Wednesday, May 25, 2016

Slow month

Notting much is happening financially.

I received the provincial grant for my 2015 contribution to my kids RESP. I should be getting the federal grant for the 2016 contribution pretty soon. I’ll make a purchase then. Stocks have been doing well in the last few days… Just my luck, stocks are high when I’m about to purchase.

I finished paying my daughter school for 2015-2016 and made the first 2500$ payment for 2016-2017. I need to come up with 5500$ for the end of August so we are trying to minimise expenses this summer.

We had a neighbourhood garage sale last weekend. We made 101$ selling old stuff we didn’t need anymore. Extra cash is always nice but more importantly there were two kid bikes in the stuff we sold which were taking place in the garage. If calculate with my municipal assessment and the size of my house, I’m at around 150$ per square feet. The bikes where taking about 4 square feet in the garage so from my point of view, I got 600$ value by selling them !

Sunday, May 8, 2016

Mapping the rest of the year

I’m trying to map out what my moves are going to be for the rest of the year. I have to take the following fact into consideration:
  • I got 6000$ left cash in my account.
  • I got 1800$ current on my Vvisa balance.
  • My TFSA contribution is capped for the year. I got some room in my wife’s one (I need to check exactly how much, around 15k$ I think). 
  • I prepaid my municipal taxes for the rest of the year on my house. I still have two payment left on the rental building but that comes out of my rental income so it’s pretty much transparent for me.
May
  • I have 2500 $ to pay for my daughter private school for year 2016-2017.
  • I should receive the federal and provincial grand on my kids RESP. I will make a purchase when I have both grants.
June
  • I should get my employer pension report which will mean nice bump in net worth.
  • I will have make the last payment of around 2000$ for my daughter school for year 2015-2016.
  • My paychecks will start getting bigger because I’ve reach the EI contribution cap.
July
  • I will receive my dividends on my ETFs. I will make a purchase in my TFSA with the 1500$+dividend have in there.
  • I will receive my school Tax bill of around 1000$.
August
  • I have 5500 $ to pay for my daughter private school for year 2016-2017. With this I will have totally prepaid her school year which mean a nice 10% discount.
October
  • I will receive my dividends on my ETFs .
With 5500$ to come up with for August, I will have a hard time trying to divert money to saving this summer. I figure I should be able to go hard core saving starting in September so the end of the year will be focused on building my wife’s TFSA.

I don’t like it when I’m not saving on each paycheck but you have to look at a longer timeframe. My bank has a tool that tracks your money flow and I had a saving rate of 20.58% over the past year. That is from my net pay. You also have to consider the fact that I have 9.5% plus employer match taken at the source for my pension fund so my real saving numbers are higher.

Thursday, April 28, 2016

Rebalancing

The money from my expired GIC arrived in broker RRSP today. According to my target allocation I’m aiming for 2/3 VXC and 1/3 VCN. I was at 62.9% VXC when I looked.

VXC has been hit hard since the start of the year. It started the year at 30,41$ and is now sitting at 28,05$. The big culprit is the Canadian dollar that went from 72 cent to almost 80 today. Since VXC is not currency hedged, any increase in the CAD will hurt it. Even if I don't like it when the number goes down, it the whole point of using unhedged ETF. Last year when the dollar dropped, VXC was on fire. 

So it was now time to buy and the allocation said to go with VXC but I had a little bit of hesitation before pulling the trigger. Emotionnaly it's hard to invest in something that lost you close to 5k$ in the last few month. But then logic kicked in. What I'm doing now is buying low and it's a good thing. Anyway It's RRSP money that I'm not touching for at least 15 years. I got 243 shares at 28,10$

Also, my mother told me she was contributing 4k$ again this year to my kids RESP. I added 1k$ of my own to get the maximum grant. I already made the contribution and it's sitting in cash their RESP account. I'm waiting for the governement grant and the July dividends to make a purchase.

I also have 1500$ sitting in cash in my TFSA but again I'm waiting for the July dividend to make a purchase.

Monday, April 25, 2016

Market linked GIC

About 3 years ago, I discovered the Boglehead way of investing. I think it really opened my eyes and helped me grow as an investor. I’m now confidant to take calculated risks and not panic when the stock market drop.

That was not the case 5 years ago. I was dead afraid to lose money. I had been burned by the stock market but at the same time I could see the trend with interest rate moving down. I had some money in my RRSP and I wanted to the growth of the stock market but not the risk. I decided to listen to the advisor at Desjardins and purchased a 5 year Global Equity Guaranteed investment.

The idea is that they build an index with a basket of company and you get what the index is worth at the end of the 5 year period. Your capital is guaranteed so you can’t lose money, but your money is frozen for 5 years and you automatically sell on the last day.

My 5 years ended today and I got 6 615$ for an initial investment of 6 021$. That's 9.86% for 5 year which is amount to 1.9% compounded. That's less than I would have gotten with a Quebec 5 years saving bond, for a period where the stock market was in a huge bull market.

To get an idea of how bad that product really is I should compare it with stocks. If I had bought XWD, a Blackrock ETF with a similar asset allocation, I would have gotten an 81% return over the same time period !

When I look at this type of product with my 2016 eyes:
  • You have no liquidity for 5 years
  • You have to sell at the end of 5 years, even if the market is at the bottom.
  • The total gains are caped
  • The bank keeps the dividend
  • You have low diversification compared to a broad ETF
  • The granted capital is the big sell point, but do you don’t really need it if you are investing long term.
I have to be honnest with myself, this investment was a mistake. I’ll be avoiding those types of product in the future. I’m transferring the money to my self-directed RRSP account and it will goes toward a mix of VCN/VXC as soon as possible.

Monday, April 18, 2016

Wanna see something scary?

As I’ve told you, I‘m changing the way I think about asset allocation. So I started playing around my financial speadsheet and came up with this graph of our total family assets.
We have 72% of our total assets in real estate. I think I might have too many eggs in the same basket. From this money sense article, you can calculate that on average Canadian family have around 59% of their assets in real estate. It’s scary how much this country is allocating to housing.

So what can I do about it? I could sell the rental building. This is probably the smartest choice. If I’m not counting financing, I got a profit 24k$ on a 680k$ assets for a relatively low 3.5% yield. But this building has been in my family for 3 generations and I got an emotional attachment to it. I’m not selling it and I’m not selling my own house either.

So I have to grow my other assets, which is what I’ve been doing for the past two years with my savings. Speaking of which, I got my tax return this week which give me 10k$ to worth with. I’m going to:
  • Put 1500$ in my TFSA to cap my contribution
  • Pay my municipal taxes for rest of the year (I had 2k left to pay)
  • Clear the Visa bill that had grown to 3k$ because of all the kids summer camp registration and my son’s birthday expenses.
  • Keep what is left to replenish my cash buffer
I also have a few things in the expense pipeline:
  • For my daughter school, I can get a 10% discount if I pay everything before September. I have a first check to make for around 2k$ in May and another 7k$ one in August. 
  • I also want to contribute to my wife TFSA for this year. I already contributed 1000$. Ideally I want to add at least another 4.5k$ to cover this year new contribution and start to work on the backlog.
  • My mom will send me another 4k$ for the kids RESP. I will add 1k$ of my own cash to get the maximum grant for this year. 
I need to start working on a detailed plan to make sure I’m ok on the cashflow side.

Wednesday, April 13, 2016

Changing how I think about asset allocation

When I think of my investments, It’s usually structured like this in my head:
  • 135k$ bonds (31%)
  • 77k$ stocks (18%)
  • 220k$ real estate (680k$ rental house – 460 k$ mortgage) (51%)
I’m starting to realise that it’s probably the wrong way to look at it. Even if it’s tied to my rental building, having a mortgage doesn’t reduce the real estate portion of my asset. I should be using a more traditional asset / liability approach like this:

Assets
  • 135k$ bonds (15%)
  • 77k$ stocks (9%)
  • 680k$ real estate (75%)
Liability
  • 460 k$ rental mortgage
This doesn't change my net worth but if does give me a better better representation of my asset allocation. When I look at it this way, I see how much I am exposed to the canadian real estate market.

I need to reorganise my spreadsheet to reflect this. What I don't like when I change the way I report data is that comparing with my historical data gets messy. It's a small price to pay for better clarity.

Sunday, April 3, 2016

Net worth update - April 2016

Here is a breakdown of my networth on April 3rd 2016 at the star of the day.

Cash                        4 810 $ (-  1 812 $)
Bond/GIC                  134 849 $ (+  2 285 $)
Stocks                     76 993 $ (+  2 458 $)
Primary Residence         477 800 $ 
Rental Real Estate        219 813 $ (+  3 720 $)
Employer pension fund     141 000 $ 
Son’s RESP + account       27 996 $ (-     73 $)
Daughter’s RESP + account  15 406 $ (-     45 $)
Wife’s TSFA +account       35 468 $ (+    680 $)

Total                   1 134 134 $ (+  7 212 $)

That's an increase on the hardest quarter of the year so I'm happy. Here are some highlights of where the change came from:
  • Stocks went mostly sideway, the increase for our TFSA are from new purchase with money saved.
  • My bond increase by around 1 200$ by quarter but the numbers were not in when I did my last update so I have 2 quarters worth here. My market-linked GIC droped a little.
  • Now that i've finish writing off my heater projet, my rental building is turning into a networth building machine. I'm paying back more than 1 200$ a month on my my rental mortage, which translate into equity increase.
  • Cash is always tight in the first quarter. I get the Christmas Visa bill, the municipal taxes, and in March I start to pay for the kids summer camp. Still, I'm managing it pretty well this year and the problem will all be solved when the 10k$ tax return arrive. 
I'll update the portfolio page shortly.