Neighbor Joe - Passive Income Update

Back in October, I posted my passive income breakdown as another method to track my wealth building progress.October Passive Income. Here is the updated spreadsheet, so now instead of receiving $1024/year I have increased my passive income to $1463/year.

In the past few months, I invested more into Enbridge since they were trading at a price that yields about a 5% return for dividends. I also did some rebalancing of my portfolio, I sold some of my Shopify Shares and invested into MasterCard. Next year I am going to try and double my passive income. Come back and check often to see how I go about doing it.

Books for new investor #2

A few months ago I wrote a post about books that I found beneficial for new and young investor like myself. Here is the link to that post. In it, I talked about three books that I have read which gave me some good insight on how to start building wealth. There is also a compiled list on the left-hand side under popular post.

Today I am going to talk about two new books that I have recently finished in which I found beneficial to my learning.

 

The Millionaire Next Door & The Millionaire Mind The first two book that I am going to discuss are written by a professor named Dr. Stanley. Dr. Stanley did a series of survey on people with net worth of over $1M in the early 90's and he observes that a lot of them possess similar character traits. If you only have time to read one book then just read the first one "The Millionaire Next Door". The second book is just an extension to the topic discussed in the first one.

What I want to share from the book was how wealthy people spend their money. Basically, the book said that most of the time you would not know someone is a millionaire base on the clothes, car or other materials they own. It basically means that they stereotypical wealthy personality you see on TV is not how real-life millionaire behaves. Most wealthy people work hard for their money so they are very mindful when spending it. If you don't believe me, just watch some video about Warren Buffet, Bill Gate, Mark Zuckerberg and Jeff Bezos, all these people drive relatively humble cars compared to their net worth. Bottom line is, if a person looks rich then they are most likely not that rich.

On the topics of cars, Dr. Stanley did a study and found that most millionaires own relatively cheap cars. Also, most of them don't really go shopping for a new car every few years unless needed. Key word in the last sentence is "needed", don't confuse that with "want", "desire" or other similar words. In his study, he even compares the more wealthy to the less wealthy and found that the less wealthy spend more money and shop more often for cars.

A story from the book about why wealthy people don't like spending much on cars is as follow. There was a CEO of a company that was well liked by his employee so they all got together to buy him an expensive car. His employee all thought that he will appreciate a luxury car since his current car is considered a poor man's car. This CEO appreciated the gesture but did not really like the car. His reasoning was that he really enjoys fishing and with such a luxury car he won't be able to go fishing with it. He'll also have to spend more money on maintenance and gas for this expensive car. What Dr. Stanley was trying to highlight from this story was the secondary and tertiary spending associated with an expensive item.

I'll use a similar example to explain my point, let say you just bought a brand new townhouse in Toronto for $500,000. Will you now go buy cheap $200 futon or a $2000 couch? Do you buy second-hand appliance or brand new appliance? It has been known in behavioral economics that consumer spends in relative term instead of absolute value. That means that people usually have a figure in mind for their budget relative to the purchase price of their house. So in this case, the fact that you spend $500,000 on a house means you will naturally spend more on appliance and furniture. Then now you'll need nice dish and cups to go with the new appliance and so on. Now your original spending of $500,000 has become much more then you anticipated. Most millionaires understand this concept and try to avoid the root causes of spending, which in this case is to spend less on a house.

Another interesting concept he discussed in his book was something called "income statement affluent" which is the opposite of another term he used, the "balance sheet affluent". The basic idea is that the income statement affluent are people that have a high income but save very little where the balance sheet affluent are very good savers. His argument was that income has very little influence if someone becomes wealthy or not. For someone to become wealthy you need to be good an offense(earnings) and defense(savings). Which means even if you earn a lot but you spend just as much then you'll never become truly wealthy because one day you'll stop earning.

Neighbour Joe - December 2017 Net Worth

First off, I like to aplogize for skipping the month of November, I was away on a work trip and was not able to get good internet access for blogging. Regardless here is my update for the month of December. I'll also be updating my dividends tracker this month as well since I have make some change in my investment.

Asset 
Chequing: $772.51
Savings: $19.908.30
TFSA Investment: $52,040.78
TFSA Mutual Fund: $3,807.37(Invested in TD e-series index fund)
Real Estate: $224,000 (Purchase Price of my house)
Define Benefit Work Pension (Current Transfer Value): ~$153,000 (Last checked in Jul 2017,aprox $1000 a month of contribution)

*Automobile is not included (No monthly car payment)

Liabilities 
Mortgage: $147,229.02

LOC: $5,541.11

*Credit Card is paid in full every month

October Net Worth : $298,094.69

Current Net Worth: $300,758.74 (+0.8%)

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Thrifty Salaryman - November Net Worth Update

The market improved a bit in October and so as some of my investment in Index fund. Some of my stocks are not doing as good though. I’ve increase my RSP e-Series index fund investment to about $18.5K to take advantage of its lower management fee. My liability also increased due to a high number of annual expenses.

My current net worth is now $50,227.24, an increase of 13% from my September update.

Cash $4,921.29

Investment $50,568.86:

$22,631.45 - Equity (Corporate Stock) - TD Direct Investing TFSA

$5,521.31 - Canadian Index Fund - RBC TFSA Mutual Fund Account - MER 0.72%

$18,674.88 - Canadian Bond Fund - TD e-Series RSP Mutual Fund Account - MER 0.50%

$2,497.40 - US Equity Index Fund - Employer Pension Plan - MER 0.15%

$1,243.82 - Canada Equity Index Fund - Employer RRSP - MER 0.15%

Liability:

$5,262.91 - Credit Card Balance (Still within grace period)

Neighbor Joe - Passive Income $1024/Year

On top of updating my monthly net worth, I am going to start tracking my annual passive income base on my current investment holdings. All my passive income currently comes from dividends. Currently, the market value of my investment is aprox $40,000 but my book value is around $30,000.

So here it is, I did up a quick excel spreadsheet with all the holding that pays dividends and calculated how much dividends I'll get every year. Right it's aprox. $1024 which translate to 3.4% of my total book value. Not all my investments are invested in a dividend paying stock so my return percentage is a little low.

If you are just starting on your journey I recommend you to start a tracker of your own. This will help motivate you to invest more as you see your passive income grows. Just by making this tracker I now know that I make an extra $1024 a year tax free. Although it might not seem like much at the moment, but that amount can almost pay for a small vacation every year. There you have it, here is my "make $1000 a year from sitting at home" scheme, which is probably more reliable then most "get rich quick by doing nothing" scheme. Invest and let your money work for you.

Warren Buffett: "The Bet"

Soruce: https://www.cheatsheet.com

I recently read an article on the financial post which I found really interesting. The article is about Warren Buffet about to win a bet he made 10 years ago. The bet, "Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses." He pretty much challenged all active fund manager that the market itself without any managing will outperform any active managed fund. 

From a lot of book I have read about investing, this seems to be the common message. They all say paying big bucks to have "smart" people mange your money will never give you as good of a return if you just invested into the market. Even if a fund manager can out perform the market, the commission he pays to broker, the tax he pay for gains, and on top of the cost for his time will diminish his strong return. This is one thing I want to emphasis when people are looking to invested into actively managed mutual funds, most time they don't show the return after accounting for all their expenses. Let say a fund advertise a 10% return, it might only actually be a 7% return when you calculate all their fees. 

Anyway, my thoughts are as follow, either invest in a passive index fund that tracks a market index or manage your own portfolio. In one my earlier post I gave some advice on how to get started. Invest wisely, but remember, wealth building is a slow process. Slowly but surely you'll get wealthy.  

Neighbour Joe - October 2017 Net Worth

Good day everyone, time for another monthly update. This month my only transaction is that I transferred $2000 into my investment account and invested into Hydro One. The reason I decided to invest into Hydro One is that they have recently purchased a US company and is looking to expand into the US market. Also their core business is power transmission which makes it a very stable investment since there will always be a requirement for power transmission. 

Asset 
Chequing: $4,832.05
Savings: $21,896.63
TFSA Investment: $40,516.61
TFSA Mutual Fund: $3,634.96 (Invested in TD e-series index fund)
Real Estate: $224,000 (Purchase Price of my house)
Define Benefit Work Pension (Current Transfer Value): ~$153,000 (Last checked in Jul 2017,aprox $1000 a month of contribution)

*Automobile is not included (No monthly car payment)
**Link to my investment portfolio as of 13 August 2017

Liabilities 
Mortgage: $149,785.57

*Credit Card is paid in full every month

Last Month Net Worth : $289,490

Current Net Worth: $298,094.69 (+2.9%)

My portfolio performed well this monthly which is the reason for the increase in net worth. 

Transferring into TD Direct Investing and reimbursing account transfer fee

Disclaimer: I don’t work for any financial institute. I am just sharing my experience.

This is post to walk through my experience of transferring an TFSA investment account with Questrade and combining it with a TD Direct Investing (TDDI) TFSA account. If you are not already a TD client, the process will be very similar except you’ll have to sign a few more paperwork to open a TD Direct Investing account.

When the Canadian government first introduced the TFSA, I opened a TFSA with TDDI but the fee back then was a hefty ~$29 per trade. If you do the math, the fee added up very quickly. As online brokerage became more and more popular over the years, I decided to give them a try and opened an account with Questrade for a low ~$5 per trade (back in around 2012). Their fees were alright for while until they started increasing them to effectively ~$10 per trade and introduced an inactivity fee of ~$25 per quarter if your balance is below $5K and don’t perform a trade. As the same time, TD caught up with the pack and decreased their fee to ~$10 per trade but also started charging an $25 quarterly fee if your balance is below $15K.

$5K balance was not a big amount to maintenance but ever since the drop in oil price (my holding in Questrade was oil heavy), my holding balance went below that threshold. As a result, I was left with two options: 1) increase my balance with Questrade so I don’t have to pay the quarterly fee or 2) transfer out. I don’t want to simplifying close the account because that means selling all the stocks, withdrawing the amount, and affect my TFSA contribution.

Both Questrade and TDDI have a comparable online trading interface but since I do majority of my banking with TD and they have a lot of retail location I can go to, I decided to transfer my Questrade account to TDDI and combine everything together.

Step 1: Call or go online and book an appointment with TD

I decided to call TDDI because I want to see if TD can cover the $150+tax account transfer fee Questrade will charge me when I transfer out. The agent on the other side of line told me that won’t be a problem so I booked an appointment with an advisor at a TD investment centre. You could book an appointment with any retail location but the advisors at their investment centre should have more knowledge in performing an account transfer.

Step 2: Ensure there are enough cash in your account to cover the fee

Ensure there are enough cash to cover the transfer fee in your transfer-out account. If you already have a TDDI account, you can just have enough cash to in your TDDI instead (this was my scenario, I only have ~$10 in my questrade account so they took money from my TDDI cash instead). If you don’t have enough cash, they will sell some of your stock.

Step 2: Bring all the necessary document to the appointment

If you are going to be a new TD client, bring the necessary document to open a TDDI account. For me, I just have to bring my TD client card. To perform the transfer, you’ll also need to bring the most recent investment account statement from the other investment broker. The statement need to have your account number, your name, and your holding/balance.

Step 3: Confirm with the advisor if the transfer fee will be reimbursed

I double checked with the advisor about reimbursing the account transfer out fee and he told  me it shouldn’t be a problem if the fee is less than $200.

Step 4: Sign the account transfer form

When I gave my account statement to the advisor, he asked me if I want the transfer to be “in-cash” (sell the stock and get cash) or “in-kind” (keep everything in stock). I decided to just do a “in-kind” stock transfer because I intend to keep holding them. I signed the transfer form afterward and done.

Step 5: Wait for the transfer and ask for reimbursement of the transfer fee

The transfer process can take upto 2 weeks according to my TD advisor but it only took 2 days in my case. After I saw everything in my TDDI account, I simply took a screenshot of the transfer-out fee that I got charged, e-mailed it to my TD advisor, and asked him to process a reimbursement. Within a day, he reimbursed that amount and now all of my holdings are with TDDI.

Bonus: By default, TDDI only deal in CAD. However, if you want to deal in USD, you can call them and set up a USD account over the phone so you won’t get caught in currency trade. You can also transfer-in stocks from other exchange, such as Europe or Asia, and sell them from your TD account. However, you can’t buy oversea stock directly from your TD account.

Thrifty Salaryman - Mid-Sep Net Worth Update

The past few months has been busy but I finally got some time to write an update for this blog. A few thing happened from June until now: I opened a TD e-Series RSP account to take advantage of the low MER, invested into some e-Series index fund, and combined my Questrade investment account with TD Direct Investing.

My current net worth is now $44,489.54, an increase of 18% from my June update. The market has been very volatile this past few months and impact some of my investment negatively.

Cash $7,746.13:

$2,878.69 - TD Chequing

$109.59 ($89.86 USD) - TD USD Chequing

$3,198.29 - RBC Chequing

$1,431.55 ($1173.79 USD) - Bank of America USD Chequing

$128.01 - Cash - TD Direct Investing TFSA

$422.32 - PC Financial Saving

Investment $38,910.60:

$23,259.64 - Equity (Corporate Stock) - TD Direct Investing TFSA

$4,438.94 - Canadian Index Fund - RBC TFSA Mutual Fund Account - MER 0.72%

$8,886.13 - Canadian Bond Fund - TD e-Series RSP Mutual Fund Account - MER 0.50%

$1536.85 - US Equity Index Fund - Employer Pension Plan - MER 0.15%

$789.04 - Canada Equity Index Fund - Employer RRSP - MER 0.15%

Liability:

$2,589.51 - Credit Card Balance (Still within grace period)

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Neighbour Joe - September 2017 Net Worth

Hi everyone, it's time for another monthly update of my net worth. This month I finalized the sale of my old house and got about $93,000 in cash. I immediately paid off my bridge loan, my line of credit, as well as put the maximum annual pre-payment amount into my mortgage ($26,880). I then invested about $1500 into MasterCard and put the remainder of the money into a savings account.  

Asset 
Chequing: $1,834.96
Savings: $21,890.73
TFSA Investment: $36,296.53
TFSA Mutual Fund: $3,532.67
Real Estate: $224,000 (Purchase Price of my new house)
Work Pension: ~$153,000 (I checked in Jul 2017 but I can't remember the exact amount)

*Automobile is not included 
**Link to my investment portfolio as of 13 August 2017

Liabilities 
Mortgage: $151,064.89

*Credit Card is paid in full every month

Last Month Net Worth : $285,574.66

Current Net Worth: $289,490 (+1.4%)

The cash in my savings are only staying there till January 2018 where I will then put it into my mortgage. I have also recently doubled my mortgage payment and is now at $1,735.64 per months. As you can see my current strategy is to get my mortgage down as fast as possible to minimize my exposure to interest rate hike. If you have been following the news lately, there has been a lot of speculation that Bank of Canada will once again increase their interest rate.