Nov 242017
 

For long term investors, earning 5% to 7% annual return (after tax) is a suitable target to aim for. But this is difficult to pull off today. The current expected returns of the financial markets are extremely low by historical standards. Traditional asset classes such as stocks and bonds are generally overvalued now.

Stock Market Expected Return = 3.2%

The Shiller P/E ratio is currently about 31 for the S&P 500 stock market index. This is much higher than the historical average ratio of 16. The Shiller P/E ratio is based on average inflation-adjusted earnings from the previous 10 years.  The inverse of the ratio (1/31) is how much the market is expected to earn for investors going forward.

Bond Market Expected Return = 2.3%

Here are some popular bond ETFs.

  • BMO Aggregate Bond Index ETF (ZAG) – Weighted Average Yield to Maturity = 2.34%
  • Canadian Aggregate Bond Index ETF (VAB) – Weighted Average Yield to Maturity = 2.28%
  • iShares Core Canadian Universe Bond Index ETF (XBB) – Weighted Average Yield to Maturity = 2.35%

As we can see, all their Avg YTMs are below 3%. The 10 year Canadian government bond is paying only 1.9% as of writing this post. 🙁

As a long term investor I don’t see the point of buying a bond that pays less than 2% interest when the Bank of Canada openly declared it wants to erode the Canadian dollar’s value by 2% a year. That effectively creates a projected negative real return on investment, 😮 ouch. This is why I stay away from ETFs like these which primarily hold low yielding government bonds. These funds aren’t necessarily bad investments. I’m just saying they’re not for me. We can find slightly higher yields in U.S. bonds, but not much better.

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Oct 102016
 

Investing in a Brighter Future

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The Easiest $300 I’ll Make This Year

Hello eco-conscious friends! I recently discovered a way to earn $300 in interest/year by using leverage and low interest rates. 🙂 For those who are interested in the details, here’s how it’s done.

  • Step 1: Borrow $10,000 from the bank at 3% annual interest rate.
  • Step 2: Download the online SolarShare purchase form.
  • Step 3: Fill out the form with instructions to invest $10,000 in bonds that pay 6% annual interest.
  • Step 4: Send the completed form back to SolarShare and start collecting net interest of $300/year. 🙂

That’s all there is to it. 🙂 Simple right? Once I made my decision to go for it the entire process only took about 30 minutes.

What I essentially did was borrow money at 3% to buy an investment that pays 6%. This means my net investment return is 3% pre tax. All the investment capital comes from someone else so I don’t have to spend a dime myself. This is the easiest way I know how to make $300, lol.

But of course just because this strategy works for me doesn’t mean it’s right for everyone else. So in today’s post I will discuss how my new investment works and why I chose to buy it. If you don’t yet believe in solar energy, maybe this post will help you warm up to the idea, haha. 😉 But please do additional research on your own and consult with a professional before making any financial decisions.

An investor who uses $10,000 of savings to buy these bonds would make the full 6% return since there would be no cost of debt. I didn’t use my savings for this investment because my money is earmarked to make another big purchase later this month.

Why Invest in Solar Energy

Sustainability is very important to me. This is because I love bacon, lobster, steak, sea bass, and all things delicious. Animals require a sustainable habitat to live and grow. But if there is too much pollution then entire ecosystems or farms where animals live could be destroyed. I simply cannot allow that happen.

So as you can see, investing in renewable energy is a matter that’s very close to my heart. 😆 And we are lucky here in Canada where we receive a decent amount of sunshine throughout the year, unlike some other parts of the world.

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I had previously wrote about how to invest in renewable energy. Not only is it environmentally responsible, but it can also be quite profitable. My investment last year in Brookfield Renewable is now up by 12%, including dividends, which is not too shabby. 🙂 But this time I ventured into the world of alternative investments to directly invest in solar energy projects.

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Jun 232014
 

MICs – Real Estate Investment Through Debt

It appears both the real estate and stock markets in Canada are at all time highs 😯 Meanwhile yields on bonds and GICs are still near record lows. 🙁 Even cash is losing its appeal because energy and food prices have pushed the inflation rate to a multi-year high. Which begs the question: Where can we still find value? What should people be investing in now?

Well I think I have the answer! 😉 In May I blogged about looking into mortgage investment corporations. After some further research I bit the bullet and earlier this month I invested $10,000 in a mortgage investment corporation. This new investment generates a stable 7%+ annual return, uses real estate as collateral, thrives under inflationary pressure, is hedged against the risk of increasing interest rates, can be redeemed at any time with no penalties, and adds stability to my portfolio because a stock market correction would not affect my $10K principle balance at all.

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A mortgage investment corporation lets investors pool their money together to be lent out as mortgages. It essentially allows the average investor like you and I to participate in, and profit from, the mortgage lending business. 😉 This is the best thing since canned peaches! Banks make a lot of money by collecting interest on mortgage loans right? Well retail investors can also get in on this lucrative business model. Booyah! 😀

A mortgage investment corporation is also a great hedge against inflation. If interest rates rise, a MIC’s return would also increase because higher mortgage rates mean more profit! People who invest in a mortgage investment corporation do not own the real estate. MIC investors simply make money from the enviable position of being a lender! It’s like peer to peer lending in the U.S., Estonia, or other parts of Europe, except every loan in a MIC is secured by real property. 😉 What a lollapalooza!

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Mar 142013
 

I got a call earlier this week from a fellow who works for a diamond brokerage firm. I gave them my contact information when I went to a resource conference earlier this year. He wanted to tell me that their Vancouver office is holding a seminar later this month about investing in diamonds. Fancy colored diamonds in particular. I thought it could be interesting so I agreed to attend. I plan to learn more about what their company does, and the diamond business in general. It should be fun 😀 After our phone conversation I poked around the internet a bit to learn more about this rare commodity and found out that many investors view colored diamonds as a form of alternative investment. I love learning about alternative investments because it broadens my perspective as an investor.

13_03_coloreddiamonds, diamondsI’ve only done some preliminary research on the topic but from what I’ve found out so far the price of an average grade, colored diamond have doubled to tripled over the last decade or so. Minimum investment through a broker is about $10,000 depending on what you’re looking for. You can invest in diamonds in other ways too, like buying them from established online wholesalers or various retailers. But because of the markup in stores many investors buy rare diamonds through brokers. There’s also news about a diamond investment fund or ETF but I don’t know much about those.

At this point I don’t know if investing in diamonds is a good idea yet.  They say diamonds are forever. But are they a dependable long term investment or do they simply represent a silly market where rich people pay for overpriced shiny rocks that don’t have much intrinsic value in the real world? Well that’s what I’m going to find out 😀

I’ve gathered a few Youtube video links below about investing in diamonds in case anyone is interested. Sorry about the poor quality. Please keep in mind that these clips may be very biased so as any prudent investor should do, take any promotional talk you hear with a grain of salt and always do your own research before making important financial decisions. That’s exactly what I’m going to do in the next few weeks, more research.
Are diamonds a safe investment? 4 min
Diamonds – Investor’s new best friend 2.5 min
Investing in rare colored diamonds 8 min

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Random Useless Fact: The Average teacher salary in Switzerland in 2010 was $112000 per year

Aug 292012
 

When we talk about investing we generally think about the stocks or fixed income market. But as we all know the Toronto stock exchange hasn’t done very well in the last 5 years and bond yields are still relatively low. More investors are starting to look into alternative ways to put their cash to good use. One way to do this is through alternative investments.

Alternative investments behave differently than traditional markets. Their returns have a low correlations with those of standard asset classes. In other words, they don’t follow the stock market or the bond market. Some examples of alternative investment classes include commodities, hedge funds, managed futures, wine, art, private equity, real estate (residential, commercial, farmland, REITs, etc.)

Earlier this year I bought some silver coins. These are pure commodities. The value of these coins over the last 5 years definitely out performed the TSX composite.  Hedge funds and derivative contracts are usually for accredited investors with deep pockets. Vintage wine, paintings, or other types of art also do not fluctuate with the stock market and can be a great store of value over the long term. Real estate is a tough one. Depending on location this investment can either be hit or miss in the last 5 years. But it doesn’t follow the financial markets, and I don’t know anyone who has invested in land for a long time and have lost money consistently.

Getting into alternative investments isn’t difficult (^_^) If you own a REIT, either private or public, then you are already investing in this space. Buying a rental property also makes you an alternative investor. Please keep in mind that alternative investments are usually less liquid than traditional assets so if you are thinking about doing anything in this space I suggest you take a long term approach.

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Random Useless Facts:  The first European stock exchange was established in Antwerp, Belgium, in 1531.