Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

May 252020
 

What is driving Canadian FIRE?

Everyone is affected by the FIRE economy in one way or another. FIRE is an acronym that stands for Finance, Insurance, and Real Estate. Together, these 4 industries are growing over five times faster than the general economy and represent about 1/5th of Canada’s total economic output. FIRE is especially important in BC. Although it employs just 6% of the province’s workforce, it generates 24% of the province’s GDP.

Other industries such as manufacturing and mining produce things of intrinsic value so their growth tends to be linear. But FIRE industries can scale more quickly. Finance and insurance products often involve derivatives, annuities, and other intangible products. Banks and credit unions can literally increase the credit supply through fractional reserve banking – essentially creating money without actually producing anything material. The real estate industry can unlock value from existing land assets with re-zoning and densification. These advantages inherent in the FIRE economy allow for faster expansion and exponential growth.

Another tailwind for FIRE is population growth. Our charismatic leader wants to welcome 341,000 new immigrants into Canada in 2020, more than from previous years. All of those people will need homes. Many will require a mortgage and insurance – further expanding the FIRE industries.

 

How to invest in the FIRE sectors

FIRE should continue to outgrow the general economy in the future. The most direct way to capture some of this growth is by working in one of these fields. I have some friends who work in finance and real estate. They are all making a decent living. πŸ™‚ If you are just starting school or considering a career change, this can be something to think about. But for the rest of us, investing in FIRE businesses that pay dividends should pay off well in the long run.

 

How safe is playing with FIRE?

The risk of investing in the FIRE economy is a slowdown in these industries. However policy makers won’t let that happen easily. Instead of allowing markets to naturally go up and down, government officials have proven through their actions that they intend to accommodate perpetual economic growth. A real estate crash could drag down all other industries. No governing body wants to be responsible for a housing lead economic recession, or worse.

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May 182020
 
cooking steak with Liquid

How to make a classic cheeseburger

If you ask a restaurant for a rare beef burger, you will sometime end up with a raw deal. 😎 That’s why it’s better to just cook your own. Welcome to another edition of cooking with Liquid. πŸ™‚ Today I’ll be making a juicy cheeseburger using 1/4 lb of minced beef, aged cheddar, crisp leafy lettuce, and fresh ripe tomato. It’s budget friendly as each burger costs just $2.50.

There are only 5 main ingredients with minimal prep work. And the entire cooking time is just 5 minutes. This classic cheeseburger recipe is simple, quick, and always hits the spot. πŸ™‚ Let’s get started!

ingredients for a cheeseburger recipe

Ingredients:
– Regular ground beef
– Cheddar or American cheese slice
– Hamburger bun
– Lettuce leaves
– Sliced tomato

Equipment:
– Griddle, skillet, or non stick pan.
– Flat spatula

Directions:

  1. Shape roughly 1/2 cup of ground beef into a ball with your hands. It should be about 2.5 inches in diameter.
  2. Apply the smashed burger technique: Drop the beef ball into a hot pan on medium heat, and press it down with a spatula until the patty is slightly wider than the hamburger bun.
  3. Cook uncovered for 3 minutes. While waiting, sprinkle a pinch of salt and pepper evenly on the meat.
  4. Flip the patty over with the spatula and season the other side as well. Top the patty with a slice of cheese and place the top and bottom buns face down into the pan to warm them up.
  5. Wait for the buns to toast & cheese to melt – about 2 minutes. Then assemble the burger any way you want.

Et voila! You can enjoy this delicious cheeseburger as is, or dress it up with your favourite condiments. For instance, I prefer to add some ketchup and mayo in mine. But pickles and onions would also be great choices. #burgerlicious.

The classic cheeseburger

 

Cost breakdown of 1 cheeseburger:
1/4 lb (4 oz or 114 grams) ground beef. = $1.40
Slice of cheese = $0.40
Hamburger bun = $0.40
Veggies and condiments = $0.30
Total cost = $2.50

 

A few recipe notes to keep in mind:

  • Minced meat will shrink upon cooking so try to make the beef ball a little larger to begin with.
  • The smashed burger technique works well for skillets and pans, but not on grills. If you plan to grill your burger patties, you can flatten the burger on a cutting board before transferring it to the grill.
  • You can substitute cheddar with other cheeses with low melting points such as swiss or mozzarella.
  • All costs in this post refer to prices in Vancouver, B.C. in $CAD.
  • A cheeseburger recipe is very customizable. Some people like to add bacon, mushroom, sliced jalapeno, BBQ sauce, or even a fried egg to theirs. So don’t be afraid to use different ingredients and make it your own. πŸ™‚

 

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Random Useless Fact:

In 2018 Elon Musk launched a Tesla Roadster into space. In the driver’s seat is a mannequin dressed in a spacesuit.

May 112020
 

Why inflation matters

U.S. government bonds in 1990 were paying investors 8% a year. That sounds amazing! Especially for a low risk investment. πŸ™‚ But not everyone was buying them. Why? Because investment returns don’t tell the whole story. The inflation rate that year was 5.4%. That means the real rate of return on those bonds was only 2.6%. Stashing $100 under a mattress would have lost $5.40 in value during 1990. As Ray Dalio says, “cash is trash.”

 

Obtaining a mortgage from an unconventional lender

Earlier this year I bought a rental property and took on a new mortgage at 2.44% fixed interest rate for 5 years. After asking around different banks I decided to use monoline lender MCAP. They deal with broker channels and often have lower rates than the big banks. πŸ™‚

negative interest rate mortgage

Since this is an investment property the interest on the mortgage is tax deductible. My marginal tax rate is about 30%. So my effective interest rate after tax adjustment is 1.71%. But this is the nominal rate. To get the full picture we have to subtract the inflation rate. Last year Canada’s official inflation rate was 2.25%. So my real mortgage rate equals the nominal rate (1.71%) minus the inflation rate (2.25%) which comes toΒ -0.54%.

So I’m effectively paying a negative interest rate. I’m earning 54 basis points to borrow money. Woot! πŸ˜€ Personal finance author Robert Kiyosaki says smart people use debt to get rich. He’s right. I’m growing my net worth by literally having this mortgage.

The historical average inflation rate in Canada has been about 2% annually. Let’s assume it will continue to average 2% for the foreseeable future.

This is bad for my mortgage lender. The asset they are holding (my mortgage) will slowly lose value over time. Fortunately for them the 2.44% interest rate they charge me is still higher than the expected inflation rate.

 

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May 042020
 

Road to Recovery

The S&P 500 climbed 13% in April, gaining back most of the losses from March. I picked up some new stocks during the low points in the first quarter so the V-shaped recovery is nice to see. πŸ™‚Β  Leading the bounce back are technology stocks. Amazon just announced it made $75 billion in Q1 revenue, beating expectations as more consumers are shopping from home. AMZN shares hit an all time high recently. I’m brushing up against the elusive $1 million net worth once again. πŸ™‚ Things are looking up. But is it too soon to celebrate?

The market is getting back to a balanced state as volatility subsides. But it’s hard to say if the bottom of the bear market is already behind us. I’m concerned that this quick rebound in April could be a false signal and we are actually headed for a double dip correction in the months to come. So my current strategy is to buy only defensive stocks with a strong balance sheet. If sentiment continues to improve then I won’t miss out on the rally. If markets drop back down then my portfolio should hold up better than the general index. πŸ™‚

My earlier stock purchases from February and March are starting to pay off. For example, Telus Corp (TSE:T) paid me nearly $300 in April. That payment was used to purchase another 13 shares of Telus thanks to the DRIP program. Maybe next time I’ll receive 14 shares.

This is the best kind of passive income. It makes you money using the money it already made you. πŸ˜€ I’m now consistently earning over $1,000 a month in dividend income. This is the first year this has ever happened to me. Interest income from bonds, REITs, and other funds are growing as well. It’s exciting to watch my trading account get bigger by itself over time. πŸ™‚

 

Liquid’s Financial Update April 2020

*Side Incomes: = $4,600

  • Part time job =$500
  • Freelance = $100
  • Dividends =$1300
  • Interest = $900
  • Rent = $1,800

*Discretionary Spending: = $1,600

  • Food = $300
  • Miscellaneous = $400
  • Interest expense = $900

*Net Worth: (Ξ”MoM)

  • Total Assets: = $1,510,800 (+$55,100)Β 
  • Cash = $47,900 (+5400)
  • Canadian stocks = $294,000 (+28,000)
  • U.S. stocks = $145,600 (+17,300)
  • U.K. stocks = $18,700 (+900)
  • Retirement = $152,100 (+2000)
  • Mortgage Funds = $35,100 (+1200)
  • P2P Lending = $36,400 (+300)
  • Home = $331,000 (assessed land value)
  • Rental Unit = $450,000 (2020 purchase price)
  • Total Debts: = $525,800 (-3,600)
  • Home Mortgage = $182,200 (-700)
  • Rental Property Mortgage = $313,500 (-800)
  • Margin Loans = $30,100 (-2100)

*Total Net Worth = $985,000 ($58,700 / +6.3%)
All numbers are in $CDN at 0.72/USD

 

Stick to the plan

In March I wrote about waiting awhile before I buy any new investments. I wanted to wait for a clearer market direction. Well now there is. πŸ™‚ Last week the 10 day simple moving average (SMA) of the S&P 500 crossed back up above the 50 day SMA. This is a technical indicator which signals strength in the stock market. And we haven’t seen a circuit breaker halt trading activity in several weeks now – meaning the market has somewhat stabilized.

Some readers have asked me for stock tips. I don’t give specific financial advice. But recently while shopping I came across this stock on sale below. What a great deal. 😎

I didn’t buy any new financial assets in April. But going forward I will be looking to purchase new stocks in the energy and financial sectors. πŸ™‚ I still think dividend growth stocks are worth considering even though valuations are not as cheap as last month.

 

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Random Useless Fact:

In April, Toronto police issued fines ($750 each) to more than 470 people over social distancing rules.

Apr 272020
 

Building an Asset Column

There were three events that greatly impacted my financial life. This is part two of three, where I will be writing about asset columns. The main idea is to buy income producing assets that generate perennial money over time.

I first came across this concept when reading the 1997 book Rich Dad Poor Dad, by Robert Kiyosaki. The book primarily focuses on real estate. But stocks and bonds can also be included in an asset column. πŸ™‚

 

The book that changed my outlook on money

I picked up Rich Dad Poor Dad when I was 17 after a friend suggested it to me. Many of the concepts Robert discussed in the book such as taxes, inflation, and hard assets were completely new to me. But what fascinated me the most was the idea of financial independence. And also how to build wealth through investing in assets.

This was the first time I witnessed concrete examples of how to take actional steps to create a “column” of financial assets. A properly constructed asset column should grow by itself over time.

From learning about compound interest earlier that year I already knew how to make time work for me. And now thanks to Robert’s book, I learned how to get money to work for me. The two concepts combined lead to a breakthrough moment in my financial education. πŸ˜€ It completely changed my perspective about money.

Accumulate all the assets

Before I had thought of money as something people earn and spend in order to live. The idea of retiring early or becoming a multi-millionaire had never occured to me. But after reading the book, I began to see money from a completely different angle – one that involves assets and liabilities. I learned money isn’t only good for spending. It’s also good for generating more money. The poor and the middle class work for money. But the rich have money work for them. Robert explains how to multiply your investment returns with a fancy strategy call leverage. πŸ˜‰

I learned that the rich buy assets first. Then use the income generated from their asset column to buy wants and luxuries. Their lifestyle is funded by money working for them. Meanwhile the poor and middle class tend to buy luxuries first and don’t have much in terms of assets. So their lifestyle is funded by their own “sweat, blood, and children’s inheritance.”

 

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