure too. Management costs are between 0.35% to 0.50% of the portfolio amount and Wealthsimple covers all trading costs and administration fees. I believe the minimum investment requirement is $5,000 but at the same time there are no fees on the first $5,000 invested. There is also no fee or charge to take your money and leave. Wealthsimple tries to be upfront about its costs and does not believe in hidden fees.

My own investment strategy is a bit complicated. But for anyone who is tired of their mutual funds constantly underperforming or want to get started with investing I think Wealthsimple is a terrific solution and is definitely worth taking a look at.

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Random Useless Fact:
The average Canadian investor pays more than 2% per year in management fees, more than any other developed country in the world.

Dec 082014
 

The Divorce Capital of the World

To most girls, the word “wedding” will have a nice ring to it. :D But marriage can be difficult and it doesn’t always last a lifetime. Divorce can often go off without a hitch for some. But for others, it can get quite messy, especially if there’s a lot of money involved. London, England appears to be the top destination for married couples looking to go their separate ways. It is known as the “divorce capital” of the world due to its court system’s “generosity to estranged wives.”

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Sir Chris Hohn is a hedge fund manager in London. Recently his wife, Jamie, decided to leave him and she wanted to take half of their household assets with her because she believed their wealth was created due to their “partnership.” It was a bitter dispute, but in the end she was awarded £337 million ($525,000,000 USD). This enormous amount, granted by High Court judge Jennifer Roberts, was the largest ever seen in London’s courts. This settlement dwarfs the previous £220 million record, paid in 2011 by a rich Russian oligarch to his ex-wife, and further cements London’s reputation as the best place to get a divorce for non-working spouses. :)

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Aug 142014
 

The level of financial risk we can tolerate depends on our savings: The less money we have the more risk we can afford to take on. If you have worked with a financial advisor before then you’ve probably seen a risk tolerance chart like the following.

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Each portfolio from A to D represents a different risk tolerance of maximum expected returns and losses. Choosing a model portfolio can help one’s financial advisor determine the best funds for the client based on his risk assessment. Conservative portfolios tend to hold more bonds, GICs, and T-Bills. Aggressive portfolios may hold more technology and energy stocks, which are more risky but also more potentially profitable.

If we are currently in our working years and only have $100,000 of savings, then we should have an aggressive investment plan that mimics the expected rate of return as Portfolio D in the image above. High risk, high reward. Like Ms. Frizzle always says, “take chances, make mistakes, get messy!” This is because losing $20,000 in the worst case scenario is no big deal since we are still actively working. $20,000 is only 6 months worth of salary for many people, so the loss can be quickly recouped :D But if things go well then hot diggity dog! we’ll make a $50,000 profit. The key to compound interest is to start as early as possible so if we can make our portfolio value 50% higher at a younger age it will give us a huge advantage over the long run.

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But if we have recently retired and have $1,000,000 in savings then our investment goals would be different. We can’t be in Portfolio D because a potential $200,000 loss is a lot of money, and could prevent us from having a comfortable retirement. At the same time the potential return of $500,000 doesn’t sound that appealing when we’re already millionaires. At a certain level of wealth any extra money we save will face diminishing marginal utility which means the lifestyle of a senior who is worth $1.5 million isn’t going to be drastically different from another senior with only $1 million. So in this situation it would be better to choose the more defensive Portfolio A.

When we’re young our spending often depends on the product of our human capital and time, both of which we have an abundance of. But when we’re retired our human capital becomes diminished, so lifestyle needs to depend on our savings instead. This is when capital preservation takes priority over investment returns and we have to decrease our exposure to risk in order to make our portfolio last as long as possible ;)

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Random Useless Fact:
Humans don’t have natural enemies. So we fight with each other.

 

Jul 262014
 

If you ever want to feel rich just head over to globalrichlist.com to find out where you are on the spectrum of wealth. For example when I punched in my income I found out that I am in the top 1% of all earners in the world :) My income is so high I can afford to pay the annual salaries of 10 doctors in Azerbaijan, a small country between Eastern Europe and Western Asia. All you need is to earn more than $32,000 USD to be in the top 1% as well.

In terms of wealth I input $300,000 CAD as my total net worth and it turns out I’m in the top 5% :D

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To be in the top 1% you’ll need a net worth of $830,000 CAD or $770,000 USD. But for now I am already very pleased being at 4.61%. If I take just 1% of my current wealth I could feed a family of 4 in Ethiopia for 3 years :shock:  My personal wealth is equal to the combined wealth of 231 people in Afghanistan. What a financially empowering realization!

I think the moral we can take away from this relative wealth exercise is don’t work in Azerbaijan if you’re a doctor.

It’s possible to feel financially inferior after getting used to living in a first world country. Sometimes it’s nice to be reminded that making even just $30,000 a year and having a $50,000 net worth would already put someone in a very favorable financial position.

Other than using that website to compare our wealth with others for fun, we can also use it as a motivational tool. Find out how rich you are today in terms of both income and wealth. Write down your results, or take a screenshot and email it to yourself. Then go back to the site next year to input your new income and net worth to find out how your position has changed. You should be moving up the ranks every year. If not, find out what’s preventing you from getting ahead. In a global competitive world if we don’t improve, but others do, then we will get left behind. For my own goal, by this time next year I hope to be in the top 4% of the richest people in the world by wealth :)

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Random Useless Fact:

If plastic is made from oil, and oil is made from the hydrocarbons of decomposed, prehistoric plants and animals, then that means plastic toy dinosaurs are partly made from real dinosaurs.

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