Net Worth Update June 2011 (+1.50)

Welcome to the Million Dollar Journey June 2011 Net Worth Update. 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 or you can sign up for the Money Tips Newsletter.

The May update was all about moving money from savings into accounts that required contributions such as RRSPs, TFSAs and RESPs.  The past month followed a similar trend where we flowed more cash into our retirement accounts.  With most of the accounts reaching the maximum allowable contribution amounts for the year, I’ve been considering different methods of using the extra cash.  It’s easy to move savings/cash flow into tax sheltered accounts, but that can only go on for so long.

So what’s the plan?  For the time being, I’m going to concentrate on building the leveraged smith manoeuvre dividend portfolio (currently $2,200/year dividend income).  However, the challenge is that I’m only comfortable with adding to my existing positions providing that stocks are relatively cheap.  If I end up increasing my HELOC to levels that aren’t comfortable (I’m not sure what that is yet), then I’ll likely take the extra cash flow and start reducing the balance.

In addition, you may notice that my non-registered portfolio balance has increased as well. Over the past few months, we’ve been transferring money to this account.   I’m using a portion of this account as my fun money account for purchasing higher risk equities.  Putting my risker assets in this account will allow me to claim capital losses should they occur.

Lets talk about the markets which are fairly volatile at the moment.  June was primarily a correction month, but the last week of the month saw the U.S index spike up aggressively.  Commodities and energy, in other words, the Canadian Index, took quite the beating which pulled down my portfolios by a few percentage points.

On the topic of assets, one reader suggested that I include the business value in my net worth statement.  I’m hesitant to do this as business valuation is a relatively subjective calculation.  It was suggested to take the cash on the balance sheet as the valuation but it would require calculations for the after tax value.  As there are multiple shareholders, associated marginal tax rates, and multiple methods of withdrawal – each with it’s own taxation,  it’s difficult to get an accurate picture.  For the sake of simplicity, I’m going to leave the business out of these updates.

On to the numbers:

Assets: $ 624,248.00 (+1.36%)

• Cash: $4,500 (+0.00%)
• Savings: $44,000 (-2.22%)
• Registered/Retirement Investment Accounts (RRSP): $118,000(+4.33%)
• Tax Free Savings Accounts (TFSA):  $31,200 (-4.00%)
• Defined Benefit Pension: $34,800 (+1.16%)
• Non-Registered Investment Accounts: $27,000 (+27.96%)
• Smith Manoeuvre Investment Account: $73,000 (-0.68%)
• Principal Residence: $291,748 (+0.00%) (purchase price adjusted for inflation annually)

Liabilities: $65,535 (+0.26%)

• Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
• Investment LOC balance: $65,535 (+0.26%)

Total Net Worth: ~$558,713 (+1.50%)

• Started 2011 with Net Worth: $505,800
• Year to Date Gain/Loss: +10.46%

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.  The commuted value of the pensions are not included in the statements and 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.