Fiscal Update Sept 2014 – Economy Slow Down

The American economy is starting to pick up. U.S. stocks have held steady in September. However the Canadian stock market dropped 4.3%, the price of oil fell $3 per barrel, and the value of the Loonie sank to just 89.4 cents U.S.

Thankfully my finances held up okay in September. I did lose about $5,600 of value in my stock portfolio though. 😐 It’s hard to make money when the entire stock market index takes a big hit. However I still managed to end the month with a net worth increase of +$1,400. This is largely due to my rental income which came at the end of the month. I deposited this payment of $5,177 into my bank account, same as this time last year. Unfortunately I’m still cash flow negative on my farmland investment by about $4K a year, but I’m hoping that the land will appreciate in value over time to compensate for any short term losses.

Phew, if it wasn’t for this payment I’m afraid my net worth would have dropped by several thousand dollars. 😕 But instead I eked out a small gain! I receive 2 rent payments annually from the farms; once in the spring and once in the fall.

What a coinkydink. 😉 Just as I experience a month of stock market decline my farmland investment pulls through for me. 😀 I decided to use the extra rental money to pay down some of my debt. I know my debt level might be a bit on the high side and many people have given me pretty strong signals to use less leverage. But for now I think I’m doing alright with over 6 consecutive years of double digit annual returns.

*Side Income:

• Part-Time Work = $500
• Dividends = $400
• Farm Rent = $5,200

• Eating Out = $100
• Others = $200

*Net Worth: (MoM)

• Assets: = $836,000 total (–3,900)
• Cash = $3400 (+1200)
• Stocks CDN =$88,700 (-5300)
• Stocks US = $52,900 (-300)
• RRSP = $49,000 (+500)
• MICs = $15,000 (same)
• Home = $254,000 (same)
• Farms = $373,000 (same)

• Debts: = $525,700 total (-5,300)
• Mortgage = $196,900 (-400)
• Farm Loans = $204,800 (-400)
• Margin Loan CDN = $27,500 (-2200)
• Margin Loan US = $24,900 (+700)
• TD Line of Credit = $31,000  (-1000)
• CIBC Line of Credit = $11,600 (-400)
• HELOC = $18,500 (-100)
• RRSP Loans = $10,500 (-1,500)

*Total Net Worth = $310,300 (+0.45%)
All numbers above are in $CDN. Conversion rate used: 1.00 USD = 1.12 CAD

I hold mostly dividend growth stocks in my margin accounts. They’re large-cap, blue chip companies such as Chevron, Starbucks, or Disney, with large economic moats and have a history of increasing earnings and dividends over time. Apparently the severe weather in the prairies this year has not deterred farm buyers 🙂 Alberta received a lot of snow. Saskatchewan and Manitoba experienced pretty bad flooding. Yet according to a Re/Max report land prices are still going up.

“Land in short supply left “well-financed” Alberta farmers ready to make a deal on short notice, Re/Max said, noting tiled land, for example, sold for as much as $10,000 per acre in southern Alberta, up 20% over the previous year.”
~agcanada.com 

“In Saskatchewan, prices increased from between $1,500 and $2,000 an acre in 2013 to between $1,800 and $2,200 in 2014. Manitoba saw its price range go from between $1,350 and $1,600 to $1,500 and $2,000.”
~bnn.ca

My Saskatchewan farms are currently worth about $1,200 an acre on average. If we assume that report is accurate then even a conservative $100/acre increase would give me a solid $31,000 capital appreciation for this year alone. 😀 That alone would be more than enough to cover the entire cost of servicing my total debts, for which I pay about $18,000 of interest per year.

Even in a slow economy farmland continues to outperform. Productive land is a unique asset. It’s something tangible you can touch. When the future looks bleak or uncertain, most people would want to own something with intrinsic value. The worse the economy is, the more desire there is to play it safe like buying land. And unlike other hard assets such as gold, no one can steal your farm.

But don’t bet everything on the farm. Mortgage investment corporations, or MICs, also played a roll in protecting my wealth in September. I blogged about how to invest in shares of Atrium MIC in a previous post. A MIC is kind of like a mixture between high yield bonds and peer to peer lending, and behaves differently from a typical stock. During the month of September the TSX Composite fell 4.3%, however my Atrium shares actually gained 0.5% 😀 Furthermore, Atrium pays monthly interest at a rate of 7% per annum. That’s the type of fixed income investment I like!

Index investing alone will not protect a portfolio from a stock market crash or recession. However a diversified investment strategy, which can include index funds, is often a better approach to maintain financial stability and generate long term growth 😉

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Random Useless Fact:
At first glance most people think this is a parrot. But it’s not. Can you see past the illusion?