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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Apr 042013
 

I started this blog in 2010 and have written a lot on how I’m investing for the future.  But I’ve just realized I haven’t written much about my financial experiences prior to 2010. You probably won’t learn anything new from this post today but for anyone who might be interested, this entry is about how my road to financial freedom began in 2008, and how it progressed in 2009 and 2010. I’ve dug up and scanned my old tax statements from each year to give an idea of my financial back story.

2008 – The Road to Adulthood

In the beginning of 2008 I was just your average student attending a vocational school in Vancouver. I lived at home with my parents to save money. The only real job I had previously was working at a Safeway in 2007 to help pay for my education. It took all my savings, plus student loans to finally graduate in February 2008. At this time I didn’t know anything about the true value of money or how to properly invest it. My main focus, like any other recent graduate’s, was to find employment. Luckily the school I graduated from was looking for part time teaching assistants, so I applied and started to work there during the evenings and weekends. But I still needed to find a permanent full time job. After a couple months of tirelessly sending out resumes and writing cover letters, I was beginning to lose hope and even considered going back to my old retail job. Keep in mind this was in the middle of the 2008 recession. But with $15,000 of student loan debt I couldn’t afford to give up so easily (>_<) Finally after half a dozen different interviews at various companies I landed a job in my field of study, graphic art and design, in May 2008.  The pay was $35,000, so not bad for a starting salary. After tax it worked out to be about $2,400 per month 🙂 I was finally making some decent money compared to the lousy $8.75/hr at Safeway before. I couldn’t help but beam like this (●^o^●) when I received my first direct deposit in the bank. I decided to keep my part time job since it didn’t interfere with my new full time work 🙂

Beginning of 2008 summary:
Income $0 (attending school full time)
Expenses $100/month (cell phone and bus pass)
Assets: $0 (I had no financial assets 🙁 )
Liabilities: $15K (student loans)
Net Worth: -$15K 

At first I wasn’t sure what to do with all the new money I was making. I remembered in high school we learned about compound interest so I thought I should probably start investing while I’m young. Not only can I take advantage of time, but investments are also really cheap to buy due to the recession. So I followed the news everyday and learned more about what the stock market is. I talked to a financial advisor later in the year to help me make a financial plan and he convinced me to buy some mutual funds. Which turned out to be my first investment ever 😉 Since I was working, I figured I could afford to live on my own. But should I buy or rent? I decided to buy because of the low interest rates. But that meant I had to save up for a downpayment, so I did.

End of 2008 summary:
Net Income: $3K/month (about $2,400 from full time work, and $600 from part time)
Expenses: $100/month (my parents cooked at home so I didn’t need to ever buy lunch. Thanks for saving me money, mum 🙂 )
Assets: $12K ($7K in savings to buy a home and $5K in mutual funds)
Liabilities: $10K (remaining student loans)
Net Worth: $2K ($17K more than a year ago :D)

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2009 – Home is Where the Money is

By March of 2009 I had saved roughly $13,000 from working those 2 jobs mentioned earlier. Not to mention I got a raise at my full time position 😀 I have already paid off half my student loans and could easily pay off the other half, but decided to use my money to buy a home first because I believe investing in property is more important than paying down debt in a low interest rate environment.  By April I had purchased and moved into my own place which I bought for $230,000. Spent all my $13,000 on the downpayment and had to take out a line of credit to pay for the closing costs haha. Oh well. I was lucky my parents didn’t ask me to pay them rent, or kicked me out as soon as I started working because living with your folks is one of the best ways to save money 😀 If it wasn’t for their support at the time my financial situation today would probably be set back 6 months or so. I decided to sell my mutual funds and buy individual stocks instead to avoid the hefty management fees. This is when I started to learn about how certain stocks pay dividends, which lead to the idea of passive income, which eventually gave me the Eureka moment that if I had enough investments I could technically not have to work ever again 🙂 After many hours of research using the Google, I came to the conclusion that the idea of financial independence IS possible, even with someone making an average salary like me. I ditched my advisor and came up with my own financial plan lol. I bought RioCan, RCI.B, ENB, and a few other dividend stocks. By the end of the year I was making almost $300 in dividends annually! With some rudimentary calculations I figured I could be financially free sometime in my thirties if I continued to save and invest half my net income each year. Sounds almost too good to be true, but the math actually works out 😀 This was also when I started reading other personal finance blogs.

End of 2009 summary:
Net Income: $3.2K/month (slightly more than last year, still working 2 jobs)
Expenses: $1.7K/month (housing eats up over half of all expenses)
Assets: $247K (230K for new home, the rest is in stocks and cash savings)
Liabilities: $216K (99% of this is the mortgage, a small amount is LOC used to pay off student loans)
Net Worth: $31K ($29K more than last year yay 😀 )

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2010 – Leverage is the Name of the Game

When I received my apartment’s assessment in 2010, I was shocked that my home is now worth $245,000 on the market. $15,000 more than I paid for in the previous year. I suddenly realized, if I put up $13,000 for the downpayment last year to buy this property, and now it’s worth $15,000 more, I’ve technically made over 100% return on my money already 🙂 I thought if borrowing to invest in real estate turned out well, maybe I can do the same for other asset classes. So I learned about borrowing on margin for stocks. I received incremental raises to my income from both my employers and continued to invest in stocks. Not to mention I was making about $1000 a year in dividends at this time 🙂 I also started freedom 35 blog this year to write about my finances.

End of 2010 summary:
Net Income: $3.5K/month (slightly more than last year, still working 2 jobs, plus a little extra in dividend income)
Expenses: $1.8K/month (slightly more than last year due to lifestyle inflation)
Assets: $279K (237K for home, I didn’t use the $245K assessed value because I thought that’s too high. $42K in stocks and cash savings. )
Liabilities: $217K ($212K for the mortgage, and 5K for money borrowed to buy stocks)
Net Worth: $62K ($31K more than last year 😀 )

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2011 – Diversification is Key

In 2011 my home assessment was $270,000 which was $25K more than the previous year. To hedge my over exposure to the real estate market I focused on diversifying my assets in 2011. Throughout this year I invested in a lot of dividend paying stocks in different sectors of the economy. My dividend income more than doubled during 2011. I was also 4 years into my career so my salary increased a bit too. For my 9 to 5 graphic design job I was paid twice a month. Each paycheck worked out to $1,333 in net income, which is $32,000 annually. But my net worth in 2011 increased by more than that. This means even without a full time job my wealth would have still gone up.  By investing and holding onto appreciating assets using calculated leverage I was able to reach a level of financial security in just 4 years, that would have probably taken me over 10 or 20 years to accomplish otherwise. This is why it’s so important to invest.

End of 2011 summary:
Net Income: $3.8K/month (higher than last year, dividends almost make up 10% of total income)
Expenses: $1.8K/month (no change from previous year)
Assets: $318K (Almost $40K increase from last year, mostly from new stocks I bought. Used $243K for the value of my home instead of the inflated assessed value of $270K)
Liabilities: $216K ($209K for the mortgage, and 7K for money borrowed to buy stocks)
Net Worth: $102K ($40K more than last year 😀 )13-8-2011-income

2012 and Onward- You Know the Rest

I purchased some farmland in 2012 and by the end of the year my net worth was $140,000. Stocks, farmland, and Vancouver real estate continued to outperform and by the end of 2013 my net worth was at $209K. Most of the increase came from holding high quality financial assets. A year later in December 2014 my net worth has grown to $320K. Once again the majority of the year’s net worth growth came from investment decisions I’ve made in previous years like buying farmland and stocks. In 2015 I hope to end the year with $400K in net worth.

Obviously my salary now is higher than the $35,000 I started with almost 7 years ago. But it’s still pretty average. The median household income for the Metro Vancouver area in 2006 was $55,231, which is more than my current full time salary in 2015. So in summary, on my graphic designer’s income alone it would be very difficult to reach financial independence. However, by working a 2nd job, using leverage, and diversifying my investments, I’m able to use the help of multiple incomes streams from my dividends, rental income, and part-time work to supercharge my total income past that $55K median amount 😀 which makes it a lot easier to reach my goals. By using money wisely to buy strong stocks and other profitable investments one does not necessarily need to have a high paying  job to become a millionaire and retire early. 🙂  My most up to date net worth can be found on the Fiscal Updates page. Financial independence, here I come \(^_^)/

This was post was last updated in Jan 2015

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

Mar 062013
 

Very uncertain times for the stock market these days. The Dow Jones, which is a barometer for many companies in the US, is at record highs, surpassing previous levels in 2007/2008 before the recession. In fact many stocks are at 52 week highs right now. This means we are at a critical point. We will either see stocks continue to move up like they’ve been doing recently, or see an immediate pull back. Looking at the 40 year chart of the US stock market it’s pretty clear why some people would be nervous as we might be at another peak (0.O)

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But uncertainty can be an opportunity. As investors we must have a greater appetite for winning than a fear of losing, but we have to be careful not to make stupid mistakes. So my plan is to buy some defensive stocks. If stocks should fall after my initial purchase then I probably won’t lose very much because defensive companies tend to be less volatile. The first pick is The Walt Disney Company. I’ve had my eye on this one for awhile and have wrote in January that I plan to buy some this year. This is a huge company, worth over $100 billion, more than Viacom, News Corp, or Time Warner. Disney is a household name with a very strong brand. They also remained innovative and stayed profitable throughout 90 years across generations of fans. Here are some Disney characters some of you might have grown up with. Well, their hipster versions anyway 😛

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Today Disney employs over 100,000 people, and run some of the largest projects in the entertainment business. Not only do they know how to market themselves, but they actively seek other synergistic brands to buy and integrate into their empire. I love this business model 😀 If you want to have the most talented computer graphics engineers in the world working for you, what do you do? Trying to hire them is too mainstream. So instead Disney just buys the companies those people work for, lol. Disney purchased Pixar (famous for creating gorgeous computer animations) in 2006 for $7.4 billion. Disney leveraged Pixar’s renowned talents and technologies to help improve its own already established Walt Disney Animation Studios. Computer animated Disney films from before the Pixar acquisition were not very polished and received mixed reviews at best, such as “Chicken Little” in 2005 which got a 5.8 rating on IMDB. But films after 2006 like Tangled (7.8 on IMDB), or Wreck It Ralph (7.9 on IMDB) received better reviews and made more money at the box office. To be fair, the later movies had bigger budgets. But if you’ve watched these films I bet you’d agree that the production quality is much higher in 3D Disney films after the merger :0) Disney knows how to make money, how to satisfy their customers, how to stay relevant in an ever changing world, and how to put smiles on children’s faces all around the world. And I want to become a part of that Disney magic(⌒▽⌒)So I bought 30 shares of DIS for $56.55 per share earlier this morning 😉

My second pick is Target Corp. For Americans no introduction is needed. For Canadian readers who may not yet know, Target is a giant US retail chain like Walmart, only better 😉 But you will see for yourself because they just opened their first stores in Canada yesterday in Ontario, and over 100 more will open across the country by the end of the year 🙂

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More competition is good for consumers because it will likely mean lower prices :0) Welcome to Canada Target. I hope you get lots of customers here because I just bought 30 shares of TGT  today at $66.46 per share! Your earnings (after tax profits) have been growing every year for the last 5 years. If you keep this up then I’ll make my entire investment back by 2020 \(^_^)/

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I bought 30 shares of each company today and paid about $3700. If I had bought these same 60 shares a decade ago I would have paid about $1200 for them. Which means in just 10 years these companies have returned 200%. No telling what will happen in another 10 years from today but even half their historical returns wouldn’t be so bad 😀  Walt Disney once said “If you can dream it, you can do it.” Well I dream of becoming a millionaire some time in my thirties and I believe Disney and Target will help take me there (●^o^●)

Jan 072013
 
goals

New year, new challenges. I will do my best to tackle the six financial goals listed below which are similar in nature to last year’s goals. I’ve also included 2 additional stretch goals. These stretch goals will be super challenging so I don’t except to achieve them but it would be a real bonus if I did :0)

A goal is not always meant to be reached, it often serves simply as something to aim at.
~Bruce Lee

1) Increase net worth by $50,000. Counting on my savings as well as my nearly half a million dollars worth of investments to appreciate 😀
2) Make at least $6,000 more income than last year. Thanks to my new rental income from the farm this one should be pretty doable.
3) Put $5,000 into my retirement account.
4) Put $5,500 into my TFSA. (Roth IRA equivalent in Canada)
5) Put at least $18,000 towards other investments (net of taking on any new debt)
6) Bring the total value of my non-registered accounts to $100,000. Currently my TFSA, cash trading account, and margin account, has a combined value of $68,700. So I’ll need to grow these accounts by $31,300 this year 😉

Stretch Goals
1) Pay down at least $1,000 of my debt.  Adding together the balance on my line of credit, a margin loan, and everything else, my total debt is $357,200. It’s not a lot, and interest rates are still low, so I’m not really concerned about it, but I noticed other personal finance bloggers making it a goal and a priority to pay down their debts this year. So I’m going to try and do the same because maybe that’s the smart thing to do. $1,000 is a lot of money though and I don’t know if I have that kind of discipline, so I’m making this a stretch goal, but hopefully I can get myself to only $356,200 of debt by the end of the year.
2) Make $90,000 of pre-tax income. I’m in a race with this other personal finance blogger to see who can make $100,000 dollars a year first. For 2013 she set a goal to make $90,000 so I’m going to follow suit and do the same :0)

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Random Useless Fact:  Auto correct has made it easier to text. But it doesn’t always work the way you expect it to, and that can lead to some unexpected results.