No Santa Clause Rally
The economy is struggling. The bad news is my net worth dropped a little in the last month of the year. But the good news is it still managed to climb higher overall in 2015, so that’s a relief. 🙂
*Side Incomes:
- Part-Time Work = $1100
- Dividends = $600
- Interest = $200
- Fun = $900 (holiday shopping)
- Debt Interest = $1400
*Net Worth: (MoM)
- Assets: = $922,400 total (-1,000)
- Cash = $3,500 (+1000)
- Stocks CDN =$97,700 (-4100)
- Stocks US = $72,700 (+800)
- RRSP = $62,700 (+1300)
- MICs = $15,800
- Home = $259,000
- Farms = $411,000
- Debts: = $501,900 total (-100)
- Mortgage = $190,900 (-400)
- Farm Loans = $197,900 (-400)
- Margin Loan CDN = $30,500
- Margin Loan US = $30,800 (+1800)
- TD Line of Credit = $23,000 (-500)
- CIBC Line of Credit = $10,000
- HELOC = $18,200
- RRSP Loans = $600 (-600)
*Total Net Worth = $420,500 (-$900 / -0.21%)
All numbers above are in $CDN. Conversion rate used: 1.00 CAD = 0.72 USD
Using OPM To Get Ahead Financially
It’s easy for the rich to make more money because they already have a lot of productive financial assets. Since I don’t have that level of wealth yet I choose to use other people’s money (OPM) in order to acquire those same productive assets for myself, without having to save a huge amount of money first. This allows me to potentially shorten the number of years it would take to become a millionaire.
Since using OPM is risky, I only buy assets that have a high probability of generating long-term, profitable gains. Most loans will be paid back using regularly scheduled payments so the debt will eventually take care of itself. 😀 Since this blog finally has some history we can see how effective this leverage strategy can be. Below is a look at my net worth over the past 6 years. Feel free to dig through the blog archives for more info.
| Dec 2015 | Dec 2014 | Dec 2013 | Dec 2012 | Dec 2011 | Dec 2010 | |
| Assets | $922,400 | $837,400 | $742,500 | $497,500 | $317,900 | $279,200 |
| Debts | $501,900 | $517,800 | $533,600 | $357,200 | $215,600 | $216,300 |
| Net Worth | $420,000 | $319,600 | $208,900 | $140,300 | $102,300 | $62,900 |
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The basic premise is that whenever I purchase a new investment using debt, an equal amount of value is added to both my Assets and Debts. However, simply through the passage of time the nominal value of my new asset grows while my debt naturally shrinks. 🙂 It’s only over 10+ years that the magic can really shine, but even in a 6 year window we can already tell it’s working. Time in the market will beat any attempts at timing the market. 😀
This plan works best in a low interest rate environment like in Canada today. In terms of managing debt, I pay about $16,000 a year of interest on my $502K total debt load. My passive income from my invests can easily cover that. Over time as my debt balance slowly falls, the annual cost to service my debt will decrease too! Not only that, my passive investment income is expected to increase every year thanks to the compounding effects of DRIPs and the dividend growth stocks in my portfolio. When the Prime lending rate climbs back up to 4% I may change my plan, but I have no immediate reason to deleverage. 😉 I monitor interest rates twice a year.
Breaking Down my $100,000 Net Worth Growth in 2015
I’m a bit surprised by how much my net worth has grown. After all, the stock market didn’t even perform that well. But then again, I don’t invest like a couch potato and throw everything in index funds. 😛
Real estate, farmland, and mortgage funds all had positive returns in 2015. Lucky for me about 75% of all my assets are invested in these 3 categories. 😀 Even though my Canadian stocks are slightly down, my overall investment portfolio still performed very well. Phew. The biggest winner last year was actually the U.S. dollar! The rise of the U.S. currency alone added $15,000 to my wealth because I calculate my net worth in $CDN. Let’s break down the $100,000 increase. All numbers below are rough estimates.
- $16K – Net debt repayment. I paid down some higher interest debt.
- $38K – Farmland appreciation. I adjusted my farm’s price by a conservative +10% for 2015.
- $5K – Apartment appreciation. Inflation rate was 2% in 2014 so I adjusted my home’s value in 2015 by the same amount.
- $15K – Currency fluctuation. The CDN$ went from $0.85 USD in Jan to $0.72 USD by Dec, an 18% devaluation.
- $23K – New investments. Buying new stocks & bonds using personal savings.
- $3K – Investment portfolio appreciation. Small increase thanks to fixed income assets and huge gains from tech giants like Alphabet and Amazon.com. Technology was one of the few sectors that outperformed last year. By the way, does anyone like computer jokes? I certainly don’t. Not one bit.
- Total = $100K
What Worked and What Didn’t?
For the sake of accountability let’s review the new investments I made in 2015 and analyze my stock picks. The returns and losses mentioned below already include dividend payments.
- Viacom and Wal-Mart. I purchased these two stocks in December so it’s still kind of early to evaluate them.
- Smart REIT. – Bought $3,200 of this retail store REIT in September for its quality shopping locations and stable tenants. It’s up about 6% since then. If you’ve seen one shopping centre, you’ve seen a mall! ?
- TransCanada. – Invested $4,200 in November. Safer way than oil to invest in the energy sector. It’s up 8% so far. Great buy!
- Canopy Growth. – Bought $800 in October around the federal election. This marijuana stock is up 15% now. High as a kite!
- Royal Bank. – Bought $3,900 in October. Up about 4% by now. Canadian banks are the best!
- Johnson & Johnson. – Bought $800 in July. Personal care is recession proof. JNJ is up about 5%. Predictable blue-chip!
- Corus Entertainment. – Bought $1,400 in July. Strong cash flow and high dividend. Stock is down 20%. I got in too early!
- Brookfield Renewable. – Bought $3,000 between June and July. Liking the long term sustainability strategy. Returned about 2% so far. I’ll take it!
- Hershey and Mondelez – Bought $2,000 of each stock in May. Hershey is down 6% so far. 🙁 Valuation was too high! But Mondelez has since returned 11%. 🙂 Treat yo self!
- Dream Global. – I bought $1,700 in January. It manages properties in Germany where the economy is stronger than in Canada right now. So far it has returned about 7%. Das a good investment!
- Western Energy Services Bonds. – Bought $5,000 of high yield bonds in August. Bonds are harder to value in real time but since I plan to hold this debt until maturity in 2019, I only care about the 7.9% annual yield and its default risk, which isn’t very high at the moment.
It looks like I’ve picked a couple of losers in 2015. 😕 But overall I’m quite happy with my new purchases, especially considering that the TSX index was down 11% in 2015. If there’s anything I’ve learned this past year it’s that there is always value to be found no matter how gloomy the markets may seem. 😉
As usual don’t buy something just because I do. Maybe I got lucky this year but my portfolio will underperform the TSX next time. Who knows? The only way we can invest and be certain of our choices is if we do the research ourselves. If I missed any other stocks that I blogged about buying in 2015 let me know and I’ll include it to the list above.
It’s important to review our stock picks and investment behaviors. Once we can clearly see the outcomes of our choices it can be a useful learning exercise to look back and evaluate whether or not we made the right decisions. Happy investing in 2016, folks!
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Random Useless Fact:
The average American consumes 53 pounds (24 kg) of bread per year.
A great year for you, Liquid. Congrats on the net worth increase using OPM 🙂
Heres to another great year ahead of you
R2R
Thanks R2R. I have a good feeling about 2016. 🙂
Thank goodness for property! Unfortunately, the decline in the stock market usually portends to a decline in property.
2016 will be tough to grow our net worth!
It’s all about the side hustle.
Sam
We are off to a pretty rocky start this year in the markets. Hopefully property values don’t fall too hard. I think the Fed may be regretting their December 2015 decision to boost rates by 0.25%. The economy is still too fragile.
Great year for you and you’re expanding your net worth empire. Time to get another farm or two? 😀
I’m actually considering picking up a condo in Squamish BC and then rent it out. 🙂 Prices are very affordable there, and it’s less than an hour away from Vancouver.
I love reading this blog. Are you ever tempted to sell the farmland that has appreciated so much already and just call it a success? One less debt and $38k profit in the bank? Or do farms just keep appreciating? I am just curious. Love the puns.
Selling and taking the profit now would be very nice. 🙂 But in the long run holding the property would be a better strategy for me. Since my priority is focused on future gains I’ve never been tempted to sell early yet. I believe farmland values move up and down like many other markets. Between 1980 and 1990 the price of the farm I own fell 60%. 🙁 I’m glad I didn’t have to experience that. But from 2005 to 2015 the price more than doubled. It’s always hard to time these things. But using long-term historical data and future projections I can expect farmland to return 4% a year. This comes from 2% cash rent, and 2% land appreciation. 🙂
Finally, in the world of finance everything is relative. Since I don’t know of any better investments with a higher expected rate of return, farmland is my best option so I am sticking with it. Technically speaking the stock market should do better than 4% a year, but it’s risky to put all my eggs in one basket.
re: “…I choose to use other people’s money (OPM) in order to acquire those same productive assets…”
Your only productive asset is your farmland, the rest are non-productive.
A share of a company is not a productive asset. The company itself is the productive asset, the share is merely a claim on the company’s production. A stock is not the company. A great example would be General Motors (GM).
re: RUF “The average American consumes 53 pounds (24 kg) of bread per year.”
And now you know why diabetes and obesity are rampant.
I think the cost of healthcare is going to increase a lot in developed countries over the next 30 years. It’s hard for some people to eat healthy, especially when processed food is so cheap and accessible.
Well done on the year considering 2015 was a ‘choppy market’
I’m curious about one of your comments here:
“After all, the stock market didn’t even perform that well. But then again, I don’t invest like a couch potato and throw everything in index funds.”
The majority of my portfolio is in index ETFs. I switched out of most ‘actively managed funds’ a few years ago (with the exception of a hedge fund). Is a leveraged strategy not worth it with index etfs considering the low interest rate environment in Canada?
Thanks. I choose to hand pick most of my stocks, which is a personal choice. But buying index ETFs is a great way to invest as well. Leveraging should work with either strategy. There’s a lot of factors that go into my decision making for a leveraged strategy. But it can summed up in the following way. I basically compare the average cost of borrowing to the expected return of the investment. 🙂 You sound pretty clever so I’ll explain the technical details below. For example, if we look at an index ETF like XIU, which tracks the 60 largest stocks in Canada, we can see it’s current P/E ratio is about 16x according to https://research.tdwaterhouse.ca/research/public/ETFsProfile/Summary/ca/XIU To find the “expected return” we take the inverse of the P/E ratio, which is 1/16 or 6.25%. I will take 0.50% off this projected gross return to account for taxation, so the net result is a 5.75% annual expected return. My current cost to borrow is about 2.75%. This is the average interest rate, after tax, on all my loans. Therefore, I have a 3% margin of safety because that’s the difference between my expected return and cost of borrowing. If the difference… Read more »
re: “The biggest winner last year was actually the U.S. dollar!”
Of interest, the 10 times this has occurred in the last 90 years stocks have followed up with average returns of 14% (1 year), 18.75% (2 year) and 16.75% (3 year).
Perhaps the next stock bear will coincide with the next commodities bull, c. 2020.
Be sure to use OPM wisely…
Thanks for the information. That’s really good to know. 🙂 We’ll have to watch the market closely. I think U.S. presidential elections also have short term effects on U.S. stocks at least.
Excellent job, Liquid!
Your properties and investments all put in the effor to grow your net worth over the past year. Won’t be long now before you break that magical one million barrier!
Best of luck in 2016,
NMW
Thanks NMW. At this rate I think I’ll have a million dollars worth of assets before the end of the year. 🙂
Nice recap of the year and interesting to read your what worked and what didn’t work lines. My Canadian banks are still in the red but I literally have a two decade if not longer horizon with those names and plan to add to them in 2016. Nice to see your RY work out so far. I’m still a fan of TD, BNS and RY especially at current levels.
Yeah, other than the energy sector Canadian stocks are pretty decently valued relative to historical averages.
Many people would be happy to have a net income of 100k and here you are growing yours by that in a year. The hard work you have put in to get there is seen in that chart going back to 2010, that alone is a powerful inspiration of putting consistent work in and then you will reach your goals much faster than you think possible. Keep up the good work
Thanks. I’m surprised by how accommodating the markets have been since 2010. Some people are saying the bull market run has finally ended this year, but I’m just going to wait and see what happens.
[…] appreciation. By comparison that’s how much my net worth increased in all of 2015, which I broke down and explained in a previous post. But it’s wise to keep in mind that not everything is as it seems on the […]