Jan 122017
 

What’s 6 inches long and gets Kim Kardashian excited? That’s right. It’s money. 😀 Especially the one with Benjamin’s face on it. There is certainly no shortage of liquidity in the world today thanks to central banks. As investors, our priority is to increase our expected returns while reducing our anticipated risks. A good way to go about doing this is by setting goals. Making smart decisions and taking appropriate action is easier if we have defined a target to aspire to. 🙂 If we don’t take control of our money, then someone else will inevitably try to use money to control us.

Here are my financial goals for 2017.

  • Grow my TFSA to $80,000.
    I currently hold $72,000 across all my tax free savings accounts. I have $3,000 contribution room remaining for the year. All the investments inside my TFSAs have performed well, except Bombardier stocks BBD.B. Overall I’ve been quite lucky with my stock picks. 🙂
  • Grow my RRSP to $100,000.
    I currently hold $86,000 in my RRSP. I have $10,000 contribution room remaining for 2017.
  • Grow my net worth to $750,000.
    I hope to grow my wealth by $180,000 this year. $60,000 of this increase could come from savings and debt reduction. The remaining $120,000 would ideally come from investment returns. 🙂 This isn’t an unreasonable expectation considering last year’s market performance, and I currently have over $1 million worth of assets.
  • Increase my passive income rate by $2,000/year.
    I plan to invest at least $35,000 into a mix of fixed income securities and dividend stocks. The average yield on new investments would be 4% to create $1,400 of new passive income per year. The remaining $600 growth should come from dividend increases from investments that I already have in my current portfolio.

That’s pretty much it. As usual, the likelihood for me to reach my goals will depend on many factors, including how the financial markets perform which is largely out of my control. We’ve had a great Q4 in 2016 to finish the year on a high note. But who knows how this year will turn out. Setting goals is important because it gives us something to focus on and look forward to. It guides our behavior so we feel a sense of purpose when making financial decisions. 🙂

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Random Useless Fact:

There’s a man in east India who has 39 wives, 94 children, and 33 grandchildren so far. They all live in a 100 room mansion. It takes 30 whole chickens, 132lb of potatoes, and 200lb of rice just to make a family dinner.

 

Sep 262016
 

When Average Isn’t Enough

Everyone knows that exotic dancers are bad at investing. After all, they always end up losing their shirts. 😆 But they are not alone. Most people in general are simply not very successful at investing.

According to BlackRock, the largest financial management company in the world with nearly $5 trillion of AUM, the average American investor managed to make only 2.11% return per year over the past 2 decades.Â đŸ˜±

16-09-investor-emotion-returns-lower-index

The saddest part is how this number is even lower than inflation, lol. So in terms of real returns people actually lost money. 🙁 There are many reasons for this low performance. Investors’ sentiments, emotions, and personal goals are all factors. But the reason I want to discuss today is the improper use of investment tools.

Why People Are Generally Bad at Investing

Reason 1 – Not using tax sheltered vehicles

The Roth IRA is a great example of a tax savings vehicle that many American investors have overlooked. In Canada we have the Tax Free Savings Account (TFSA) which has similar benefits; Any investment gains realized within this account is tax free. 🙂

The first problem is that most people don’t use it. According to the CRA, in 2013 only 38% of eligible Canadians have opened TFSAs. The second issue is those who do have this account aren’t making the most of the tax savings. Data from RBC Royal Bank suggests that its clients tend to play it safe when it comes to their TFSA with 44% of holdings in high interest savings accounts. *Yawn* Another 21% is invested in GICs which are also producing rock bottom returns right now. This means only the remaining 35% of the money in TFSAs are actually used for proper investments that hold stocks, bonds, and other asset classes that have a decent chance at beating inflation.

This essentially means that only about 13% of TFSA eligible Canadians are using the investment vehicle correctly. But even less have taken maximum advantage of it because only 7% have fully maxed out their contributions. Of course everyone has different financials goals, which alludes to my post about the debt spectrum. So it may be perfectly suitable for a retiree to put all of his savings into a GIC if it suits his investment objectives. But in general 2.11% should not be the target most investors should aim for. 😉

Taxation is one of the costliest expense on investment returns. If more investors make better use of tax advantaged accounts they can leave more money in their own pockets. 🙂

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Random Useless Fact:

33% of Harvard University students get the following question wrong.

16-09-harvard-baseball-bat-ball-question

Dec 032015
 

Sick Days

A recent Financial Post article suggests that the most important determinant of your sick leave use is whether or not you work for the government. On average, public sector employees take about 10.6 sick days annually, which is a 47% increase from 7.2 sick days back in 1987. Meanwhile, sick leave use in the private sector is only up 5% from 6.1 days to 6.4 days over the same time period.

15-11-ron-swanson-working-government

Of course the mainstream media does not get into the underlying cause of this dramatic gap between public servants and private sector workers. But I think we all know what’s going on here. 😉

Obviously government jobs are so demanding and stressful that they cause public sector employees to become sick more frequently than their private sector counterparts. It’s either that, or people are taking advantage of privileged opportunities. But your guess is as good as mine. ?

Market News

Speaking of uncertainty, we have received some unprecedented market signals lately. Oil closed lower than $40/barrel. Yet the banking sector announced record profits again. The financial markets have been overwhelmingly bullish over the past 5 years even though the underlying economy has been worryingly weak. That’s why it pays to be financially prepared. Anything can happen. So always maintain a diversified portfolio of fixed income and equities. Stay away from high-fee, actively managed mutual funds. Stick to dividend stocks or index ETFs. 🙂

My Personal Finance Update

I’d like to give a big shout out to the Smart REIT units I purchased a few months ago. This investment is already up 10%. 😀 Yay! Real estate is a major part of the Canadian economy so it makes sense to have at least some exposure to it. Railways also keep the economy chugging along. 🙂 I’m really grateful for our railroads, for keeping us on the right track. ?

November was a great month for my finances. Luckily I live in Vancouver, B.C., where the cost of living is quite low, so I managed to save about $1,200 from my full time job. The rest of my net worth increase this month came from a combination of currency fluctuation, part-time job, passive income (dividends and interest), and appreciating share value. Details below.

*Side Incomes:

  • Part-Time Work = $500
  • Dividends = $500
  • Interest = $200 [bond interest]
*Discretionary Spending:
  • Fun = $200
  • Debt Interest = $1400

*Net Worth: (MoM)15-11-networthiq_chart

  • Assets: = $923,400 total (+9,500)
  • Cash = $2,500 (+300)
  • Stocks CDN =$101,800 (+5900)
  • Stocks US = $71,900 (+3000)
  • RRSP = $61,400 (+300)
  • MICs = $15,800
  • Home = $259,000
  • Farms = $411,000
  • Debts: = $502,000 total (+2,700)
  • Mortgage = $191,300 (-500)
  • Farm Loans = $198,300 (-500)
  • Margin Loan CDN = $30,500 (+2800)
  • Margin Loan US = $29,000 (+2000)
  • TD Line of Credit = $23,500  (-500)
  • CIBC Line of Credit = $10,000
  • HELOC = $18,200
  • RRSP Loans = $1,200 (-600)

*Total Net Worth = $421,400 (+$6,800 / +1.6%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.75 USD

I picked up two new positions in November: 100 shares of TransCanada in my Canadian margin account, and 100 shares of Match Group in my U.S. margin account. The stock market was pretty flat overall. I did receive $200 of interest from my Sherritt bonds which was nice. The growing strength of the U.S. dollar was helpful as well since I hold many U.S. equities.

Speaking of stocks, here’s a look at my TFSA portfolio at one of my brokers, TD. I like how its online software can track the performance of my account over time. Due to the purchase of more defensive stocks since 2014, my TFSA has experienced positive returns while the S&P/TSX Composite index has fallen.

15-11-tfsa-performance-nov-2015-sick-days

I try to be mindful about what I put in my TFSA so it complies with my tax efficiency plan. I don’t have any secrets to picking winners or beating the market. But if anyone is curious to know, here are all my holdings in this TFSA.

Continue reading »

Oct 262015
 

What a Liberal Government Means for Canadian Investors ?

Last week the charismatic Justin Trudeau lead the Liberals to win the 2015 federal election. I’m sure his good looks has nothing to do his popularity and success. 😛

15-10-justin-trudeau-in-front-of-parliament

Justin pledged to make meaningful policy changes to the country that could benefit millions. But will his commitments help you? The jury is still out on the long-term effects, but here’s a TL;DR summary of what Trudeau’s government means for Canadian personal finance and investors in the short term.

The new Liberal majority government will…
HelpHinder
  • spenders
  • low-income seniors
  • stock market investors
  • students
  • most middle-class workers
  • savers
  • high-income households
  • single-income nuclear families

These are only generalizations. The rest of this post will explain individual policies that could affect your pocket book. Keep in mind that just because politicians promised something during their campaign, it doesn’t mean they will always follow through. Any of these policy changes below could be altered or cut completely going forward.

Borrowing To Invest. ? Going back into Deficit. 

According to the federal finance department, Canada’s government had a $1.9 billion surplus in the 2014-2015 fiscal year. 🙂 But the new Liberal government under Trudeau plans to run a $10 billion deficit for each of the next 3 years, before balancing the budget again in 2019.

Going into more debt as a way to expand economic output isn’t necessarily a bad idea. $10 billion is peanuts relative to our $1,827 billion/year economy (0.6%.) Also, our national debt to GDP ratio is quite low by international standards, which means we can borrow money at ridiculously low costs. New 10 year Canadian government bonds are currently yielding 1.5% in annual interest.

After factoring in inflation, there might actually be no real cost to tax-payers, lol. 🙂 Craig Alexander, the Vice President at the C.D. Howe Institute, said that despite digging deeper into debt, the debt to GDP ratio of Canada is still going to decrease over the next three years because our GDP is expected to increase as well. 😀

About a third of the new spending will go towards much-needed public transportation and infrastructure development and repairs. This means building more roads, highways, bridges, etc. This should improve the country’s productivity because gridlock and urban densification are causing major problems right now in large cities such as Toronto, Montreal, and parts of Vancouver. The other two-third of public spending is planned for social housing, seniors centers, and clean energy projects like solar and wind farms.

Due to more deficits and fiscal stimulus the Bank of Canada will be less likely to further cut interest rates for the time being.

What this means for you: Invest your money. Historically the S&P/TSX Composite performed well during times of deficit spending. Below is a graph I put together using stock market returns and government budget information courtesy of the CBC. During the two decades from 1995 to 2014 there have been 9 years where the government ran a deficit budget. And the stock market had positive returns in 8 out of those 9 years.

15-10-budget-vs-stock-market-return-tsx

Economic stimulus increases employment and grows the economy so people and businesses feel more optimistic about their investments which tend to be bullish for the financial markets. 🙂 In particular I would consider investing in stocks or sectors that have exposure to financials, cannabis, industrial goods, construction, utilities, preferred shares, and green technology (solar panels, wind, etc.)

Goodbye annual $10,000 TFSA contribution limit ?

The Tax-Free Savings Account annual contribution limit will revert back to $5,500 and increase in $500 increments based on inflation. This will make it harder for Canadians to save and won’t benefit the middle class. There’s a rumor that the TFSA only helps the rich get richer. But that’s baloney! The TFSA actually helps anyone who wants to save get richer. Here’s a table courtesy of the National Post which shows that many low and middle-income families still managed to max out their TFSA contribution rooms in 2013 when the limit was still $5,500.

Continue reading »

Sep 272015
 

3 Year History

Usually when investors talk about expected market returns we like to look at historical averages. Over the past 115 years stock markets in the developed world delivered an annualized return of roughly 8.5%. This means we can probably assume that a normal range would be somewhere between 6% and 11%.

I use TD as my discount brokerage at the moment. It has a useful tool to help me gauge my portfolio performance over the years. Most of my stocks are held in registered accounts such as TFSAs or RRSPs, which have preferential tax benefits. 🙂 Here is a quick overview of how my securities in those accounts have performed over the last 3 years. The green line represents my portfolio performance.

15-09-stock-performance-2012-2015

As we can see my overall stocks have achieved a 7.33% annualized rate of return since Sept 2012. This is not that surprising and falls within the 6% to 11% range of a normal market return. 🙂 Also since I can’t use margin to borrow and invest inside these registered accounts, none of my stocks in this chart uses any leverage.

The blue line represents the Canadian stock market index, which has only returned 8.65% over the last 3 years, or 2.8% annualized. This means I technically beat the market here in Canada by more than 4% a year, which is just peachy keen! 😀 But that’s probably because I hold some U.S. stocks in my RRSP and TFSA.

The purple line represents the S&P 500 index in the U.S. The graph shows it has climbed 80.22% since 2012. But keep in mind that this factors in the currency exchange. Otherwise, the return in $USD is closer to 47%, which is still pretty dope. The U.S. currency has become very strong over the past couple of years. Any Canadian who held U.S. stock would have seen double-digit returns even if the price of their stocks didn’t change domestically in U.S. dollars. 😀

Here are a few things I learned from this performance chart. I’ll be keeping these things in mind going forward.

  • It’s possible to pick and choose individual stocks without underperforming the market index, as long as you have the discipline to buy and hold most of the time.
  • Canadian stocks rely too much on commodity prices. Whenever oil and metal prices fall the market really struggles. 🙁
  • Buy some foreign currencies to hold investments that are denominated in those currencies.
  • Diversify globally. Holding a Canadian equity index fund, like the Vanguard Canada All Cap Index ETF, (symbol VCN,) would have barely even beat inflation over the past 3 years, and even the past 5 years.

Continue reading »