Wow… sometimes my adventures in blogging truly surprise me!
I receive many emails from fellow bloggers who have questions or want to improve their sites. This always flatters me as I’m very happy to help. I take the time to answer each email as I truly value the communication within our PF blogging community. But the email I’m about to share comes from a long time reader and commenter that doesn’t have a blog, his name is Ottawa Guy. I am honoured that he sent me his own personal profile and he wanted to know what I thought of his financial situation. He gave me his permission to publish his email and my answer to it. So here we go!
Note: everything you read in this article is based solely on my opinion. It should never be taken as recommendations or professional advice. I’m only sharing a few thoughts on someone’s situation.
Total Net Income: 3468
$118/m Motorcycle Insurance
$82/m Vehicle Insurance
Fixed Total: $1353
$400/m Gas, Food & Entertainment (this is a goal, sometimes goes higher)
$1056/m 1-year world travel fund (40K by 2015) currently at 5K
$159/m To yearly travel fund (or whatever the remainder is for the month) currently at 5K
$1500 emergency fund – for insurance deductible & vehicle repairs.
I occasionally carry a pager for work. Over time it can workout to roughly an extra $10K a year. However this gets put directly into the yearly travel fund. Also, instead of being paid I can take time off instead which I often do. I do not count this in any of my budget since it is above & beyond my base salary. Before it was helping pay off debts.
I am not very happy. I made a move from one investment advisor who had me in a mutual fund with a heavy MER. I moved to a recommended advisor who put me into individual stocks with a $22K portfolio. Well.. over the past two years I’m down about 9K. This year I told her I want income producing assets like bank preferred shares or REITs. Try to cover some of these losses. Attached is a CSV file that details the investments.
I am in no rush to save for a house given the status of this market. House shopping will happen in 2016 after the 1-year trip.
TFSA Cash ($) Evaluation date Security Description Symbol Current quantity Total quantity Book value Market value Unrealized gain/loss
649.16 22/05/2012 991531 ALTAMIRA HIGH INTEREST CASH PERFORMER NBC100 2002.29 2002.29 2002.29 2002.29 0
649.16 22/05/2012 437832 MICRON TECHNOLOGY INC MU 425 425 4919.28 2473.1 -2446.18
649.16 22/05/2012 644451 SUN LIFE FINANCIAL INC SLF 160 160 5046 3388.8 -1657.2
649.16 22/05/2012 648546 SUPERIOR PLUS CORP SPB 400 400 4986 2860 -2126
RSP Cash ($) Evaluation date Security Description Symbol Current quantity Total quantity Book value Market value Unrealized gain/loss
38.04 22/05/2012 437832 MICRON TECHNOLOGY INC MU 475 475 5453.68 2764.05 -2689.63
When you are making a financial plan, the first thing you must do is to make a list of your goals. The same situation could generate different advice depending on a person’s goals. Here are the main goals for Ottawa Guy:
#1 One year trip around the world
#2 Improve his investment return / establish an investment strategy
#3 Eventually buy a house
One small note before I start with OG’s goals. This is regarding his emergency fund. I would also have a small line of credit (5K or 10K) on the side to make sure I can overcome a very bad month (you know the type of month where you have your washer & dryer breaking at the same time that your car is at the garage and you stand as the best man for a very expensive wedding?). This would allow more flexibility and avoid taking money temporarily from the “travel fund”.
As far as budgeting, I think that OG did a great job. He has an established budget with an additional $159/month available to cover his variable expenses (currently at $400/m) or to add to his “travel fund”. It’s a very good idea to have a buffer in your budget that results in additional savings when you can control your expenses. Kuddos to OG!
At this rate of savings, OG will have enough money for his one year trip in 2015. Since the project is in two and a half years, I would probably split my savings like the following:
50% in “super interest” savings account (giving roughly 1.25% to 1.50% right now)
50% in a “super safe” mortgage fund (some funds can’t really go lower than -1% in a very bad quarter but could earn easily 3% over two-three years span).
Now this is where it gets interesting. As far as budgeting, saving and paying off debts, OG can probably teach me a few things . But when we look at his investment portfolio, we can see one obvious thing; this is not well diversified. That type of portfolio will either make you rich or make you poor. Since almost 50% of his holdings are in 1 stock, you can only hope that this is an home run. SunLife won’t be a huge growth stock either and the addition of 2K in an Altamira funds doesn’t make much sense in my opinion. He already has 5K in his travel fun in a money market fund. There is no point of investing more in money market in his TFSA and RRSP account.
With the size of his portfolio, I would be tempted to buy an index ETF or mutual for about 5K and buy 3-4 stocks (at roughly 2K per stocks). He would get a good diversification with an index ETF and could add some growth with individual stocks. Since he doesn’t have much in RRSPs, I would probably invest all his RRSP money into US dividend stocks, buy for 2,5K of Canadian index and 2,5K of US index in his TFSA and add an additional 2-3 stocks in his TFSA (probably Canadian dividend stocks).
This strategy would ensure a well diversified portfolio with additional dividend income from individual stocks. Depending on his investment knowledge, he could go see an investment advisor to get advice on which funds/ETFs to select (you must see a broker to get ETF and stock advice)… or simply read these 2 free eBooks that will give a lot of information on dividend investing and ETF investing:
Dividend Investing (via The Dividend Guy Blog)
ETF Investing (via My University Money)
Considering OG’s financial situation, I would be tempted to look at doing a small leverage loan. Interest rates are very low and the market is pretty shaky at the moment. He could do a small loan of 20k-25K and easily fit the payment in his budget. At 4% over 10 years, a 25K loan shows a monthly payment of $252.72. After 10 years, the 25K at a 5% investment return would show a total value of $40,722 and the total payment would add up to $30,326 with $5,326 in deductible interest. I’m far from advising OG to do it (I would need to know his risk tolerance and consider his complete financial situation) but this could be something to think about.
Since OG has strong budgeting abilities, I’m not too worried about him building cash down to buy his first property. The current market is not too favourable right now anyway. However, another strategy he could do instead of leveraging the stock market is to buy a condo now, lock in a very low interest mortgage and rent it during his one year trip. This is riskier as he would have little control over his tenant while being in Asia and need a bigger emergency fund to compensate for unpaid rent. But it doesn’t mean that he couldn’t find someone he can trust or rent to foreign students (I’m guessing he lives in Ottawa ).
Overall, I think OG has started his financial life on the right foot. Now it’s up to him to “leverage” his budgeting ability to generate more assets. He must remember to always seek diversification (among his investments, but also among his assets (condo vs leverage)). His one year trip is an awesome goal and it is usually awesomeness that makes people better individuals!
Good luck OG
Note: this article is NOT to be used as professional financial advice of any kind. If you are curious about what I think of your situation, please send me an email (thefinancialblogger at gmail) and I can write a similar article.
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