The Current State of Canada’s Economy
The economy isn’t so hot these days. Oil is down and so is the Loonie. The issue isn’t that we’re at a low point in the economic cycle. The problem is how quickly this happened and caught most people off guard. The price for a barrel of oil fell from $100 to $30 in just 18 months, which triggered big layoffs in our resource based economy, forcing many desperate folks to search for other means to make a living. Luckily my major oil holdings like Chevron is still doing okay.
But it’s not just this country that’s struggling. The entire global economy is slowing down and there are problems in the jobs market across every continent. The Bank of Japan recently announced the use of negative interest rates. This is a pretty big deal. The 3 most used currencies in the world can be manipulated by the European Central Bank, the Bank of Japan, and the Federal Reserve. Both the ECB and BoJ have played the negative interest rate card to devalue their respective currencies. The only bank remaining is the U.S. Fed. Will the U.S. try to stimulate its economy by lower rates into the negative? I think there’s a good chance it will. But since I can’t predict monetary policy I’m just going to focus on my long-term financial plan and stick with what I know. 😀
Maintaining a Long-term Perspective in a Volatile Market
Since my investment portfolio is based on my risk tolerance, short-term events should have little effect on my long term retirement and savings goals. There are many Investment Personality Questionnaires (IPQs) which can be found for free on the internet. Their purpose is to help people determine their propensity to take on risk, which is a good place to start for any novice investor. 😉
Historically, there have been tons of major events that have had dramatic impacts, at least initially, on the markets. But looking back, these are now mere blips on the financial market radars. Those who stay invested and contribute regularly generally have the biggest gains in the long run. 😉
Net worth results from the first month of the year are usually pretty interesting. This year was no exception. Many equity investors experienced quite a roller coaster ride, lol. At one point in January my net worth was down ~ $20,000! That’s naturally what happens when I have over $200,000 invested in equities and North American stock markets drops 10%. Fortunately, by the end of the month they regained most of the loss. 🙂 Phew.
- Part-Time Work = $900
- Freelance pay = $400
- Dividends = $700
- Fun = $200
- Debt Interest = $1400
*Net Worth: (MoM)
- Assets: = $925,500 total (+3,100)
- Cash = $5,500 (+2000)
- Stocks CDN =$97,200 (-500)
- Stocks US = $70,000 (-2700)
- RRSP = $63,000 (+300)
- MICs = $15,800
- Home = $263,000 (+4000)
- Farms = $411,000
- Debts: = $498,400 total (-3500)
- Mortgage = $190,500 (-400)
- Farm Loans = $197,400 (-500)
- Margin Loan CDN = $29,500 (-1000)
- Margin Loan US = $31,000 (+200)
- TD Line of Credit = $22,000 (-1000)
- CIBC Line of Credit = $10,000
- HELOC = $18,000 (-200)
- RRSP Loans = $0 (-600)
*Total Net Worth = $427,100 (+$6,600 / +1.57%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.71 USD
What hurt my finances in January:
- Stocks – Most of my stocks lost value. The TSX almost broke even for the month, but there was thousands of dollars worth of paper loss for my U.S. stocks.
What helped my finances in January:
- Side incomes – I picked up an extra shift at my part-time teaching gig. I also made some extra money doing graphic design in my spare time. Finally, January is historically a high dividend income month for me. Altogether these side projects boosted my net worth by a couple thousand dollars. 🙂
- Real estate appreciation – I update the value of my apartment each January based on either the previous year’s inflation rate, or the government’s assessed value of my home, whichever is lower. Consumer prices in Canada increased by 1.6% year-on-year in December 2015, so I’ve added $4,000 to the value of my home. This is a conservative estimate. 😀 According to The National Post, “the benchmark price of an apartment property increased 14%…”
- The Canadian loonie continued to lose value against the USD. – This may not be a good thing for my purchasing power, but at least it helps increase my net worth since I consolidate all my wealth into $CAD.
There was no Santa Clause rally this year to give my stock portfolio a boost. But luckily all the other positive financial events were enough to increase my bottom line by a decent amount. 🙂 I hope to grow my net worth to $500,000 by the end of the year.
Random Useless Fact:
My portfolio also dropped by more than $10 000 in first few of the year, and gained more than $15 000 K last 8 trading day 😀 .
I hope you will hit the $1 million assets in 2016.
Probably cash flow makes more sense here. His net worth is $427,100, but the house itself is $263,000. So the net amount that can generate cash flow is just over $160,000. Can he live off this money, perhaps not.
That’s how I look at personal finance as well. Putting equity to good use can be more important to a high savings rate. I can’t live off a financial asset per se, but I can live off the income generated from that asset. I have over $200,000 of net equity in my farmland. If I sold it today I could put all of that money, (minus tax and fees,) into a dividend portfolio and easily increase my cash flow by $10,000 a year. But I have to weigh the balance between doing that and keeping the farm for the possibility it will appreciate more in value over time, which is hard to justify right now since Saskatchewan is facing an economic malaise.
Farmland is not oil. Not only that, but farmland prices have a very low correlation to public equity. Take a look at what the stock markets are doing lately and you should have a ballpark of what farmland will do.
$1 million would be a great milestone. 🙂 I’m looking forward to it.
Very impressive you’ve been able to grow your net worth in January’s slaughter! The US markets still closed down about 6% for the month. I haven’t been following the Canadian markets much.
Oil for lower for longer!
Thanks Financial Samurai. I am really liking the cheaper cost of fuel when I get gas for my car. I think $30/barrel oil wont last for long though. Nigeria is running into fiscal problems. As the largest oil producer in Africa and a member of OPEC I think it’s only a matter of time before OPEC production starts to slow down.
No, it doesn’t equal 5 🙁
Financial Underdog, you are right it doesn’t equal 5, but it does equal 5!
Maybe Liquid was truly providing a “Random Useless Fact” for once. 🙂
5! = 5 x 4 x 3 x 2 x 1 = 120
I put a hint over the equation image which appears by hovering the mouse cursor over it. But I\’m not sure how many people saw it. :/
“The Bank of Japan recently announced the use of negative interest rates. This is a pretty big deal.”
Yup (kind of). As it currently stands, 23% of global GPD is produced in countries that have negative interest rates. Wonder how long it’ll be before it’s a full third…or half.
“The 3 most used currencies in the world can be manipulated by the European Central Bank, the Bank of Japan, and the Federal Reserve.”
They are already manipulated daily by traders within all the world’s biggest banks. I guess the government’s actions are just another layer of manipulation.
p.s. — you have to know what “x!” is mathematically.
I was under the impression most readers would have learned the concept of factorials because it’s something me and all my friends learned in highschool, like BEDMAS. 😀
Except that you are closer to high school age than (probably) most of your readers. As the span of time increases, use it or lose it applies.
Sometimes it can be tough to maintain a long-term perspective in a volatile market when you see your portfolio values drop dramatically. Of course, most of us here are long term dividend growth investors and will accept these drops as better long term buying opportunities in solid dividend payers. It’s all about the ebbs and flows of economic cycles. Just a few short years ago the CAD was worth more than the USD and all the headlines were touting the end of the USD. Currency up, currency down, oil up, oil down. You get the point. $700 in dividend income helps smooth some of the near term bumps though.
Good point DiVHut,
We are still in buying stage, market drops is a great buying opportunities for long-term investors like us. I am more than happy as long as my dividend income grow month-over month, year-over-year.
Yup. Ignore the short term noise and expect economic conditions to change, sometimes quite quickly lol. Last January I earned $600 of dividends. This year was $700. Maybe next January I’ll get $800. 🙂
I thought maybe I was missing something in the equation, but plugged it in at WolframAlpha: http://www.wolframalpha.com/input/?i=25-55%2B%2885%2B65%29 . It equals 120. And then I used my favorite search engine, DuckDuckgo. There is a trick in the wording. I already “cheated” so I won’t yet give it away, but consider it more of a riddle then a math problem. Would love to see if someone gets it without the use of search engines. :O)
Yup. It’s an exercise that requires one to think outside the box. 🙂
Great stuff Liquid. You are going to break half million for net-worth this year as your empire grows. Nice job on the $700 in dividends!
Thanks Gareth. 🙂
Interestingly there’s a Bloomberg article out today that says the Fed is considering negative rates. The article focuses on a stress test where rates would be negative .5% from 2nd quarter 2016 through 2019. Here’s the link: http://www.bloomberg.com/news/articles/2016-02-02/rates-less-than-zero-is-bank-stress-fed-wants-to-test-in-2016
If they did, then a full half (50%) of the global GDP would be coming from negative rate nations. Wouldn’t be long after that until the whole world ran negative. I guess as long as everyone is on the same page things would continue as they always have.
Very impressive that you were able to grow your net worth despite the market condition. Having a well diversified portfolio certainly helps. 🙂
A diversified portfolio has saved my butt more times than I can count. 🙂
Good job in increasing your net worth in January. January was a really challenging month for me.
The market was pretty crazy in January. I lost a lot too, then decided to throw a bunch of cash into the market and everything flew up far above how much I lost. Good times. I’m sure, like you said, that everything going on now will just be a blip in the over all stock market.
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