May 112017
 

Investment Outlook

BlackRock, Inc. based in New York City, is the world’s largest asset manager with $5.4 trillion ($5,400,000,000,000) assets under management, which is even more than what Vanguard has. Due to its power and influence, BlackRock is often referred to as the world’s largest shadow bank. So when this company releases a report, investors tend to pay attention. 🙂

Last month BlackRock published its Q2 2017 global outlook. Below are some highlights.

BlackRock prefers equities over fixed income in general. For the next 5 years, BlackRock believes global equities (except U.S.) and emerging market equities are the best asset classes to be in. When it comes to debt BlackRock suggests high yield bonds and emerging market debts are likely to outperform.
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However, high yield bonds can be risky for investors with shorter investment horizons. So BlackRock says it actually prefers medium to long term U.S. investment grade bonds.
BlackRock also likes emerging market and global equities. It also believes the U.S. financial sector can benefit from rising interest rates if the trend of monetary tightening continues in the U.S.
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You can download the full BlackRock report here. 🙂

How does this change my current plan? Not much. After seeing the second chart, I have decided to continue investing in high yield bonds since it’s one of the best performers in the model. The duration is also relatively short (around 5 years.) This lowers interest rate risk. The only fixed income asset that has a higher yield is Latin American government bonds. But I don’t like it due to tax reasons. I can shelter U.S. investments in my RRSP thanks to NAFTA. But Brazilian investments in my portfolio will be subject to the full brunt of taxation. What about diversification though? I do want Latin American exposure. But that’s why I have equity of companies such as BNS conducting business there, instead of owning debt directly.

 

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Random Useless Fact:

This is how to annoy a gamer.

Sep 242015
 

A Smart REIT for Retirement

To be successful at investing we have to think like burglars and always be on the lookout for windows of opportunity. One such opportunity comes in the form of buying real estate. Owning a rental property is a great way to earn some extra income. But a more stable and passive way to invest in property is to own REITs, which are companies that hold many different properties and typically pay monthly distributions to their unit holders. One of these companies is called Smart REIT. And last week I contributed $3,000 to my RRSP and purchased 111 units of SmartREIT at $29 each + $9.99 for commission. 😀 It currently pays a fetching 5.5% annual dividend, and I plan to hold this name indefinitely for my retirement income needs.

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SmartREIT (SRU.UN) used to be called Calloway REIT, but earlier this year it acquired SmartCentres in a $1.16 billion deal and changed its name. The take-over was to acquire 24 shopping centres, mainly in Ontario and Quebec, making the new company one of the largest REITs in the country with 149 properties under management and $8.3 billion of total assets.

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A large part of a successful real estate business is finding high quality tenants. A quick look at the top 10 tenants for this company, based on gross rental revenues, shows that Smart REIT is working with some excellent renters with very traditional business models and high profitability.

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Nov 062014
 

How Midterm Elections Affect the Stock Market

Imagine if you knew an investment strategy where the historical odds are almost 100% in your favor! 😀 Well here’s how. 🙂 Since 1942 there has been 18 midterm elections, not counting the one that just happened earlier this week. Every single time the S&P 500 has gone up after one year following each of those elections. The average stock market gain over the 12 month period following all 18 elections was 16%. 🙂 If we only look at what happened after just 6 months following the midterm elections, once again 18 out of 18 times the S&P 500 rallied, and on average by 15%. Chart below for details. (source)

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As we can see, the chart shows the percentage change of the stock market index after 3 months, 6 months, and 12 months following each midterm election. The only negative change is after the 3 month period following the 2002 midterm when the S&P 500 dropped 8.7% as shown in brackets. Every other time the stock market has gone up. 🙂 This indicator has been very consistent because regardless of which party wins in the house or the senate the results of a midterm election adds certainty to the political landscape. And certainty gives confidence to the financial markets. 🙂

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Sep 132014
 

We teach kids to not begin a sentence with the word “Because.” We tell them the smallest things in the universe are atoms and molecules. But when the kids grow older they learn about proper grammatical structures and subatomic particles and inevitably realize that the information they were taught as children were simply inaccurate :|. Popular financial advice like “Don’t carry a balance on your credit card,” can be misleading as well.

One favorable reason to carry credit debt is for investing purposes. Earlier this summer, my pal at Finance Journey updated his June net worth where he had multiple credit cards with a combined balance of $26,800.

Being $26,800 deep in credit card debt may sound like a bad situation to be in, but he was actually leveraging the promotional low interest rates on his credit cards to buy large cap, blue-chip companies that paid him more dividends than the interest he accumulated on his credit card loans.

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He’s an average, middle class guy but he’s managed to grow his investment portfolio to about $100,000 in just a couple of years thanks to his modest savings and credit card leverage. Even low risk government bonds will still yield a higher return than the cost of those special credit card rates. If we know for certain that our borrowing cost will be low for a set period of time, and higher returns can be made elsewhere, then we can use the opportunity to make some extra money at virtually no risk ;)

Credit cards can also be used as a bridge loan, for example to cover the cost of buying a new car before selling the old one. It’s a way to use other people’s money at no cost to us. Many people including myself also use credit cards as emergency funds :D When I received a promotional 1.9% balance transfer last year, I did not hesitate to carry a $5,000 balance for many months. My credit card loan became part of the money used for a down payment.

Simplified financial advice is designed to connect with the most number of people so it tends to be generalized. Believing credit card debt is inherently bad is like believing humans evolved from apes. It’s just a convenient lie we tell kids because their brains are not developed enough to comprehend the real truth. But we’re not kids anymore. We must look at credit cards objectively and make decisions based on facts, and not on stereotypes.

We shouldn’t borrow money just for the sake of having debt, but in some circumstances carrying a controlled amount of credit card debt can be our best option to financial freedom :) At the end of the day what really matters are results. Crunch the numbers and do whatever makes sense to you.

Random Useless Fact:
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Both humans and apes evolved from a common ancestor that lived 5 to 8 million years ago. Given the right conditions, a modern ape species might evolve into something like a human, but it would take millions of years.

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