Aug 042020
 

Past and future predictions

Last year I predicted rough waters for 2020’s economy, and suggested 4 investments to protect against uncertainty.

From November 2019

From a November 2019 blog post

How did those suggestions work out so far?

  • National real estate prices are +7% from last year.
  • Year to date my silver stocks (WPM.TO) is +79%.
  • Major telco stocks are down by about -3%.
  • XCB.TO, an ETF that tracks corporate bonds, is +8%.

An equal weighted basket of my picks would have earned a 23% return year to date. Not bad. πŸ˜€ Most index funds have only produced single digit returns during the same time.

What about for 2021?

Here are my top investment picks for the next 6 to 18 months.

  • North American real estate
  • Gold and silver
  • Large cap U.S. technology stocks

The rest of today’s post will attempt to unpack my reasons for choosing these investments. πŸ™‚

Continue reading »

Jul 062020
 

Growing passive income

Thanks to some recent stock purchases I’m now making about $20K a year in total dividend income. πŸ™‚ I also earn $9K a year from interest through my fixed income portfolio. And my rental property cash flows $700 a year after mortgage payments and other costs. So altogether my forward annual passive income is expected to be $29,700.

My current personal expenses adds up to roughly $30,000 a year. This means I am really close to being financially free. Hurray! πŸ€— Investment income tends to be fairly stable despite volatility in the underlying assets. So unless there’s some kind of black swan event I will probably achieve financial independence within the next couple of months!

I didn’t expect to hit my goal this soon. My initial plan was to be FI in 2022 – when I turn 35 years old. But now it appears financial freedom could be just around the corner! πŸ˜€

This came as a surprise to me. I didn’t expect the stock market would go on sale earlier this year. But it did. 😁 As a result I was able to buy more shares than initially planned, leading to a higher yield on cost.

Since I’m further ahead on my financial journey than planned I have decided to reduce my financial efforts by quitting all freelance work. This means going forward I will be working only 45 hours a week instead of 50 hours a week. This will give me more free time on the weekends. But I will keep both my full-time and part-time jobs for now. 😬

Liquid’s Financial Update June 2020

*Side Incomes: = $4,600

  • Part time job =$800
  • Dividends =$1300
  • Interest = $600
  • Rent = $1,800

*Discretionary Spending: = $1,800

  • Food = $400
  • Miscellaneous = $500
  • Interest expense = $900

*Net Worth: (Ξ”MoM)

  • Total Assets: = $1,540,400 (+$10,200)Β 
  • Cash = $20,800 (-32,500)
  • Canadian stocks = $336,900 (+35,700)
  • U.S. stocks = $153,700 (+3800)
  • U.K. stocks = $19,600 (+700)
  • Retirement = $152,200 (-900)
  • Mortgage Funds = $39,300 (+3100)
  • P2P Lending = $36,900 (+300)
  • Home = $331,000 (assessed land value)
  • Rental Unit = $450,000 (2020 purchase price)
  • Total Debts: = $518,500 (-3,300)
  • Home Mortgage = $181,300 (-500)
  • Rental Property Mortgage = $312,000 (-800)
  • Margin Loans = $25,200 (-2,000)

*Total Net Worth = $1,021,900 (+$13,500 / +1.3%)
All numbers are in $CDN at 0.73/USD

 

It was another positive month for the financial markets as stocks continue to recover. I filed my income tax in June. I have to pay about $2.5K in tax adjustment to the Canada Revenue Agency (CRA) this year because I didn’t use all of my RRSP deduction room. The good news is I don’t have to pay this tax bill until September. πŸ™‚

I’m planning to use all of my saved RRSP deduction for next year’s tax season when I have to offset the huge capital gain I triggered this year from selling the farmland – which unlocked about $250,000 of equity that was just sitting there doing nothing.

2020 has been a wild ride so far. But we are officially half way through. How are your finances doing so far this year?

 

———————————————————–
Random Useless Fact:

Jun 152020
 

A large price drop is coming says CMHC

Canada’s federal housing agency predicts home prices will decline by as much 18% this year. The Canada Mortgage & Housing Corp. (CMHC) is concerned for the country’s long term financial stability amidst the higher unemployment rate this year. Its CEO recently announced that one fifth of “all mortgages could be in arrears if the country’s economy hasn’t sufficiently recovered.” He also predicts the nation’s debt to disposable income ratio will climb from 176% now to well over 200% through 2021.

In fact, CMHC doesn’t think real estate prices will start climbing again until the second quarter of next year. The graph below shows the average price of homes up until now, followed by a solid-filled probability range representing the most likely scenario into the future. As we can see the short term outlook is not good for real estate investors.

 

My opinion

Although I can’t speak for the rest of Canada, I feel a price correction of 18% in Vancouver is probably not going to happen. According to zealty.ca, the median price of homes in Metro Vancouver has been moving up over the past 5 years. The 12 month average did turn negative in 2017 and 2019, but overall the trend is still moving higher. The nationwide lockdown during March and April also didn’t seem to hurt prices too much.

Personally I feel like the worst of the economic pain from the pandemic is over. We will probably see a flat real estate market over the next few months followed by increasing prices near the end of the year. Then in 2021 and 2022 prices will continue to climb by 4% a year as the economy expands and lenders continue to print credit. πŸ™‚ I believe now, during the summer of 2020 is a great time to buy real estate because prices are subdued due to the pandemic. Transactions have slowed so there are fewer buyers to compete with. And interest rates are still in the basement so mortgages are cheap.

Even if there’s a large housing crash around the corner it probably won’t last long as the political will to stimulate the economy is all but certain. So I am not worried.

 

Continue reading »

Dec 162019
 

I attempted to join Mensa. What happened next wont surprise you.

So I ran a Twitter poll asking what topic people would like me to write about. The top 2 picks were my Mensa test results and financial plans for next year. πŸ™‚

In today’s post I will discuss all 4 topics from the poll, but focus primarily on the 2 that got the most votes.

Mensa: The smart people club

So out of vanity I decided to take the Mensa exam earlier in the fall. 😎 Mensa is a non-profit international organization for the intellectually gifted. Only the top 2% smartest people in the world can be accepted into this private club. In Vancouver there are only about 200 Mensa members. There are other high IQ societies out there, but Mensa is the oldest, and most well known with over 130,000 members worldwide. Mensa members can attend local meetups and enjoy exclusive intellectually stimulating social events. I decided to join this club because I wanted to feel special. πŸ™‚ So I handed over the $90 to take the formal Mensa exam.

There were 4 other applicants that day. We had a chance to make some small talk. They all seemed to be smarter than me. I felt like a Morty in a room full of Ricks. The test was 50 questions, and we only had 12 minutes. In the end I managed to answer 30 questions correct. Not bad. But unfortunately I needed 35/50 to pass.

How it feels to fail the Mensa exam.

So I failed to get into Mensa. πŸ™ Oh well. I guess I’m just an ordinary peasant after all. Apparently I can re-take the test after a year. But I don’t think I can handle the rejection a second time. πŸ’”

 

The Real Estate Market

Sales is a leading indicator for price. Both Vancouver and Toronto saw strong sales in the last couple of months, signalling potential higher real estate prices in the new year. In a typical cycle the market goes through 3 stages: from boom, to slump, to recovery, and then repeats.

In Vancouver I believe we are currently in a real estate slump. However we are either nearing the bottom of this slump, or have already hit the bottom and are now transitioning into the recovery stage where prices will start to climb again. If you plan to buy property around the Greater Vancouver area, the latest data from the Real Estate Board suggests the window to get in at the lowest point of this real estate cycle is closing fast.

Finding Neverland real estate meme

Toronto is a bit of a different story. The low point was already hit last year in 2018. The recovery has been strong, and average prices now rival the 2017 peak. I anticipate interest rates will fall early next year. If that happens, property prices in major Canadian cities will become more expensive by the summer of 2020.

Continue reading »

Nov 252019
 

investment ideas for 2020

Looking Ahead – What to Expect in the new year

The last decade has been one of the best times for investors of any generation. πŸ™‚ It didn’t matter if you had money in stock, bonds, or real estate. Almost every major asset class delivered terrific returns on average. But I think 2020 will be a very pivotal year.

The U.S. will hold a presidential election. Stock markets are about to head into the new year at record highs. And there’s a greater than 50% chance Canada will fall into a recession according to Oxford Economics.

The U.S. is even more likely at 64% probability to hit a recession in 2020 according to the New York Fed.

Data seems to indicate consumer spending in North America will almost certainly slow down next year. The U.S. government will spend a buttload of money to desperately prop up the economy. Deficit spending will go through the roof. But the market demand for U.S. bonds won’t be there unless interest rates rise. But rather than let natural market forces drive up interest rates, the Federal Reserve will step in and buy up the newly issued bonds at lower rates. This will likely create some inflation which will be felt in Canada as well.

Protecting Your Net Worth

No matter how we look at the financial markets it’s not hard to see how overvalued most asset classes are. A straightforward way to reduce our exposure to the markets right now is to become more conservative with our investment strategy. If you’re worried about a financial crisis here are some ideas to consider…

  • Emphasize investing new savings into value stocks and dividend stocks rather than growth stocks.
  • Sell some equities and hold onto short term bonds or cash.
  • Stay away from IPOs and ICOs.
  • Find value in alternative investments such as peer to peer lending.
  • Write covered calls or buy some put options.

Any of those methods should help reduce portfolio losses in the event of a stock market correction.

My Strategy for 2020Β 

We can’t predict the future. But there are events we can anticipate ahead of time and be ready to make the correct decision when the time comes. Given what we know so far, I think one of two scenarios will happen next year.

1st scenario: The current course of expanding asset bubbles will accelerate – widening the wealth gap between the haves and have-nots even more. Private and public debts will grow.

2nd scenario: We see a dramatic economic slowdown followed by a recession in the U.S. first, and then probably in Canada. Central banks inject over $100 billion a month of new liquidity into the markets. Public debt grows. Private debt shrinks through paydowns and defaults.

Right now it’s impossible to know which scenario will play out. But I don’t see an in-between scenario happening. This isn’t financial advice or anything, but if I’m right about next year, then here are some investment opportunities to watch out for.

  • Real estate.
  • Silver stocks.
  • Telecom stocks.
  • Investment grade corporate bonds.

If either of the 2 scenarios play out then there will be a lot more debt owed by governments. This will cause inflation, especially if the money makes it into financial markets and trickles down to the consumer level. Inflation is also good for precious metals, and silver appears to be undervalued compared to gold right now. Phone and cable companies should also perform well next year as telecommunications tends to be an inelastic service. Canadian real estate prices have been cooling off since 2018. Meanwhile the TSX/S&P composite index climbed to an all time high last week. Compared to the stock market, the real estate sector seems like a bargain. Personally I will be looking at buying an investment property around the Greater Vancouver area. The expected return on investment for real estate about 7% under current conditions. If I see something I like and the price is reasonable then I will buy it. πŸ™‚

____________________
Random Useless Fact:

Facebook’s content moderators make about $29,000 per year.