Welcome to the Million Dollar Journey March 2009 Net Worth Update – The Market Rally Edition.

Finally, some relief from the markets where buyers are starting to come back.  Investors seem to have renewed faith in financials and other dividend paying blue chips.  My feeling is that this is a temporary rally, but who knows what the markets will do in short term.

As a result of the mini rally though, my portfolios have been propped up a bit.  My RRSP portfolio is showing a fairly significant gain because of a $5k contribution I made this month in additional to organic gains.

I’ve been more interested in learning about options lately, in particular, covered call option writing.  Basically giving another investor the option of purchasing a stock that you own at a set price.  In return, you get to collect the premium for offering the option.  Anyone here have any experience writing covered call options?  Do you have a specific strategy?

In terms of liabilities, I’ve added a tax liability for my recently sold rental property due for tax year 2009.  As well, I’ve also noticed that with lower interest rates, more of my mortgage payment is going towards the principal.  I say that we enjoy the low rates while we can!

Assets: $447,250.00 (+1.73%)

• Cash: $4,500 (+0.00%)
• Savings: $34,500 (-3.36%)
• Registered/Retirement Investment Account: $46,500 (+16.25%)
• Pension: $22,350 (+0.00%)
• Non-Registered Investment Account: $13,500.00 (+3.05%)
• Smith Manoeuvre Investment Account: $39,900 (+7.84%)
• Investment Property: $ 124,500 (+0.00%)
• Principal Residence: $275,000 (+0.00%) (purchase price)
• Vehicles: $11,000 (2 vehicles) (-8.33%)

Liabilities: $129,500.00 (+1.25%)

• Tax Liability: $3,000
• Investment Property Mortgage: $92,000 (-0.11%)
• Principal Residence Mortgage (readvanceable): $74,500 (-1.97%)
• HELOC balance: $52,000 (+0.19%)

Total Net Worth: ~$317,750.00 (+1.92%)

Started 2008 with Net Worth: $309,950.00

Year to Date Gain/Loss: +2.52%

It’s encouraging to see that my net worth is moving in the right direction again.  2009 may end up being a challenging year for double digit net worth growth, but we never know unless we try!

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker can prove useful.

Savings

Our savings accounts are all held with PC Financial. We hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence plus a rental property. The value of the principal residence remains valued at the purchase price despite significant appreciation in the real estate market that we’re in.

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There is a great comment discussion in a recent post about it being an ideal time to purchase your first home.  With real estate being a hot issue these days, the discussion evolves to a topic which everyone has a different opinion.  That is, if home ownership (principal residence) is considered an investment.

Here’s my take.  Owning a home is typically a decent long term bet providing that you purchase at a decent price with affordable payments.  Real estate has proven to beat inflation over the long term by a couple percentage points, thus a long term inflation hedge.  However, it isn’t a replacement to being invested in the markets over the long term. Equities have returned at least inflation + 4.32% over any 30 year period since 1950 with an average inflation adjusted return of 6%.  You can view the long term market data here.

In addition, I think that real estate should be counted towards your total asset allocation.  That is an asset allocation consisting of: stocks, bonds, real estate and cash.  Renters can get their real estate exposure by investing carefully in REITs or even second mortgages.

So, even though you live in your home, I personally consider your personal residence a long term savings account or even an investment.  Even with the maintenance and upgrade costs, they could simply be considered the management expense ratio (MER) of the investment.

When it all comes down to it in the rent vs buy argument, I believe that it boils down to affordability.  If you live in Vancouver (or Toronto) where housing prices are sky high (maybe not for long?), then renting is probably the only practical way to live.  That way, renting can keep living costs relatively low with hopefully money left over to invest for the long term.

What do you think?  Is owning a home (principal residence) an investment?

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Merger News

Suncor (SU) is about to potentially merge with Petro Canada (PCA) in an all stock exchange to become the largest energy company in Canada.  Should the deal meet Canadian government approval, both companies will trade under the symbol SU.  Existing PCA owners will receive 1.28 shares of SU for every share of PCA that they own.

Question for you, what are your thoughts on selling a company that is about to merge with another?  I’ve been thinking about selling my PCA shares ever since the big news.

Disclosure: I hold both SU and PCA.

Sales Tax Going up in Ontario!

It seems that Ontario may be going the way of harmonized sales tax (like Atlantic Canada).  The Ontario government may say that it’s for the business owners, but in the end, it’s the consumer who will be paying more taxes.  When they harmonized sales tax here in NL, everything went up in price.  Gasoline, baby clothes, new houses, real estate/lawyer fees and insurance all got more expensive.

This new change in the taxation system may affect other Canadians as well as there are quite a few mutual fund companies based out of Ontario.  This may result in mutual funds increasing their MERs.

You can read more about this on Canadian Capitalist.

Weekend Links

One year ago, I explained the differences in Non-Refundable Tax Credits and Tax Deductions.

Four Pillars hosted this weeks Carnival of Personal Finance!

The Financial Blogger lists 3 reasons why investors should not time the market.

Money Grubbing Lawyer has an entertaining article about negotiating in: Leave Emotion out of Negotiation.

The Digerati Life writes about the buy and hold strategy.

Lazy Man and Money lists 7 new rules of financial security.

The Sun’s Financial Diary evaluates Pin vs Signature debit transactions.

Brip Blap tells us that everything will be fine.

Money Smart Life claims that all CEO’s are crooks!

My Dollar Plan explains how to manage money in your marriage.

Generation X Finance lists 5 things we can learn from the market bust.

Frugal Dad shows us the financial impact of having kids early.

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