Aug 102020
 

I have achieved financial freedoooom!

Freedom 35 has become financially independent

After 12 years of saving and investing I have finally reached financial independence. 😁 This means the passive income generated from my investment portfolio is enough to pay for all my current and future living expenses. It’s not about spending more money on things. It’s about spending more time on the things that money can’t buy! 😀

In my first ever blog post I questioned if freedom 35 was even possible for me. After 851 more posts I now know!

Financial independence triumph

Wow. This is unreal. I would like to thank everyone who has taken the time to read my blog, especially those who have been following me since the early days. You know who you are. 😉 I certainly wouldn’t be here today without all your support and encouragement. You guys rock! You have all done plenty. It means a lot. 😎

 

What’s my secret to financial independence?

Everyone’s path to financial freedom is unique. In my case I have to give credit to these 5 key reasons.

  1. Adopt an abundance mindset instead of a scarcity mindset.

    I learned this from reading lots of self development books & watching motivational and introspective YouTube videos. I cannot emphasize enough how important it is to have a positive outlook and growth mentality. 🤗 There are no problems in life. Only possibilities for growth.

    Rather than sitting on the sidelines because the markets may crash, I choose to invest anyway despite the risks because I focus on the potential gains rather than the losses.

  2. Low interest rates.

    Nearly all of my financial strategies have thrived on cheap money. Low interest rates boost stock and real estate prices. Thank you, Bank of Canada! 🍁 Policy makers would rather devalue the currency than let financial markets crash. That’s why real interest rates are negative right now. This trend has created a great deal of moral hazard and social divide. And it appears interest rates will continue to stay low for a very long time.

  3. Understand how to value investments.

    As an opponent of the Efficient Market Hypothesis I prefer to buy underpriced individual stocks rather than the entire market.

    Diversification is great for protecting wealth. But concentration is more effective for building wealth. 😉 By finding and buying undervalued assets I have made tremendous gains in stocks, farmland, and urban real estate.

  4. Invest with other people’s money.

    Without borrowing any money to invest it would probably take me 36 years or longer to become financially independent. But leverage has allowed me to cut that time down to 12 years. Assets produce wealth. Leverage gives me the ability to grow my assets and multiply my wealth. As long as interest rates stay low leverage will continue to be instrumental in my financial plans. 🙂

  5. Copy the best of what others have already figured out. 

    Financial success depends more on the methods and principles you practice than how hard you try. Good strategies create wealth. Great strategies create even more wealth. All the strategies I use have already been vetted and proven to work by highly successful people. I have gained invaluable knowledge by learning from these experts in their specific realms of the financial world:

    •Real estate (Graham Stephan)
    •Leverage (Robert Kiyosaki)
    •Risk management (Ray Dalio, James Rickards)
    •Macro economic trends (Peter Schiff, Raoul Pal)
    •Farmland (Jim Rogers)
    •Financial markets (Warren Buffett, Peter Lynch, Jeffrey Gundlach.)

    I’ve been shadowing these experts and others like them for years – reading their books, studying their next moves, watching their interviews. There’s no reason for me to reinvent the wheel. These smart individuals have already written the indispensable playbook to prosperity. They have generously shared their abundant wisdom with the world. I simply copied their mental models and behaviors.

 

Jump directly to….

 

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Financial independence 2 years ahead of schedule

I was initially aiming to reach FI in 2022 when I turn 35. I was on track to realize this blog’s ultimate raison d’etre. But then something unexpected happened which forced me to change my plan. 😮

As you know earlier this year the stock market experienced a big sell-off, which gave me a major case of FOMO.😖 Not wanting to miss out on bargain prices I purchase over $100,000 worth of dividend stocks in March. My dividend yield on cost was over 6% on these new purchases. I still remember the excitement of buying TD Bank shares and see it jump nearly 18% the very next day.

Warren Buffett famously suggested to be “greedy when others are fearful.” So I followed his advice. I bought when others were selling, and I held when others were buying. As a result my passive income in 2020 soared by over $7,000/year – fast tracking my progress. 😁

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Net worth update as of August 2020

Assets:
Cash = $21,000
Non-registered accounts:
↳ Canadian stocks & bonds = $267,000
.U.S. stocks = $159,000
.European stocks = $19,000
Retirement (RRSP) = $166,000
Tax free savings account (TFSA) = $135,000
Peer-2-peer Lending = $36,000
Principal residence = $331,000 (assessed land value)
Rental property = $450,000 (2020 purchase price)
Total = $1,584,000

Liabilities:
Home mortgage = $181,000
Rental property mortgage = $312,000
Margin loan = $22,000
Total = $515,000

Net Worth:
Assets – Liabilities = $1,069,000

tracking net worth over time

 

Here is a snapshot of all my stocks and bonds on August 10, 2020.

TFSA                                RRSP                                 Margin                              Cash

                       

Altogether I have about $800,000 of liquid financial assets generating $30,380 of passive income. This represents a 3.8% annual rate of return in cash. The typical Canadian requires $756,000 to retire on, according to the Financial Post.

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Aug 042020
 

Past and future predictions

Last year I predicted rough waters for 2020’s economy, and suggested 4 investments to protect against uncertainty.

From November 2019

From a November 2019 blog post

How did those suggestions work out so far?

  • National real estate prices are +7% from last year.
  • Year to date my silver stocks (WPM.TO) is +79%.
  • Major telco stocks are down by about -3%.
  • XCB.TO, an ETF that tracks corporate bonds, is +8%.

An equal weighted basket of my picks would have earned a 23% return year to date. Not bad. 😀 Most index funds have only produced single digit returns during the same time.

What about for 2021?

Here are my top investment picks for the next 6 to 18 months.

  • North American real estate
  • Gold and silver
  • Large cap U.S. technology stocks

The rest of today’s post will attempt to unpack my reasons for choosing these investments. 🙂

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Jul 302020
 

It’s all in how you think

In the book, The 7 Habits of Highly Effective People, author Stephen Covey explains that “most people are deeply scripted in the scarcity mentality. This means they see the world as containing only so much, as though there were only one pie out there. And if someone were to get a big piece of the pie, it would mean less for everybody else.” This leads to a zero-sum paradigm of life. People with a scarcity mindset have a very difficult time sharing recognition and credit. Not surprisingly they also have a hard time being genuinely happy for the success of other people.

“The abundance mentality, on the other hand, flows out of a deep inner sense of personal worth or security. It’s the paradigm that there is plenty out there and enough to spare for everybody. So it results in the sharing of prestige, recognition, profits and decision-making. It also opens possibilities, options, alternatives and creativity.”

Here’s a table outlining some of the thoughts people may have depending on if they’re in a scarcity or abundance mindset. (Click to enlarge)

People with an abundance mentality tend to be more financially secure, successful in their careers, and feel more empowered. So if you ever catch yourself thinking with a scarcity mindset, try to reframe your perspective and approach it with an abundance mindset instead. The difference between who you are now and who you want to be is what you do. And don’t forget to be thankful and confident. 🙂

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Jul 272020
 

Stock picking vs index investing

There’s a common belief that attempting to outperform the stock market is futile. A thread on the r/investing subreddit asked if anyone can beat the market. Here are some direct replies from the community:

  • “I know I am statistically extremely unlikely to beat the market, and if I do beat it, it’s through luck, not skill.”
  • “The only way you can really beat the market is to hold a highly concentrated portfolio and hit it big in 1 stock”
  • “As a retail investor, if I beat the market picking individual stocks, it was mostly from luck.”

Even an investopedia.com article suggests that successful stock pickers like Warren Buffett may have just been “exceptionally lucky.” It appears the online investing community is generally against the idea of individual stock picking. This short comment from the forums of RedFlagDeals sums it up well.

But allow me to go against the grain and push back a little. 😎 I believe you can beat the market if you have the right decision making process. 🙂 My net worth today is largely built on my stock picking history.

Internet consensus: Amateur investors can’t beat the market over time. That’s why you should just buy index funds and forget about stock picking.

Me: 

beating the index

12.87% is the annual rate of return on my TFSA portfolio over the last 9.5 years according to TD portfolio statistics. It’s one of my oldest investment accounts. As readers will know I share all my stock holdings publicly for accountability reasons.

It appears the couch potato method of index investing is very popular with netizens. In the subreddit, r/PersonalFinanceCanada even the moderators have admitted that, “the general consensus on PFC is that people should look for low-cost, passive index investments.”

Don’t get me wrong. The Canadian couch potato aggressive portfolio performed quite well over the last 10 years. I’m just saying maybe there are better investment strategies out there. 🙂

Source: https://edrempel.com/outperform/

 

Why index investing isn’t all that passive

Index funds may appear to be passive, but they are actually more actively managed than most realize. This is something the index investing community doesn’t like to admit because it undermines the strategy’s reputation of being objective, hands off, and untainted by human biases.

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Jul 202020
 

Let others make your mortgage payments for you

If you’re tired of paying your mortgage on your own then this post is for you. The MIC manoeuvre is a legal tax strategy that allows you to effectively get other people to service your mortgage, so you don’t have to. How does it work? You simply borrow money to purchase Mortgage Investment Corporations (MICs) which generate investment income. This income is then used to cover the cost of both your new loan and your mortgage payments. 😀

Get help with your mortgage payments for free.

A MIC is a Canadian investment that holds mortgages secured by real property. It’s similar to a mortgage REIT in the United States. Some borrowers can’t get a mortgage from traditional lenders. But they can still obtain financing at a higher interest rate from alternative lenders such as MICs. If you invest in a MIC, the mortgage payment of someone else becomes your income! 😎

Similar to its cousin the Smith Manoeuvre, both strategies make use of tax deductible debt and financial leverage to increase your net worth. But unlike the Smith Manoeuvre, the MIC Manoeuvre also increases your cash flow. It does this by removing the biggest expense from your household budget – the mortgage payment!

 

How to implement the MIC manoeuvre 

Why service a mortgage like a sucker when you can get others to do it for you instead?

 

To keep calculations simple let’s say your current mortgage balance is $100,000. According to TD bank’s mortgage calculator, your monthly mortgage payment in the current interest rate environment would be $379. This works out to roughly $4,500 a year.

Everyone knows the best way to get rid of a home loan is to talk to actor Mortgage Freeman. But if you’re not that well connected, using the MIC manoeuvre will still save you that $4,500/year in payments. Here’s how it works.

Step 1

Start by opening up a home equity line of credit (HELOC.) Then take out $150,000 from it and put the money into a discount brokerage account. You can generally borrow up to 80% of the value of your home. HELOC rates are about 3% these days, and payments can be interest only. This means the minimum payment you will have to make on your HELOC debt is $375 a month, or $4,500 a year.

So far your combined debt is $250K ($100K mortgage + $150K HELOC.) Your annual payment to service this debt is $9,000 ($4,500 + $4,500)

Step 2

This is where the magic happens.😉 You take the newly funded $150,000 in your brokerage account and purchase a basket of Mortgage Investment Corporations, which can be publicly traded or private. In the past I’ve blogged about which ones I like and hold. Currently popular MICs such as Timbercreek and Atrium have yields around 8%. Disclaimer: I currently own both of them.

Using 8% yield as a benchmark, a handful of MICs worth $150,000 can expect to generate $12,000 in annual investment income.

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