Apr 202020
 

I don’t trust millionaire gardeners. They’re always running some kind of pansy scheme. 😎 Fortunately there are more legitimate ways to build wealth. I recently watched a YouTube video where a young realtor in California named Graham Stephan explains how he became a millionaire in his 20s. He says just about anyone can become a millionaire in 10 years with the right attitude. In short here is his advice to others:

  • Get paid for your results, not your time.
  • Cut back on unnecessary spending.
  • Invest consistently and actively work on those investments to increase returns.

The mindset of a Millennial millionaire

Graham’s methods are simple and effective. He prefers to eat at home instead of going out. He drives a used car and buys clothing from the discount section of H&M. And he sticks to the same budget no matter how much extra money he earns. Graham also uses leverage to invest, and his portfolio consists mostly of real estate and stocks. Although we live in different countries, Graham and I seem to have a lot in common. πŸ™‚

If you want to build muscle, you have to lift weights. If you want to lose fat, you have to change your diet. Change requires commitment. Becoming a millionaire is no different. Graham explains that building wealth starts with the right mindset.

The only way you will change is if you believe the payoff is worth the sacrifice.Β Graham suggests a good way to begin is to ask yourself if living frugally for ten years is worth financial freedom for the rest of your life. Is one decade of living modestly worth not having to do something you don’t want to do ever again? Graham and I both answered this question ten years ago, and we categorically decided yes – it’s totally worth it. πŸ˜€ Admittedly it took me 12 years, not 10, to reach a million dollar net worth. Life doesn’t always go as planned. That’s why you also have to enjoy the journey. πŸ™‚

What makes you feel wealthy?

Wealth can come from both material possessions and financial security. I’m a big fan of the latter. I’ve always derived more joy from knowing that I could afford something, than actually buying it. And Graham seems to feel the same way.

But everyone is different. Although Tim Cook and Donald Trump are both super successful and wealthy, you just can’t compare the two. It’s Apples and oranges – if you know what I mean. πŸ˜‰

The mindset of most millionaires is one of frugality. But for many consumers, a frugal lifestyle would make life miserable, not better. Whatever drives someone to feel wealthy will motivate them to continue down that path. So knowing your mindset is paramount to living true to your values.

 

Do you need a high income to become a millionaire?

Income is important to build wealth. But similar to oxygen, it doesn’t become a problem unless you’re not getting enough of it. So how much is enough? As long as you can earn $75,000 a year or more, you should be able to become a millionaire within a decade. Don’t worry if you start off making less. My salary was $35,000 in 2008. But today I earn more than twice as much. Graham’s income started modestly low as well, but now he makes six figures annually from his real estate business. It’s not about where you start. It’s about where you can get to. πŸ™‚

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Apr 132020
 

Long term planning

There were three events that had a profound impact on my financial life. They helped me realize that when you choose to invest, you are not just picking up a new hobby or side hustle. You are actually choosing a lifelong career – a future. Much like a marathon, investing is for the long run. 😎

So today I’d like to start with part one of three – compound growth and long term planning. Compound interest is one of the most profound discoveries in human history and has the potential to change lives. Even Albert Einstein once declared it to be the most powerful force in the universe. πŸ™‚

 

It all started in high school

Financial education typically starts at home. I learned from my parents how to be a net saver. But grade 11 is when I really began to think about money and wealth.

It was the early 2000s. Linkin Park was on the radio. MSN Messenger was still relevant. I was 16 years old. My school offered Economics 11. Out of all the elective courses this one seemed to be the most practical so I decided to enroll. That might have been the single best decision I’ve ever made. πŸ™‚

One day during class we learned about compound interest. The textbook demonstrated the impact of time using an example with two people. I forgot their names, but let’s call them Stacy and Chad.

  • Stacy invests $2,000/year starting from the age of 19.
  • Chad also invests $2,000/year but starts 10 years later at age 29.

By the time they both retire at age 60 Stacy is a millionaire, while Chad only has $402,000. The book included a helpful table like the one below.

I couldn’t believe it. How can ten years make such a dramatic difference? I went home, copied the figures into Excel, and double checked the math myself. Sure enough, Stacy would end up with 2.5x as much as Chad. Furthermore if Stacy had only invested for the first 5 years and then stopped contributing to her account altogether, she would still end up wealthier despite investing only a fraction of the amount Chad had to save up. Here’s what that table looks like. Wow. It’s all because she started earlier.

This seemed unfathomable to me. In my naive teenage mind I had always thought that you can’t succeed on your own unless you work hard. You will never have good grades unless you study. You will never play in the basketball tournament unless you attend practice after school. You will never pwn your friends at GoldenEye 007 unless you have blisters from the N64 controller. But the economics lesson made me question everything. It turned my entire worldview upside down.

I used to believe that in order to accumulate more wealth you had to study harder in school, land a better job, and save more income. But Stacy proved there’s an easier way to achieve the same end result. She didn’t need a higher savings rate than Chad to retire with 2.5x his net worth. So the only thing you have to do to retire with more money is start investing early. That’s it. πŸ™‚

This idea of additional success without working for it created a paradigm shift in my way of thinking. I realized that it actually is possible to get something for nothing. From then on I tried to work smarter, not harder.

The only disadvantage of saving earlier is you have to delay your spending. But Stacy’s early start rewarded her with an extra $673,000 at retirement. So I think that far outweighs the downside of spending a little less in early adulthood.

After this epiphany in economics class I decided to follow in Stacy’s footsteps and invest as early as possible. I didn’t know what profession I would end up in. I wasn’t sure how much income I would earn. But I was certain that whatever money I do make, I would put away at least $2,000 a year.

 

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Apr 062020
 

Monitoring the Outbreak

Over a million confirmed people have been infected by the virus. Many countries are starting to see the curve flatten so maybe the worst is behind us. Even so, we should continue to practice physical distancing and regular hand washing. Make sure to stock up on food that won’t spoil quickly. Lately I’ve been telling my friends about the health benefits of eating dried grapes. It’s all about raisin awareness. 😎

Investment Performance

The TSX dropped 18% in March. In the U.S. the Dow Jones fell by 14%. It has been the worst Q1 ever in U.S. stock market history. Ouch. But that’s why we diversify. πŸ™‚ On March 1st only 40% of my assets were tied up in the stock market. I’ve also been buying companies at their recently reduced prices which lowers my overall entry cost. Furthermore, a higher U.S. dollar has resulted in certain parts of my portfolio making gains this month. As a result, my net worth only fell by 5.3% in March. I’m disappointed to see my net worth decline three months in a row. But it could have been a lot worse.

I’m expecting more volatility ahead. Just three trading days into April and the stock market is already down 4%. Oof.

On the bright side I am able to work from home so my job income isn’t at risk. And since interest rates have been slashed 1.5% I’m saving thousands of dollars annually on my mortgage and margin debt compared to last year.

Liquid’s Financial Update March 2020

*Side Incomes: = $4,800

  • Part time job =$600
  • Freelance = $200
  • Dividends =$1200
  • Interest = $1000
  • Rent = $1,800

*Discretionary Spending: = $1,600

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

*Net Worth: (Ξ”MoM)

  • Total Assets: = $1,455,700 (-$55,400)Β 
  • Cash = $42,500 (-111,000)
  • Canadian stocks = $266,000 (+56,700)
  • U.S. stocks = $128,300 (-5,200)
  • U.K. stocks = $17,800 (-2900)
  • Retirement = $150,100 (+10,500)
  • Mortgage Funds = $33,900 (-3800)
  • P2P Lending = $36,100 (+300)
  • Home = $331,000 (assessed land value)
  • Rental Unit = $450,000 (2020 purchase price)
  • Total Debts: = $529,400 (-3,800)
  • Home Mortgage = $182,900 (-1500)
  • Rental Property Mortgage = $314,300 (-700)
  • Margin Loans = $32,200 (-1600)

*Total Net Worth = $926,300 (-$51,600 / -5.3%)
All numbers are in $CDN at 0.71/USD

 

Rebalancing

I’m happy overall with my diversification strategy. But due to the recent correction I only have 34% of my assets in the stock market. I would like to increase this back up to 40% of my asset allocation. So for the near future I will be looking at investing my savings into equities, primarily blue chip Canadian companies that pay dividends. πŸ™‚ Here’s a pie chart showing the breakdown of my assets today.

Some people might be concerned to discover that Vancouver real estate makes up half of my total asset’s value. Doesn’t that seem a little risky? I have heard that real estate here is overpriced and we are due for a major correction any day now. But then I crunched the numbers for myself. Compared to alternatives, I realized that Vancouver home prices were actually justified which I discussed in detail last month. That’s why in December last year I bought real estate instead of stocks.

But of course these days the equity market is down 25% from the peak. So that’s why recently I’ve been loading up on high quality stocks at discounted prices, increasing my forward dividend income by over $7,000 a year.

And I’m not the only one shopping around these days. Other personal finance bloggers such as genymoney.ca have been loading up on dividend stocks as well. She increased her annual dividend income by 75% year over year.Β When assets go on sale, you buy more. πŸ™‚ It’s about finding bargains in a financial world that’s constantly changing. When the stock market’s P/E ratio eventually expands again, those who bought into the downturn will be glad they did. πŸ˜‰

 

Buy low, sell high and hold

A reliable path to reach financial independence is to build a stream of passive income to pay for all living expenses. No matter if it’s real estate, dividend stocks, or bonds – the basic premise is to buy income generating assets. Then simply hold them for their investment income. Re-invest the proceeds over time and investors will be greatly rewarded for being patient.Β  You don’t need a lot to get started. But you have to start to end up with a lot. πŸ˜‰

 

____________________
Random Useless Fact:

No one was safe from the 1918 flu pandemic. No one.

Mar 302020
 

This financial crisis appears to be getting worse by the day. The economy is stalled and millions of workers have lost their jobs. πŸ™ Did you hear about the man who was fired at a coffee factory? They say he had no filter. 😎 But there is a silver lining here. As the stock market sinks the dividend yields rise. πŸ™‚

Value investing with dividend stocks

Warren Buffett bought 4.3 million shares of Suncor (TSE:SU) last quarter when the stock was trading at roughly $40/share. Today TSE:SU is trading at just $16/share. Buffett is a value investor who only buys profitable companies that have promising growth prospects. Anyone buying SU today would be getting in at a 60% discount compared to what Buffett paid in late 2019. I don’t give stock tips, but I’m just sayin’. πŸ˜‰

Similar to Buffett I’ve been on the lookout for bargains lately. I purchased many dividend growth stocks throughout this month. In today’s post I will disclose which stocks I bought, why I bought them, and how I have grown my forward dividend income by $7,200 per year. Wowzers! πŸ˜€

dividend investing pays off

 

Narrowing down my options

There are thousands of stocks and ETFs out there. So how did I choose? Well first, I determined which type of investment account to use. This will ensure maximum tax savings. I don’t have much contribution room remaining in my TFSA and RRSP. So most of my new purchases will be in a fully taxable account. This means looking at securities that pay eligible dividends which can benefit from the Canadian dividend tax credit.

I personally like to buy and hold companies that consistently increase their dividends over time. These are known as dividend growth stocks.

 

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Mar 232020
 

Temperament is everything

Investors can often get in their own way. It can be hard to stomach a bear market. But it’s especially important at challenging times like these to keep our emotions in check, or else we could make mistakes and lose our shirts.

There are three types of investors during a stock market crash – those who sell, those who do nothing, and those who buy more. Which type are you? If you don’t already know then this can be an expensive time to find out. We learn the most about our investment behaviors when the market is tanking, not when it’s rising.

The global influenza pandemics of the 1950s and 1960s killed more than 1 million people each time. But eventually the world moved on and financial markets recovered. It’s a bit counterintuitive, but profits are made when you buy, not when you sell. This is because the price you pay for an investment is the main factor that will determine your future profit.

 

How to buy into the dip

If panic selling is not a good idea, then what can we do? Here are a few common strategies to consider:

  • Rebalance approach
    Although most securities are down, government bonds and other fixed income funds like (VSB.TO) have gained. Sell some of these low risk assets to buy beaten down stocks. But do it gradually. This also helps to rebalance your portfolio to your previous asset allocation.
  • Gradual nibble approach
    This requires you to have some cash saved up first. Every time the market falls by 10%, you put more money into the markets. Start with 20% of your cash balance. Go up to 30% of your remaining balance the next time. Then 40%, etc. This ensures that each additional time you buy, you are picking up stocks at lower prices.
  • Wait for a bottom approach
    Sit on the sidelines and wait for a sustained rally using technical analysis. Save and accumulate cash in the meantime. Store this cash in a high interest savings account or short term bond fund so it can be liquidated relatively quickly. Once market momentum starts going up again use 75% of the cash to buy stocks on the rise. Gradually buy more with the remaining 25% over time.

I don’t know which method works the best. But here’s what I’m doing:

As posted in my latest net worth update, I had about $150,000 in cash at the beginning of March – a very fortunate position to be in. πŸ™‚ I’ve already spent about $80,000 of that buying into this bear market over the last few weeks. My most recent stock purchases were Suncor (SU.TO), Pembina Pipeline (PPL.TO), Canadian National Railway (CNR.TO), and Fortis Inc (FTS.TO). I’m buying even as prices continue to fall because the stock market is down 32% from its high so far. Historically 32% is the low point of the average bear market. Although stocks could fall further, investing about half of my cash savings now guarantees I don’t miss out on the upswing in case we are already close to the bottom.

I plan to deploy another $50,000 into the market after technical indicators improve. There are two primary signals I’m interested in.

  • I’m waiting for the 10 day moving average to reverse direction from down to up.
  • I’m looking for the MACD signal to improve.

These indicators can be applied to individual stocks, sectors, or entire indices. For example, below is the S&P/TSX index. We can see it is not yet time to buy.

TSX drops 32% in just a few weeks

A new bull market should start once we see price momentum swing up. πŸ™‚ But this is speculation. Even after a short term bounce, there could be more downside before things actually start to turn around.

 

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