Friday, 18 August 2017

The Wealth Effect

I watched a documentary on TV Ontario last night called “The Super-Rich and Us.”  Shot mostly in London, England, Jacques Peretti investigate how the rich became richer, and the poor became poorer due to economic disadvantages.  Some of the stats were quite startling. In 1970, a banker in Britain earned as much as a teacher and a GP (General Practitioner or Doctor). The richest 1% of the population controlled 6% of the nation’s wealth; in 1980s, the percentage grew to 11%, and currently the richest 1% controlled more than 15% of great Britain’s wealth.

Even more startling is the fact that the richest 85 people on earth own more than one half of the world’s total assets. You can count Bill Gates, Warren Buffet, Jack Ma, Jeff Bezos in the notable list.   
According to various research conducted, all these wealth have been created at the expense of the other. One author advocated the Glass Hour theory. The rich (top of the glass hour) and the poor (bottom half of the glass) both gained at the expense of the middle class (the middle of the glass hour).  Wealth was created out of intangible with trading options, ala Black -Scholes model. Also, debt was packaged and resold. Tons of money were made by a few. Meanwhile, a  juxtaposition showed a seedy side of London, with people panhandling and struggling on the streets. Neon signs were lit up on pawnshops, payday loans and dollars store.

A professor of Economics indicated that debt is the root of all evil as government forces people to go into debt (think mortgages, line of credit ,and etc.) by encouraging people to own homes so that the people can be controlled (think about no striking at work, forces to work to pay off mortgage).

Even though it is a one-sided theme, I can ‘t help thinking how we currently live our life from childhood, getting a good education, enter the work forces, slave away for thirty to forty years to pay off mortgages, student loans, kids’ education, and saving for retirement.  We are essentially trapped. There has to be a better way to live. Imagine we don’t have to study so hard in order to get good grades so that we can find a good job for keeps so that we can continue paying off our debt. Would life not be better?  You would then find yourself in the bottom half of the hour glass, living off social welfare (which is also a form of exploitation, in my opinion)


There were many other interesting aspects of the show that I could go on and elaborate, but I hope you can catch try to watch the show if there was a replay or on the web. 

Wednesday, 9 August 2017

My Path to Financial Independence



Building a sustainable retirement income portfolio that can withstand market shocks and meet your future expenses requirement is the ultimate goal for everyone seeking financial independence (FI).

For those closer to the normal retirement age of 65, it may be an easier goal to reach compared to millennials seeking early FI.  Given the number of early retires that have been blogging their successes on the internet, one would be forgiven to think that the path is easy to reach.  I truly admire them, but for the vast majority of people, achieving early FI seems an elusive goal. 

Do you fit the profile of single, early 30s, have been working in the tech industry for the past 10 years had cashed in tons of stock options in addition to saving a large percentage of your above average take home pay and investing them at the right time (just after the 2008 market crash)? I figure that you would have investment worth at least $1 million by now not counting the equity on your home.

If you are not one of the people above, you are just like the ordinary masses.

The journey of a thousand miles begins with the first step.  Even without the benefit of the above, you can still achieve your FI earlier than age 65.  Twelve years ago, I would not have even dreamt that I could reach FI before the age 65.  With a large mortgage and not having saved sufficiently for 2 teenage children on their way to furthering higher education in a few years’ time, my wife and I consistently  ponder how to make it work and still achieve our retirement objectives. I have a decent jobs that pays fairly well, yet the after tax dollars came and went quickly without much of a trace.

The secret is perseverance. If you keep working towards your goal, there is a light at the end of the tunnel and it is not from the train coming straight at you.

Fast forward ten years later, by the end of 2015, the mortgage was paid off. My oldest daughter graduated from university,. Through her co-op jobs, she not only managed to pay for school, but she had saved some money and invested at the right time, and also found a decent job in her field of study.  My younger daughter had entered university by then (graduating in 2018). My investments not only survived the 2008 crash, but had miraculously quadrupled in value thanks to some stock bets that paid off and also continued contributions to my retirement plan.  I had also survived multiple company restructurings.  I was contemplating a career change at one point, studying part time for 2 years, obtaining my Certified Financial Planner (CFP) and life insurance qualifications. My wife is still working part-time.  The Toronto housing market also experienced one of the biggest boom in history . Despite the recent housing correction, the value of my home had tripled.  The financial part of the FI process had been accomplished wit a little luck and patience. I self-declared FI on January 1, 2016 at the ripe old age of 52.

If I tell you that all’s well that ends well, you would say it is a fairy tale ending. Throughout the journey, I encountered multiple hurdles. There was a price to pay. The stress had taken a toll on my health and had also strained my family and work relationships. I turned colder, bitter and for lack of a better word …… became a nastier person.  

All I can say is that I had managed to resolve a lot of these issues. I am also not dependent on drugs anymore to treat my medical condition. I had also become a health freak, working out 5 days a week doing cardio and weight training.  I was so thrilled to find out that my health age is actually 45 based on my physical condition.  I still work full-time, but have also started teaching part-time at a local college.  I find that I am much sharper in my thinking, sort of an Alzheimer in reverse. I am  using my CFP knowledge and providing free advice to help people achieve their financial objectives. I would eventually want to leave my full-time job and focus on pursuing these interests. Teaching, working out, helping others and continue to enjoy my family life are my primary objectives.

You see, money is not everything.  I think one of the biggest flaw with the financial planning process these days is that there is too much focus on the number crunching part and not enough on planning holistically and looking to achieve a more balanced lifestyle.  We have also been lead to believe that we need to save an incredible amount of sum of money in order to retire when in fact there are other income streams i.e. government and private pensions available to supplement our own retirement savings. Also, you will be surprised how much less the majority of us would actually spent during retirement. I actually experimented for the past 2 years to try and live like I would if I had retired and can actually attest to it.


Cheers! And here is to the next 28 years of retirement life. Check out  http://www.cfiresim.com/Based on some fancy computer simulations using historical market returns, there is a 97% chance that I will not outlive my retirement savings  assuming I withdraw $50,000 per year inflation adjusted. Note that I aslo assume that I will die at the young age of 81 in the year 2045 based on the mortality tables so finely prescribed by the actuaries. 

Saturday, 5 August 2017

Buying USD the professional way



With the recent surge in the Canadian currency against the US greenback, I consider this an opportunistic time to purchase US currency for your trip to the U.S. or for investment purposes i.e. buying U.S. listed stocks. The following charts illustrate the most cost effective way by using Horizon USD ETF. Many thanks to prior threads discussing this option, but I actually executed the trade below using my TD Waterhouse account, purchasing US$10,000 and saved over C$200 over buying the US currency from the bank.  Here goes!

Buy DLR (Horizon ETF in C$) at Ask at 12.41 in my C$ account. Paid C$12,410 + 9.95 commission.

I then sell short DLR.U (Horizon ETF in US$) at Bid 9.93 in my U.S. account. It can be done since both the DLR and DLR.U share the same investment identification number. I called TD and ask them to journal the transaction over to U.S. Ended paying $35 commission since it is a broker assisted trade.

To summarize, I ended buying USD/CAD at an effective rate of 1.2497 versus the spot rate of 1.2474 or a 23 basis point premium, which is pretty good. Most companies purchasing USD typically pay a premium of at least 10 basis point.  If I bought at a local bank without any preferential pricing, I would have to pay 1.2811, or a premium of 2.7%. The transaction works best for larger purchase. I illustrate a US$3,000 purchase as it is pretty much the break-even point.



The Wealth Effect

I watched a documentary on TV Ontario last night called “The Super-Rich and Us.”  Shot mostly in London, England, Jacques Peretti investiga...