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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Oct 262015
 

What a Liberal Government Means for Canadian Investors ?

Last week the charismatic Justin Trudeau lead the Liberals to win the 2015 federal election. I’m sure his good looks has nothing to do his popularity and success. 😛

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Justin pledged to make meaningful policy changes to the country that could benefit millions. But will his commitments help you? The jury is still out on the long-term effects, but here’s a TL;DR summary of what Trudeau’s government means for Canadian personal finance and investors in the short term.

The new Liberal majority government will…
HelpHinder
  • spenders
  • low-income seniors
  • stock market investors
  • students
  • most middle-class workers
  • savers
  • high-income households
  • single-income nuclear families

These are only generalizations. The rest of this post will explain individual policies that could affect your pocket book. Keep in mind that just because politicians promised something during their campaign, it doesn’t mean they will always follow through. Any of these policy changes below could be altered or cut completely going forward.

Borrowing To Invest. ? Going back into Deficit. 

According to the federal finance department, Canada’s government had a $1.9 billion surplus in the 2014-2015 fiscal year. 🙂 But the new Liberal government under Trudeau plans to run a $10 billion deficit for each of the next 3 years, before balancing the budget again in 2019.

Going into more debt as a way to expand economic output isn’t necessarily a bad idea. $10 billion is peanuts relative to our $1,827 billion/year economy (0.6%.) Also, our national debt to GDP ratio is quite low by international standards, which means we can borrow money at ridiculously low costs. New 10 year Canadian government bonds are currently yielding 1.5% in annual interest.

After factoring in inflation, there might actually be no real cost to tax-payers, lol. 🙂 Craig Alexander, the Vice President at the C.D. Howe Institute, said that despite digging deeper into debt, the debt to GDP ratio of Canada is still going to decrease over the next three years because our GDP is expected to increase as well. 😀

About a third of the new spending will go towards much-needed public transportation and infrastructure development and repairs. This means building more roads, highways, bridges, etc. This should improve the country’s productivity because gridlock and urban densification are causing major problems right now in large cities such as Toronto, Montreal, and parts of Vancouver. The other two-third of public spending is planned for social housing, seniors centers, and clean energy projects like solar and wind farms.

Due to more deficits and fiscal stimulus the Bank of Canada will be less likely to further cut interest rates for the time being.

What this means for you: Invest your money. Historically the S&P/TSX Composite performed well during times of deficit spending. Below is a graph I put together using stock market returns and government budget information courtesy of the CBC. During the two decades from 1995 to 2014 there have been 9 years where the government ran a deficit budget. And the stock market had positive returns in 8 out of those 9 years.

15-10-budget-vs-stock-market-return-tsx

Economic stimulus increases employment and grows the economy so people and businesses feel more optimistic about their investments which tend to be bullish for the financial markets. 🙂 In particular I would consider investing in stocks or sectors that have exposure to financials, cannabis, industrial goods, construction, utilities, preferred shares, and green technology (solar panels, wind, etc.)

Goodbye annual $10,000 TFSA contribution limit ?

The Tax-Free Savings Account annual contribution limit will revert back to $5,500 and increase in $500 increments based on inflation. This will make it harder for Canadians to save and won’t benefit the middle class. There’s a rumor that the TFSA only helps the rich get richer. But that’s baloney! The TFSA actually helps anyone who wants to save get richer. Here’s a table courtesy of the National Post which shows that many low and middle-income families still managed to max out their TFSA contribution rooms in 2013 when the limit was still $5,500.

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Sep 022015
 

The R Word

Stock markets fell about 5% in August and my assets have dropped in value. Canada is technically in a recession now. 🙁 Oy vey.

But we investors are deep thinkers. For example, if pencils came with erasers at both ends, what would be the point? ? So we understand that recessions are necessary for economic growth to be meaningful. The boom and bust cycle is what makes the economy interesting because it creates long-term opportunities to those who are prepared. Besides, why is a recession so bad anyway? It makes the cost of living less expensive, which is good if you’re a consumer. 😀

*Side Income:

  • Part-Time Work = $800
  • Dividends = $500
*Discretionary Spending:
  • Fun = $400
  • Debt Interest = $1400

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

  • Assets: = $898,700 total (-4900)
  • Cash = $3,000 (-500)
  • Stocks CDN =$88,800 (-3700)
  • Stocks US = $65,500 (-5300)
  • RRSP = $56,400 (+4600)
  • MICs = $15,000
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $504,700 total (-2400)
  • Mortgage = $192,600 (-400)
  • Farm Loans = $199,800 (-400)
  • Margin Loan CDN = $28,900 (-1000)
  • Margin Loan US = $27,200 (+500)
  • TD Line of Credit = $25,000  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $3,000 (-600)

*Total Net Worth = $394,000 (-$2,500 / -0.6%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.76 USD

It will be interesting to see how markets perform over the fall. September and October are historically the worst months to be a stock investor, lol. I’m just glad I still have a job, unlike so many people in Alberta right now. 😐

Embracing the Recession

Recession tends to have a negative connotation because people associate it with job losses, falling profits, and high unemployment. But for a large part of the population recessions can be quite beneficial. Retirees and the financially independent should embrace recessions. 😉 They don’t have to worry about losing their jobs since they don’t have any to begin with. High unemployment means fewer of their friends and relatives are working, so they have more opportunities to socialize. With a slowing economy and deteriorating household incomes, there will be less competing buyers. 🙂 Falling profits mean cheaper prices! If you’re in the market to buy a house, low demand means more affordable options.

When the price of food, fuel, housing, and other goods falls it directly benefits everyone because we all have to eat and live somewhere. For the majority of us who are still employed a recession means we can spend less money, and save more for retirement. Personally I’m enjoying the cheap $1.20/L gasoline around here ⛽. I can’t even remember the last time gas was this cheap in Vancouver. 😀

15-09-petroleum-harry-potter

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Aug 202015
 

Best Cities In the World

The Economist recently released its new livability scale report. This study compares 140 cities across the world and ranks them based on factors such as political stability, healthcare, safety, and educational resources. Canadian and Australian cities dominated the top 5 spots for having the best koala-ty of life! 😀 Below are the top five cities in the list.

  1. Melbourne, Australia
  2. Vienna, Austria
  3. Vancouver, Canada
  4. Toronto, Canada
  5. Calgary, Canada and Adelaide, Australia

Similarities Between Canada and Australia

This is probably not a big surprise as both countries have a lot in common. We both export boat loads of natural resources. We have low population density and most people live in small to medium sized cities. Our economies are similar as well with national GDP in the $1.5 to $2.0 trillion range.

15-08-australia-canada-economy

Even our currencies are roughly the same in value. $1 CAD currently trades for about $1.04 AUD, lol. The stock market returns between the Canadian TSX Composite index and the Australian S&P All Ordinaries index (XAO) over the past 5 years are practically identical. Both stock markets returned about 18% since August 2010.

15-08-australia-canada-stock-market-comparison-5yrs

I’m not sure if it’s even necessary for Canadians to buy Australian stocks for diversification purposes, and vice-versa, because it might not make any difference in the long run.  😕

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Jan 052015
 
The Bank of Canada Governor Stephen Poloz stated last month that this country’s housing market could be overvalued by as much as 30%. This may very well be true, but it’s nothing to be alarmed about. 😉 In fact I would be really surprised if our real estate market was not overpriced given what’s going on in the rest of the economy. Toronto’s real estate has increased almost every single year for the last 19 years, except in 2009.
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15-01-toronto-real-estate-there-is-no-alternative
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A large part for the seemingly illogical run-up in real estate prices in Canada, the U.S., England, Australia, and parts of Asia over the last 2 decades, can be rationally explained by TINA, which is an acronym for There is No Alternative, a term first made popular by Margaret Thatcher. It’s the same reason North American stock markets reached all time highs at the end of 2014. 🙂 The Canadian Stock market is currently overpriced by more than 20% according to historical averages. The S&P 500 stock market index in the United States currently has a P/E ratio of 20. That’s 25% more overvalued than the historical average P/E ratio of around 16.

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