Aug 102020
 

I have achieved financial freedoooom!

Freedom 35 has become financially independent

After 12 years of saving and investing I have finally reached financial independence! This means the passive income generated from my investment portfolio is enough to pay for all my current and future living expenses. It’s not about spending more money on things. It’s about spending more time on the things that money can’t buy!

In my first ever blog post I questioned if freedom 35 was even possible for me. After 851 more posts I now know!

Financial independence triumph

Wow. This is unreal. I would like to thank everyone who has taken the time to read my blog, especially those who have been following me since the early days. You know who you are. 😉 I certainly wouldn’t be here today without all your support and encouragement. You guys rock! You have all done plenty. It means a lot. 😎

 

What’s my secret to financial independence?

Everyone’s path to financial freedom is unique. In my case I have to give credit to these 5 key reasons.

  1. Adopt an abundance mindset instead of a scarcity mindset.

    I learned this from reading lots of self development books & watching motivational and introspective YouTube videos. I cannot emphasize enough how important it is to have a positive outlook and growth mentality. There are no problems in life. Only possibilities for growth.

    Rather than sitting on the sidelines because the markets may crash, I choose to invest anyway despite the risks because I focus on the potential gains rather than the losses.

  2. Low interest rates.

    Nearly all of my financial strategies have thrived on cheap money. Low interest rates boost stock and real estate prices. Thank you, Bank of Canada! 🍁 Policy makers would rather devalue the currency than let financial markets crash. That’s why real interest rates are negative right now. This trend has created a great deal of moral hazard and social divide. And it appears interest rates will continue to stay low for a very long time.

  3. Understand how to value investments.

    As an opponent of the Efficient Market Hypothesis I prefer to buy underpriced individual stocks rather than the entire market.

    Diversification is great for protecting wealth. But concentration is more effective for building wealth. 😉 By finding and buying undervalued assets I have made tremendous gains in stocks, farmland, and urban real estate.

  4. Invest with other people’s money.

    Without borrowing any money to invest it would probably take me 36 years or longer to become financially independent. But leverage has allowed me to cut that time down to 12 years. Assets produce wealth. Leverage gives me the ability to grow my assets and multiply my wealth. As long as interest rates stay low leverage will continue to be instrumental in my financial plans. 🙂

  5. Copy the best of what others have already figured out. 

    Financial success depends more on the methods and principles you practice than how hard you try. Good strategies create wealth. Great strategies create even more wealth. All the strategies I use have already been vetted and proven to work by highly successful people. I have gained invaluable knowledge by learning from these experts in their specific realms of the financial world:

    •Real estate (Graham Stephan)
    •Leverage (Robert Kiyosaki)
    •Risk management (Ray Dalio, James Rickards)
    •Macro economic trends (Peter Schiff, Raoul Pal)
    •Farmland (Jim Rogers)
    •Financial markets (Warren Buffett, Peter Lynch, Jeffrey Gundlach.)

    I’ve been shadowing these experts and others like them for years – reading their books, studying their next moves, watching their interviews. There’s no reason for me to reinvent the wheel. These smart individuals have already written the indispensable playbook to prosperity. They have generously shared their abundant wisdom with the world. I simply copied their mental models and behaviors.

 

Jump directly to….

 

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Financial independence 2 years ahead of schedule

I was initially aiming to reach FI in 2022 when I turn 35. I was on track to realize this blog’s ultimate raison d’etre. But then something unexpected happened which forced me to change my plan. 😮

As you know earlier this year the stock market experienced a big sell-off, which gave me a major case of FOMO.😖 Not wanting to miss out on bargain prices I purchase over $100,000 worth of dividend stocks in March. My dividend yield on cost was over 6% on these new purchases. I still remember the excitement of buying TD Bank shares and see it jump nearly 18% the very next day.

Warren Buffett famously suggested to be “greedy when others are fearful.” So I followed his advice. I bought when others were selling, and I held when others were buying. As a result my passive income in 2020 soared by over $7,000/year – fast tracking my progress.

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Net worth update as of August 2020

Assets:
Cash = $21,000
Non-registered accounts:
↳ Canadian stocks & bonds = $267,000
.U.S. stocks = $159,000
.European stocks = $19,000
Retirement (RRSP) = $166,000
Tax free savings account (TFSA) = $135,000
Peer-2-peer Lending = $36,000
Principal residence = $331,000 (assessed land value)
Rental property = $450,000 (2020 purchase price)
Total = $1,584,000

Liabilities:
Home mortgage = $181,000
Rental property mortgage = $312,000
Margin loan = $22,000
Total = $515,000

Net Worth:
Assets – Liabilities = $1,069,000

tracking net worth over time

 

Here is a snapshot of all my stocks and bonds on August 10, 2020.

TFSA                                RRSP                                 Margin                              Cash

                       

Altogether I have about $800,000 of liquid financial assets generating $30,380 of passive income. This represents a 3.8% annual rate of return in cash. The typical Canadian requires $756,000 to retire on, according to the Financial Post.

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Continue reading »

Jun 192019
 

Dale Jackson retired at the age of 55. He didn’t win the lottery or start his own successful business. He just worked and saved diligently throughout his career as a media journalist, most recently known for writing investment articles for BNN Bloomberg.

He explains how he achieved early retirement in a recent interview. Here are some highlights below.

  • Keep an eye out for opportunities

Jackson explains that “opportunities come along for every generation.” Most of the time economic recessions are seen as bad times. But it’s actually an opportunity to speed up the retirement process. Asset values are down so we can buy more stocks at a discount. Interest rates are low so we can pay down the mortgage faster. Another example he points to was in 2011 where the Canadian dollar was worth more than the U.S. dollar. That doesn’t happen often. So with the suggestion of his financial advisor Jackson sold CAD to buy USD and that was one of the best currency trades any Canadian could have made during this past decade.

  • Diversify your holdings

Speaking of buying US dollars. It’s not enough to simply hold other currencies. We have to keep our money constantly working. Jackson says that Canada isn’t big enough to make up a diversified portfolio. But the United States is. 🙂 Buying U.S. companies in USD is highly recommended, especially when TFSA and RRSP allow for US dollar accounts. He uses the following graph to explain how over the past 10 years the resource-heavy Canadian stock market index (TSX Composite) has advanced only 55% while the S&P 500 in the U.S. has more than tripled in value! Uh oh. Poor Canadians.

Continue reading »

Aug 292018
 

According to a recent Northwestern Mutual study, nearly 1 out of 3 Americans have less than $5,000 saved for retirement. The average retirement savings for all Americans is $84,821. That’s a far cry from enough. Experts typically recommend building at least $1 million in savings by retirement. So it doesn’t look good for the average American. And we aren’t doing much better up here. A CIBC poll shows that 32% of Canadians between 45 and 64 have nothing saved for retirement. 😮

The 3 pillars of retirement savings

I recently finished reading a book called The Subtle Art of Not Giving a F*ck by Mark Manson, which explains that we can’t possibly care about everything in our lives because that would be too exhausting. So we have to choose what’s actually worth giving a hoot about. For those who are having trouble saving for retirement the best way to get ahead is to focus on a few things that will make a substantial difference. 😀

Below are 3 important factors that are absolutely the mutt’s nuts to building up a retirement nest egg.

Income

This is the number one tool to accumulating wealth. You can’t have savings if you never have income. Prioritize finding new ways to make additional income. This could be through a side job. Investment income is another method that requires patiences but ultimately has extremely lucrative results. For example this is what consistently investing in dividend growth stocks for 10 years can do in a bull market. 🙂

Another strategy that usually gives a lot of mileage is to constantly apply for new jobs. Every month make it a goal to send your resume to a few different companies, and follow up with any interviews or feedback you get. The worst case is you decline a job offer with a lower salary than what you’re currently earning. But if you are offered a better compensation package then you’ll receive an immediate raise in your career, either by joining the new company, or negotiating a higher salary with your current employer. 😉

Continue reading »

Aug 312017
 

Is the 4% rule in retirement reliable?

There’s a general rule of thumb that says if you retire you can safely withdrawal up to 4% of your nest egg every year without it running out before you kick the bucket. Financial advisor Bill Bengen, now retired, came up with this guideline after testing a variety of withdrawal rates using historical rates of returns for stocks and bonds. He published a study in 1994 about how 4% was the highest sustainable withdrawal rate retirees could use.

But 1994 was over two decade ago. How does the 4% rule hold up today, after the great recession? Bill recently did some further research into the topic and according to him, the 4% rule still holds true today. 🙂 In fact, he is even confident that retirees can safely withdrawal not just 4%, but actually 4.5% if they are okay with their nest eggs lasting for only 30 years.

15-08-retirement-plan

In a Q&A session on Reddit last week, Bill explained the methodology, details, and implications of his findings. He says that 4.5% is the “percentage you could “safely” withdraw from a tax-advantaged portfolio (such as an IRA, 401(k), RRSP, or TFSA) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you “throw away the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year’s inflation rate.”

For example, if you had $1,000,000 in a retirement account, you would withdraw $45,000 in the first year of your retirement. Let’s say inflation during this year was 2%. This means in the second year you may withdrawal $45,900. Overall, Bill recommends a 50% equities/50% bonds mixture at the beginning of one’s retirement.

 

Other factors to consider

As for how recessions, interest rates, and government policies affect the safe withdrawal rate over time, Bill reassures us that these factors have little bearing on the safe withdrawal rate. There are only 2 major factors that count.

  1. Encountering a major bear market early in retirement.
  2. Encountering high inflation during retirement.

Bill explains that both these factors “drive the safe withdrawal rate down.” His research is based on data going back to 1926. He tests the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 300+ hypothetical retirees is, “believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970’s, and it takes you down to 4.5%.”

A 5% safe withdrawal rate might be a little too high. But so far, Bill has not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing okay with 4.5%.” 🙂

Continue reading »

Jun 152017
 

We’re Living Longer

I don’t know how the term “aging gracefully” can be a compliment. To me it just sounds like a nicer way of saying you’re slowly looking worse. 😛 When the government pension (CPP) was first introduced in the 1960s, the average life expectancy was about 71 years old. The idea was that most workers would retire at around 65 years old, and receive 5 to 10 years of CPP benefits in retirement. And that was the case for awhile. 🙂 But today, the average life expectancy in Canada is over 80 years old which puts more pressure on the CPP investment board to perform well. It’s not unreasonable to assume that my generation of workers (millennials) could have a life expectancy on average of 90 years or older.

According to a Telegraph article, we could witness in our lifetime a world where most babies will have a life expectancy of 100 years or longer! 😀 It’s nice that people are living longer than previous generations. But it’s also kind of sad to think about getting old. Can you imagine having sex when you’re 90? It’ll probably be like trying to shoot pool with a rope. 😕

Young adults are also starting careers later today than in the 60s. So with relatively less money going into the sovereign wealth fund, and more people withdrawing, many economists are worried about the future sustainability of government benefits on the local, provincial, and national level – not just in this country, but all around the world.

If generation Y folks are likely to live to 90 years old, then planning to retire at 65 may not be financially feasible unless a large amount of wealth is saved up first. For those who are planning to retire early like myself, it is even more difficult. Assuming I reach financial freedom by 35, I will have 55 years of living in retirement if I choose to. That sounds great. But the reality is I will most likely be working on and off, or on a part-time capacity throughout my 40s and 50s because there are only so many non-productive activities I can do before I get bored and start working on something economically productive again. 🙂

So instead of planning to live until 80 years old, most healthy people my age should be aiming for 90 as the starting point. And with that it means accumulating more personal savings for retirement. But also keeping in mind that there is no set retirement age anymore, so plan to be flexible with work schedules to accommodate a balanced lifestyle.

 

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