Welcome to the Million Dollar Journey July 2011 Net Worth Update – Rising Rates 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 (end of 2014). If you would like to follow my journey, you can get my updates sent directly to your email or you can sign up for the Money Tips Newsletter.
Let’s start off with interest rates. With extremely low interest rates since the credit crunch to stimulate the economy, real estate in Canada has been booming and the stock market has been rising. However, relatively cheap money is likely to come to an end, at least according to Mr. Carney who sets the overnight rate policy. I thought we’d see higher rates sooner, as low rates can only last so long before inflation starts to heat up.
What do higher rates mean? On the bright side, we’ll see higher interest rates for savings accounts/GICs/fixed income and an even stronger Canadian dollar (not good for some, but good for vacations to the U.S!). On the down side, debt is about to get more expensive. From mortgages, lines of credit to fixed loans to margin trading accounts.
For us, we carry a relatively low amount of debt but it will make our investment loan a little more expensive. I’ve calculated that prime will need to reach about 7% (currently 3%) before the dividends will stop being sufficient to cover the interest. However, that is more of an abstract exercise as the HELOC interest pays for itself. For those of you unfamiliar with what I mean, we capitalize the interest on the investment loan.
This months increase was again due to savings and gains in investment accounts. Our RRSP and TFSA reported organic growth this month due to the rising market. There was quite a large jump in our non-registered account due to some volatile “play” stocks while other gains have been captured through trading. There has been some interest from readers in knowing what exactly is in my RRSP which I will dedicate a full post in the coming weeks.
On to the numbers:
Assets: $ 633,848.00 (+1.54%)
- Cash: $4,500 (+0.00%)
- Savings: $48,000 (+9.09%)
- Registered/Retirement Investment Accounts (RRSP): $119,900(+1.61%)
- Tax Free Savings Accounts (TFSA): $32,000 (+2.56%)
- Defined Benefit Pension: $35,200 (+1.15%)
- Non-Registered Investment Accounts: $29,300 (+8.52%)
- Smith Manoeuvre Investment Account: $73,200 (+0.27%)
- Principal Residence: $291,748 (+0.00%) (purchase price adjusted for inflation annually)
Liabilities: $65,700 (+0.25%)
- Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
- Investment LOC balance: $65,700 (+0.25%)
Total Net Worth: ~$568,148 (+1.69%)
- Started 2011 with Net Worth: $505,800
- Year to Date Gain/Loss: +12.33%
Some quick notes and explanations to net worth questions I get often:
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.
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.
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.
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. The commuted value of the pensions are not included in the statements as they are difficult to estimate.
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.