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Feb 2008 Net Worth Update (+2.69%)





Time for another net worth update:  The Feb 2008 Edition!

This was a very non eventful month where we are gearing up for the big move next month.  Most of the non-registered portfolios are cash right now which means very little growth on that side of things.

On the RRSP side of things, I recovered a bit from the previous months losses as the markets have improved. 

In terms of spending, we are starting to get some of the nursery purchases out of the way, but thankfully that hasn't affected the pocket book too much as the grand parents/family have helped out a lot. 

Here are the numbers:

Assets: $ 388,900 (+1.14%)

  • Cash: $4,500 (+0.00%)
  • Savings: $122,400 (+1.66%)
  • Registered Investment: $48,800 (+4.50%)
  • Pension: $22,200 (+1.37%)
  • Non-Registered Investment Account: $45,500 (+0.00%)
  • Real Estate: $ 124,500 (investment property) (+0.00%)
  • New Home Deposit: $5,000 (+0.00%)
  • Vehicles: $16,000 (2 vehicles) (-0.00%)

Liabilities: $ 102,100 (-0.20%)

  • Mortgage Debt(investment property): $94,100 (-0.21%)
  • Other Liabilities: $8,000 (-0.00%)

Total Net Worth: ~$ 286,800 (+1.63%)

Started 2008 with Net Worth: $279,300

Year to Date Gain/Loss: +2.69%

The rest of this year will be interesting with the new home purchase along with the wife going on maternity leave soon.  The bigger mortgage along with a 25% income cut has my stomach in knots!  I suspect that significant net worth increases will be more challenging moving forward, unless the markets go into crazy bull mode again (doubtful).

One thing that we're going to have to work on is increasing frugality and alternative income sources to make up for lost income due to maternity leave.

Going forward, I will be posting my DIY Smith Manoeuvre setup.  Stay tuned, March should be an interesting month!





14 Comments, Comment or Ping

  1. 1. Deborah

    Taking on a Smith Manoeuvre when all indications are that a deep recession is coming is one of the most insane suggests I’ve read.

    The world is leveraged to the hilt and the best strategy to protect yourself and your assets in this kind of environment is not to increase debt, but to pay it down and reduce expenses and put off purchases for things you truly don’t need.

    The disconnect in the US with the Fed reducing interest rates 2.25%, yet consumers are actually being charged higher rates will come to Canada as well. Debt has been issued without proper risk built into the rates being charged and that is not going to play out very well.

    Leverage is unwinding. Stick the frugality strategy and be conservative about debt. Locking into longer terms for debt right now is also a good strategy.

  2. 3. David

    Deborah,

    I assume from your posts that you think it’s going to hit Canada hard. :)

    But, do you have any basis for this? I don’t know much about much, but from what I understand the Canadian mortgage system has way fewer high risk mortgages than in the US. We don’t have a real system of sub-prime mortgages like in the US.

    Other than a recision hurting someone by losing their job, why would it affect a SM? I don’t know if I totally believe in the strategy, but the idea is that you don’t leverage yourself in the way most people think, simply you keep your mortgage debt at the same level, you simply start to buy stocks with the ‘mortgage’ as you pay down the principal.

    So can you explain other than saying “leverage is unwinding” and “this is going to hit Canada” why this is such a terrible time to do a SM?

    I can understand if you’re thinking the housing market will crash, but I’ve been expecting that for the last three years (in Toronto anyway) and nothing has happened.

    So please explain. I’m not disagreeing with you, but you don’t seem to have made a valid point.

  3. Frugal Trader, I am wondering how do you have your “savings” invested?

  4. Deborah, I plan on buying income producing stocks with the leveraged account. Therefore, I welcome a recession! I want the bank stocks to be cheaper so that I can pick them up at a bargain. I’m investing for 30+ year time frame and in the long term, the markets will continue to go up.

    Dividendgrowth: Most of it is with a high interest rate savings account. This will be deployed very shortly into a down payment.

  5. 6. Sarlock

    Agreed, the SM doesn’t increase your debt burden, it transfers it to a more tax-advantageous position.

    The crash in house prices in the US won’t happen the same in Canada due to the lack of high risk mortgages here. With commodity prices going through the roof and the spectre of higher inflation coming over the horizon, the price of constructing a new home will only continue to rise in the future. And as the price of new homes increase, resale homes usually move in proportion (this was the biggest cause of the huge real estate increases seen in Alberta/Saskatchewan).

    As David mentioned, the biggest risk in any situation is losing employment. But in FT’s case, with a significant amount of short-term liquidity available in non registered investments, he could weather the storm should it get that bad. (even if the investments crashed to 50% of their value and he had to withdraw them for a huge loss, he would still be keeping his home)

  6. 7. nobleea

    I see no problems with starting SM now (if you subscribe to the idea in general). We all know that the principal payments in the first few years of the mortgage are small, so the actual SM balance, even in the first 5 years, would likely be less than 10K. SM is quite a long term strategy and shouldn’t be concerned with year to year swings like recessions.

  7. 8. Telly

    Sarlock’s point that, “the SM doesn’t increase your debt burden, it transfers it to a more tax-advantageous position” is important and FT’s point that his plans are to implement the SM over 30+ years is even more important.

    The comments that the price crash in the US could never happen in Canada though makes me a bit uneasy, ok very. It’s different this time / here / etc…. People should be careful about being over leveraged in real estate. Canada doesn’t have a financial moot that will keep us from being affected by the economies of the World. A 5 year RE and TSX bull tends to inflate our heads a bit. ;)

    FT’s case is such that he has a really great cushion (especially for his age) and has proven to live well below his means. I don’t worry about him and his wife using the SM, they have already proven to be very financially capable.

    Keep up the great work FT!

  8. 10. Deborah

    The US is our largest trading partner and their economy in the world economy is enormous. We can not possibly expect to not get hit in the fallout of their years of negligent and outright corrupt practices.

    The losses from there debt are spread around the world. Canada holds something like $32 billion of their frozen assets, most likely not recoverable.

    Their banks have gone into negative reserves. Governments can help banks with liquidity problems, but insolvency problems are quite different. Their financial system is melting down and it is going to have spillover costs. An SM would put you in the front line to absorb those spill over costs. Paying off debt is the best way to get out of the way.

    And read Buffett’s latest report, http://www.berkshirehathaway.com/letters/2007ltr.pdf, starting around page 17 or 18 where he talk about how companies have been inflating their earning. This is going to come back to haunt people.

    I follow the US market because it is going to hit us. This stuff I’ve been reading.

    https://www.google.com/reader/shared/11295439724886729946

    Canada is in far better shape for recovery because we have less debt, but, with every industrialized nation in the world slowing down, gross over building of housing around the world, well, where do you think our boom came from? We supplied a lot of the natural resources for this boom and it is going to slow down. Even if China has 10% growth, it wouldn’t be enough to offset the degree of slowing down. And China’s economy is leveraged 4 fold to the US economy. China is going to have a slow down as well. And China buys inputs for products they make from India, and they sell a lot to the US, only the US isn’t buying much.

    And, if you look at inventories, they’ve gone through the roof. Companies have not slowed down production and now they have all this inventory that simply isn’t moving. That they never slowed down is why we haven’t felt the slow down yet, well, some of our industries are starting to feel the slow down. We are a strongly resource based economy and the last to feel a slow down.

  9. 13. Geoff

    Will the Million Dollar Journey do a blog on gold & silver?

    Obviously there is a place for the two metals and lately they are getting even more attention. Gone are the days when we can dismiss lightly as a “barbarous old relic”.

    Also – will you explore the benefits of holding debt during inflationary times?

  10. 14. Geoff

    – deleted –

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