Mar 142016
 

I think believing in superstitions is bad luck. But bad things can happen to anyone. So one way to deal with unexpected situations is to be like Batman and have a contingency plan for everything. 🙂 I’ve recently updated my stress test page to reflect my current financial situation, which has improved since last year. A stress test removes uncertainty and doubt about our finances so we can sleep better at night. 😉

A Worst Case Scenario

Just for fun I have created a hypothetical worst case scenario to see if my finances could survive it. Consider the following events.

The economy contracts. People panic. The Canadian real estate bubble bursts and prices drop by 40%. Stock markets also fall 40%. Jobless claims skyrocket. I get laid off from both my jobs on the same day without notice. On my way to the employment insurance office I get T-boned by a distracted driver and my car is written off. The next day a devastating 7.5 magnitude earthquake hits Vancouver hard. My apartment building suffers heavy structural damage and is deemed unsafe to live in.

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Okay, so things may look bad on the surface. But it’s actually fine, because the whole point of creating a stress test is to protect ourselves against these unlikely what if scenarios. I may be frustrated after all the unfortunate events, but at least I’ll still be okay financially. 🙂 Here’s how things would play out:

  • My combined severance package would be about $10,000 of after-tax income, enough for 3 months of living expenses.
  • I would qualify for employment insurance benefits.
  • My dividend stocks would continue to pay out regular distributions like they did during the last recession.
  • I have a stash of gold and silver in case I need emergency cash.
  • Auto insurance will cover the car accident.
  • Earthquake insurance would cover the damage to my apartment. Strata owners would hold meetings with the property manager to discuss how to move forward using 3/4 votes as per the bylaws. The insurance company would pay our housing costs if we have to relocate somewhere else temporarily.

Luckily my finances would appear to still hold up through all the turmoil. I would have plenty of time and liquidity to get back on my feet.

How to Stress Test your Finances

Step 1: Make a list of all the risks, uncertainties, or potential issues that could effect your money or financial lifestyle.

For example:
Job loss, flooding, rising interest rates, upcoming major purchases, etc

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Feb 112016
 

House it Going in the Real Estate Market?

So this is the kind of house you can expect to buy in Vancouver today for about $1.19 million.

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To put this into context, the same $1.19 million could be used instead to create a dividend growth portfolio that would generate $40,000 each year of tax advantaged income for a lifetime. 🙂 Have homeowners completely lost their noodles in this city?

The economy has stagnated. The U.S. stock market is down about 10% over the last 12 month period. The TSX in Canada has seen worse, falling by 20% since this time last year. Canada lost more jobs than it gained last month, pushing the unemployment rate up to 7.2%. Low oil and commodities prices is costing us a lot of jobs not just in this country but also in emerging markets that export metals and other resources. Negative interest rates are as common as the flu. Asia’s growth is slowing down. U.S. Treasury yields have fallen from 2.0%+ to just 1.6% over the last 6 months. And as Lenore Hawkins, chief economist at Meritas Advisors, says, the slowdown of growth in “global trades is at levels we haven’t seen since around 1958.” It’s almost like the entire world is in recession.

But despite all the negative news and market volatility out there, local real estate as a whole has remained stubbornly bullish for the last 4 decades.

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May 132015
 

Not in my Backyard 

I recently read an article about a lower mainland couple who doesn’t like how a neighbouring $2 million house sits empty all the time. The yard is unkempt, there are no cars in the driveway and the lack of human presence is “driving [the couple] slightly bananas.”

SacrĂ© bleu! You mean to tell me that there are people who buy property only for investment purposes? How dare they offer above market price to purchase a house here, so that Canadians can unlock the full value of their real estate. What can we do with cash anyway? Buy a diversified portfolio of liquid assets like stocks and bonds to provide passive income for retirement? No thanks. I’d much rather put all my nest eggs into a single illiquid asset that produces no income, and lies on a major fault zone. 😛 Those pesky foreign investors who don’t even live here think they can just not contribute any waste to our sewage system, and not use the city’s garbage services, but somehow think they still have the right to pay the full brunt of utility tax and property tax. Some nerve! How dare those foreigners help fund our police, fire, and public education system when they don’t even have kids here to overcrowd our classrooms. It’s also unfortunate how quiet their house is all the time. Who would want to live beside quiet neighbours anyway? Not me. 🙄

Sarcasm aside, foreign ownership of real estate is a hot button issue around here. Should non-residents or non-citizens be allowed to purchase Canadian residential property?

There’s actually a petition to restrict foreign investment in Canada’s most expensive real estate market, which I’ve signed and shared on social media. To be frank I don’t believe this petition will bring about any meaningful change, but I think it’s an important discussion for fellow Vancouverites to have. 🙂

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click on image to sign the petition

There will also be a rally outside the Vancouver Art Gallery on May 24th, to focus on the problem of affordable housing for young people in a city where the average house costs more than $1 million. Feel free to attend and take a stand if you believe in the cause. 🙂

Foreign Real Estate Ownership

Some believe foreign ownership drives up the cost of housing which makes it less affordable to live in the city. But I think that’s largely a myth. The amount of foreign owned property is just a fraction of the overall market. Foreign investment laws haven’t changed much in Canada over the last decade. However mortgage interest rates have been cut in half over the same period. Raise the interest rate and watch as prices correct overnight.

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Mar 282015
 

According to a Financial Post report the average price of detached homes in Toronto passed the $1 million mark for the first time last month. 🙂 The GTA has experienced a housing bull market for almost 2 decades and there is no sign of it stopping.

I want to congratulate Torontonians for reaching the $1 million milestone. Welcome to the club. 🙂 Meanwhile the average detached home in Vancouver now stands at about $1.4 million. But hey, it’s not a competition. 😉 And extreme cases like the Point Grey mansion that was sold a few months ago for nearly $52 million will skew the average results. Can you imagine the commission real estate agents make around here?

We often hear complaints about how unaffordable housing is in Canada. But there are two sides to each coin. My friend’s parents bought a home for $70,000 over 40 years ago. They have since paid off their mortgage, and their home is now worth over $1 million. 😀 They plan to sell their house soon in order to downsize and will become liquid millionaires. That sounds great to me. The majority of Americans and Canadians are home owners. So financially speaking rising home prices should benefit most of us. 🙂

Recently a Vancouver house sold for $567,000 over the asking price. It was listed for $1,600,000, but sold at $2,167,000. People are even making jokes about how insane the housing market is. Below is a short video I found of a Vancouver real estate agent talking about his inexperienced clients. It captures the ridiculous nature of the current market around here. 😆

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Mar 072015
 

How does Moses make his tea? Hebrews it of course. 😀 But I bet Moses never got a chance to enjoy a 100 year old vintage tea that costs $600,000. This round disc of tea, which weighs 375 grams, is raw compressed pu’erh (a type of black tea.) It was recently imported into North America for the first time by a vintage tea wholesaler based in Vancouver. 😀 This tea is said to be the most valuable of vintage teas in the world. Wealthy hipsters in Vancouver can finally get their hands on some expensive tea to go along with their expensive Vancouver bungalows. 🙂

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Brewing this $600,000 tea’s first pot would cost about $150,000, including the depreciation from breaking up the disc. It’s like driving a new car off the lot. Personally it’s a little out of my price range so I’m just going to move oolong, because there’s nothing for me to tea here. 😀

Vintage Tea

Pu’erh is known as the “king of teas” in some parts of China. It’s been drunk by emperors and monks. It’s even said that wars have been fought over. Much like a fine wine or Scotch whiskey, vintage tea becomes better with age, gaining a richness and complexity in flavour as it matures. This particular tea dates back to around 1910.

Many people collect tea the same way they collect art or vintage wine. $600,000 for a 375 gram tea cake works out to a price per weight ratio of $1,600/gram. Let’s see if this tea has been a good investment over the last century. If we assume the vintage tea was originally $1/gram 100 years ago then we can easily calculate its average annual return.

($1,600/$1)^(1/100 years) = 1.077

So this tea cake has increased in value by 7.7% every year on average over the last 100 years. Not as good as the stock market over the same period but it’s still a decent return regardless. 😎 As an alternative asset class I can see myself investing in vintage tea, or maybe even vintage tea cups. 😉 Large chains such as Teavana and Quebec-based David’s Tea are becoming more popular across North America. Tea consumption in Canada is expected to grow 40% in the next 6 years, according to Agriculture Canada. Maybe I’ll just pick up some Earl Grey and store it in a cool and dry place. I’ll wait 50 years, pass it onto my grandchildren, and give them instructions to sell it after another 50 years. 🙂 Why limit my investment time horizon to just a lifetime when I can go multi-generational? 😛

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Random Useless Fact:

42 years ago a Big Mac was only $0.65. Today it’s almost $5.00. #foodinflation

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