Jan 062020
 

Happy New Year! 😎 As a personal finance blogger, I celebrated New Year’s Eve properly in the traditional fashion – by looking up the new value of my home on the BC assessment website. 😀 Needless to say my condo’s assessed value for 2020 has dropped. I will update my net worth next month to reflect the new value, but today’s post is meant to highlight my December 2019 finances.

A bullish decade

The U.S. stock market has been on a bull run for 130 months now – a historical record. But who would’ve guessed? In 2010 the dreadful malaise of the great recession was still lingering on investors’ minds. The stock market was still recovering. And many people felt uneasy and hopeless as the S&P 500 index returned virtually nothing from 2000 to 2009.

But it was a completely different story over the next 10 years. From 2010 to 2019 investors saw steady gains on Wall Street, with relatively low volatility and few setbacks. The S&P’s annualized return in the 2010s was 13% according to the NY Times. Not too shabby. The 29% return last year in 2019 really helped out any boomers who are retiring this year.

On the labour front, the unemployment rate dropped from 9.9% in 2010 to just 3.5% now. Real median household incomes rose 12% during that time.

Canadians have much to celebrate as well. The TSX Composite gained around 6.7% annualized. It’s not great, but also not bad. The MLS price index shows homes are now worth 67% more across the country than 10 years ago. But that varies a lot depending on location and type of home. Bond portfolios rallied around the world as central banks competed to see who can lower their interest rates the most. Overall it had been an economically fruitful decade for many people. 🙂

Increasing my cash holdings

I remember that 2018 was a rough year where the stock market fell 12% in Canada, and 6% in the U.S. But since we entered into 2019 on a fairly low point, this past year has been an absolute blessing. The market rebounded and helped to propel my wealth upwards by $261K in a single year. Which isn’t all that impressive once you take into consideration that I already had $1.2 million worth of assets going into 2019, and that all asset classes I owned went up in value. It was just a great year for investors in general. 🙂

I made some adjustments over the past month in order to get ready for the new year. My plan is to increase my liquidity for a potential real estate purchase in the lower mainland in 2020. My price range is between $400K to $700K so I would require a sizeable cash amount for the down payment.

I sold all of my TD e-Series mutual funds worth about $13K and closed my fund account. I had started investing in the e-Series funds a long time ago in order to demonstrate to readers how to set up the account and how to operate it. This was before Vanguard ETFs came to Canada. So I was basically showing people how to buy index funds in 2013 before it was cool, haha. 😀 I gradually put more money into the fund over the years but have now decided to sell everything. 🙂 Index funds have become too mainstream anyway.

I also sold $20K of REITs and other stocks in my TFSA and withdrawn the cash to my chequing account. I will put the $20,000 back into my TFSA this year, along with an additional $6,000 of new contribution.

Farmland Update

My farmland has been sold. I am still waiting to receive the final adjustments and paperwork by mail from my lawyer in Saskatchewan. But there shouldn’t be any issues. The total commissions and fees related to the sale add up to about $24,000 – which I’m including in today’s net worth update. 🙂 Technically I didn’t pay the fees until January, so I’m including the amount as a December liability below for best accounting practices. I will write a detailed post on my farmland sale in the upcoming weeks. 🙂

Liquid’s Financial Update December 2019

*Side Incomes: = $2,900

  • Part time job =$1100
  • Freelance = $200
  • Dividends =$1200
  • Interest = $400

*Discretionary Spending: = $2,500

  • Food = $400
  • Miscellaneous = $800
  • Interest expense = $1300

*Net Worth: (ΔMoM)

  • Total Assets: = $1,434,300 (+27,700) 
  • Cash = $49,500 (+36,300)
  • Canadian stocks = $184,000 (-16,500)
  • U.S. stocks = $146,300 (+5800)
  • U.K. stocks = $23,400 (+700)
  • Retirement = $143,900 (+900)
  • Mortgage Funds = $37,900 (+200)
  • P2P Lending = $37,300 (+300)
  • Home = $367,000 (assessed land value 2019)
  • Farmland = $445,000
  • Total Debts: = $404,800 (+22,700)
  • Mortgage = $185,200 (-400)
  • Farm Loans = $161,300 (-600)
  • Margin Loans = $34,300 (-300)
  • Farmland sales cost = $24,000 (new)

*Total Net Worth = $1,029,500 (+$5,000 / +0.5%)
All numbers are in $CDN at 0.77/USD

Many analysts thought 2019 would be a bad year for the S&P 500 given all the worries about trade wars and recessions, but the market actually closed out its best year since 2013. January is often an accurate bellweather for the rest of the year. I’m looking forward to see what new market events 2020 will bring. 🙂

 

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Random Useless Fact:

Aug 192019
 

Millennials swell to 73 million as Boomers decline to 72 million

This year millennials have overtaken baby boomers as America’s largest living adult generation, according to population projections from the U.S. Census Bureau. This will have implications for how financial services are consumed now and in the future.

A new report called the Apex Millennial 100 takes a deep dive into the “unique investment behavior of a new generation.” It analyzed over 658,000 accounts held by millennials, which had more than 8,000 different stock holdings.

Apex CEO says that as “millennials mature into savvy investors, their evolving interests and values will shape a new wealth management industry, one that looks a lot different from the traditional model.”

Top 10 stocks held by Gen Y

Here is a list of the top 10 stocks most favored by millennials. Notice how heavily its concentrated on the high tech industry. 🙂

Maybe it shouldn’t be surprising how many digital companies are on the list. As famous investor Peter Lynch suggests, you should always invest in what you know. You must value the business in order to value the stock. And these are the type of companies you would expect millennials to know most intimately about. I personally interact with several of these companies on a regular basis. 🙂 You can see the entire list of 100 stocks here.

Some trending stock themes from the report include:

  • An increased focus on Canadian cannabis companies, which demonstrates the growing role marijuana may have on the medical and lifestyle decisions of millennial investors.
  • Chinese companies are leading the pack as millennials, who consider themselves to be global citizens, take the long view on international investments.
  • IPOs: Millennials consistently show support for companies that mirror their personal ideologies and offer products and services they understand and value, and will jump to invest in companies like Uber, Lyft and Slack as soon as they go public.

I can understand why other millennials are choosing these companies since I have a similar inclination to do so. I have fewer than 100 stocks in my portfolio. But somehow I hold most of the top 10 companies from the report. One of the most recent stock I purchased was Alibaba Group (BABA) which is already 15% higher since I bought it a couple of months ago. 😀 I guess I’m an example of your typical millennial investor. 🙂 The only stocks I don’t own on that top 10 list are Tesla, Berkshire Hathaway, and Microsoft.

 

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Random Useless Fact:

According to Reuters, California and Texas are the 2 states with the highest number of school shootings.

Jan 292018
 

The Next Recession is Coming

Although not directly correlated to the stock market in the short term, the economy also experiences cycles of ups and downs. Here are some graphs that have historically been very reliable when used to forecast recessions in the United States. Recessions occur when the total economic output of the country declines in two consecutive 3-month periods.

The Yield Curve is Flattening

The graph below shows the difference between the 10 year treasury yield and the 2 year treasury yield. The yield curve tends to get flatter when the economy reaches the end of an expansion phase. The vertical gray bars on the graph represent periods of recession. Every time the yield difference falls below 0% a recession happens soon after. Looking at the chart it appears we’re approaching 0% again.

 

 

Unemployment Rate Nearing A Turning Point

A lower unemployment rate is good for the economy. But at the end of every full employment cycle is a sharp increase in the civilian unemployment rate, usually accompanied by a recession. In the past a long period of declining unemployment rate has always lead to a spike up and a recession.

This rate has fallen from 10% eight years ago to 4% today. Practically speaking it cannot go much lower than this. The lowest the rate has been over the last 60 years is 3.5%. So this downward trend in the civilian unemployment rate is almost over. It’s not hard to imagine what will follow after the rate stops heading lower.

Continue reading »

Jan 152018
 

How to Prepare for Higher Borrowing Costs

My debt to income ratio is about 500% while the national average is around 173%. Readers sometimes email me and ask what I will do when interest rates rise. My answer is simple.

I tell them I will pay down my debts in an accelerated manner prioritizing the highest interest loan first. I will limit my monthly interest expense to no more than $1,500. Doing this will adequately protect myself from interest rate risk. Sounds like a solid plan, right? 😉

But I know not everyone will agree. :/ Back in 2014 I noticed some people were concerned that I had taken on excessive risk because my debt level was too high. This sentiment echoed around various internet forums. Here are some examples I’ve saved.

The last commentator wanted to know how I’m doing now. That’s what I’ll be discussing in today’s post. 🙂

But first, here’s a look at my debt summary in 2014. The numbers are taken from my net worth update 4 yrs ago.

Liquid’s 2014 Debts Balance Interest Rate Annual Interest Cost
Mortgage$200,0002.95%$5,900
Farmloans$208,3003.40%$7,082
Margin Loans$52,9004.25%$2,248
HELOC$17,9003.60%$644
TD Line of Credit$33,7005.25%$1,769
CIBC Line of Credit$14,0004.50%$630
RRSP Loan$5,0004.00%$200
Total Debt Balance$531,800  
Average Weighted Interest Rate 3.47% 
Total Cost of Debts$18,474

 

Back then I had nearly $532K of debt, charging me an average interest rate of 3.47% per year.

I was paying $1,540 per month in interest. But I was cash flow positive and saving about $1,000 per month. I felt like I had everything under control. So I didn’t understand why people claimed I was overly leveraged. I thought maybe I was missing something. But as Bobby McFerrin would say, “don’t worry, be happy.” 😀 So that’s what I did.

And here’s what my debt looks like today, 4 years later. 🙂

Liquid’s 2018 DebtsBalance Interest Rate Annual Interest Cost
Mortgage$180,3002.80%$5,048
Farmloans$185,3004.30%$7,968
Margin Loans$57,0002.40%$1,368
HELOC$14,9003.70%$551
TD Line of Credit$5,0005.45%$273
CIBC Line of Credit$17,5005.00%$875
Total Debt Balance$459,000  
Average Weighted Interest Rate 3.49% 
Total Cost of Debts$16,083

 

So my debt costs me $16,083/yr or $1,340 per month right now. This is actually $200 per month lower than in 2014, despite interest rates being higher today.

Yay. Bobby was right. There was no need to be worried. 😀

Nearly every asset class I hold long positions in has produced decent returns since 2014. Had I not borrowed and used other people’s money to invest I would have missed out on all the investment gains.

 

Continue reading »

Oct 032017
 

We are now 3 quarters into the year. The S&P 500 and Nasdaq both hit an all time high to close out September. Up here in Canada the S&P/TSX Composite grew by 3.7%. Gross domestic product (GDP) was essentially unchanged, at zero per cent growth in July compared with June, Statistics Canada said last week. I suspect that the slower start to Q3 is indicative of what’s to come for the rest of the year. The good thing is inflation should remain low at sub 1.6%. I wonder if the Bank of Canada raised interest rates too quickly over the summer.

September had turned out to be a great month. A rising stock market raises all boats so my brokerage accounts performed well across the board. I’m quite happy with the outcome. 🙂

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $700
  • Freelance = $1200
  • Dividends = $800
  • Interest = $600
*Discretionary Spending:
  • Fun = $400
  • Debt Interest = $1300

*Net Worth: (ΔMoM)

  • Assets: = $1,121,700 total (+9,100)
  • Cash = $3,600 (+600)
  • Canadian stocks = $151,700 (+3200)
  • U.S. stocks = $93,900 (+3500)
  • U.K. stocks = $20,200 (+500)
  • RRSP = $83,900 (+1500)
  • Mortgage Funds = $31,300 (-200)
  • Peer-to-Peer Lending = $21,500 (+200)
  • SolarShare Bonds = $9,600 (-200)
  • Home = $270,000
  • Farms = $436,000
  • Debts: = $474,700 total (-4,000)
  • Mortgage = $181,700 (-400)
  • Farm Loans = $187,300 (-500)
  • Margin Loans = $57,600 (-100)
  • TD Line of Credit = $9,400  (-1800)
  • CIBC Line of Credit = $23,000 (-1000)
  • HELOC = $15,700 (-200)

*Total Net Worth = $647,000 (+$13,100 / +2.1%)
All numbers above are in $CDN. 

My year over year net worth gain is $109,500. I plan to continue paying down debt while building up my retirement fund over the next 3 months. By the end of this year I hope to have a net worth of $675,000.

 

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Random Useless Fact