January is when I adjust the value of my home. I determine the new price by taking my original purchase price in 2009 and add inflation to it every year. In 2012 the CPI in Canada for the entire year averaged out to roughly 1.6%.
Last year my home was $248,000. This year I’m going to add the 1.6% and increase my home value to $252,000 🙂 The government (BC Assessment) thinks my condo should be worth more but I’m using the inflation adjusted method to be on the cautionary side. January is also a month where I get a lot of quarterly dividends 😀 Furthermore, there is a little secret in the investing world called the January Effect. It describes the general increase in stock prices during the month of January. Nobody knows exactly why, but part of the reason might be that many people, especially workers on Wall St. often get big bonuses at the end of the year, so they buy a lot of stocks in January with that extra money which pushes the market up. This happens more often than you might think 🙂 Below is a chart showing the S&P 500’s average monthly returns for the last 14 decades. Notice how January outperforms all other months.
In a normal month my net worth would grow by about $2,000 or $3,000 depending on how much I save and how my investments perform. But because of the events described above January is often a special month where I see a big boost to my net worth which I like to call the New Year Bump. This happens almost every year.
- Part-Time Work = $600
- Dividends = $400
*Discretionary Spending:
- Eating Out = $100
- Others = $100
*Net Worth: (MoM)
- Assets: = $506,700 total
- Cash = $1,800 (+$800)
- Stocks = $72,100 (+$3,400)
- RRSP = $30,800 (+$1,000)
- Home = $252,000 (+$4,000)
- Farm = $150,000 (Same)
- Liabilities: = $354,200 total
- Mortgage = $204,200 (-$300)
- Farm Loan = $111,700 (-$300)
- Margin Loan = $18,900 (–$2,000)
- Line of Credit = $19,400 (–$400)
*Total Net Worth = $152,500 (+8.7%)
This is why I love investing 🙂 Just buy a broad portfolio of appreciating assets whenever you have extra cash and then sit back and let the market do all the work for you! In 2011, my New Year Bump was +$9,600. I remember being so excited (゜o゜) But last year in 2012, it was even higher at +$10,800. I didn’t think things would get any better than that. Yet this year in the month of January I became $12,200 wealthier thanks to the Bump ヽ(^o^)丿I can’t believe how lucky I am. Who would’ve thought just 4 years of investing would lead to this kind of payoff already. By regularly purchasing and holding profitable investments like farmland, a condominium unit, and a diverse spectrum of stocks from coffee companies to REITs, it appears this strategy works pretty well. Oh yeah, and leveraging helps a lot too. No way could I have accumulated over $500,000 of assets today by myself in such a short amount of time. That’s why I’ve taken advantage of the low interest rates and used the bank’s money to do most of the heavy lifting for me （＾－＾） I’ve been blogging about what kinds of investments I buy since 2010. If you are using a similar investment strategy for yourself then hopefully you’re benefiting from the New Year Bump as well 😀
* Numbers are rounded to the nearest $100.
Maybe I’m mis-remembering, but I thought historically in-flows to mutual funds were highest in Q1 (propped up by people making contributions to their IRAs before the April 15th deadline). And since mutual funds are more likely to hold long positions than short, the funds then need to purchase shares of individual companies in order to offset the purchased shares of their fund. So it wouldn’t shock me that Q1 has historically healthy returns.
That’s an interesting point. I never thought about how mutual funds have to grow their capacity. I wonder if this information can be used to our advantage, like maybe increase our positions in individual companies before the mutual fund companies buys them :0)
Well done Liquid!
Thanks, I set out to grow my net worth by $50K this year. Almost a quarter of the way there 😀 Just hope there wont be any negative surprises in the next 11 months.
hopefully the vancouver real estate market won”t tank either
Congratulations!. Debt definitely does help, you just have to be careful how you use it. I remember gearing up significantly just before 2008-2009 crash, I was able to take off some cash in time, but having large debt levels significantly limits you flexibility. Your margin loan looks to be relatively modest compared to your stocks so you should be in good shape. On a $500k portfolio, I think i had almost $250k in margin loan at one stage, which almost sank me!
Half a million dollars is quite the portfolio :0) I’m nowhere near that now but I’ll try to catch up ^_^. I think I got lucky because I started investing in 2009. From that time until now the markets have been going up (for the most part) When I graduated college in 2008 some of my classmates complained about entering the job market in a recession. Sure it was difficult to find work for new graduates, but when I eventually found a job and started saving my own money, that time was probably one of the best investment opportunities of the decade thinking back now 😀 and it’s part of the reason my net worth literally doubled during the first couple years of my career. I guess every situation can be viewed as either good or bad, it just depends on where you’re standing from.
Nice work, as always! I’m impressed you always keep your discretionary spending in control. In addition to people making their contributions to their IRAs before April 15th, the RRSP season may also have an affect!
Yeah, I think the RRSP deadline for 2012 contributions is usually March 1st or something. Maybe on the TSX both Jan and Feb will be positive months. I didn’t really go out much this month :0) Some people don’t realize it’s actually really easy to save money if they just stay home. Went for a couple of dinners with friends and family for the dine out Vancouver festival but that was pretty much it for eating out. For other fun money spending I bought Caviar from the local seafood market. I also bought a caliper and a 6″ chef knife from amazon.ca but that’s charged on my credit card so I won’t be paying for those until next month 😀 Normally I just buy things when I need something new or to replace something I already have and lately I’ve found I have pretty much everything I need already 🙂
I have been looking for a caliper and chef knife too! I remember a friend telling me he picked up a caliper for a couple bucks some time last year. I was hoping I could use it for some motivation, so let me know how it works for you! What type of knife did you get?
Sweet numbers, I will work harder to keep up with you!
Hope we both do well this year :0)
thats actually a pretty good way to value real estate. RE in the long run appreciates at inflation + 1-2% so i think its pretty accurate. i might try that myself
i think January effect is due to several things. Beyond what ppl mentioned already, i think fresh year for money managers, so they’re more willing to take risk and bid markets up. Also, I think new year means ppl start looking at FY2013/14 multiples instead of 2012/13.
regarding your leverage, something to think about: if you were a business, you’d have a debt to equity ratio of 230%, or 2.3.
Good point about analysts and investors changing their frame of reference in the new year because they have to look at forward earnings. It’s always helpful to think of your personal finances as if you’re running a business. It’s fun to find that balance between debt and net worth. I want to have enough debt to grow my investments and purchase assets at reasonable prices, but not so much debt that I risk losing it all lol. Some companies like Johnson&Johnson have less than 100% debt/equity ratio while other companies like banks who depend on leverage to make money often have over 1000%. I think 230% puts me around the same ratio has pipeline businesses such as Kinder Morgan or Enbridge. Don’t know if it’s coincidence but I happen to love the way pipeline companies are run 🙂
yes but their cash flows and revenue are essentially guaranteed by 25 year contracts. maybe you can sign a 25 year lease for your farm 😛
Any positive move is always welcomed, but a $10k+ move is just awesome. The January effect is pretty interesting. Kind of surprising to see that much outperformance when compared to the rest of the months. My goal is to increase my net worth by $100k this year and January was a great start for that. Congrats on a great month!
That would be amazing if you could grow your net worth by $100K in just one year. Looking forward to see how you progress :0)
The bump for New Years sounds like the best belated xmas present you could get for yourself. Awesome and I appreciate the breakdown and the history of the January effect. Thanks!
It is kind of a belated holiday gift now that I think about it. It’s good to see your own wealth grow even though you didn’t get any bonuses at Christmas because everyone else who did helped to prop up the net worth of all investors.
Great work Liquid!
+almost 9% is awesome!
Mark
Thanks Mark. I haven’t seen an increase like that for myself in a long time. The higher net worth you have the harder it is to reach those double digit percentages gains :0)
Those are some pretty awesome numbers because I’m not even close to that. Good Job.
I suppose we all start out in different places and lead different lives, but I just got lucky because I’ve found the benefits of diversified investing :0) The important thing is to be happy and keep moving forward which it looks like we’re both doing in our own unique ways.
I am following your progress with interest. We have a 5 year target to create a pot worth £2.5 million. Seems an awfully large number – even larger when you write it as £2,500,000.00p – but this is what we calculate we need to see us out!
The difference is that we will use other vehicles as we are in the UK. but hopefully the effect will be similar.:-)
Only 5 years? That’s a really lofty goal. Good luck （＾ｖ＾）I imagine with inflation and everything it’s not uncommon to reach for a sizable nest egg like that. Don’t spend it all in one place :0)
And you started this 4 years ago?? That’s impressive, gives me hope for the future, as at 40 (!!) I feel I’ve left a few things rather late….
40 is not too late. Many people don’t start saving for retirement until they’re 50. Besides, people like yourself have more life experience than I. I’m sure you can somehow leverage that to really come up with some creative ideas to grow your wealth.
Congratz on the return! I invest in stocks, but mainly in Hong Kong stocks since I am more familiar with the market there. It’s been a tough year but I have definitely learned much. I was not that kind of sit and hold type but now I realize sit-hold-observe strategy can bring me more benefits and help me focus. Recently I am very interesting in the real estate market in Vancouver also. I don’t have a great capital now so I am thinking if I can get some small amount of, but quick, cash out of the estate market.
I’m interested in Vancouver real estate as well. With the current trend maybe we’ll get some more affordable prices in the near future. If you don’t have a ton of capital you can do some research on publicly traded REITs, which is what I’m heavily invested in 😀 There are also private REITs but I don’t know too much about those myself. Thanks for dropping by ∩( ・ω・)
Love the break down of your finances. Great numbers, congrats. Look to forward to seeing you increase your net worth!
Thanks, hoping next year will be even better :0)
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