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Net Worth Update May 2011 (+1.18%) – Money is Moving Edition!

Welcome to the Million Dollar Journey May 2011 Net Worth Update – Money is Moving Edition. For those of you new to Million Dollar Journey, a monthly net worth update is typically posted near the end of the month (or beginning of the next) to track the progress of my journey to one million in net worth, hopefully by the time I’m 35 years old.  If you would like to follow my journey, you can get my updates sent directly to your email.

Last month, I wrote that I needed to make some annual contributions and some readers commented that I should be a little more proactive and contributing a  bit earlier.  Of course, they are right.   To fix this, I moved around a significant amount of money this past month and started putting some of that cash to work.

To start, we opened an RESP for our second child and deposited $2,500 to capture the maximum matching from the government ($500).  Actually, to be more accurate, we changed the individual TD e-series RESP account to a family account.  This setup gives us a more convenience during accumulation years more flexibility during withdrawal years.

Next, we deposited another $5k in my wifes TFSA and $5k into my RRSP account.  We still have a good bit of contribution room remaining for this year, but we will top it up when we receive our official Notice of Assessments.  Besides the tax sheltered accounts, I also transferred some cash into a non-registered trading account.

These transfers were mostly paid by cash savings, and by taking some money out of the business via dividend.

On to the numbers:

Assets: $ 615,848.00 (+1.08%)

  • Cash: $4,500 (+0.00%)
  • Savings: $45,000 (-23.73%)
  • Registered/Retirement Investment Accounts (RRSP): $113,100(+4.05%)
  • Tax Free Savings Accounts (TFSA):  $32,500 (+20.37%)
  • Defined Benefit Pension: $34,400 (+1.19%)
  • Non-Registered Investment Accounts: $21,100 (+86.73%)
  • Smith Manoeuvre Investment Account: $73,500 (+0.68%)
  • Principal Residence: $291,748 (+0.00%) (purchase price adjusted for inflation annually)

Liabilities$65,368 (+0.25%)

Total Net Worth: ~$550,480 (+1.18%)

  • Started 2011 with Net Worth: $505,800
  • Year to Date Gain/Loss: +8.83%

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 – ie. our credit card bill). 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 has proven useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually 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 and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans.  I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis.

Stock Broker Accounts

Another common question is which discount broker do I use?   We actually have accounts with multiple institutions.  I’m hoping to reduce the number of accounts that we hold in the near future.  Here is a review of some of the more popular online stock brokers.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 29 comments… add one }
  • Chris Tringham May 30, 2011, 9:08 am

    Wow, that is a lot of money to move in one month!

    What I’m interested to know is what you did with all that cash; Stocks, bonds, ETF’s, mutual funds, etc?

  • Glenn Cooke May 30, 2011, 9:25 am

    Since your first point is talking about RESP’s, probably a good time to mention the RESP Book (link). We got some excellent tips from it when we set up our kids’ RESP’s.

  • FT FrugalTrader May 30, 2011, 9:50 am

    @Chris, for the RESP, we took some of the cash to rebalance the portfolio. The TFSA $5k is sitting as cash right now, and a portion of the RRSP money has been used to increase international exposure via the ETF VXUS.

  • Big E May 30, 2011, 1:30 pm

    Great job! Question: Is your RESP included in your net worth calculation? If so, what does it fall under, as I don’t see it under your assets?

  • DanP May 30, 2011, 1:38 pm

    I’m not sure if you’ve mentioned this before, but do you have a yearly goal of how much you would like your networth to increase by this year? Regardless, a great jump up from the beginning of the year!

  • SavingMentor May 30, 2011, 2:21 pm

    Another good increase. I was wondering if you have done any projections based on your track record over the past few years and assuming similar growth going forward if you have a good chance of reaching your goal of 1 million by 35?

  • Andrew F May 30, 2011, 3:21 pm

    FT, have you considered rolling your Smith Manouevre line of credit into, say, a three year variable rate mortgage to save on interest costs? Seems like an ideal time now that you’ve paid off your mortgage. It might also look better on your credit rating.

  • Jungle May 30, 2011, 6:38 pm

    Really good idea for the SM line of credit! Only thing, you would need cash flow to service the minimum payment.

  • Andrew F May 30, 2011, 6:42 pm

    You could use a HELOC to service the mortgage. The LOC would also be deductible. At renewal time, just add the LOC balance back onto the mortgage (or repay at your option).

  • FT FrugalTrader May 31, 2011, 6:50 am

    @Big E, no, I do not count the RESP portfolio as part of my net worth. Although technically, I could count the contributions.

    @DanP @SavingMentor, I don’t have a net worth goal for this year, but if I were to have one, it would be to reach 20% ish as that’s around what’s required to reach $1M by end of 2014.

    @AndrewF, that’s an interesting strategy. However, does it make sense if I’m still using/increasing my HELOC for investing?

  • Wes May 31, 2011, 12:25 pm

    FT,

    I’m curious you say you did some of this month money moving by taking dividends from “the business”, how come your ownership of your business does not show up in th assets portion of your balance sheet?

    Thanks

  • FT FrugalTrader May 31, 2011, 12:28 pm

    @Wes, great question. Technically, I should be counting the valuation of the business, but the problem is that I don’t have one! Business valuation is never sure thing either.. maybe in the future if I get a good cash offer, I’ll count it as an asset. As of right now, it’s imaginary. :)

  • Andrew F May 31, 2011, 12:52 pm

    FT, if you’re still adding to the portfolio through new borrowing, that cash can come from the HELOC (which is no worse than what you’re doing now). If you want to add significantly to the portfolio (rather than just service the mortgage) you could also go with 1 year fixed rate mortgages, and each year at renewal roll the accumulated HELOC balance into the mortgage. 1 year fixed rate approximates variable rates, but gives flexibility in repayment/re-advancing on a yearly basis.

    On valuing your business, you should be able to calculate a tangible book value, and you could value your business at that. Given the nature of your business, I imagine that is just the same thing as the cash on hand less any debt. This is pretty conservative, but you are conservative in other areas of your balance sheet as well.

  • FT FrugalTrader May 31, 2011, 2:05 pm

    @Andrew, thanks for the info, i’m going to evaluate that strategy to see what kind of advantage it gives me. About the biz, again, another issue is taxation. Do I count the value of the company as part of the tax free capital gains exemption, or the cash after dividend tax?

  • Andrew F May 31, 2011, 2:49 pm

    I’d value it under the lifetime capital gains exemption, but really the difference isn’t enormous. Going with the capital gains value makes sense as you’re assuming the intangible assets/goodwill of your business is zero.

  • Paul May 31, 2011, 6:00 pm

    I believe you need to value your RRSP on an after-tax basis when calculating your net worth. If you were forced to liquidate, what would the value of your RRSP be? That is a better indication of what your true net worth is on a day to day basis. The same would apply to your DBP.

  • cannon_fodder May 31, 2011, 7:03 pm

    Nice job FT. When was the last time (ever?) you had a negative month-on-month NW?

    $1M by 2014 makes me think $2M by 2020. Sound about right?

    We returned to our winning ways after last month. Up 10.1% MOM, 26% YTD. And we finally hit big milestone #2.

    Increases from here on in should be smaller. And next year we will probably tread water.

  • FT FrugalTrader May 31, 2011, 10:29 pm

    @canon, congrats on hitting the big milestone! The last time we had a negative net worth report was during the 2008/2009 meltdown. I just wish I loaded up on equities like you did at the time! So do you plan on taming down your trading going forward?

  • Freedom 40 June 1, 2011, 10:05 am

    0.85% this month. 7.9% YTD. Will exceed my $500k/age 35 goal (10 mths from now).

    Still working towards $1 mil at age 40.

  • cannon_fodder June 1, 2011, 2:58 pm

    FT,

    Well if that’s the last time you had a negative NW you’ve managed your state of affairs quite well. You are marching inexorably towards your stated objective with determination!

    In a way, yes, I’ll be “taming down the trading”… I’ll typically put less capital in play but have well defined monthly targets for absolute $ or percentage gains.

    May 2011 will likely be the last big month for me with this new strategy. I exceeded my 2011 target in that one month. Proof that smaller, more frequent trades are better will take the rest of the year to uncover.

  • youngandthrifty June 1, 2011, 6:11 pm

    You’re doing fantastic! I think you are going to hit the big number ($1 MIIILLLLIOONNN dollars) in no time.

    I have a quick question about incorporating the business- is it difficult to do? I’m currently contemplating that for myself, but it seems complex.

  • FT FrugalTrader June 2, 2011, 8:35 am

    @Canon, is it because you are moving to preserve capital to fund retirement? Do you plan on converting all your new cash to income producing investments?

    @youngandthrifty, thanks for the kind feedback! Incorporating isn’t too tricky,most provincial jurisdictions allow you to do it online which is fine for a simple setup. If you want to get into shareholder classes etc, then it may be an idea to contact a lawyer. Here are some articles that may help:
    http://www.milliondollarjourney.com/setting-up-a-corporation.htm
    http://www.milliondollarjourney.com/tax-strategy-dividend-sprinkling.htm

  • youngandthrifty June 2, 2011, 2:39 pm

    Thanks MDJ-those are very useful articles :)

  • Ticker June 3, 2011, 12:11 am

    Andrew,

    If FT pays off the HELOC with a mortgage could he have issues with still attributing the interest payments to the non-registered portfolio funding and the interest payments for the mortgage being tax deductible?

  • Andrew F June 4, 2011, 3:13 am

    Ticker,

    Loans used to service investment loans are similarly eligible for income deductibility as the loan is still attributable to the investment. If you intend to try this, don’t take my word for it–ask your accountant (and ensure you’re doing it correctly).

  • cannon_fodder June 7, 2011, 4:14 pm

    FT,

    No the reason is that there is an exponential increase in the stress and attention one must give as the amount of capital increases. Plus, I’ve seen I had an issue with holding on too long trying to squeeze every last dime out of the investments.

    Finally, in retirement, bills come frequently – at least monthly. So, proper discipline will need to be ingrained to have profitable months EVERY month.

    I don’t plan on stopping this investment strategy simply because it has been far too successful.

  • FT FrugalTrader June 8, 2011, 10:36 am

    @canon, sounds like a smart move! Have you ironed out plans on how you are going to produce income from your investments?

  • cannon_fodder June 9, 2011, 1:05 pm

    FT,

    I believe my dividends will provide about $22-23k annually. So far the trading strategy created about $23k per month last year and $100k per month this year, but these were averages since some months there was no trading.

    If I can produce $50-$60k per month, every month going forward, then this would justify early retirement.

  • FT FrugalTrader June 10, 2011, 12:37 pm

    Very impressive numbers Cannon! Why not take more of your capital into producing steady dividend income to ensure that your monthly expenses are covered, then take the remaining to trade with?

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