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March 2009 Net Worth Update: Market Rally Edition (+1.92%)

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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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 }
  • Baker @ ManVsDebt March 31, 2009, 9:49 am

    Congratulations! In this market moving even a little in the right direction is a huge plus! Always glad to hear the updates and make sure to keep us informed!

  • Timbucthree March 31, 2009, 9:54 am

    I have been using covered calls for years as an income generating technique. Along with selling the covered call I use a strategy called a collar. In a nut shell you use a portion of the premium that you recieved from the sale of your covered call to buy a put at a strike price one dollar lower than your covered call strike price(1 covered call = 1 put). This gives you about a 5% insurance, if your stock goes to zero the most you will lose is 5% of you original investment.

  • FT FrugalTrader March 31, 2009, 10:49 am

    Timbucthree, can you recommend any tools/resources/calculators on the web that help with your options trading strategies? Which discount brokerage do you use?

  • mojo30 March 31, 2009, 11:36 am

    this rally will be short lived, as the bank numbers com out in the U.S all gains will be wiped out and more. Buy and sell for the short term but hold nothing.

  • Dividend Growth Investor March 31, 2009, 11:40 am

    You might also try a “money for nothing” strategy by selling cash secured out of the money puts on stocks you like. Only after you buy them, should you begin selling covered calls at strike prices equal to or higher than the prices you paid for the stocks..

  • Ray March 31, 2009, 11:50 am

    we got some results coming out in April and will probably see another pull back during the month, let’s hope we getting closer to the end……..and congrats on increasing your Networth in this environment!

  • Timbucthree March 31, 2009, 12:51 pm

    I use Itrade as my discount broker, but for some who is looking to get started optionexpress is the one I would recommend. They allow you to buy a stock, sell a covered call and buy a protective put all in one transaction. I use the covered call calculator from http://www.optionstrategist.com (under Free analysis tools). It is pretty basic but gives me all the info that I am looking for. If I am looking to checkout options chains I go to the montreal exchange website or stockhouse.ca. I have recently started to look at selling covered calls on my U.S. holdings. Selling covered calls in the U.S. usually offers better premiums and the 2.50 spread between the strike prices is nice if you are worried about getting exercised. Coveredcalls.com (they offer a monthly webinar on how to trade covered calls) and the Chicago Board Options Exchange are my resources in the U.S. As a disclaimer I am not affiliated with any of the above mention companies.

  • John March 31, 2009, 12:57 pm

    With PCF’s saving’s rate down to 1.65%, are you considering switching to another bank? If so, where?

    I’ve been reading about People’s Trust, but haven’t tried it yet.

    I’d love to hear your thoughts.

  • Aman@BullsBattleBears March 31, 2009, 12:58 pm

    Those some nice posted gains! I think its hard to predict the direction on the short term, but anyone that can edge out a profit in this climate is worthy of some respect!

  • Curious Reader March 31, 2009, 1:53 pm

    What kind of investment do you hold in Non-Registered Investment Account?

    I am thinking to open a TD e-series as an investment (non-registered) – any suggestion? I have some capital that currently just sitting in a “high-interest” (no so high anymore) chequing account and wondering if you can suggest a better way to invest the money. I already have mutual fund RRSP.

    I am not allowed to trade securities because of my job so my option is a bit limited.

  • Mark Wolfinger March 31, 2009, 3:07 pm

    I’ve been a professional options trader for more than 30 years and have extensive experience writing covered calls. In fact, I devote three chapters of my recent book to this single strategy: ;The Rookie’s Guide to Options.

    Covered call writing is appropriate for many investors and does reduce the risk of owning stocks. But as already mentioned by another, for those who are very conservative, the collar strategy (write a covered call and buy a put) is available.

    I provide good descriptions of these, and other, conservative option strategies on my blog. (link below)

    Mark
    http://blog.mdwoptions.com/options_for_rookies/

    http://blog.mdwoptions.com/options_for_rookies/2008/07/collars-the-ult.html

  • FT FrugalTrader March 31, 2009, 4:38 pm

    Timbucthree, thanks for the tips and info!

    John, all “high interest” accounts are fairly low in this low interest environment. I am staying put for now.

    Curious Reader, in my non-reg account are various stock picks that I’m hesitant to sell in these market conditions. I don’t really need the cash right now, so I’m going to wait a while longer before pulling the trigger.

    Perhaps you can use your cash to pay down any debt that you have first before considering investing the money.

  • Curious Reader March 31, 2009, 4:46 pm

    FT, I am happy to say I am debt-free (I own a car, but no property yet)
    That’s why I am thinking of a better way to invest some capital that I have.

    I am thinking to buy a property – but I dont feel I have enough down payment yet to get a property that I will like and be a good investment. I live in Toronto and hoping to buy an apartment / condo, but nothing concrete going on in that front yet.

  • Subversive March 31, 2009, 5:50 pm

    Hi there, been lurking here for awhile. I enjoy the site, nice to see financial stuff from an everyman perspective.

    One question: I see you sold your investment property. What was your major rationale for that? The reason I ask is because my wife and I currently have a rental property and we’re considering selling it. The value has dropped from the peak, but it’s still got about $50-60k in equity. Do you feel like real estate has a ways to drop down yet?

    I’ve been reading The Great Depression Ahead by Harry Dent, and while I’m not through it yet, there is some interesting predictions in there. He predicts house prices will drop to approx 2000 values. If this is the case, I would end up being upside down by about $30,000 on my investment property, not to mention my principal residence. Now, I’m not totally drinking his cool-aid or anything yet, but I figure I’m only doing myself a disservice if I don’t at least consider all my options.

    Anyway, I enjoy the blog, keep up the good work.

  • FT FrugalTrader March 31, 2009, 7:21 pm

    Curious Reader, if you think you’ll need the money within a 5 year time frame, then putting money in the market may not be the best decision.

    Subversive, you can read more about my decision in the comments of my last net worth update.

  • CanadianFinance March 31, 2009, 9:17 pm

    Congrats on the increase! Like you mentioned, it might only be temporary but it looks like most of your investments are for the long term so you’ll be sitting pretty!

    You also mentioned that the low rates are paying your principle down faster, are you reborrowing for your SM right away or holding back to gauge how low the markets might go?

    • FT FrugalTrader March 31, 2009, 9:24 pm

      CanadianFinance, I haven’t borrowed from my HELOC since my initial $50k withdrawal. I do plan on deploying more money into the markets once things start to settle down a little (might be soon).

  • IS March 31, 2009, 10:00 pm

    Congrats on the increase in net worth. I’ve also been thinking about selling calls, just curious, would you be doing this on options that will expire short term (and collect monthly premiums until exercised) or would you prefer selling more valuable longer term options?

  • Frequent Reader March 31, 2009, 10:27 pm

    FT

    I’m a regular reader of your blog, and have generally found it quite helpful and insightful.

    I have a comment about your net worth statement though. I’m predicating my point of view on the fact that you are using your net worth as a measure of progress towards financial independence from employment. Therefore only assets that can generate a return and money in your pocket should be counted.

    Continuing in that vein, your cars then should not be counted as assets any more than your big screen TV or fitness equipment. Your principal residence as well is not an asset unless it is your intention to downgrade and cash out equity when you retire. Even then that might not necessarily work because over long periods of time it is unlikely that your house will appreciate x% and that other properties in your area of the province will not appreciate similarly, resulting in no net ‘real’ gain — the house becomes a parking stall for money.

    Since both the cars and the house do not contribute to your ability to become financially free or in any way generate income or capital growth then they belong in the ‘doodad’ category, to steal from Rich Dad Poor Dad. I should point out here that I am not a Kiyosaki devotee by any means, but that he is correct on this issue.

    I didn’t mean to disparage your efforts by ‘stealing’ more than 200k off your net worth — you are definitely on the right track.

    Keep on blogging.

  • Kirk S. March 31, 2009, 10:33 pm

    To FrequentReader,

    For net worth calculations, if you are going to count the loan that you take for a car (or at least the negative in your cash/savings account) and a mortgage as a liability, then they should count as assets as well.

    FT (I think) does a fair job of not overvaluing these (using depreciation on the value of the cars and I believe that his house is still listed as the purchase price…although depending on the housing market that may still be generous).

  • nigel March 31, 2009, 10:39 pm

    Covered call writing is a very good strategy for your portfolio. It allows you to realize income on the securities you already own and you should consider this as a way of reducing your initial capital outlay. I write (sell covered calls) options every month on my portfolio. With the volatility in the markets recently option premiums have actually increased. Here’s a basic example:

    Lets say i own 1000 shares of BMO with a cost of $30 (cost $30000). BMO is currently trading at $33> i could sell 10 $34 calls (each call is for 100 shares) for total proceeds of approx $800 cash in my account. If you do this every month it can help you reduce your overall cost. Worst case the shares appreciate more than $34 and at that time the options would be exercised and i would be paid $34K.

    So selling options, increase the returns of your portfolio & also reduce your overall cost of your investment. Downside is that you can miss a major move in a stock ie if there was a rally to say $37 on BMO, you would be capped at $34.

    good sites: http://www.me.org
    use a spreadsheet to calc option premium, ROI etc.

  • Frequent Reader March 31, 2009, 10:58 pm

    Kirk S.

    The liabilities incurred by the cars and house most certainly must be counted as they demand money on a regular basis, and are debts that must eventually be paid.

    Whether or not your equity in them is an asset on the other hand is a different story. Yes, if you follow Cdn GAAP and are running a business, for example, it is standard procedure to do so on a balance sheet.

    But what I am saying is that for our personal journeys to financial freedom, a standard balance sheet doesn’t tell us enough (or can even be misleading.) I’m proposing that a more useful metric must be stringent in its classification of assets.

  • FT FrugalTrader March 31, 2009, 11:04 pm

    Frequent Reader, thanks for the feedback. I consider net worth as simply what it is defied to be: (assets – liabilities). I don’t use it as a indicator of my financial independence, but as a personal financial score card.

    Personally, I count my “passive income” as my measure towards financial independence.

    As well, home equity doesn’t have to be a “parking stall” for money. The equity can be used to invest and create income. Although it may not be for everyone (leveraged investing), I use the HELOC to create dividend income.

  • Frequent Reader March 31, 2009, 11:28 pm

    FT

    I understand better now. Your approach makes sense in that respect.

  • Curious Reader April 1, 2009, 1:54 am

    FT, I might need *some* of the money within 5 years time frame, but I am sure i can spare some of them for long term investment hence I am looking at alternative investment solution.

    I found out that I can do ETF, Do you think this would be a good starting point?
    I have no knowledge about how to do trading, all I know is pretty much only the definition of ETF. Do you have some pointer on where to begin? I’ve read some of your post on ETF and your recommendation on using Questrade, but do you have some resources that would be a good starting point to learn how to do this?

    Thanks

  • Mockingbird April 1, 2009, 4:42 am

    Way to go, TF!!. That’s a nice quarterly gain.
    Also, nice explanation of “net worth”.

    @Frequent Reader: For some, “a standard balance sheet might not tell us enough (or can be misleading)”; however, as long as you understand the reason for creation and use the consistent approach, then I don’t think it would matter in long run. Also, to whom is it misleading? If it makes sense to the person who created, then all good. Dealing with personal finance should be fun, motivating, and easy to understand. If not, I would’ve lost interest long time ago (I’m too dense and bored easily..lol ) Why make it complicated? The “financial freedom” means different things to different people. Only if you want to compare yourself to others, then perhaps you need specific classification of assets.

  • Acorn April 1, 2009, 1:28 pm

    A few comments…
    1. Don’t make your option strategy too complicated (unless you are a full time trader).
    2. Use stocks that are paying dividends. (If stock went down and you can’t write calls, hopefully, you are still getting paid).
    3. If you feel that stock will go down, don’t forget that you can write “deep –in-the money” calls instead of buying puts.
    4. For the beginning avoid naked calls/puts.

    Some useful links…
    http://www.optionseducation.org/

    http://www.optionsnerd.com/

    http://www.theoptionsguide.com/

    http://www.get122.com/

  • khai April 8, 2009, 1:04 pm

    wow! thanks for sharing.

    you know, i was one of those people who read your blog and then always close it saying- well, it’s nice to read, but hard to follow, as this guy is probably earning six digits income and has several hundreds thousands invested in stocks.

    now i see that you are a “normal person” (sorry for this label), living in real world, with “normal” amount of money. great!

  • Jim April 9, 2009, 1:24 am

    We are in the process of carving out an ABC pullback .The “C” part is “now” and should take the DOW back to 7700 possibly lower.The good news is we are in a primary degree wave 2 counter trend rally that will last for months taking the DOW to nearly 10,000. I dont normally do this but … buy century mining (CMM) they have a financing deal that is imminent (the stock is drastically undervalued to begin with) but will rocket higher with the news, they have a world class asset in the Lamaque mine with nearly 5milion ounces of low cost gold and the stock from a technical point of view is in a near perfect break out! Your welcome.

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