Apr 032017
 

When Long Term Planning Works Out

Thanks to my recent investment in Lending Loop I am now making an additional $2,000 per year of interest income. This brings my total passive income to $24,000 per year. Sweet peaches and cream! 😀 Here’s a breakdown.

  • $9,000 dividends
  • $9,000 rent
  • $6,000 interest

Passive income is the best kind of income for 3 important reasons:

  1. It’s stable and requires no effort from the investor.
  2. It has the capability to be tax efficient, eg: by earning it inside a tax advantaged account.
  3. It’s inflation protected. eg: My current passive income from dividends, rent, and interest would all increase under inflationary pressure.

But it takes time to build up $24,000 of annual investment income. Rome wasn’t built in a day, and neither is passive income. It took me about 9 years of saving and investing to reach this milestone. Dividend income was my first passive income stream and it’s starting to really pay off now. 🙂 Many other bloggers are using this popular strategy for early retirement as well.

My current level of passive income by itself is still not enough for me to live on. However, my projection is to grow my passive income by $3,000 per year over the next 5 years so I will be financially independent when I’m 35 years old in 2022, making about $40,000 per year from my investments. 😀

Increasing my passive income by $3,000 a year is actually easier than it sounds due to my special circumstance. I have 3 lucky advantages that most people my age don’t have.

  1. I have over $1,000,000 of investments under my control. Dividend growth stocks increase payments to shareholders over time. Land tends to appreciate in value and extract higher rental income in the long run. Through inflation this $1,000,000 asset portfolio will grow by an estimated 2% a year to keep up with the cost of living. This works out to $20,000 of annual appreciation. We can easily convert any tangible asset into a perpetual passive revenue stream by using the 4% rule. Therefore, I can expect my passive income to increase by $800 by next year simply by continuing to hold $1+ million of productive assets. ($20,000 x 4%)
  2. I do not spend the $24,000 of passive income I currently make. So all of it can go back into buying more investments. $24,000 will generate about 5% of income for me with a combination of high yield income securities and dividend stocks. So that’s another $1,200 of newly created passive income for me to look forward to by next year. ($24,000 x 5%)
  3. Tax efficiency. Nearly all my dividend producing investments qualify for the federal dividend tax credit so I effectively pay only 6% tax on the income they produce. My rental income is offset by my mortgage interest so I pay less than 4% tax on this rental income. As I’ve written about in the past my profits are kept low. Nearly all my other passive income are sheltered in my RRSP and TFSAs, which accounts for more than $150,000 worth of stocks, bonds, mortgages, and other interest producing assets. This means I pay minimal tax on the $24,000 passive income I make.

Due to the 1st and 2nd reasons in the above list, my passive income should grow organically by $2,000 every year without me injecting any new capital into the portfolio. The remaining $1,000 of passive income (to make up my $3,000 increase per year) will come from savings. With an expected 5% income rate I will need to save $20,000 per year on average to make this happen. I think that’s a reasonable goal for me. 🙂

This whole plan all started in 2008. I’m just following through with it now and adding small changes as things move along. What truly amazes me is the fact that my passive income has now reached a point where it is growing at a faster rate than my active income. There is no way I can sustainably increase my salary and wages by $3,000 every year without sacrificing my health and risk getting burnt out. But my passive income can. 😀 This is why investing becomes more effective the longer one does it.

 

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $700
  • Freelance = $800
  • Dividends = $700
  • Interest = $100
  • SolarShare bonds = $500
*Discretionary Spending:
  • Fun = $500
  • Debt Interest = $1200

*Net Worth: (MoM)16-12-networthiq_chart-nov

  • Assets: = $1,097,900 total (+9,500)
  • Cash = $2,200 (+700)
  • Canadian stocks = $145,700 (+7500)
  • U.S. stocks = $90,100 (-700)
  • U.K. stocks = $19,600 (+300)
  • RRSP = $76,400 (+1500)
  • Mortgage Funds = $30,800 (+200)
  • Peer-to-Peer Lending = $20,300 (+200)
  • SolarShare Bonds = $9,800 (-200)
  • Home = $270,000
  • Farms = $433,000
  • Debts: = $495,200 total (+800)
  • Mortgage = $184,300 (-500)
  • Farm Loans = $190,300 (-600)
  • Margin Loans = $62,800 (+3200)
  • TD Line of Credit = $14,800  (-600)
  • CIBC Line of Credit = $26,500 (-500)
  • HELOC = $16,500 (-200)

*December Total Net Worth = $602,700 (+$8,700 / +1.5%)
All numbers above are in $CDN. 

I got my first SolarShare bond payment! This is the first of 30 total payments I will receive over the next 15 years.

Much like black holes, climate change can really suck. 😄 I invested in SolarShare last year because I wanted to make the world a greener place and earn a profit while doing it. 😀

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Feb 032015
 

Nobody likes to pay banking fees. But most monthly service charges can be waived if we sign up for additional accounts/services, or keep the minimum monthly balance in the account. (eg: maintain at least $1,500 in a Bank of Montreal chequing account to waive the $4 fee.)

15-02-bank-fees-bmo-bank

My personal account is with TD Canada Trust, which charges $3.95/month unless a minimum balance of $1,500 is held in the account at all times. But sitting on unused money can be a waste of capital. 😕 So 3 years ago I introduced an alternative solution to deal with those pesky bank fees. Rather than pay the bank to hold my money, I made the bank pay me instead! 😉

Hedge Bank Fees with Bank Stocks

Here’s what I did in a nutshell.

  1. Transfer the $1,500 from my chequing acct to my brokerage acct and use it all to buy TD shares (38 in today’s shares)
  2. Receive dividend payments every quarter as a TD Bank shareholder
  3. Use said dividends to pay for the $3.95 monthly service fee associated with my chequing account

(see my original post from February 2012 for more details.)

Since it’s been a few years I thought I’d post an update to show how my strategy has turned out so far.

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Nov 062014
 

How Midterm Elections Affect the Stock Market

Imagine if you knew an investment strategy where the historical odds are almost 100% in your favor! 😀 Well here’s how. 🙂 Since 1942 there has been 18 midterm elections, not counting the one that just happened earlier this week. Every single time the S&P 500 has gone up after one year following each of those elections. The average stock market gain over the 12 month period following all 18 elections was 16%. 🙂 If we only look at what happened after just 6 months following the midterm elections, once again 18 out of 18 times the S&P 500 rallied, and on average by 15%. Chart below for details. (source)

14-11-midterm-election-stock-performance

As we can see, the chart shows the percentage change of the stock market index after 3 months, 6 months, and 12 months following each midterm election. The only negative change is after the 3 month period following the 2002 midterm when the S&P 500 dropped 8.7% as shown in brackets. Every other time the stock market has gone up. 🙂 This indicator has been very consistent because regardless of which party wins in the house or the senate the results of a midterm election adds certainty to the political landscape. And certainty gives confidence to the financial markets. 🙂

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Feb 282014
 

Absolutely incredible month for stocks in February. Most companies beat the street’s earnings expectations 😉 Furthermore, one of my favorite companies, TD, did a 1:2 stock split and raised its dividends! I also had quite a lot of DRIPs this month 🙂 #Score!

The title in today’s post isn’t just a reference to Bloodhound Gang’s catchy song 😉 DRIPs are super useful, and one of my favorite investing tools as a dividend investors. Dividend Re-Investment Plan (DRIP) means automating the process of using newly acquired dividends to purchase as many new shares as possible so the investment can snowball for maximum affect. For example, in the summer of 2011 I purchased 139 shares of Intel stocks for $3,000 and blogged about why I made that investment. But today, I have 149 shares of Intel. Where did the extra 10 shares come from? DRIPs of course! 😀

Every 3 months I acquire a new Intel share. Setting up a DRIP is easy and free 🙂 It’s been 10 quarters since I bought INTC, so that’s how I got my 10 extra shares, for free!

Since I purchased Intel the dividend was raised a couple of times from 18.12 cents/share to 22.50 cents now. That’s a 24% dividend hike over that 2.5 year period! #PassiveIncomeWin 🙂 If you followed my strategy and also bought Intel back in 2011, then I hope you are as happy with your investment as I am 🙂

Here’s a look at DRIPs in action inside my RRSP trading account ^_-

14-02-dripsintel DRIP

In 2011 Intel paid me ($0.1812 x 139 shares x 4 quarters) = $100/year
But today Intel pays me ($0.2250 x 149 shares x 4 quarters) = $134/year 😀

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Dec 232013
 

I recently posted an article introducing the TD e-Series mutual funds and how to open up an account. These are easy to understand, low cost funds that are simple and easy to manage with no trading commission. In today’s post I’ll go over how to buy and sell these funds, and explain some creative strategies for using them 🙂

For today’s example we’ll invest $500 into the e-Series fund TD European Index – e, which aims to track the MSCI Europe Index. It has an MER of 0.51% and holds about 600 companies including large multinationals like Royal Dutch Shell, HSBC, Roche Holding, and Nestle SA. Mmmm, chocolate (^_^)

I detailed 2 methods on how to set up an e-Series account in the previous post. Depending on which of those method you used the trading procedure will be slightly different.

Using TD e-Series Accounts:

If you have your e-Series account set up with TD Canada Trust you can use the following steps.

  • Step 1: Log in to EasyWeb and click on the subtab “Investments” near the top. Then click on “Purchase Mutual Funds” on the left.
  • Step 2: Under the Fund Category drop down menu select “Global Equity” since that’s where we’ll find our European fund 🙂
  • Step 3: Under the Fund drop down menu select “TD European Index -e**
  • Step 4: Enter how much you want to buy in $. Mutual funds can be purchased in fractional units. Click the “Next” button and then “Finish” when done. The money will automatically come out of your TD bank account and into the e-Series mutual fund account. Note that the minimum purchase amount is 100$. But you can set up a pre-authorised monthly purchase plan for as low as $25.
  • Step 5: Check your mutual fund account the following day and you will see your newly purchased units 🙂 To sell your e-Series funds, simply click on “Redeem Mutual Funds,” and follow the website’s instructions.

13-12-tdeseries-op1j using TD e-Series

If you have a TD Waterhouse/Direct Investing account, then just log in to WebBroker, and make the purchase the same way you would for any other mutual fund.
Step 1: On the left hand side of the website interface select “Mutual Funds” under the “Order Entry” menu.
Step 2: Enter the fund symbol (eg: TDB906 in today’s example) and the amount you would like to buy.

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