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

Dec 152016
 
How to invest in the united kingdom

The United Kingdom has a long history of innovation and creativity. The television, programmable computer, telephone, Mini, and even Calculus are all British inventions. The British government was the first to create a revolutionary missile called the civil servant – it doesn’t work, and it’s nearly impossible to fire.😄 The U.K. also gave us David Beckham, Adele, The Beatles, Emily Blunt, and Christian Bale (heh). By the way, if you ignore the looks, wealth, charisma, and success, then there’s no real difference between me and Christian Bale. 😉

England is such a fascinating country and I’ve always wanted to invest there. But I’ve never found the right opportunity to do so, until now. 😉 With a cheapened currency and rising government bond yields, the U.K. is looking relatively attractive for foreign investors. So a few days ago I invested £11,000 in the U.K. stock market! I think the British would approve of my decision. 🙂

London, England is home to the world’s largest global financial center. Despite the rainy weather, its enduring popularity and rich history make London one of the most sought after cities to live in.

In today’s post we will explore why Great Britain may be a good place to invest in, how to do it, and what we can expect in the years to come. 🙂

Top 3 Reasons to Invest in the United Kingdom

Keep in mind these are my personal reasons and may not apply to everyone else’s situation.

  1. Geographical diversification. Back in 2014, the United States stock market represented 36% of the world’s total stock market cap. But according to the Wall Street Journal, it has recently climbed past 40% after Trump won the U.S. election.But this trend cannot go on forever because the U.S. doesn’t have special privileges regarding innovation, profit growth, or stock market returns. Nearly all of my financial assets are in North America. Investing in the U.K. gives my portfolio some international exposure.
  2. Cheap Pound Sterling. The British Pound (GBP) has recently become one of the most undervalued major currencies in the world. A couple of months ago the Pound fell to a 31 year low compared to the USD. So during my entire life so far, there has never been a better time to buy the Pound Sterling than this year. 🙂
  3. Decent historical returns. Here’s a look at how the FTSE performed over the last 25 years, compared to the Russell 3000 in the U.S. It’s nothing spectacular, but a 200% return in 2.5 decades isn’t bad. 🙂

Continue reading »

Aug 012016
 

Stock Markets Reach Record Highs… Again 

Both the Dow Jones and the S&P 500 indexes have climbed to all time highs in late July. 🙂 But corporate earnings have been stagnant and economic growth remains weak. Restaurant sales have slowed. The U.S. economy only grew a disappointing 1.2% in the second quarter, well below expectations. 😕

So what’s producing so much excitement in the stock market? In short, I believe it’s largely caused by Negative Interest Rate Policies (NIRP). For example, in Europe the benchmark lending rate is negative 0.4%. Usually the bond issuer pays interest to the investor. But with negative rates, the investor pays the issuer. Currently about 1/3rd of the world’s government bonds are producing negative yields. Investors can’t get rich by holding these securities anymore. So in this kind of environment bonds really hold people down.?

As a result of NIRP, more investment capital has moved from the bond market to relatively stable stocks. These tend to be companies that operate gas pipelines, railways, utilities, telecommunication services, and other infrastructure that are recession resistant. Last year I wrote about how to easily make $75 of annual income without using any of my own savings by using leverage to buy shares of TransCanada Corp (TRP.)

16-08-financial-advice-dog-bonds-tennis-balls

I purchased TRP stocks for $42 per share. I mentioned at the time that analysts had an average price target of $57.50 per share. This doesn’t always happen, but sure enough TRP is trading at roughly $60 per share today. 😀 So not only am I making $75 a year in dividends, but I’ve also made $1,800 in unclaimed capital gains so far. 😉

In normal circumstances this kind of price movement in a large cap, blue-chip company wouldn’t happen. But due to a lack of viable investment alternatives, an influx of additional buyers has pushed up TRP and many other relatively safe stocks.

Increasing Valuations and Risk

Unfortunately, NIRP produces asset bubbles and may cause the markets to behave precariously. The chief executive of DoubleLine Capital, who oversees more than $100 billion in assets, recently said that many asset classes look frothy and his firm continues to hold gold, which has also climbed due to NIRP.  At the end of July gold reached $1,350 per ounce, the highest monthly close in years! Stock investors have entered a “world of uber complacency,” said Jeffrey to the media. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong. Continue reading »

Jul 212016
 

Proper Portfolio Diversification 

Once upon a time a topiary artist invested all his money in shears and hedge funds. But he lost all of it because he wasn’t properly diversified. We diversify our assets so if one investment fails miserably it won’t drag down the rest of our portfolio with it. Owning 10 stocks is better than 1. But there comes a point when adding more stocks to a portfolio ceases to make a measurable benefit. Many experts suggest that optimal diversification is achieved when an investor holds 15 to 20 stocks spread across various sectors of the economy. 🙂

16-07-diversification

So if our portfolio contains 100 different stocks in 10 different industries then we are properly diversified right? Hold the mayo. I would argue no. Although we have a wide range of stocks and sectors, we really only have one asset class – stocks. Common stocks represent equity in publicly traded companies. But if a business becomes insolvent then its equity could be completely wiped out. This is why we have other asset classes such as bonds, which gives investors some recourse in a liquidation situation.

Okay, so diversification means having a balanced portfolio of index funds with both stocks and bonds right? Well, not quite. The capital markets can be highly volatile and it operates on a system that isn’t always reliable. In 1914 the US stock market shut down for 4 straight months. More recently in 2001 the NYSE was offline again for several days. This means at any time investors could be locked out of the market without warning. So other than financial assets, we can also invest in hard assets such as real estate, private businesses, gold, or other commodities. Over the past 2 decades Canada has gradually lowered interest rates and loosened borrowing rules, which encouraged consumer borrowing. This made the cost of living more expensive, especially in larger cities. But those who bought homes in Toronto circa 1996 and kept it until now would have seen their home prices rise to keep up with, or even surpass the inflation rate.

Continue reading »

May 052016
 

The Pessimism in the Markets

Corporate profits have been disappointing lately. Apple (AAPL) recently said its revenue fell for the first time in 13 years due to a decline in iPhone sales compared to the same time last year. Apple shares are worth 26% less now than a year ago. Investors are warned the decline could continue. 🙁 Other publicly traded companies are experiencing similar challenges. Top line growth is slowing down, and its becoming harder to maintain profitability levels.

A recent article on Bloomberg.com suggests that future investment returns for millennials will be lower than prior years. It cites a study by consulting firm, McKinsey & Co, which proposes that “the forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing.” So maybe it’s time for investors to lower our expectations.

Lower Investment Returns for Millennials

The last 30 years was actually a bit of an anomaly because on average we’ve had a couple of percentage points better annual returns when compared to the past 100 years in general. Falling inflation rate has helped drive real returns, and bond prices increased substantially as interest rates fell for the last couple of decades. 🙂 But going forward we may face secular stagnation and a lack of economic growth due to an older population. Let’s take a look at the study’s findings, and future return estimates.

16-04-lowering-sights-lower-returns

Regarding U.S. equities for the time being, it appears growth in the following 20 years will be 1.4% to 3.9% lower than in the past 30 years. The director of the study, Richard Dobbs, warns that the people who will lose out the most are the millennials. Oh no. That’s me! It appears we’ll have to either work longer or find other ways to put more money in our retirement accounts. The alternative is to retire poorer and live off government cheese, which is actually a luxury in Canada considering the expensive tariffs we have on dairy products, haha. 😀

Preparing for the Next 20 Years

So here are a few of things I’m doing to deal with all this information. They may not work for you, but I will share anyway.

First, the most important thing is to lower the cost of investing. This is even more crucial if market returns will underperform in the future. Using the numbers from the graph above, the average return on U.S. equities over the last 30 years was 7.9%. So if our management fee and other combined costs were 1%, then our actual return would be 6.9% after fees. The 1% fee would effectively eat away 13% of our actual market return.

But the “slow-growth scenario” claims that over the next 20 year period the annual return of U.S. equities will be only 4%. If we still pay the same 1% portfolio fee as before, then this cost will eat away 25% of our future annual return, nearly twice as high in percentage proportion to a 7.9% market return. Bummer. 🙁

So how can we lower pesky fees and reduce the overall cost of investing? It’s simple. 🙂

How do we reduce the long term costs of plumbing? We learn some basic DIY plumbing skills. How do we reduce the cost of food? We learn to cook and meal plan. How do we reduce the cost of car repairs? We learn some basic knowledge about car maintenance like how to check the tire pressure, change the oil and air filter, etc. We can reduce the cost of any aspect of our lives by simply educating ourselves on the subject. 😉

16-05-check-engine-still-there-car-meme

So if we want to lower our investment fees, we just have to better understand how to invest and manage our own money. With the advent of ETFs and robo-advisors, I hope everyone reading this blog is paying less than 1% management fee on their portfolio. If you’re interested to learn more about low cost wealth management services, check out the thorough review about Wealthfront, that my friend Jacob wrote on his blog.

Continue reading »