Don’t Focus on Net Worth

As part of personal development and financial education, one of my long term goals is to learn constantly and make better decisions as I mature. As investors, we all strive to take emotion out of our decisions, yet most of us fail and panic when there is a market crash eroding our wealth. Over the course of last six years, we have had an amazing bull market run and it has been extremely easy to make great investment returns. While this is all well and good, we need to take a pause from patting ourselves on the back and prepare for the next downturn.

The Net Worth

The market always moves in cycles. A downturn is around the corner and sooner or later, we will hit a new recession and the economic cycle will have come a full circle since the financial crisis of 2008/09. Preparing emotionally and financially are key to surviving the market turmoils. One key area that I have been thinking more about is the total net worth. My total net worth is something that I have never shared on this blog, and dont intend to – as it changes on a day to day basis considering most of my wealth is tied to the stock, bond, commodity, forex and housing markets. I do share a breakdown of how my net worth is divided and is represented in the chart below.

Net Worth - Oct 2015

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Why You Need to Protect Your Income with Disability Insurance

The following is a guest post from Brian So, financial advisor and blogger at AAFS Insurance

Life insurance is usually the first type of insurance that comes to mind when people think about protecting their families from unexpected events. While the financial implications of a death to the breadwinner of the family cannot be overstated enough, another risk that is often overlooked is the risk of a disability.
Did you know that 1 in 3 people will be disabled for 90 days or longer at least once before the age of 65 (1)? Considering the elevated odds of a disability occurring compared to death during the working years, you can make a case that disability insurance may be even more important than life insurance.
Also, the average length of a disability that lasts longer than 90 days is 2.9 years (1). How will you pay your bills and make ends meet for 2.9 years without an income? Clearly, there is a need for disability insurance for exactly this type of situation.
You may believe that the group or association disability coverage or government programs may sufficiently protect your income, but each of them have their drawbacks compared to an individually owned disability insurance policy. Let’s take a moment to consider these disadvantages.

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Five Financing Options For Your Retirement

The following is a guest post from Caleb Shadle, Website owner, digital marketer and Blogger. 

Retirement and financial security are two words that typically are not mentioned in the same sentence. To have a retirement that is free from financial worries takes plenty of planning, and you must have a commitment to savings. More than half of Americans don’t have an accurate calculation of how much money they need to retire. It is believed that more than thirty percent of workers who have access to a 401k savings plan don’t even participate. With the average person spending twenty or more years in retirement, having enough money may be an issue. Savings matters and putting away money for your retirement is essential. Quite often the retirement years sneak up on you. Even if you haven’t done the savings you should, there are ways to finance your future.

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TFSA Contribution Room

Tax Free

As the new year rolls in, we Canadian can be thankful for being rewarded with one of the best things that exists for investors – The Tax Free Savings Account (TFSA). The type of account started in 2009 where savers/investors were allowed to contribute up to $5,000 per calendar year (and is now up to $5500 starting 2013). This article lists some of the basics of TFSA and I share a spreadsheet to calculate your TFSA contribution room.

TFSA Basics

The Tax Free Savings Account is not just a savings account, but should be viewed more as a Tax Free Investing Account. Your funds can grow tax free and can provide with great long term prospects. Most people are familiar with TFSA accounts, but for the benefit for new savers/investors, here’s a recap.

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How to Hedge Your Bills

While there are many schools of thoughts when it comes to investing, a common one is “Invest in what you know”. The rationale behind this is that if you use products or services from a company regularly or see them doing business in your neighborhood, you can understand how the business works. While this should not be the only approach for investing, as I have discussed earlier in the importance of diversification, investors should also invest keeping geographical allocation in mind. Staying invested in companies only local will cause you to take on risk that could otherwise be mitigated. However, this does not rationalize investing in companies that you do not understand. Whenever I’m asked for investment my advise, I always have the following to say: Every investment should be well understood. If you do not understand how a company generates revenue and don’t understand its business model, then you shouldn’t be investing in it.

With that established, lets look at how investing in companies that you are intimately familiar with. What better way to understand a company’s business model but the ones you are a customer of, and contributing to its revenue regularly. When you are a customer of a company, you have probably done your research on the products or services offered and compared with their direct competitors. For whatever reason you chose the company for your business, every other customer goes through the same process. This can be a powerful thought process when it comes to investing.I am not dropping any revolutionary new knowledge or viewpoint here. There have been various other bloggers and investing professionals that have explored this idea. What I like to explore here is how you can use the investment in a company as a hedge those very bills.Always do your research before investing in companies. You may be a customer simply because they have the best rates in the market, but it could well be that the business isn’t being run well. 

In my case, I am a customer at BCE Inc (BCE) and Bank of Nova Scotia (BNS), both very strong dividend growing companies with a spectacular track record. As a customer, I chose them because they provide good service (albeit at a premium) and think the prices charged are fair and on par with market value. As an investor, I have researched enough to come to a conclusion that they are reliable businesses and have a bright future and great long term prospects. These companies are the type of companies that people may grumble about, day-in-day-out, but are great companies to invest in. People may hate them, but cannot live without them and the competition space is limited. Customers are provided with good service, but they are also charged a hefty sum of money unless well negotiated.

BCE Inc

Bell Canada, as it is commonly known, is the lifeline for millions of Canadians. The company owns a major stake in supported land lines across the country. In addition to cell phone service, Bell is also our internet service provider (ISP). Not only do we fork over $100 per month in cellphone and ISP bills, but Bell also charges us something called a dry-loop rate for our internet connection which is a very convenient $10 a month. The dry-loop is simply Bell activating our phone line port at home without a real phone line and charges customers for it. This is the kind of move that I hate Bell as a customer, but love it as an investor. Customers can grumble and whine about it all they want, but will eventually simply pay up – as it is non-negotiable.

BCE Inc is the largest Canadian telecom service provider including landlines, wireless services, and internet services. BCE is a dividend challenger, having raised dividends consecutively for 5 years and has a 5-yr DGR of 25.6%. In 2008, BCE suspended its dividend growth when it was a target of a leveraged buyout offer. That deal fell through and BCE and continued raising its dividends aggressively since.

Bank of Nova Scotia

Scotiabank, as it is commonly known, is one of the Big Five banks. In addition to our bank accounts, we ended up with our mortgage at Scotiabank as well, simply because they had a great product that fit our needs. We used a mortgage broker while purchasing our home and we ended up picking Scotiabank which had the best product offering. I have had a couple of friends who work for some of the other big banks in Canada but end up getting mortgages at Scotiabank simply because they offer the best products (even after getting an employee pricing discount on their own bank products). Stories such as these can be incidental, but cements my faith in Scotiabank as being  very competitive.

The Bank of Nova Scotia is the third largest of the Canadian banks by deposits and market cap. BNS is also the most international of the Canadian banks with exposure in 55 countries outside Canada. BNS has been paying dividends since 1832 – the second longest streak of paying dividends in Canada (first place goes to BMO which started in 1829). BNS saw a pause in its dividend growth during the financial crisis. However, BNS has started raising dividends after the crisis with a 5-yr DGR of 5.15%.

Full Disclosure: Long BCE, BNS. My full list of holdings are available here.