Dec 162019
 

I attempted to join Mensa. What happened next wont surprise you.

So I ran a Twitter poll asking what topic people would like me to write about. The top 2 picks were my Mensa test results and financial plans for next year. šŸ™‚

In today’s post I will discuss all 4 topics from the poll, but focus primarily on the 2 that got the most votes.

Mensa: The smart people club

So out of vanity I decided to take the Mensa exam earlier in the fall. šŸ˜Ž Mensa is a non-profit international organization for the intellectually gifted. Only the top 2% smartest people in the world can be accepted into this private club. In Vancouver there are only about 200 Mensa members. There are other high IQ societies out there, but Mensa is the oldest, and most well known with over 130,000 members worldwide. Mensa members can attend local meetups and enjoy exclusive intellectually stimulating social events. I decided to join this club because I wanted to feel special. šŸ™‚ So I handed over the $90 to take the formal Mensa exam.

There were 4 other applicants that day. We had a chance to make some small talk. They all seemed to be smarter than me. I felt like a Morty in a room full of Ricks. The test was 50 questions, and we only had 12 minutes. In the end I managed to answer 30 questions correct. Not bad. But unfortunately I needed 35/50 to pass.

How it feels to fail the Mensa exam.

So I failed to get into Mensa. šŸ™ Oh well. I guess I’m just an ordinary peasant after all. Apparently I can re-take the test after a year. But I don’t think I can handle the rejection a second time. šŸ’”

 

The Real Estate Market

Sales is a leading indicator for price. Both Vancouver and Toronto saw strong sales in the last couple of months, signalling potential higher real estate prices in the new year. In a typical cycle the market goes through 3 stages: from boom, to slump, to recovery, and then repeats.

In Vancouver I believe we are currently in a real estate slump. However we are either nearing the bottom of this slump, or have already hit the bottom and are now transitioning into the recovery stage where prices will start to climb again. If you plan to buy property around the Greater Vancouver area, the latest data from the Real Estate Board suggests the window to get in at the lowest point of this real estate cycle is closing fast.

Finding Neverland real estate meme

Toronto is a bit of a different story. The low point was already hit last year in 2018. The recovery has been strong, and average prices now rival the 2017 peak. I anticipate interest rates will fall early next year. If that happens, property prices in major Canadian cities will become more expensive by the summer of 2020.

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Sep 272017
 

Understand Why You Invest Before You Invest

There should always be a goal, or objective attached to an investment. But not all investments require them to have the same goal. Here’s a list of some objectives, and how they’re different.

Investment Objectives
  • Capital PreservationĀ – To seek maximum stability for our investment by investing in assets that are associated with extremely low risk. For example, I usually have a couple thousand of dollars on hand.
  • HedgingĀ – To take long or short positions of an asset in order to hedge or offset the risk of another asset. For example, I hold gold and silver to hedge against inflation, which is gradual devaluation of currency.
  • IncomeĀ – To generate dividend, interest, RoC, or other types of income instead of capital appreciation. The peer to peer lending platform, Lending Loop, is a good example of this. My effective annual yield on the platform is currently over 10%. šŸ™‚
  • GrowthĀ – To increase the principal value of our investments over time through capital appreciation. Investors can expect attractive long term gains but also assume relatively higher levels of risk. My farmland and growth stocks such as Amazon, Netflix, and Facebook, are all examples of this objective.
  • SpeculationĀ – To greatly increase the principal value of our investments by taking on substantially high levels of risks. Examples of this would be trading cryptocurrencies, or penny stocks.

Some investments could fit into multiple objectives. And much like anything else with personal finance, our investment objectives can change over time. But the important thing is to be mindful about what we want our money to do, and re-evaluate those objectives periodically (ie: annually,) based on our changing financial situations.

At this time my primary objective is growth. Most of my financial decisions are based on this objective. šŸ˜€ I’m willing to overlook short term gains in favor of maximizing the potential for long term total returns. Much of my choices, such as using leverage, makes sense when viewed in this context. But having said that, it wouldn’t be wise to rely 100% on a single investment objective. šŸ˜‰ This is why about 20% of my net worth is allocated to investments that strictly produce income. Naturally over time, in preparation for retirement, my investments will focus more on income and capital preservation, and less on growth and speculation. šŸ™‚

Whatever our investment objectives may be, the important thing is to make a decision. šŸ™‚ As fund manager Sir John Templeton once said, “the only way to avoid mistakes is not to investā€”which is the biggest mistake of all. So forgive yourself for your errors. Donā€™t become discouraged, and certainly donā€™t try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience. Determine exactly what went wrong and how you can avoid the same mistake in the future. The investor who says, ā€œThis time is different,ā€ when in fact itā€™s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing. The big difference between those who are successful and those who are not is that successful people learn from their mistakes and the mistakes of others.”

 

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Random Useless Fact:

 

Apr 252016
 

How to Think About Retirement Planning

Some people are reluctant to accept change, especiallyĀ cashiers because nobody likes to count nickels and dimes. But the world is constantly changing and the retirements of generation Y will look very different than generation X.Ā The trend towards a gig economy has only just begun. In the private sector less people are working 40 years at one company, and more are doing contract work, starting side hustles, and becoming self employed. According to Intuit, in just 4 years from now up to 40% of American workers could be independent contractors. Wow, what other changes will we seeĀ in 4 years? I don’t know, because I don’t have 2020 vision.Ā XD

So as weĀ adapt to changing economic strategies, by growing our income streams for example, our retirement plans must also reflect this new world of mobile apps, and short-term work that is long on flexibility, but short on benefits. When it comes to making smart retirement decisions today we should separate the things we can control, from the things we cannot.

16-04-retirement-planning

We start by thinking about the factors that we have fullĀ control over, such as how much we need to save (and therefore, spend) in order to meet our long term goals. For example, I want to reach financial independence by age 35, which means I need to save about 1/3rd of my income right now. Although diet and exercise habits aren’t directly related to personal finance, they’re extremely relevant in the big picture because healthcare can be a major cost, especially for Americans, when we reach retirement age.

According to the National Council on Aging, aboutĀ 92% of older adults have at least one chronic disease. Jeez Louise! Chronic diseases account for 75% of the money America spends on health care. Diabetes alone affects 23% of Americans over the age of 60. According to Statistics Canada, more than half of all Canadian adults are overweight or obese. šŸ™ Although certain aspects of our health revolves around genetics, we also rely heavily on epigenetics, and the idiosyncratic personal choices we make today to determineĀ how we live our golden years. Just like with a motor vehicle, proper maintenance can extend our life expectancy, and keep the repair costs down in the long run. This way we can save our money and spend it on meaningful experiences rather than on medication and treatments. šŸ™‚

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Aug 052015
 

TheĀ Easiest way to Plan for Retirement

Some people say the money is no better when we retire, but the hours are! But how much money is enough to retire on? Retirement planning can sometimes be difficult if we don’t know where to start, or how much to save.

15-08-dog-no-idea-what-doing-retirement-planning-how-much-money-for-retirement

So today I’d like to simplify the process and break it downĀ into two commonly asked questions. Answering both these questions will determine if you are either on the right track to retirement or falling behind. You can use the handy retirement calculator further down the post to find out. Let’sĀ start with the first question.

How Much Money Do I Need To Retire?

Assuming you’ll retire at age 65, here is the formula to figure out how much money you will roughly need to have saved up by the start of your retirement. By “money,” I mean investableĀ assets which include yourĀ retirement accounts, investment properties, stock portfolio, annuities, etc.

Ā [1.019 ^ Number of years left until retirement] x [25 x (Current Annual Expenses – $14,000)] = Total Savings Needed to Retire

So for example, imaginary LauraĀ is 40 years old and spends $30,000 a year. She wants to find out how big her investment portfolio will need to be when she eventually stops working 25 years from now.

[ 1.019 25 ] x [25 x ($30,000 – $14,000)] = $640,345

Using the formula LauraĀ would need to have $640,346Ā saved up by 65 years old to retire.Ā For couples and families, simply use the total annual household expense and replace the $14,000 figure with $25,000 instead.

This brings us to the second common question everyone wants to know:

How Much Money Should I Be Saving Each Year?

Laura has amassed an investment portfolio worth $100,000 so far. She currently saves $5,000 a year by making automatic contributions to her retirement account, but is it enough? She knows from the first formula that she needs $640,346 to retire by 65. She can use the following formula to calculate how much she needs to actually save per year.

0.05 x (Total Savings Needed to Retire – Current Savings Amount x 1.05 ^Ā Number of years left until retirement) / (Ā 1.05Ā ^ Number of years left until retirementĀ – 1Ā )Ā = SuggestedĀ Annual Savings RateĀ 

Alas, it appears saving $5,000 per yearĀ is not enough for her since she’ll need to save at least $6,322.

[0.05 x (640,345 – 100,000 x 1.0525 ]Ā /Ā [1.0525-1] = $6,322

Use the following spreadsheet to experiment with your own retirement numbers.Ā 

15-08-retirement-calculator-simple

Download Freedom 35 Blog’sĀ Simple Retirement Income Calculator Excel File. It has both formulas in it. šŸ˜‰ (AlterativeĀ .ods version.)

Laura decides to increase herĀ retirement contributions by $150 every month, bumping her total annual savings to $6,800. It’s important to make these changes early because increased savings will translate directly into decreased spending. If she can live on less money now then she will also require less savings to retire on in the future. Well done, Laura! šŸ˜€

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