How High Can the Dow Go?
The Dow rose from 7,000 to 20,000 points over the last 8 years. And that doesn’t even account for the dividend payments. By using financial leverage my portfolio managed to outperform the market every year since I started buying stocks in 2009. 🙂 Borrowing to invest is risky. But if I continue to maintain a diversified portfolio of real estate, stocks, and fixed income investments, then it is very likely that my assets will grow overall in value over time. So as long as I can borrow money cheaply I will continue use leverage. It’s all about expected market return vs the cost to borrow. In my previous post from last year I explained how rich people create wealth. Using other people’s money to enhance investment gains proves to be a very effective method. I currently have about $50,000 of available funds remaining before I risk getting a margin call. This gives me quite a large safety cushion. As long as I keep an eye on this number I should be able to withstand the market cycles.
Breaking the 20,000 barrier was a huge milestone for stock investors. But can the Dow Jones continue to climb even higher? The answer may be found in American football. 🙂 Believe it or not the outcome of the Super Bowl game this weekend could have an impact on the stock market’s performance for the remainder of 2017. This idea is known as the “Super Bowl Predictor.” The predictor states that if an original NFL team wins the Super Bowl, then the Dow index will increase over the next year. Otherwise, the stock market will fall. So far this indicator had been bang on every year since 2008, except for one time. So if we want the Dow to hit 20,000 again and continue to grow this year, we better hope the Atlanta Falcons win this weekend. 😀
Anyway, since equity valuations and price/earnings ratios appear to be worryingly high, I decided it’s time to be more cautious with my money. So as I see the growing risk of a bubble forming, I have turned my attention towards alternative investments that do not correlate with the stock market. That’s why today I present a new addition to my asset column.
It’s P2P lending! 😀 Hurray! This makes a total of 10 different asset types I own. And most of them produce a stream of passive income for me! 🙂
Liquid’s Financial Update
*Side Incomes:
- Part-Time = $900
- Freelance = $800
- Dividends = $800
- Interest = $600
- Fun = $200
- Debt Interest = $1200
*Net Worth: (MoM)
- Assets: = $1,083,200 total (+33,200)
- Cash = $1,100 (-700)
- Canadian stocks = $139,200 (+4100)
- U.S. stocks = $85,900 (+2700)
- U.K. stocks = $18,600
- RRSP = $75,000 (-100)
- Mortgage Funds = $30,400 (+200)
- Peer-to-Peer Lending = $20,000 (new!)
- SolarShare Bonds = $10,000
- Home = $270,000 (+7000)
- Farms = $433,000
- Debts: = $496,200 total (+16,700)
- Mortgage = $185,200 (-300)
- Farm Loans = $191,400 (-400)
- Margin Loans = $59,300 (+300)
- TD Line of Credit = $16,000 (-700)
- CIBC Line of Credit = $27,500 (+18,000)
- HELOC = $16,800 (-200)
*December Total Net Worth = $587,000 (+$16,500 / +2.9%)
All numbers above are in $CDN.
January has traditionally been a very positive month for my net worth, and this year is no different. This is thanks to the phenomenon called the new year’s bump. I used the average inflation rate of 1.6% to increase my home’s value and rounded the number to $270,000, which is $7,000 higher than the previous year. Stock markets held up well this January, despite a slight pull back over the last couple of trading days.
I will write more about my new venture into the world of peer-to-peer lending in a future post. But it’s basically a fixed income investment in the form of debt financing. Compared to stock market, P2P investments have a low correlation with stocks and are less volatile. However, this doesn’t mean they’re less risky. I invested $20,000 to start. $2,000 came from personal savings, while the remaining $18,000 was borrowed, which is why both my asset and debt have grown this month. I plan to slowly pay down the new debt while I wait patiently for my new asset to grow. This is the same basic strategy I used for all my leveraged investments in the past. 😉
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Random Useless Fact:
It can be quite difficult to tell if a tiger is pregnant, or just fat.
That’s a pretty good bump! It’s about the size of a maxed-out 401(k)!
Keep the growth going!
Thanks. Will do. 🙂
I’ve seen your name pop up as a lender in the p2p world and have been patiently waiting for you to write about it… I’m enjoying the p2p world so far but fear the unknown about exactly how risky the loans are. I’m very interested in how others are evaluating which loans they contribute to, or if it’s just the diversity approach of a little bit in each loan available.
I don’t know what the best approach is when it comes to risk assessment. What I personally do for now is buy B and C contracts. Then I invest $500 to $1,500 depending on subjective factors such as if the borrower is answering questions or not lol. In a way they are like junk bonds with short term maturities. 🙂
I’ve read generally negative reviews of p2p lending.
I’m keen to hear how it works out for you. I hope it’s lucrative! I’d like to try it at some point.
That’s an intriguing point. Most reviews I’ve across about p2p lending in other countries have been generally positive. 🙂 For example: http://www.mrmoneymustache.com/the-lending-club-experiment/
Let’s hope the Falcons win because no one wants the Patriots ;). Sorry, but big Broncos fan.
I’m curious to hear the details of your borrowing the $18k for your LC move. Can you share?
Sure. I have a line of credit at 4%. So I borrowed $18,000 from it by transferring the funds into my new P2P account. My expected return for P2P investments is 8%. Therefore I should be able to cover the entire cost of borrowing, plus receive 4% left over as profit if all goes according to plan. 🙂
Lets go Patriots! It will be good for the Stock market go down a little bit so we can buy more 🙂 I’m tired of buying on this crazy high market.
What’s interesting is that historically speaking, over the past 100 years the Dow has had an average of about 12 new highs every year. It’s suppose to be quite common. Source: https://www.bloomberg.com/view/articles/2017-01-30/sometimes-the-dow-s-peaks-are-followed-by-more-peaks
Liquid,
That is an impressive increase in assets and net worth. Looking forward to the write up on the peer to peer lending.
Thanks dude. P2P has been pretty fun so far. I’ll get a post up about it when I can.
F35 –
$16.5K?! LET”S GO!!! Nice job, talk about a killer month and add to the net worth. Keep it going and congrats.
-Lanny
Thanks for stopping by. 🙂 Yeah, my assets have really taken on a life of their own. There’s no stopping the journey to financial freedom now.
I enjoy following your investing strategy and was wondering if this incorporates a pension through your employer in any way.
I do have an employer matching RRSP plan that I automatically contribute to. And it’s based on a very small percentage of my salary. Since it’s a rather insignificant sum of savings I do not include it in my net worth calculations. The other problem with my company plan is that I don’t have access to the money if I want to take it out. There are only certain funds I can choose from, and the only way I can cash out or have control over the money is through termination of employment. I figure my money doesn’t really do me any good if I can’t use it so it’s separated from my personal RRSPs.
Thank you for the reply I look forward to your future posts.
Wow, looking at that first graphic really shows how great the past 8 years have been for the market. However, stocks can keep climbing or things can change. DJIA at 20k is just a number at the end of the day.