Freedom 35 Blog

Financial Independence!

Mon, 10 Aug 2020 07:41:18 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

I have achieved financial freedoooom!

After 12 years of saving and investing I have finally reached financial independence. This means the passive income generated from my investment portfolio is enough to pay for all my current and future living expenses. It’s not about spending more money on things. It’s about spending more time on the things that money can’t buy!

In my first ever blog post I questioned if freedom 35 was even possible for me. After 851 more posts I now know!

Wow. This is unreal. I would like to thank everyone who has taken the time to read my blog, especially those who have been following me since the early days. You know who you are. I certainly wouldn’t be here today without all your support and encouragement. You guys rock! You have all done plenty. It means a lot.

What’s my secret to financial independence?

Everyone’s path to financial freedom is unique. In my case I have to give credit to these 5 key reasons.

Adopt an abundance mindset instead of a scarcity mindset.

I learned this from reading lots of self development books & watching motivational and introspective YouTube videos. I cannot emphasize enough how important it is to have a positive outlook and growth mentality. There are no problems in life. Only possibilities for growth.
Low interest rates.

Nearly all of my financial strategies have thrived on cheap money. Low interest rates boost stock and real estate prices. Thank you, Bank of Canada! Policy makers would rather devalue the currency than let financial markets crash. That’s why real interest rates are negative right now. This trend has created a great deal of moral hazard and social divide. And it appears interest rates will continue to stay low for a very long time.
Understand how to value investments.

As an opponent of the Efficient Market Hypothesis I prefer to buy underpriced individual stocks rather than the entire market.

Diversification is great for protecting wealth. But concentration is more effective for building wealth. By finding and buying undervalued assets I have made tremendous gains in stocks, farmland, and urban real estate.
Invest with other people’s money.

Without borrowing any money to invest it would probably take me 36 years or longer to become financially independent. But leverage has allowed me to cut that time down to 12 years. Assets produce wealth. Leverage gives me the ability to grow my assets and multiply my wealth. As long as interest rates stay low leverage will continue to be instrumental in my financial plans.
Copy the best of what others have already figured out.

Financial success depends more on the methods and principles you practice than how hard you try. Good strategies create wealth. Great strategies create even more wealth. All the strategies I use have already been vetted and proven to work by highly successful people. I have gained invaluable knowledge by learning from these experts in their specific realms of the financial world:

•Real estate (Graham Stephan)
•Leverage (Robert Kiyosaki)
•Risk management (Ray Dalio, James Rickards)
•Macro economic trends (Peter Schiff, Raoul Pal)
•Farmland (Jim Rogers)
•Financial markets (Warren Buffett, Peter Lynch, Jeffrey Gundlach.)

I’ve been shadowing these experts and others like them for years – reading their books, studying their next moves, watching their interviews. There’s no reason for me to reinvent the wheel. These smart individuals have already written the indispensable playbook to prosperity. They have generously shared their abundant wisdom with the world. I simply copied their mental models and behaviors.

Jump directly to….

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Financial independence 2 years ahead of schedule

I was initially aiming to reach FI in 2022 when I turn 35. I was on track to realize this blog’s ultimate raison d’etre. But then something unexpected happened which forced me to change my plan.

As you know earlier this year the stock market experienced a big sell-off, which gave me a major case of FOMO. Not wanting to miss out on bargain prices I purchase over $100,000 worth of dividend stocks in March. My dividend yield on cost was over 6% on these new purchases. I still remember the excitement of buying TD Bank shares and see it jump nearly 18% the very next day.

Warren Buffett famously suggested to be “greedy when others are fearful.” So I followed his advice. I bought when others were selling, and I held when others were buying. As a result my passive income in 2020 soared by over $7,000/year – fast tracking my progress.

Net worth update as of August 2020

Assets:
Cash = $21,000
Non-registered accounts:
—↳ Canadian stocks & bonds = $267,000
—↳.U.S. stocks = $159,000
—↳.European stocks = $19,000
Retirement (RRSP) = $166,000
Tax free savings account (TFSA) = $135,000
Peer-2-peer Lending = $36,000
Principal residence = $331,000 (assessed land value)
Rental property = $450,000 (2020 purchase price)
Total = $1,584,000

Liabilities:
Home mortgage = $181,000
Rental property mortgage = $312,000
Margin loan = $22,000
Total = $515,000

Net Worth:
Assets – Liabilities = $1,069,000

Here is a snapshot of all my stocks and bonds on August 10, 2020.

TFSA RRSP Margin Cash

Altogether I have about $800,000 of liquid financial assets generating $30,380 of passive income. This represents a 3.8% annual rate of return in cash. The typical Canadian requires $756,000 to retire on, according to the Financial Post.

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My 12 year journey to financial independence

I’ve been privileged enough to pick up new income streams over the years. Today I am making 3 times as much total income as when my career first began!

Here are some details for context:

2008 – Graduated college. Started working full time as a graphic designer and tutoring part time. Living in my parent’s basement to save money.
2009 – Bought a condo & moved out on my own. Used my $13,000 savings as a down payment (94% leverage).
2010 – Aggressively saved 30% of my income to put into dividend growth stocks using 50% leverage.
2011 – Continued to save and invest while keeping an eye on my spending.
2012 – Gathered some savings to buy some farmland and used 87% leverage.
2013 – Bought some more farmland using 89% leverage. Rented my land to farmers. Cash flow negative.
2014 – Began doing some freelance graphic design work. Started to invest in mortgage securities which produce passive income. And began to exchange a small percentage of my salary for precious metals.
2015 – Focusing on growing a fixed income portfolio to balance out my heavy holdings in equity.
2016 – Started peer-2-peer lending. Income from dividends and interest reached $10,000/year.
2017 – Purchased some cryptocurrencies. Sold near the end of the year. Put profits into dividend stocks.
2018 – Continued to build up a diversified portfolio of uncorrelated assets.
2019 – Sold all farmland and realized a 268% return on investment. Proceeds to be received in early 2020.
2020 – Used $135,000 from selling the farm as a down payment for a rental apartment. Used 70% leverage. It’s cash flow positive. Invested the remaining $120,000 cash into the stock market in March. Decided to stop freelance work. My financial assets have grown to 25x my annual expenses.

As you can see I do not mind using leverage when I believe the odds of profitability are high.

Current asset allocation

I have designed my portfolio to withstand future economic shocks. Here’s a pie chart of my holdings by asset class.

It’s important to be properly diversified. Most of my holdings such as stocks and real estate are inflation resistant so if there’s a major currency devaluation my purchasing power will be protected. All fiat currencies lose value over time. In ancient civilizations people used spices as currency. As the old saying goes: thyme is money.

The road less traveled

As long time readers would know, I often disagree with widely accepted personal finance tenets. It’s hard to use traditional thinking to achieve extraordinary results. This is when having a hipster mentality can really pay off.
The financial markets have always rewarded investors for liking something before it was cool.

That’s why I got into FAANG stocks (FB, AMZN, AAPL, NFLX, GOOG) pretty early. By the time the mainstream catches on to an idea it’s already too late to make outsized returns on it.

Vindication

I think “bad debt” doesn’t actually exist. I buy gold, bitcoin, and like to pick individual stocks instead of holding index funds. Plus I often try to time the markets. All these ideas fly in the face of mainstream financial advice.

Not surprisingly I have received my fair share of criticism over the years. Here are some Facebook comments regarding my writing.

The most common financial sin I’m accused of committing is using too much debt to invest. But my debt-to-income ratio is at a comfortable 450% today, much lower than before. And in hindsight I’m convinced that aggressively growing my asset column even at the expense of borrowing money was the correct thing to do. Fortune sides with those who take calculated risks.

Using leverage simply makes practical sense. My average cost to borrow money has been below 3% annually over time. But my investments have generally returned 10% to 15% annually depending on the asset class. For example, here’s a look at my non-leveraged TD TFSA portfolio. It has earned 14.57% annualized ROI over the last 5 years – outperforming major stock market indexes.

Borrowing to invest doesn’t have to be risky as I’ve written in the past. In fact within the first two paragraphs of this older blog post I explain how leverage can even reduce investment risk for earning high returns.

My passive income and expenses

One advantage of blogging anonymously is I can share all my financial details without the risk of being stalked in real life. Here is a snapshot of my yearly passive income and budget. I will break down these line items in detail further below.

Annual income from passive investments:
Dividends = $19,044
Interest = $10,616
Net rental cash flow = $720
Total income = $30,380

Annual living expenses:
Mortgage payments = $9,490
Condo fees = $3,642
Utilities = $2,015
Groceries = $3,000
Transportation = $1,800
Property tax and home insurance = $1,793
Interest from margin debt = $330
Miscellaneous spending = $3,600
Buffer = $4,200
Total expense = $29,870

Annual surplus
Income – expense = $510

Breaking down my passive income

This is the nitty gritty on all my passive income sources.

Dividends = $19,044/year

My stock portfolio is worth about $600,000. It holds mostly dividend growth stocks. The average portfolio yield is 3.2%.

This is the bread and butter of my passive income strategy. I have been consistently borrowing money on margin to buy dividend stocks since 2010. I would typically buy $20,000 to $30,000 of new dividend growth stocks a year. But as mentioned earlier 2020 has been an anomaly.

Interest = $10,616

My fixed income portfolio holds about $140,000 worth of interest producing assets. These investments tend to produce the best results when held long term. That’s why I haven’t lost interest in them.

Bonds – I own a range of bonds from high yield to investment grade. Current bond portfolio is worth about $66,000.
Annual income = $3,119
MICs – Mortgage funds I’ve accumulated over the years. I have Antrim MIC units valued at $24,000 and a variety of public MICs valued at $14,500.
Annual income = $3,020
Lending Loop – I have a $36,400 invested in this P2P platform. The expected return is 12.3% net of fees.
Annual income = $4,477

Net rental cash flow

I purchased a rental property earlier this year. I expect it to produce 15% annualized ROI over time. But the cash flow is not great right now only earning $720/year. Here is a summary.

Money coming in:
Rent = $1800
Total income: $1800

Money going out:
Mortgage = $1400
Strata fee = $185
Property tax = $120
Homeowner insurance = $35
Total expenses: $1740

Monthly cash flow = $60

So altogether I’m earning $30,380 a year from my investments. Income tax is negligible as I’ll explain later.

Breaking down my annual expenses

Here is my comprehensive spending budget. The total cost comes to $29,870 per year.

Mortgage payments = $9,490

My mortgage interest rate is currently 1.62%. The monthly payment works out to $790.87 – which is very affordable. I bought my home in 2009 and tried to pay down the mortgage as slowly as possible. This is why after 11 years of servicing my mortgage the balance is still 84% of the initial borrowed amount.

Condo fees = $3,642

Strata fees are $303.50 per month. This pays for my share of the building’s caretaker, management expenses, upkeep, and contingency reserve fund.

Utilities = $2,015

Heating/electricity – My electric or hydro bill is around $40/month.
Phone – I use Freedom mobile as my phone carrier. The plan I have is called Freedom 35 – funny enough. It’s $35 a month for unlimited calling/texting and 5GB of data. With tax and additional fees it’s usually around $39/month.
Internet – My internet bill is $88.90/month.

Here are some typical transactions in my TD chequing account. From top to bottom: Part time job pay, government rental supplement, remaining rental income from tenant, full time job pay, condo fees, mortgage payment, bank fee rebate, bank fee, hydro bill.

Groceries = $3,000

I typically spend about $250 a month on groceries. This is in line with the average for the city of Vancouver. I visit discount produce markets where food is often 50% cheaper than large grocery chains.

Transportation = $1,800

I drive a 13 year old Toyota. The insurance is $1500/year. I use it mostly for shopping so I have put about 2,000 KM on it over the last year. It’s very cheap to operate and maintain. I always keep a pack of gum in the glove compartment. When people ask what kind I say it’s in mint condition. Here’s a photo of my car.

Property tax and home insurance = $1,793

My property tax is $1332/year after applying the home owner’s grant. My home insurance policy premium costs $461 a year and covers the basics. It’s not much but it’s enough.

Interest from margin debt = $330

With roughly $22,000 of debt in my margin account I pay $27.50/month based on the current margin rates. It’s such a privilege to be able to borrow money at 1.5% these days.

Miscellaneous spending = $3,600

I budget $300 a month for eating out, clothes, books, toiletries, entertainment such as my Netflix subscription, and anything else that I may decide to spend money on. Most of the time I don’t even spend all of the $300.

Buffer = $4,200

I like to have a buffer built into my budget in case I overspend in one of the other categories. This $350/month buffer should be adequate to catch any impulse purchases or small unexpected expenses. Any savings left over not used by the buffer will be rolled into my emergency fund.

Additional safety

Just having a strategic budget may not be enough to maintain financial independence. I already have a large buffer that represents 14% of my total spending. But what about emergencies and costly unforeseen expenses? This is where my 3 stage safety net comes in.

Emergency fund. I have $21,000 saved in cash – enough to cover 8 months of living expenses.
Precious metals. I have been accumulating physical gold and silver since 2012. This is my second line of financial defence. My collection is worth over $35,000 today which I could sell in pieces for immediate cash.
Pension funds. I hold funds through my current and past employer matching RRSP programs. These defined contribution plans have a combined value of $45,000 today – here’s one example. I do not include these funds in my net worth calculations because I can’t readily access the money. If I want to actually spend any of it I have to first transfer the funds to my financial institution and then make a withdrawal. I won’t use the money in these funds unless absolutely necessary.

So with these 3 levels of protection I feel confident that my financial freedom is safe and secure.

What about taxes?

Canadians are taxed based on income, not wealth. If I don’t make any active income from work then my income tax for 2020 would be just $190 based purely on my passive income from investments.

The main reason for my low income tax rate is thanks to asset location planning. This strategy turns my $30K of passive income into less than $15K of taxable income.

Dividends – The majority of my dividends are eligible for the Canada dividend tax credit. So they will have an effective tax rate of 0% if I don’t make any active income.
Interest – All my interest producing assets like bonds and mortgage funds are either in my TFSA (tax free) or RRSP (tax deferred.)
Rent – I can write off expenses related to my rental property. This lowers my taxable rental income to less than $10,000/year from what I actually collect in gross rent, which is $21,600/year.

But here’s the twist. Assuming I stop working entirely I would qualify for low income government assistance programs. At the end of the day I would actually pay negative taxes – and receive about $1,400 in net equalization transfers.

Additional measures to keep in mind

Becoming financially independent doesn’t mean I’m immune to black swan events and other financial risks. So how do I disaster proof my finances?

I use stress test scenarios to help me manage unpredictable risks. These are tools that define, quantify, and warn me of any dangers to my financial situation. I first introduced them in 2014 to help me sleep better at night. Right now all of my stress test risks are comfortably sitting in the greens. This means there is no immediate threat to my finances at this time.

I will revisit my stress tests once or twice a year to keep an eye on the various risk factors.

Future proofing my financial freedom

My fiancé and I have talked about moving in together in the near future. Luckily she is quite financially savvy. She bought a rental property several years ago. This was before we met. She recently sold per property and has six figures in savings today. She is frugal like myself. If we were to live together in my 2 bedroom condo we could combine our finances.

With our joint assets we could easily generate enough passive income to fund both our lives. This means she could retire immediately as well. I would be the primary money manager of our household, but we would make major decisions together.

Retire sooner vs later

For now my partner and I have both decided to continue working for another year and then revisit our options in 2021. I’m currently making about $70K a year from my full time job. Her income is around $50K a year.

Technically we could live off our passive incomes after she moves in with me, and then save 100% of our salaries! Just knowing that we can both afford to retire at any time and not have to worry about income ever again is the real win.

Family planning

We both want to become parents eventually, but no timeline or specifics have been discussed yet. An article from National Bank estimates it will cost $6,400 per year to raise a child in Canada – assuming no childcare costs. Luckily for low income households the government will provide about $7,000 a year of subsidies and tax credit per child until he or she becomes an adult. This government benefit will cover the entire cost of raising children. Woot!

Long term security

If I ever need additional spending money in the future I can liquidate my collection of silver and gold bullion in a pinch. I could also sell my investment property to unlock some capital. There is currently $135,000 of equity sitting in there. And if I don’t touch my work pension funds then in 20 years they should be worth over $120,000. That should be enough for Liquid Jr’s college tuition.

It’s reassuring to know I will have a lot of options to support a growing family. No matter what happens I will never have to rely on employment income ever again! And that to me is priceless.

What this milestone means for Freedom 35 Blog

The name of this blog won’t change. But now that I’ve achieved my long term financial goal I want to try something new moving forward. If you want to help me out please take this poll to give me some ideas.

I’m going to take a break from blogging to gather my thoughts and make a transition with my finances.

I don’t know when I will return from hiatus. In the meantime you can come say hi to me on Twitter @Liquid_f35 or post a comment below. Feel free to subscribe via email if you haven’t already so you won’t miss any new blog posts when I come back.

Thanks for joining me on this incredible journey. Hope you all stay well and prosperous!

Liquid

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

The State of the Economy – 2020 and Beyond

Tue, 04 Aug 2020 07:30:27 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Past and future predictions

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

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. 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.

Mo money mo problems

Everyone agrees that we are in a recession. But how bad is it? Charts like this one paints a rather depressing picture.

But it’s somewhat misleading. The economy didn’t shrink by 8.2% in Q1 of this year. It actually fell by 2%.

The 8.2% in the chart represents the annualized rate. But for that to become a reality it would require 3 additional pandemics, one after another, to hit the economy. Possible. But not very likely.

What’s not misleading is the $343 billion deficit Mr. Trudeau plans to dump into our economy. For context, that’s nearly 20% of the country’s GDP. Here’s a 50 year chart to visually demonstrate how crazy this is.

But you can’t expect to push fiscal policy so hard without any help from monetary policy. The two are like PB&J, they work better together. So in comes the Bank of Canada – printing buttloads of money to fund the extra cost of government spending.

By comparison Canada’s GDP fell 3.3% during the great recession of 2008. As you can see from the charts above, the stimulus package in 2008 pales in comparison to this year’s QE program. So was all this government intervention this time necessary? You tell me.

Here’s the problem. Central banks can print as much currency as they want. But they can’t create real prosperity. That’s because wealth is produced through savings, investment, and productivity – not out of thin air or through debt-fuelled consumption. There are unintended consequences to these extraordinary policies. And we will witness the outcome over the next few years.

Prepare for inflation

Last year I used economic data to warn of the recession that we’re in today. This time I will use facts again to explain why inflation is coming next.

But first, why didn’t the extra deficit spending and money printing in 2008 cause higher inflation back then?

The short answer is that the amount of government intervention was more or less equal to the slowdown of economic output. In other words, consumers spent less money. The government stepped in to make up the difference.

So why is this time different? Simple. The money supply is growing too fast.

M0 represents the total amount of physical cash (bank notes and coins) in circulation. This base money supply impacts M1 – which is M0 plus all the money in people’s chequing accounts.

Given how much new M0 has already been injected into the economy this year I expect M1 to climb a lot higher.

Back in 2008 the money supply was growing at a steady pace. So inflation was normal. But this time the money supply is clearly accelerating! The amount of money in people’s bank accounts is growing thanks to the CERB payments and higher household saving rates.

The velocity of money is still slow which is why we’re not seeing much inflation yet. In fact there are even deflationary pressures right now. Gasoline prices are down compared to last year because fewer people are driving. Tourist attractions and hotel room bookings are cheaper too. But don’t get use to it.

Once consumer confidence returns the cost of living will increase.

You can already see signs of inflation in commodity prices, such as lumber. Here’s a 1 year chart.

Food prices are also up about 3% year over year. Financial assets are on the rise too. When most investors sell an asset such as a property or stocks they don’t go out and spend the money on consumption. They either reinvest the proceeds immediately or keep it temporary in a savings account earmarked for further investments – causing asset inflation.

To combat this many investors have started to add precious metals to their portfolios. Silver has made a lot of gains lately. And gold is hitting new records!

This is just the beginning.

Unpopular opinion on the housing market

Wealthy foreign investors have practically halted all their buying activities in B.C. So why haven’t Vancouver real estate prices dropped amidst the pandemic? The mainstream media will get flummoxed when confronted with this simple question. But it’s actually easy to explain.

Canadians have been building up their savings due to no vacation/travel, childcare expenses, concerts, etc. Monetary policy injected billions of dollars directly into the housing market to encourage additional mortgage lending. The economy is recovering. And interest rates have been slashed to record lows.

The median Metro Vancouver home price has never been higher than today.

On July 15th the Bank’s governor Tiff Macklem even reassured borrowers that these low interest rates are here to stay. He’s obviously a fan of this blog because that’s exactly what I told everyone just days prior to his speech.

If you’re thinking about buying a place, you probably shouldn’t wait until 2023. If inflation is running at 2% a year, and you can get a mortgage right now at 2% interest rate, then you’re basically paying nothing to use debt in real terms. #freemoney

Are there any downward pressures facing real estate?

Yes. But by my estimation they are very attenuated.

An economist with RBC, Robert Hogue, believes housing will become more affordable soon, as economic hardship causes potential buyers to delay their purchasing plans, and financially-strained owners sell their property once government support programs run out.

A columnist from the Globe and Mail also concluded that home prices will be falling. His reasoning is that 16% of mortgage payments have been deferred which suggests many owners can’t afford to live in their own homes anymore, and will be forced to sell soon.

However I don’t agree.

Call me a skeptic, but if so many homeowners are really struggling financially, why aren’t more of them listing their properties for sale?

There was a spike of new listings in April. Airbnb operators were probably panic-selling. But the extra supply was quickly absorbed by the demand, and now the market is balanced again.

What about employment data

With a higher 12% unemployment rate & fewer people working there should also be less buyer demand, right?

Technically yes. But this is another misleading statistic. It’s true that millions of Canadians are out of work. However job cuts due to the virus disproportionately affect lower income workers in retail and food services.

On the other hand, potential real estate buyers are usually high income individuals who work in technology, engineering, education, or high finance. Some can receive financial help from family. Many existing owners want to upgrade from a condo to a larger detached house. All these people are by and large financially unaffected by the economic shutdown.

Vacation properties have also seen a spike in demand as Canadians look for safe getaways. And don’t forget about the investors. Given today’s economic climate you can expect to earn a very reasonable 10% to 15% annual ROI on a rental property in Vancouver, Toronto, or Montreal. This effectively puts a floor under the real estate market.

You can take advantage of leverage, low interest rates, and the growth on capital gains is not taxed until the property is sold. With so much potential upside it’s easy to see why home prices have not crashed.

Pessimistic predictions

Both the CMHC and RBC are forecasting a price decline across Canada’s residential real estate market next year.

Holy doom and gloom. I have no idea where these “experts” are getting their numbers from.

Other than a temporary dip, the cost of rent is on the rise this year.

Higher rent encourages people to become homeowners. And the cost of lumber has already gone way up as shown earlier. So I don’t understand how the real estate market could possibly fall 7% to 18% given the reality of things.

IT stocks

Another way to fight inflation, albeit somewhat counterintuitive, is with a deflationary investment. I think major tech stocks such as Netflix, Facebook, Microsoft, and Amazon will continue to dominate in their respective fields.

Their advantage is having the pricing power to grow their revenues to keep up with inflation, and also reduce costs due to how deflationary technology is.

The bottom line

Liquidity drives markets. And things are about to get a whole lot more liquid! Financial and real estate markets will become even more detached from the general economy over the next 12 months. Home prices will probably climb higher, especially in major city centers.

Interest rates will remain low until at least 2030, blowing more air into existing asset bubbles. Bonds will have negative real returns so stay away from them. Buy quality assets with long term growth in mind. Inflation is a serious risk. So I hope everyone takes the appropriate steps to prepare themselves accordingly.

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Random Useless Fact:

Modern dogs evolved from wolves between 20,000 and 40,000 years ago.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

How to Cultivate an Abundance Mindset

Thu, 30 Jul 2020 07:30:43 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

It’s all in how you think

In the book, The 7 Habits of Highly Effective People, author Stephen Covey explains that “most people are deeply scripted in the scarcity mentality. This means they see the world as containing only so much, as though there were only one pie out there. And if someone were to get a big piece of the pie, it would mean less for everybody else.” This leads to a zero-sum paradigm of life. People with a scarcity mindset have a very difficult time sharing recognition and credit. Not surprisingly they also have a hard time being genuinely happy for the success of other people.

“The abundance mentality, on the other hand, flows out of a deep inner sense of personal worth or security. It’s the paradigm that there is plenty out there and enough to spare for everybody. So it results in the sharing of prestige, recognition, profits and decision-making. It also opens possibilities, options, alternatives and creativity.”

Here’s a table outlying some of the thoughts people may have depending on if they’re in a scarcity or abundance mindset.

People with an abundance mentality tend to be more financially secure, successful in their careers, and feel more empowered. So if you ever catch yourself thinking with a scarcity mindset, try to reframe your perspective and approach it with an abundance mindset instead. The difference between who you are now and who you want to be is what you do. And don’t forget to be thankful and confident.

Your attitudes toward scarcity and abundance will greatly influence your future outcome. Practice thinking from an abundance point of view as often as possible. If you see every problem as a possibility for growth then there’s no telling what you will achieve. Maybe you can become a millionaire in 10 years.

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Random Useless Fact:

Most employees prefer a higher wage over company sponsored events.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

What they don’t tell you about index investing

Mon, 27 Jul 2020 07:28:21 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Stock picking vs index investing

There’s a common belief that attempting to outperform the stock market is futile. A thread on the r/investing subreddit asked if anyone can beat the market. Here are some direct replies from the community:

“I know I am statistically extremely unlikely to beat the market, and if I do beat it, it’s through luck, not skill.”
“The only way you can really beat the market is to hold a highly concentrated portfolio and hit it big in 1 stock”
“As a retail investor, if I beat the market picking individual stocks, it was mostly from luck.”

Even an investopedia.com article suggests that successful stock pickers like Warren Buffett may have just been “exceptionally lucky.” It appears the online investing community is generally against the idea of individual stock picking. This short comment from the forums of RedFlagDeals sums it up well.

But allow me to go against the grain and push back a little. I believe you can beat the market if you have the right decision making process. My net worth today is largely built on my stock picking history.

Internet consensus: Amateur investors can’t beat the market over time. That’s why you should just buy index funds and forget about stock picking.

Me:

12.87% is the annual rate of return on my TFSA portfolio over the last 9.5 years according to TD portfolio statistics. It’s one of my oldest investment accounts. As readers will know I share all my stock holdings publicly for accountability reasons.

It appears the couch potato method of index investing is very popular with netizens. In the subreddit, r/PersonalFinanceCanada even the moderators have admitted that, “the general consensus on PFC is that people should look for low-cost, passive index investments.”

Don’t get me wrong. The Canadian couch potato aggressive portfolio performed quite well over the last 10 years. I’m just saying maybe there are better investment strategies out there.

Source: https://edrempel.com/outperform/

Why index investing isn’t all that passive

Index funds may appear to be passive, but they are actually more actively managed than most realize. This is something the index investing community doesn’t like to admit because it undermines the strategy’s reputation of being objective, hands off, and untainted by human biases.

The truth is most indexes contain selective stocks based on subjective factors. For example, components in the popular S&P 500 index are chosen by a committee at investment company S&P Dow Jones Indices. It’s basically a handful of people getting paid to actively manage a list of stocks that they believe should represent the overall equity market. But you have to wonder – if they are so good at analyzing securities why aren’t they working for a hedge fund?

David Blitzer currently heads the S&P 500 committee. David and his pals set the rules and criteria for the S&P 500 and other indexes. Those guidelines could be based on liquidity, earnings, and other subjective metrics that could change over time. As such, the committee adds and removes components of the index on a fairly regular basis. For example, about 1 in 3 of the index components changed between 2000 and 2005. Can you imagine if one third of your holdings changed every 5 years? As a buy-and-hold investor I do not agree with this practice.

Index managers should get out of their own way

Advanced Micro Devices (AMD), a stock I own, was kicked out of the S&P 500 index in 2013 for failing to meet an arbitrary market cap requirement. But was then re-added back into the index 4 years later in 2017. So what happened over those 4 years? AMD’s price soared from $3.86/share to $13.49/share. Index investors in the S&P 500 lost out on that juicy 250% stock appreciation. A lesson often taught to beginner investors is that time in the market beats timing the market. It’s not clear if David Blitzer got the memo. Maybe he should read my blog.

According to professor of finance Jeremy Siegel, more than 900 new firms added to the index since its inception in 1957 had, on average, underperformed the original 500 firms in the index!”

In other words, investors would have been better off had they simply bought the original S&P 500 firms and never made any changes to their portfolio. The committee’s efforts of switching in and out different stocks were very counterproductive. Go figure.

There were over 1,000 component changes to the S&P 500 in just the last 50 years. That’s a lot of trading activity.

Mebane Faber, CIO of Cambria Investment Management points out, “it’s ironic that the largest and most famous index, the S&P 500, is really an active fund in drag. It has momentum rules, fundamental rules, and a subjective overlay (committee input).”

Other indexes to consider

The Dow Jones (DJIA), another widely followed market index, covers 30 large-cap companies, which are also subjectively picked – this time by the editors of The Wall Street Journal.

In Canada, the S&P/TSX index components are reviewed quarterly and all Index Securities that, in the opinion of the Index Committee, do not meet certain requirements are removed.

Perhaps the only real passive indexes are ones that cover the total market. The CRSP U.S. Total Market Index for example has nearly 4,000 constituents across mega, large, small and micro capitalizations, representing nearly 100% of the U.S. investable equity market. (VUN) is an ETF you can buy in $CAD to get exposure to the entire U.S. market. The $USD equivalent fund is the Vanguard Total Stock Market ETF (VTI).

Better yet, why not buy a stock index that covers the entire world? Here are a few options to consider:

$CAD – iShares Core MSCI All Country World ex Canada Index (XAW)
$CAD – FTSE Global All Cap ex Canada Index (VXC)
$USD – Vanguard Total World Stock (VT)

According to financial planner Ed Rempel, a total market index of global equities has produced the best gains in the past. Ed was a guest in an episode of the Explore FI Canada podcast earlier this year. During that conversation Ed shared his findings that tracked 4 popular investment strategies over a 10 year period.

The result? The best performer was the total return strategy – which is basically the MSCI world index. The Couch Potato (aggressive) portfolio came in last place. I recommend giving the full episode a listen, especially if you’re an index investor.

Image source: https://exploreficanada.ca/podcast/029-outperform-advisors-ed-rempel/

A case for picking individual stocks

Here are some reasons why individual stock picking can be more rewarding than index investing.

There are no annual management fees if you hold your own stocks.
Instead of holding good and bad stocks, you can choose to buy only the best quality and best performing companies – increasing your chances to outperform the broad market over time. You can tell which companies are likely to outperform based on their track record of earnings growth relative to their peers. Look for industry leaders such as JNJ, RY, PEP, GOOG, etc.
Index funds have a lot of churn as mentioned earlier with the S&P 500 index. The more you buy/sell the less money you will make. Investors can buy their own basket of stocks and leave it alone. Over time this will statistically earn a higher rate of return than investors who hold index funds which track the trading decisions of a committee.
You may have superior information based on your expertise in a specific field. There’s no crime in investing in what you know. For example, I have only participated in one IPO ever. That was Match Group (MTCH.) I’ve used many of their products and knew the company was going to be big. I understood the company’s products more than Wall St. analysts because I’ve personally used the services and can see their potential. So I bought 100 shares on its first trading day in 2015. Today $MTCH shares are valued at over 5 times higher. You can’t get this type of return by only investing in index funds.

Other stock pickers

Other bloggers are beating the market too, such as Bob from Tawcan.com. He outperformed the S&P/TSX composite with his personally curated portfolio of mostly dividend stocks over the last 8 years. Bob and I both work full time and are not professional traders. Roadmap2Retire is holding a stock picking contest in 2020 among PF bloggers. So far it appears about half the bloggers are beating the S&P 500 index, which is to be expected. Mathematically speaking if you randomly choose a basket of stocks to buy and hold you will have a 50% chance to beat the market over time. It’s unfortunate that so many investors are convinced to believe they suck at choosing individual investments before they even try.

Don’t let anyone tell you that you can’t be a successful stock picker if you haven’t tried it yet for yourself. Investors who buy an index fund essentially buy a list of companies chosen by other people. But investors who choose their own stocks effectively build their own index fund using more personalized criteria. This makes it easier to align with one’s unique investment philosophy.

Picking stocks is more time consuming than simply indexing. But it can pay off very well if you make the right moves. Although some people can beat the market over time, it’s not a viable strategy for everyone. By definition half of investors will underperform the average, and the other half will do better.

How to tell which investment style is right for you

Passive investing is like following a popular diet or meal plan program. You don’t have to think for yourself. You just do what the diet tells you. This may be the appropriate choice for some people. But others may want to discover more unique, personalized diets that work better for themselves. This is similar to building your own investment portfolio. It requires research. But can often lead to better personal results. Both strategies are valid. So which path should you pursue? Here’s one way to tell.

Create 2 portfolios: one for index investing, and the other for stock picking. Track the performance of each one month after month and see if they diverge. After a year the portfolio with the higher return is likely more suitable for your investment style. Outperforming the index might be easier than you think. Or it might be harder. But if you don’t try, then you will never know for sure if you can beat the market or not.

Continue to track both portfolios for many more years. The longer you track them the more confident you will be about which method is right for you.

I personally have a hybrid portfolio of mostly individual stocks along with some ETFs. If you currently like your stock portfolio and have the time to monitor them, then I think you should keep your stocks. You could always sell your individual stocks later if you change your mind. The main thing is to find a style that best suits your personal circumstances.

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Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

The MIC manoeuvre – Say goodbye to your mortgage

Mon, 20 Jul 2020 06:40:20 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Let others make your mortgage payments for you

If you’re tired of paying your mortgage on your own then this post is for you. The MIC manoeuvre is a legal tax strategy that allows you to effectively get other people to service your mortgage, so you don’t have to. How does it work? You simply borrow money to purchase Mortgage Investment Corporations (MICs) which generate investment income. This incomes is then used to cover the cost of both your new loan and your mortgage payments.

A MIC is a Canadian investment that holds mortgages secured by real property. It’s similar to a mortgage REIT in the United States. Some borrowers can’t get a mortgage from traditional lenders. But they can still obtain financing at a higher interest rate from alternative lenders such as MICs. If you invest in a MIC, the mortgage payment of someone else becomes your income!

Similar to its cousin the Smith Manoeuvre, both strategies make use of tax deductible debt and financial leverage to increase your net worth. But unlike the Smith Manoeuvre, the MIC Manoeuvre also increases your cash flow. It does this by removing the biggest expense from your household budget – the mortgage payment!

How to implement the MIC manoeuvre

To keep calculations simple let’s say your current mortgage balance is $100,000. According to TD bank’s mortgage calculator, your monthly mortgage payment in the current interest rate environment would be $379. This works out to roughly $4,500 a year.

Everyone knows the best way to get rid of a home loan is to talk to actor Mortgage Freeman. But if you’re not that well connected, using the MIC manoeuvre will still save you that $4,500/year in payments. Here’s how it works.

Step 1

Start by opening up a home equity line of credit (HELOC.) Then take out $150,000 from it and put the money into a discount brokerage account. You can generally borrow up to 80% of the value of your home. HELOC rates are about 3% these days, and payments can be interest only. This means the minimum payment you will have to make on your HELOC debt is $375 a month, or $4,500 a year.

So far your combined debt is $250K ($100K mortgage + $150K HELOC.) Your annual payment to service this debt is $9,000 ($4,500 + $4,500).

Step 2

This is where the magic happens. You take the newly funded $150,000 in your brokerage account and purchase a basket of Mortgage Investment Corporations, which can be publicly traded or private. In the past I’ve blogged about which ones I like and hold. Currently popular MICs such as Timbercreek and Atrium have yields around 8%. Disclaimer: I currently own both of them.

Using 8% yield as a benchmark, a handful of MICs worth $150,000 can expect to generate $12,000 in annual investment income.

Step 3

Simply use your new investment income ($12K) to service your mortgage and HELOC payments ($9K). Any additional money left over at the end of each month can go towards paying down the HELOC debt. That’s pretty much it.

Congrats! Instead of paying your own mortgage like a normie, you are now using other people’s mortgage payments to fund the payments of your own mortgage! How woke is that?

Residual income

Eventually your mortgage and HELOC balances will both be paid off – leaving you debt free! And your MIC portfolio will continue to provide you with regular passive income in perpetuity. Want to know the best part? Your MIC portfolio is funded entirely by the HELOC so you don’t have to use any of your own savings.

A natural hedge against monetary policy

You might be asking, but Liquid – what happens if interest rates rise?

No problem. The main reason the MIC manoeuvre works so well is its ability to offset the cost of future interest rate increases. If your bank starts to charge you a higher interest rate on your HELOC and mortgage, other lenders including MICs will most certainly increase their lending rates as well. So as a MIC investor your investment income will also go up. We witnessed this happen between 2014 to 2019 when the average cost of fixed rate Canadian mortgages slowly became 8% more expensive over those 5 years.

Meanwhile, many MICs also gradually increased their monthly distributions. For example the publicly traded Atrium MIC (AI.TO) paid $0.68/unit in 2014. However by 2019 it was up to $0.75/unit – representing a 10% increase over 5 years. Not only that but the unit price of AI.TO has also gone up so the capital appreciation is a nice bonus.

The risk of higher future rates is offset by the fact that the MIC maneuver is symmetrically hedged to the cost of borrowing – cancelling out the impact of interest rate movements.

Tax implications

You should shelter as many MIC funds in your TFSA/RRSP as you can. This is because they distribute interest which is 100% taxable income. But the good news is your HELOC interest expense is also 100% tax-deductible because it’s from an investment loan. So in the vast majority of cases, after factoring in taxes, you will still be cash flow positive.

The above example is known as a full MIC manoeuvre. It requires your investment loan to be about 1.5x your mortgage balance. But another good strategy is the MIC manoeuvre lite, where you borrow less money and buy just enough MICs for the investment income to cover all the interest of your debt, but not any principal. In other words you are using other people’s money to pay for only the cost of your debts, but not help you build equity. This way you still eliminate the full cost of your mortgage. But you carry lower risk compared to a full MIC manoeuvre because you are borrowing less money.

My experience with the MIC manoeuvre

I’ve been using the MIC manoeuvre for many years, slowly adding to my MIC positions over time. I started by borrowing money from my HELOC and then from my margin trading account. Today all my debt associated with the MIC maneuver has been paid off. And I am left with $39,000 of MIC funds generating a blended 7.8% yield. All my MICs are held in tax advantaged accounts and I currently receive about $3,000 a year this way.

Meanwhile the mortgage on my principal residence costs me about $2,900 per year in interest.

My MIC income covers my entire mortgage interest. So I am currently operating a MIC Manoeuvre lite.

It’s so nice to have other debtors pay the cost of my mortgage. Eventually I hope to grow my MIC portfolio until it’s large enough to cover my entire mortgage payment, including the principal portion. That way I can effectively live a mortgage free lifestyle!

Potential Risks with the MIC maneuver

There’s no such thing as a free lunch when it comes to personal finance. So here are some potential pitfalls to watch out for when operating the MIC manoeuvre.

Investment risk. – Just like any other business a MICs value can fluctuate over time. They can even fail and go bankrupt. That’s why it’s important to choose MICs with strong balance sheets, and conservative lending policies.
Leverage risk. – Borrowing to invest can magnify both the gains and losses. But having a long term investment horizon, and investing in only profitable assets will significantly lower this risk.
Real estate market risk. – If real estate prices fall too much, the MIC may not recoup all of its money through the foreclosure process. Fortunately you can invest in MICs with low loan-to-value ratios to mitigate this risk. For example, Timbercreek (TF.TO) has a maximum LTV of 65% for its long term loans.

You can reduce any of these risks if you conduct your due diligence and understand what you’re doing. Some people might tell you that investing in mortgages is inherently risky. Don’t listen to tools on the internet who don’t know what they’re talking about. The delinquency rate for all mortgages in the country was just 0.18% last year, which is reassuringly low.

Final Thoughts

Here are 3 main takeaways from the MIC manoeuvre:

It lets other people subsidize your mortgage payments, freeing up your own cash.
It doesn’t require any cash savings. All costs associated with this strategy are built into the process so it’s completely self sustaining. It uses the value of your own home & doesn’t require external capital to operate.
When you eventually pay off the loan portion of this strategy you will have a free and clear MIC portfolio. You can either keep these MIC funds and continue earning passive income, or sell it to receive a lump sum windfall.

Just because I’m using the MIC manoeuvre, doesn’t mean it’s suitable for everyone. Leverage can be risky and you could lose all your money. Consult a professional before making any financial decisions as this blog is for entertainment purposes only.

Have you guys considered using either the MIC manoeuvre or Smith manoeuvre before? Do you think these types of financial strategies would still work in a higher interest rate environment? Leave a comment below if you have any thoughts.

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Random Useless Fact:

In 1949, an official boxing match was held between a bear and a man. The bear won.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Why Low Interest Rates Are Here to Stay

Mon, 13 Jul 2020 06:30:16 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

The new normal

The year is 2030. Self driving cars are delivering fast food right to people’s front doors. China surpasses the U.S. as the world’s largest economy. Everyone uses mobile wallets instead of credit cards. Increasing wealth inequality has created constant social unrest. But one thing hasn’t changed. Interest rates continue to remain at rock bottom. You can still get a mortgage for less than 2.5%.

The economy has fallen into a deep pit of debt – so deep you can find Adele rolling in it. Policy makers around the world manufactured liquidity and bailed out corporations. Everyone has become accustomed to cheap money. If interest rates were to climb by just 1% then a third of mortgages will become delinquent.

Inflating money with impunity

Today in 2020 the United States government is already technically insolvent. But it can continue to make its debt payments because…

It has the ability to borrow money from a line of credit with no credit limit. And..
It can choose the interest rate at which it borrows thanks to the Federal Reserve.

From the total revenue collected by the U.S. federal government, 17% of it is used to pay interest on the debt it owes. If interest rates were to rise by just 1% then nearly a quarter of the federal revenue will have to go towards interest costs. That would be insane. Doing so would be the equivalent of someone with a $50,000 salary taking on a $500,000 mortgage at 2.5% interest rate. Nobody can qualify for a mortgage 10x their annual income. Even if the borrower thinks he can afford it, good luck finding a lender audacious enough to approve his loan application. Most mortgages are only 3 to 5 times one’s income.

Typically if a debtor starts to borrow more than he can adequately service – market forces will begin to push back. Lenders will either reject any new credit increase requests, or they will raise the interest rate to compensate for the debtor becoming a higher risk. But this doesn’t happen for governments with their own printing presses. The result: massive asset price inflation.

The lost decade

From 2010 to 2020 policies makers did try to normalize interest rates. But it was a catastrophe. As soon as rates went up they tumbled back down again.

European rates were raised by 0.50% in 2011 before being dropped by 1.50% to zero.
Canada had better luck increasing the benchmark rate by 1.25%. But then had to cut it by 1.50%.
The U.S. was the most hawkish and managed to raise rates by 2.5% – before dropping them by 2.5%.

So after 12 years of “recovery” since the 2008 financial meltdown the world is back to square one today. Any extended period of higher interest rates just couldn’t be sustained.

The next 10 years

Some may blame today’s low interest rates on a disease that’s been going around. But the virus was only the pin that pricked the precarious bubble we were already in. If it wasn’t a pandemic it would have been something else. It wasn’t hard to predict this recession. The signs were already there 2 years ago.

The longer interest rates remain low the more people will borrow. That’s exactly what we’re seeing in the real estate market. Mortgage debt growth has exploded and helped fuel higher housing prices. Canadians owe literally twice as much mortgage debt today as compared to 2008. In other words, it took all of Canada’s 100+ years of history up to 2008 to accumulate $800 billion of mortgage debt. Then it took just 12 more years to build up another $800 billion. Oh man. That is a scary reality.

This can only mean one thing. Low interest rates are here to stay for at least 10 more years. Prepare for low mortgage rates and low bond yields all the way to the 2030 Olympics. This is the new normal. It’s great news if you’re a borrower. Bad news if you’re a saver.

Looking forward

Policy makers tried to normalize rates before and evidently failed. Is there any reason to believe they will succeed on their next attempt when the economy will be even more entrenched in debt? Nope. Both governments and consumers have become too reliant on cheap money. Any attempt to raise rates in the short and medium term will surely backfire.

Politicians take care of the economy like grandparents take care of small children for the weekend. They just want to be liked and revered in the present. That’s why they do what’s expedient instead of what’s responsible. But a lack of discipline will eventually lead to disaster. But that’s fine. They won’t be responsible anymore when the consequences come due.

The only way out of this perennial cheap credit cycle is a major shock to the underlying economic system itself. This could mean a restructuring of government debt, an accelerated increase in the cost of living, or a new world reserve currency.

In any case, I plan to continue buying hard assets and infrastructure companies. All this is just conjecture. But if rates really do stay low for the next 10 years then I want to be prepared. That’s why I’m looking to purchase another real estate property before the end of this year.

What are you doing with your money these days?

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Random Useless Fact:

Internet companies make money by selling your information to advertisers.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Fiscal Update June 2020 | Closing in on Financial Freedom

Mon, 06 Jul 2020 06:49:40 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Growing passive income

Thanks to some recent stock purchases I’m now making about $20K a year in total dividend income. 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! 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!

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: (ΔMoM)

Total Assets: = $1,540,400 (+$10,200)
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.

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?

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Random Useless Fact:

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What bank transaction codes mean

Mon, 29 Jun 2020 06:31:58 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Transaction codes

Over the years I have seen many different types of activities in my bank accounts. But sometimes I don’t know what the transaction codes mean. And I’m left scratching my head as to what I’m being paid or charged for.

So to make life easier I’ve compiled a list of account actions with the different abbreviations and what they represent. Most of these transaction codes will apply to TD Canada Trust and Direct Investing accounts. I don’t know if other banks use the same codes but they will probably look similar.

Use Ctrl+F to find a specific code.

ACCT BAL REBATE – Account balance rebate
BUY – Buying a security.
COB DIS CREDIT – Cost of Borrowing credit for over charging
CONVER – A security in the portfolio underwent a corporate action in which it was exchanged for another security.
CSHLIEU – Cash was awarded for partial shares in a corporate action in which shares of a new security were exchanged or when a split has taken place.
CXLSELL – Original sell trade was cancelled due to a system error.
CXLBUY – Original buy trade was cancelled due to a system error.
CXLDIV – Dividend payout was cancelled due to a system error.
CXLINT or CXLINTBND – Interest paid on a bond was cancelled due to a system error.
CXLINTCRD – Interest received for cash held in a portfolio was cancelled due to a system error.
CXLINTDEB – Interest paid on a margin loan was cancelled due to a system error.
DIV – A dividend was paid.
DIVFRG – Foreign dividend earned.
DIVSPL – A stock held in your portfolio split or new shares have been added to the portfolio.
DRIP – Shares or units bought using the dividend re-investment plan
EXCH – Exchange of securities.
FEE – Fee or carrying charge applied.
INT – Interest on a security has been paid.
INTBND – Interest has been paid on a bond in the portfolio.
INTCRD – Interest was received for cash held in your portfolio.
INTUS – Interest earned in US dollars.
INTDEB – Interest was paid on a margin loan.
LQD – A liquidation of a security has taken place.
MERGER – Company merged with another company and has a new ticker symbol. Both symbols will be listed.
NRT – Non-resident tax.
PRNCPL – Security has been redeemed for cash.
REDEEM – Security has been redeemed for cash.
REVSPLT – A stock in your portfolio experienced a reverse split.
SELL – A security in the portfolio was sold.
SEND E-TFR – Sending an E-Transfer to someone.
SHORT COVER – Closing of a short position by covering the short.
SHORT SELL – A short position was opened and stocks were short sold.
SPNOFF – A spinoff of a parent company has taken place. Look for shares of a new security.
STK EX – The ticker symbol, CUSIP, or the company name changed for a security that was in your portfolio.
TENDER – A security has been redeemed for cash.
TXPDDV – Tax Paid Dividend. A cash transfer that can include a capital gains distribution or return of capital where no taxes will be paid by you.
TSF FR – Transfer from.
TFR-IN – Transfer into an account.
TFROUT – Transfer out from account.
WBD – Transfer in of money from another account – usually the description will include TSF FR (account number.)
WHTX02 – Withholding tax from a U.S. stock or other security.

Keep in mind that these codes may be different than what will ultimately appear on your year-end tax slip. Sometimes banks and brokerages use default designations for convenience and may vary from the tax documents they send to you and the CRA. Whether you are using WebBroker or another online service make sure to ask a representative if you are unsure of any activities in your account.

Other codes you may see

Additional codes and descriptions from TD’s website:

Codes	Description	Codes	Description
ACR	Automated Credit	ADM	Automated Debit
ADR	Authorized Debit	AGR	Agriculture Stabilization
AID	Automatic Interest	ANN	Annuity
APM	Authorized/Automated Payment	APY	Automated Payroll
CB	Cashback	CC	Certified Cheque
CCQ	Customer Cheques	CDC	Canadian Dairy Commission
CFS	Canadian Forces Superannuation	CHQ	Cheque
CLS	Close Account	CM	Credit Memo
COR	Correction	CPC	CPC Direct Deposit
CPN	Coupon Credit	CPP	CPP Direct Deposit
CRC	Credit Correction	CSB	Canada Savings Bond
CTB	Child Tax Benefit	DEL	Debit Deletion
DEP	Deposit	DIV	Dividend
DM	Debit Memo	DRC	Debit Correction
FA	Family Allowance Direct Deposit	FED	General Government Payment
FSC	Foreign ABM S/C	FWD	Forward
GC	TD Canada Trust Access Card Transaction (Other Branch)	GMD	Green Machine Deposit
GMP	Green Machine Bill Payment	GMT	Green Machine Transfer
GMW	Green Machine Withdrawal	GST.	Goods and Services Tax
ICR	Interest Credit	IDR	Interest Debit
INS	Insurance Payment	INW	Interac Withdrawal
LCR	Loan Proceeds	LDR	Loan Payment
LIN	Loan Interest	MLD	Mail Deposit
MTG	Mortgage Payment	NRT	Non-Resident Tax
NSF	NSF Charge	OAS	Old Age Security Direct Deposit
ODC	Overdraft Charge	PAY	Payroll Credit/Wages
PEN	Pension	P/C	Purchase/Cashback
PR	Purchase/Return	PSA	Public Service Superannuation
PSC	Purchase Service Charge	PTC	Personal Transfer Credit
PTD	Personal Transfer Debit	PTS	Personal Transfer
PUR	Purchase	PW	Plus ABM Withdrawal
REO	Re-Open Account, Close Account Correction	RIF	RIF Deposit
RTD	Returned Cheque	RSP	RSP Contribution
SC	Service Charge	SDB	Safety Deposit Box Rent
SK	Safekeeping Charge	TAX	Tax Refund
TCR	Transfer Credit	TRM	Term Investment
UCN	Unclaimed Balance Notice	UI	Unemployment Insurance
UGM	US Dollar GM Withdrawal	UPD	Update
VW	Visa ABM Withdrawal	WD	Withdrawal
WHT	Withholding Tax	WTC	Debit Reversal Correction
WTR	Withholding Tax Reversal	WVA	War Veteran’s Allowance Direct Deposit

Tax Payment & Filing Description Codes

FEDERAL

Tax Payment Type	Description Code
Payroll deductions – Threshold 1 – Twice monthly (source deductions $15M – $50M monthly)	EMPTX
Payroll deductions – Threshold 2 – Weekly (source deductions over $50M monthly	EMPTX
Payroll deductions – Monthly	EMPTX
Corporate Tax	TXINS
Personal Tax Installments	TXINS
GST Return (GST34)	GST34
GST Remittance (GST58)	GST58

PROVINCIAL – Alberta

Tax Payment Type	Description Code
Alberta Teachers’ Retirement Payment	ATRF
Alberta Teachers’ Association Payment	ATA
Alberta School Employee Benefit Payment	ASEBP
Alberta School Employee Health Spending Account	ASEHS

PROVINCIAL – British Columbia

Tax Payment Type	Description Code
Social Service Tax (Provincial Sales Tax)	BCSST

PROVINCIAL – Nova Scotia

Tax Payment Type	Description Code
Workers’ Compensation Board	WCBNS

PROVINCIAL – Ontario

Tax Payment Type	Description Code
Family Responsibility Office, Ministry of the Attorney General	MAG
Employer Health Tax	ONEHT
Provincial Corporations Tax	ONCT
Retail Sales Tax (return)	ONRST
Retail Sales Tax (payment)	ONRST

PROVINCIAL – Quebec

Tax Payment Type	Description Code
Combined Sales Tax and GST (TVQ & TPS)	TXIN
Combined Sales Tax and GST Installment	DECOR
Corporate Installment Remittance	GSTIN
G.S.T. Installment	GST
G.S.T. Remittance	PAY
Payroll Source Deductions – Monthly	PAY
Payroll Source Deductions – Twice monthly	PAY
Payroll Source Deductions – Weekly	COREC
Personal Installment Remittance	TXIN
Sales Tax Installment (QST)	QSTIN
Sales Tax Remittance (TVQ)	TVQAP
Support Payments	RPPAQ
Remittance of Source Deductions (Quarterly)	PAY

PROVINCIAL – Saskatchewan

Tax Payment Type	Description Code
Provincial Sales Tax	SKTAX
Corporate Capital Tax Installment	SKCOR
Fuel Tax	SKFUL
Liquor Consumption Tax	SKLQR
Retailer Tobacco Tax	SKTOB
Wholesale Tobacco Tax	SKTOB

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Random Useless Fact:

The world’s oldest stock market began in Belgium in 1460.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Millionaires – The biggest influences on my life | 3 of 3

Mon, 22 Jun 2020 06:47:42 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

This is the third and final post in this series where I discuss the most influential events of my personal finance journey. I like to save the best for last so today I’m discussing a book called, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” by Thomas Stanley and William Danko.

The Millionaire Next Door

A hundred years ago everyone owned a horse but only the rich had cars. Today the middle class drive cars and only the rich have horses. Oh how the stables have turned. The advantage of building wealth today is you don’t have to be smart, highly educated, inventive, or take precarious risks. There’s actually a rulebook – a set of specific guidelines that you can follow to reach millionaire status. It all comes down to practicing some simple habits.

I read the Millionaire Next Door when I was 20 years old because I wanted to know how rich people live so that I can be like them one day. Or better yet – for the rest of my life. What I discovered from the book blew my mind. For some reason I had the misconception that most millionaires inherited their money, and enjoy spending it on lavish goods and luxuries. But instead, the book revealed that 80% of millionaires are self made. And most of them live a very low key lifestyle – known as stealth wealth. Your next door neighbor could be a millionaire, but you probably can’t tell just by looking. The book is essentially a compilation of behaviors and habits of rich people through academic surveys.

I decided to follow in the footsteps of the millionaires in the book. Since 4 out of 5 millionaires are first-generation affluent it gave me more confidence that I don’t need any financial help from my parents to reach a 7 figure net worth.

My plan was straightforward. I would simply behave like a millionaire until I became one. That’s literally all I did. Everything I needed to know to act like a millionaire was right there in the book. And believe it or not this actually worked! 13 years later I became a millionaire. So let’s take a look at the behaviors I began to adopt back in 2007.

The Characteristics of a Millionaire

Here are 10 habits that I picked up from the book. Some of these behaviors I followed to a T in order to improve my chances of success.

Millionaires spend twice as many hours per month planning their investments as other people.
At first I didn’t know how this would actually help make me a millionaire. But I did it anyway. And it was pretty easy. I started to watch the performance of my investments more closely. To my surprise, what I paid attention to grew the fastest. For example, by focusing on my retirement plan, my RRSP has now grown to $150,000.
Wealth accumulators don’t drink much, and spend less than $10 on average for a bottle of wine.
Alcohol is often taxed more than other goods. An evening spent drinking can cost $50 or more, especially if you order the good stuff. But rich people usually don’t drink. And when they do it’s often something affordable. I have followed this rule myself and have saved lots of money. There are tons of other activities in life to enjoy. Drinking alcohol doesn’t have to be one of them.
The millionaire next door probably doesn’t smoke.
The financial cost of smoking can be expensive. And it’s not good for your healthy either. Although I’ve heard it is good for curing salmon.
Most wealthy people own cars instead of leasing them. The millionaire’s car make of choice: Toyota.
I bought a used Toyota in 2010. I’ve been driving it for the past 10 years. Amazingly it still works like new. I could probably get another 10 years out of it. It’s fuel efficient, cheap to maintain, and easy to insure. I can see why millionaires like to drive these.
Millionaires avoid buying status objects. They tend to reject status symbols whenever possible.
You can either look wealthy or be wealthy. But it’s nearly impossible to do both. That’s why I don’t own luxury brands. This alone has saved me thousands of dollars over the years. I don’t even have any Apple products since there are always cheaper alternatives.
Millionaires like to track their spending. Two-thirds of millionaires can answer “yes” to this question: “Do you know how much your family spends each year for food, clothing, and shelter?” In contrast, only one-third of high-income non-millionaires answered yes to this question.
I started to track my spending when I learned about this habit. It doesn’t take too much time with a spreadsheet. It really makes me feel in control of my budget and personal finances.
Most millionaires work between 45 to 55 hours a week.
I adopted a 50 hour work week in my twenties by taking up a part time job. It has worked out really well as the skills I’ve learned from the side job has given me the tools to advance my full time job. The U.S. Bureau of Labor Statistics reports that the average person who works 13% longer earns 44% more pay. So there’s a nonlinear return on overtime.
About 80% of millionaires have brokerage accounts. But they make their own investment decisions.
I used to have a financial advisor in college. But after reading this book I took out all the money and started to invest it all myself. Best decisions I’ve ever made. Saved myself over $50,000 in management fees.
The vast majority, (97%) of millionaire are homeowners. Most of them have lived in the same home for over 10 years. Thus, they have likely enjoyed significant increases in the value of their properties.
This is why I’m a staunch proponent of real estate investing and saved up a downpayment ASAP when I was starting out. There’s a huge correlation between being rich and being a property owner. I’ve lived in my home for nearly 12 years now. The market value has easily doubled.
On average, the wealthy invests nearly 20% of their realized income each year.
My salary today is around $70K, the highest it’s ever been. But no matter how much I earn I always invest at least 20% of my income every year. Consistency is key. Making six-figures would be great, but it’s not required to become a millionaire.

Fake it till you make it

Millionaires aren’t that different from the rest of society. Most of them are not workaholics. They don’t all earn a top 1% salary, or wake up at 5 AM and go to the gym every day. But they do involve themselves in activities and habits that complement wealth accumulation. The good news is anyone can adopt those habits such as the ones listed above.

I’m living proof that if you simply mimic successful behavior long enough you will eventually reap the same success. I didn’t do anything extreme or drastically change my lifestyle from before I read the book. I simply practiced the behaviors of millionaires and acted like I was already rich. Time took care of the rest.

The Millionaire’s Playbook

Having a million dollar net worth is more possible now than ever. 7.6% of America’s adult population are already millionaires so it’s not an unrealistic goal for most people. But whatever you do, make sure to enjoy the journey. If the process to become a millionaire is too uncomfortable then maybe it’s not worth pursuing in the first place. The authors of the book discovered that “financially independent people are happier than those in their same income/age cohort who are not financially secure.” This is why working towards financial freedom excites me like a kid in a candy store.

The Millionaire Next Door is probably the best personal finance book I’ve read so far. It doesn’t just talk about theories, mindsets, and other aspects of self improvement. It also straight up tells you what millionaires are literally doing so that you can replicate their actions and also become a millionaire. If there was ever a blueprint for how to become rich, this book is it.

Further reading: In case you missed it, part 1 of this series was about compounding, and part 2 focused on asset columns.

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Random Useless Fact:

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The Future of the Real Estate Market

Mon, 15 Jun 2020 07:30:39 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

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. 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.

My plan going forward

Greater Vancouver condo prices have increased on average by 5.5% annually over the last 10 years. Immigration and high paying tech jobs have been largely driving the demand for more shelter within the city. A report forecasts the Metro Vancouver area will have 1.1 million new residents (or 38% more people) in 20 years. The region would require about 500,000 new housing units to accommodate all the new residents.

Another factor pushing up real estate prices is illegal business activity. Apparently B.C. is a magnet for drug money and other illicit businesses. Supreme Court Justice Austin Cullen announced that more than $7 billion was laundered in the province in 2018 alone.

All these trends don’t seem to be going away any time soon. So the long term prospects of real estate investing in Vancouver still makes sense despite everything that’s happened so far in 2020. This is why I have decided to begin house hunting once again. This time I’m looking to buy a townhouse, duplex, or something larger. It won’t be just for investment purposes. I could also use it as my principal residence with my potential future family.

One of the most important parts of house hunting to me is to hire a strong and knowledgeable real estate agent.

So I decided to enlist the service of the realtor who helped me buy the rental property in January. She is very proactive and has a lot of experience. Since the real estate business is currently slow, agents have to compete more for fewer clients. So I decided to negotiate the fees in hope of lowering my costs. In the end we agreed that she would give me half of her net commissions, which is nice.

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Random Useless Fact:

The plural of LEGO is LEGO.

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Divergence

Mon, 08 Jun 2020 07:16:47 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

The stock market is not the economy

The global economy has not done well so far this year. Pacific Investment Management Co (PIMCO) believes the “forced closure of businesses across the United States and surge in unemployment will force U.S. growth to contract by 30% at an annualized rate in the second quarter of 2020.” The U.S. unemployment rate rose to a high of 14.7% in April. The recent protests and civil unrests have only made the future of the country more uncertain.

Yet the North American stock market rallied 11% over the last month. The S&P 500 recently broke above the 200-day moving average, signally a bullish trend. Why did this happen? Aren’t markets suppose to hate uncertainty? Well the answer is because of fiscal and monetary stimulus. Central banks are so afraid of deflation they are doing whatever it takes to keep the economy moving.

Both the U.S. and Canadian governments are giving away billions of dollars. More than 7.8 million Canadians have applied for the CERB government assistance program which pays $2,000 a month. That’s literally 40% of all employed people in the country. The Bank of Canada has engaged in QE, buying up Canadian mortgage assets. In the United States, the Federal Reserve is now sitting on over $7 trillion of financial assets. This has never been done before.

Since I had some extra cash lying around I decided to buy some more stocks. I picked up 800 shares of Canadian Western Bank (CWB.TO), a financial stock that pays a 4.5% annual dividend. I also added 700 more shares to my Suncor (SU.TO) position. This adds about $37,500 worth of new stocks into my investment portfolio. I believe the worst part of 2020 is over and the markets should be higher by the end of this year.

A debt fueled economic system

Canadian household debt as a percentage of GDP has been steadily climbing over the past 20 years, rising from 58% in 2000 to 99% in 2019. But according to CMHC, we could see that figure go as high as 130% by the third quarter of this year. That’s a massive jump in a short amount of time.

Financial ETFs saw $123 million in net inflows in May. U.S. mortgage applications are up 62% and approaching all-time highs. More debt means more credit which leads to higher asset prices. As Robert Kiyosaki would say – the rich hold assets and the poor have debt. This has always been the case so it’s not surprising. What’s new however is the speed at which the wealth gap is accelerating.

In a normal market situation a downturn would hurt rich households the most because the stock market is disproportionally held by the wealthy. This is the market’s natural way to rebalance when things get out of hand. Those who speculate in asset bubbles rightfully get burned if they take on too much risk. But thanks to government intervention the opposite is happening today, – and the rich are actually getting richer.

We may see a second wave of the virus coming in the fall or winter, but that probably won’t have any lasting impact on the stock market. Don’t fight the Fed. Much like losing your feet to a bear trap, if you bet against the financial markets long term you will be defeated. This is why I continue to buy stocks and bonds even if things appear to be bleak and uncertain.

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Random Useless Fact:

There are about 600 billionaires in the U.S. and only 44 in Canada.

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Fiscal Update May 2020 | Oil’s well that ends well

Mon, 01 Jun 2020 06:30:14 GMT

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Energy sector bounces back

The human brain can often exaggerate negative emotions in the midst of uncertainty. It’s why otherwise calm drivers are susceptible to road rage behavior. Similarly, a stock market crash can cause investors to fixate on the bad news, lose perspective, and extrapolate recent trends into a dreadful future. Here’s a business headline from mid March.

But this type of thinking, although understandable, can lead to some costly mistakes. That’s why I suggest a more rational approach to managing money. First, we should realize that this time is not different. This isn’t the first worldwide economic shock. And it won’t be the last. Given the assumption that things will go back to normal we next have to look for opportunities in financial markets – where we can find mispriced, long term assets. So when stocks fell 30% earlier this year I suggested it was a time to buy, not sell.

A couple of months ago oil fell to $20/barrel. In the past 70 years this has only happened one other time so it’s a very rare phenomenon. I blogged about investing while the price of oil was unsustainably low. And in March I disclosed buying 1300 shares of Suncor (SU), and 500 shares of Canadian Natural Rss (CNQ) – two of the largest Canadian energy companies.

Today oil has climbed back up to $35/barrel and my combined ROI on those two stocks is 37.3%. That’s a gain of roughly $12,000 in two months. Bear markets don’t happen every year. That’s why when opportunities like this arise, it’s important to pay attention and take action. I haven’t sold these oil stocks so there’s no realized profit yet. But it’s still nice to see a climbing net worth.

Liquid’s Financial Update May 2020

*Side Incomes: = $4,600

Part time job =$800
Freelance = $100
Dividends =$1300
Interest = $600
Rent = $1,800

*Discretionary Spending: = $1,800

Food = $300
Miscellaneous = $600
Interest expense = $900

*Net Worth: (ΔMoM)

Total Assets: = $1,530,200 (+$19,400)
Cash = $53,300 (+5400)
Canadian stocks = $301,200 (+7,200)
U.S. stocks = $149,900 (+4300)
U.K. stocks = $18,900 (+200)
Retirement = $153,100 (+1000)
Mortgage Funds = $36,200 (+1100)
P2P Lending = $36,600 (+200)
Home = $331,000 (assessed land value)
Rental Unit = $450,000 (2020 purchase price)

Total Debts: = $521,800 (-4,000)
Home Mortgage = $181,800 (-400)
Rental Property Mortgage = $312,800 (-700)
Margin Loans = $27,200 (-2900)

*Total Net Worth = $1,008,400 ($20,400 / +2.1%)
All numbers are in $CDN at 0.73/USD

Getting back to normal

Unfortunately Suncor has cut its dividends by 55% since my last purchase. But both SU and CNQ are profitable long term so I will continue to hold these names in my portfolio.

We still don’t know the final outcome and repercussions of this pandemic. The economy is slowing starting to open up again. But life for average folks will lag significantly behind the financial markets. According to the CFIB, half of small businesses cannot pay their June rent unless the government steps in with more financial aid.

Europe is starting to remove some lockdown measures. Japan lifted all of its national emergency controls last week. As the world cautiously returns to normal there will probably be more unexpected news and economic hiccups. But volatility is part of the process, and the world will get through this one way or another. All we can do as individuals is to manage our own personal finances so that we’ll have a healthy, robust investment portfolio on the other side of this.

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Random Useless Fact:

Dogs are often good judges of character.

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Getting the most out of FIRE

Mon, 25 May 2020 06:51:46 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

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. 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.

This is why the Bank of Canada lowered interest rates three times in March. It also embarked on an unprecedented bond-buying program to ease the flow of credit. Its balance sheet tripled to $392 billion by early March. There is no way the central bank will allow a pandemic wave to put out the FIRE.

However reducing interest rates encourages more borrowing. That’s exactly what folks are doing and it’s a big problem. Consumer credit is up 0.31% monthly in March. And mortgages grew by 0.49% monthly, and 5.3% annually. As the lockdown measures are slowly lifted Canadians will likely look for more money to borrow.

Our central bank doesn’t like it when we borrow too much. In recent years it has repeatedly warned Canadians that our high level of debt puts our entire economy in jeopardy. The latest alert came a week ago when household debt reached a record high of $2.28 trillion.

But what did policy makers expect? They’re the ones who made it more convenient and more affordable to get bigger loans in the first place. It’s only natural that people will respond to incentives.

Since the FIRE sectors are backed by policy makers, investing in them should be relatively safe. Large chartered banks such as TD, Royal Bank (RY), and Scotia Bank (BNS) should perform well over time. Insurance company stocks like Great-West (GWO) and Sun Life (SLF) have been beaten up by the recent bear market and are starting to look attractive. REITs are a good way into the real estate market.

____________________
Random Useless Fact:

The mechanical computer mouse was invented in 1972.

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A Frugal Cheeseburger Recipe

Mon, 18 May 2020 06:37:53 GMT

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

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. 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. Let’s get started!

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:

Shape roughly 1/2 cup of ground beef into a ball with your hands. It should be about 2.5 inches in diameter.
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.
Cook uncovered for 3 minutes. While waiting, sprinkle a pinch of salt and pepper evenly on the meat.
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.
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.

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.

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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.

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How I obtained a negative interest rate mortgage

Mon, 11 May 2020 06:28:13 GMT

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Why inflation matters

U.S. government bonds in 1990 were paying investors 8% a year. That sounds amazing! Especially for a low risk investment. But not everyone was buying them. Why? Because investment returns don’t tell the whole story. The inflation rate that year was 5.4%. The real rate of return on those bonds was only 2.6%. This means stashing $100 under a mattress would have lost $5.4 in value in 1990 due to inflation. 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.

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%)

Or -0.54%.

I’m effectively paying a negative interest rate. So I’m earning 54 basis points to borrow money. Woot! 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 average inflation rate in Canada has been about 2% over the last 20 years. Let’s assume it will continue to be 2% on average for the foreseeable future.

My mortgage of roughly $316,000 today will lose 2% of its value this year due to inflation. This is bad for the lender. Luckily the 2.44% interest rate they’re charging me is still higher than the expected inflation rate.

What does a negative mortgage rate mean for me?

As a borrower, an inflation adjusted negative interest rate simply means this mortgage is building wealth for me.
Here’s how it works:

Let’s say my initial loan balance is $1,000 to make calculations easy.
My after tax interest rate is 1.71% as mentioned earlier. So the cost to hold this debt is $17.10 this year.
Assuming I don’t touch the principal, by the end of this year my loan balance should still be $1,000.
But it will only be worth $980 because $20 or 2% will be eaten away by inflation.

In conclusion, this year I will pay $17.10. But I will receive $20.00 from inflation. The difference is a net gain of $2.90 to my net worth. I’m essentially giving up actual cash in return for devaluation of debt, and coming out slightly ahead. If I didn’t borrow this $1,000 in the first place I wouldn’t have earned the $2.90.

Of course the actual calculations are more complicated than my example above. A mortgage payment contains both principal and interest, but the principal paydown is forced savings for the borrower. An accurate calculation involves discounting each future payment for inflation separately. But in order to demonstrate a point I simply used a simplified Fisher approximation.

Surprisingly a liability such as a mortgage can actually become a wealth building tool. Not only is my new rental property producing monthly income, but I’m also receiving financial value from the loan I took to buy the property. Welcome to Modern Monetary Theory. We’re living in some strange times.

____________________
Random Useless Fact:

Financial jealousy is when you want someone else’s money. Financial envy is realizing you can’t have the money so you don’t want someone else to have it either.

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Fiscal Update April 2020 | Re-millionize

Mon, 04 May 2020 06:30:06 GMT

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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 of 2020 so the V-shaped recovery is nice to see. 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. 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.

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. 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.

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: (ΔMoM)

Total Assets: = $1,510,800 (+$55,100)
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. 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.

I didn’t buy any new assets in April. But going forward I will be looking to purchase new stocks in the energy and financial sectors. I still think dividend growth stocks are worth considering even though valuations are not as cheap as last quarter. Some readers have asked me for stock tips. I don’t give specific financial advice. But I recently came across this stock which is currently on sale, and looks like a great deal.

____________________
Random Useless Fact:

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

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Asset Column -The biggest influences on my life | 2 of 3

Mon, 27 Apr 2020 06:30:12 GMT

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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.

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. 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.

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.”

Making money work for you

My asset column began with $3,000. I was in my early twenties and full of enthusiasm. What gave me confidence was that compound interest and time doesn’t discriminate if you’re rich or poor. Everyone has equal opportunity to make investment gains. My $1,000 in a stock has the same chance at earning a 10% return as Bill Gate’s $1 billion in the same stock.

Maybe I didn’t have a lot of investment experience when I was starting out. But I had a significant advantage – time! Most older investors would trade their money for youth any day.

From slow beginnings

I only made a few hundred dollars of dividends in my first year of investing. Not much, but I was not deterred. As my salary grew I saved and invested more. Every year I was trading more of my active income to produce greater passive income.

By the fourth year, I had diversified my asset column to include bonds and REITs. I was earning over $4,000 a year from dividends and interest. Yay. I could see my investment income was growing exponentially now. This drove my desire to find new ways to save and invest even more. The following year in 2013 I added farmland to my asset column. I started earning an additional $10,000 a year in farm rent.

My asset column today has ballooned to $1.2 million, excluding my primary residence. Everything in my asset column creates income for me in one way another.

Watching my asset column grow over time is the most satisfying thing ever. By 2025 I hope my investable assets will grow to be worth at least $2.5 million.

Finding Value

It’s not enough to just buy financial assets willy-nilly. Not all assets are the same. Overpaying for a low quality investment is like buying velcro shoes that don’t fit. It’s a total rip off! Instead, I only add high quality assets to my asset column when I can buy them at a fair price.

Comparing assets to spending

Before I spend money on something non-essential, I always ask myself if I would feel better putting the money into my asset column instead. And the answer is usually yes. For example, when I received my tenant’s rent payment I thought about buying a Nintendo Switch with some of that money. But then I thought about Robert’s teachings – how the rich buy luxuries last. And I decided to send the entire payment to my investment account. This means I value growing my asset column more than buying a new game console.

I don’t agree with everything in Robert’s book. But his concept about building up an asset column, even if it means taking on debt, has really improved my life financially. After adopting this mindset for over 10 years it’s become second nature to me. As I’ve mentioned in last week’s post – I usually receive more fulfillment from having the option to buy something than from the novelty of actually owning it. If you have a similar mindset towards money, then you probably have a growing asset column as well.

____________________
Random Useless Fact:

Studies show that women are attracted to men who wear blue on a first date.

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How to become a Millionaire in 10 Years

Mon, 20 Apr 2020 06:27:26 GMT

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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.

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. 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 decided yes it’s totally worth it.

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.

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.

Graham cautions to stay away from careers that pay a low hourly rate. The problem is that there are only a certain number of hours in a day, so your income potential is capped. The solution is to either acquire a skill such as plumbing or welding that pays a higher hourly wage, or switch to another line of work where you’re paid for your results rather than your time. Results based jobs would include any commission based work such as sales, brokering, or consulting.

Creating an online business is another valid option due to the scalability of the internet. You can offer a course, a service, or a product that fills a market need. The same amount of work it takes to reach 10 people can be scaled up to reach 10,000. This way you can “leverage your effort, not your time – to make significantly more money.”

Returns on Investment

The last piece of the million dollar puzzle is to invest wisely. Building up $1 million from savings alone is too difficult. You would basically need to save $100,000 a year for 10 years. So to speed up this process you can invest your savings. At 15% annualized return for example, you would only need to save $40,000 a year to become a millionaire in 10 years. Graham mentions that you can actively manage your investment to increase your returns in the market. He particularly likes to buy rental properties and gives a real life example of how to double one’s investment (100% return) in a year with the help of a bank loan.

Graham ends the video by saying that if he believed that none of his success was achievable, he never would have achieved it. He developed the mindset from the beginning that he could turn his dream into a reality, and that became a self fulfilling prophecy.

____________________
Random Useless Fact:

Experts project the current physical distancing measures in Canada will continue until June 2020.

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Compounding – The biggest influences on my life | 1 of 3

Mon, 13 Apr 2020 06:30:58 GMT

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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.

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.

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.

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.

Saving my first dollar

Instead of finishing a multi year university degree I took a one year graphic design program so I could have an early start to retirement like Stacy. I landed my first industry job at age 20, and I’ve been saving and investing every year since then.

Starting early doesn’t only apply to personal finance. In business starting early gives you that first-mover advantage. Generally speaking, developing good habits at a young age is much easier than acquiring them later in life. The more recipes you know the easier it is to learn new ones because your skills and techniques compound just like with investment interest. Watching your diet starting at age 19 rather than 39 will reduce the chance of health issues throughout your life.

The longer you put things off the harder it is to maintain a healthy body, healthy finances, or healthy relationships. So compound growth inherently exists in many aspects of life. I was very fortunate to be introduced to this concept in high school.

Rice and chess

To end this post I will leave you with a short parable to demonstrate how our linear brains tend to underestimate compound growth. As the story goes, the inventor of Chess presents the game to the Emperor of India, who is so impressed he offers the inventor any reward he wants. The inventor asks for a single grain of rice on the 1st square of his board, then two grains on the 2nd, four grains on the 3rd and so on. The Emperor agrees thinking that should be okay since there are only 64 squares on the board.

But he later becomes furious when the court treasurer reports that by the last square, the total would be 18,446,744,073,709,551,615 grains of rice, a pile larger than Mount Everest. This is why exponential growth can lead to results difficult for people to comprehend.

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Random Useless Fact:

Full service restaurants saw a 79% decline in transactions at the end of March 2020 due to the pandemic.

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Fiscal Update March 2020 – Worst Month Ever

Mon, 06 Apr 2020 06:32:40 GMT

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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. 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: (ΔMoM)

Total Assets: = $1,455,700 (-$55,400)
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. 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. When assets go on sale, you buy more. 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.

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. You don’t need a lot to get started. But you have to start to end up with a lot.

____________________
Random Useless Fact:

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

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Freedom 35 Blog

Financial Independence!

I have achieved financial freedoooom!

What’s my secret to financial independence?

Adopt an abundance mindset instead of a scarcity mindset.

Low interest rates.

Understand how to value investments.

Invest with other people’s money.

Copy the best of what others have already figured out.

Jump directly to….

Financial independence 2 years ahead of schedule

Net worth update as of August 2020

My 12 year journey to financial independence

Here are some details for context:

Current asset allocation

The road less traveled

Vindication

My passive income and expenses

Breaking down my passive income

Dividends = $19,044/year

Interest = $10,616

Net rental cash flow

Breaking down my annual expenses

Mortgage payments = $9,490

Condo fees = $3,642

Utilities = $2,015

Groceries = $3,000

Transportation = $1,800

Property tax and home insurance = $1,793

Interest from margin debt = $330

Miscellaneous spending = $3,600

Buffer = $4,200

Additional safety

What about taxes?

Additional measures to keep in mind

Future proofing my financial freedom

Retire sooner vs later

Family planning

Long term security

What this milestone means for Freedom 35 Blog

The State of the Economy – 2020 and Beyond

Past and future predictions

What about for 2021?

Mo money mo problems

Prepare for inflation

Unpopular opinion on the housing market

Are there any downward pressures facing real estate?

What about employment data

Pessimistic predictions

IT stocks

The bottom line

How to Cultivate an Abundance Mindset

It’s all in how you think

What they don’t tell you about index investing

Stock picking vs index investing

Why index investing isn’t all that passive

Index managers should get out of their own way

Other indexes to consider

A case for picking individual stocks

Other stock pickers

How to tell which investment style is right for you

The MIC manoeuvre – Say goodbye to your mortgage

Let others make your mortgage payments for you

How to implement the MIC manoeuvre

Step 1

Step 2

Step 3

Residual income

A natural hedge against monetary policy

Tax implications

My experience with the MIC manoeuvre

Potential Risks with the MIC maneuver

Final Thoughts

Why Low Interest Rates Are Here to Stay

The new normal

Inflating money with impunity

The lost decade

The next 10 years

Looking forward

Fiscal Update June 2020 | Closing in on Financial Freedom