I’m an avid traveler these days, because apparently it’s much more rewarding than loading up your house with stuff. Oh, how we hate stuff. I WOULD KICK ITS ASS IF IT HAD AN ASS.
But there are a couple of really important things to consider before embracing this attitude. First of all, there are all sorts of things you can buy that really make your life better. We bought a new couch which gets sat on almost every night. It’s a comfortable spot to watch TV or just chill. It’s big enough that everyone can sit on it when guests come over. And since we don’t have kids or anything this couch should be functional for at least 20 years, probably longer.
Is this a waste of money versus spending that cash on a few days away in Las Vegas? Not every vacation is going to blow your socks off.
My new phone is another perfect example. I easily go on it two hours a day. For just over $300 I have access to all the world’s knowledge in a device that has such a good battery I can go two days without charging it. This is a fantastic bargain.
Look, I’m not saying you shouldn’t spend on experiences. I’ll remember the Great Wall of China for the rest of my life. New York City was similarly amazing. Even smaller trips like a weekend away with my wife are remembered fondly. But that doesn’t mean every vacation dollar is spent wisely and every dollar spent buying stuff is squandered.
At the end of the day it comes down to this. It doesn’t matter what you’re spending your cash on. Consuming is still consuming, Just spend less than you earn and you’ll come out ahead.
Links I liked
1. I’m going to start off this week with My Own Advisor, mostly because that’s the most easily accessible open tab out of the 27 Google Chrome tabs I have open. I wish I was kidding. Anyhoo, here’s why Mark doesn’t consistently track his net worth.
2. Up next is Money Maaster, whose stock picks are fortunately better than his spelling. He recently bought a stock I own already, so naturally I approve of this move.
3. I like reading about people’s interesting side hustles. Here’s a guest post on Million Dollar Journey from someone who hosts homestay students and gets paid pretty well to do so. I’m a big fan of stuff like this, since most of us have unused space that’s just going to waste. Myself included.
4. Canadian Value Investors took a closer look at how Warren Buffett and Jeff Bezos have changed over time by scouring old interviews. It’s no surprise Buffett stayed consistent, but Bezos was a little more interesting.
5. Let’s get my own writing out of the way. I threw the value investors a bone by talking about an insanely cheap gold stock (don’t worry, I didn’t buy any. Still not a fan of the mining industry) and I profiled a growth stock trading at approximately 8 times forward earnings expectations.
6. The Rational Walk has some thoughts on financial independence, including why a 3% withdrawal rate is best and why everyone should strive to have fuck you money. If you agree with my whole financial independence deal, you’ll enjoy this post.
7. A sweet post from Gen Y Money about her husband’s inner scorecard for Valentine’s Day. 2014 Nelson would have made a sex joke right there, but 2019 Nelson is mature. What a guy.
8. SP Brunner takes a look at a stock I think is a massive value trap, IGM Financial, and comes to pretty much the same conclusion. It’s cheap, but not enticingly so. I like their focus to more of a financial planning approach, but at the end of the day most of IGM’s core clients don’t really need complex tax advice. Remember, Investors Group is filled with retail investors. High net worth folks long ago went somewhere else.
9. A hell of a story from Mr. Free by 33 about losing two sets of parents. No jokes here. You’ll be saddened by reading that. But kudos to Jason for doing the right thing and for moving on.
10. My Money Wizard has an insanely detailed guide on how he keeps his grocery spending to $35 per week per person. I should do one of these sometime. Our grocery bill might not be $35 per week cheap, but I guarantee it’s lower than average.
11. Here’s a closer look at a stock I agree with the author about, Molson Coors. Unfortunately we just bought more right before the stock tanked on a weak outlook. Oh well.
12. And finally, yet another post from last week’s debuter (totally a word), Investment Pancake over at Seeking Alpha. He points out that a simple portfolio filled with dividend growers combined with a decent savings rate will make you rich. It doesn’t have to be more complicated than that. And, plus, the dude is funny. I LOLed a couple of times, and I laugh less than those Buckingham Palace guard guys.
And that’s about it. Have a good week, everyone.
I’ve been spending quite a bit of time lately at the ol’ grocery store, moving product from one spot to another while some pretty significant renovations are being done. You might think this is terrible busy work but I’m fascinated by it. Unlike other chains, which have identical plans for each section, this company basically says to me “do it however you want. We trust you to make it pretty.” It’s great fun.
And for some reason they continue to tolerate me even though I bring all sorts of baggage. I spent 40 minutes the other day just weeping in the middle of an aisle. Nobody said a word, although that might have been out of embarrassment.
So that’s given me time to do a little more thinking and a little less writing. Here are some of the many thoughts that have been rolling through my head.
Much of the work lately has been in the health and beauty section, which was accompanied by 14,000 terrible jokes about pregnancy kits. “Oh, you touched that? THE BOX SAYS POSITIVE. THAT MEANS YOU’RE PREGNANT.”
“Uh, Nelson? I’m a dude.”
“That’s the only problem you have with that joke? Wow.”
Anyway, next time you’re in the store take a look at the massive selection in the cold/flu and pain relief section. There are dozens of different medicines. There’s cold relief, cold/flu relief, nighttime cold relief, daytime cold relief, cold and sinus relief, and others I’m undoubtedly missing. You can buy the same medicine in regular strength, extra strength, liquid caps, econo pack, and even liquid form for the six of us who’d rather choke down terrible medicine instead of taking a tasteless pill. And if that isn’t enough choice for you each type of medicine comes in about four different brand names (not including the generic brands).
I’m talking about this to the pharmacist and he pointed out something that each brand was essentially just the same pill marketed slightly differently 40 times. The Tylenol pills mostly contain acetaminophen. Advil has ibuprofen inside of its ugly pills. Motrin is the same. My favorite is Anacin, which a) apparently still exists and b) contains caffeine for some reason.
The point is this. Just buy a yourself some Tylenol and call it a day. There’s no reason to fill your medicine cabinet with 40 different kinds of medicine targeting specific symptoms. They all reduce swelling, which is what gives you relief.
Simple is best. It’s a lesson I kinda wished I learned about my finances a dozen years ago, but oh well.
Rental property in Alberta
If you’re looking to buy some cheap rental property with decent cap rates, forget about New Brunswick. Rural Alberta is the ticket these days. I’m going to go ahead and blame Rachel Notley for this, which is pretty popular in my neck of the woods.
There’s a property available locally for $40,000 that rents for $500 a month. That there is already an attractive cap rate, but it gets even better. The seller (who is avoiding using a real estate agent for some reason), has let it known they are willing to listen to even outlandishly low offers. I predict this property will end up selling for under $30,000.
It has a few issues, but nothing unbelievably glaring. It looks better than you’d expect a $30,000 house to look. It’s got a small garage in the back. The location is good. There’s a problem with tree roots getting into the sewer line, which is a pretty easy fix. Eventually that tree would probably have to come down though, which is a $1,500 bill.
Even if I paid the full $30,000, the cap rate is pretty damn succulent. Annual rent would be $6,000. Take off 25% for expenses and I”m left with $4,500 in profit on a $30,000 investment. That’s a 15% return. Put down 25% of the total price ($7,500) and I’m looking at a return on equity of 60%. These numbers are succulent.
If these opportunities exist in my small town, I’m guessing they’re everywhere.
I talked a little about SNC during my last stock watch list post. I figured it traded at a pretty attractive valuation and the Highway 407 value of about $30 a share meant the share price was probably pretty close to a bottom.
And then this recent controversy hit. Nice going, Trudeau.
But something pretty interesting happened, at least the way I see it. Despite the company being right in the middle of the biggest Canadian political scandal of the year, shares are down a mere 9% in the last week. That indicates to me the market a) had the possibility of this priced in and b) doesn’t think it’s going to end up being that big of a deal.
I still stand by my prediction that the company and the federal government sign some sort of settlement agreement, but I’m now skeptical it’ll happen before the fall election. That adds more risk. Would a Conservative government be open to such a deal? We don’t really know.
SNC is a tricky investment for me. I’m not sure it’s the kind of stock I’d like to own forever. The stock does well when the company is free of scandal, which is the perfect time to sell. You then wait for the next shoe to drop and buy shares again. It’s more predictable than my daily weeping in the grocery store.
There’s other stuff to like too, including SNC’s steady (albeit lumpy) growth history, its dividend growth record, and the potential that it sells that Highway 407 stake (although I think that’s pretty unlikely). The stock might end up on my too hard pile.
I’m not sure if I’ve ever told you guys about my favorite ETF, but I guess there’s no time like the present, huh?
There’s later. That’s a time.
You don’t show up for months and that’s what you give us? Thanks for nothing, Italics Man.
There are some really dumb ETFs out there. I’ve profiled at least one over the years, which was just a high-interest savings account that paid out a very small monthly distribution. I also looked at a stock buyback ETF that did a pretty poor job of actually picking stocks that repurchase shares.
But my absolute favorite sector ETF is the BMO Equal Weights Bank ETF (TSX:ZEB), which charges you (yes, you specifically) a 0.62% management fee to hold equal positions in six different bank stocks (the big five everyone has heard of and National Bank). That’s it. That’s the whole ETF. What a scam.
Reminder: your ETF fees really add up over time.
The Equal Weights Bank ETF is the worst example of the problem, but there are sector ETFs out there that are barely better. Investors buy them for instant diversification without realizing they’re dominated by a handful of names. And the management fees are damn high, especially for what you get.
Let’s take a look at a few of the worst offenders.
The worst sector ETFs
You’d think it would be the financial sector, but not really. It turns out there are a lot of insurance companies and whatnot that get decent exposure.
Let’s start with the largest utility ETF, the iShares S&P TSX Capped Utilities Index (TSX:XUT). It has 16 different holdings and will set you back 0.61% each year. Get used to that number; you’re going to see it a lot.
The top five weightings are 65% of the fund, and the top three are 50% of the ETF. That seems like a little much to me, but maybe that’s just my active investor bias talking.
The iShares S&P TSX Capped Consumer Staples ETF (TSX:XST) has a management fee of 0.61% and has a grand total of ten different holdings. This is what you’re paying more than half a percent a year for. It’s the entire ETF.
Almost 81% of this ETF’s holdings are concentrated in the top five names. It could easily be more diversified, too. It doesn’t own High Liner Foods, Rogers Sugar, Molson Coors, Andrew Peller, or even Dollarama. Why? Damned if I know. But hey, way to buy both Loblaw and George Weston. The latter owns about half of Loblaw.
Before I feature the worst sector ETF of all, I do want to point out these aren’t big funds. Both the utilities and consumer staples ETFs are only flirting with $100 million in total assets. That makes them nothing burgers in the big world of finance. This next pick is bigger but with assets of $163 million it’s not exactly a powerhouse.
Coming in at a 0.61% MER it’s the iShares S&P TSX Capped Information Technology ETF (TSX:XIT). Oh baby. Are you ready?
That’s right, kids. A full 88.4% of this ETF’s assets are stuffed into the top five holdings. This is something you could very easily replicate on your own and avoid the hideous fee.
When are sector ETFs useful?
Not every sector ETF sucks. There are a few decent ones.
The REIT one (TSX:XRE) isn’t bad. It has 16 holdings without huge exposure to the top five companies. I’d still rather pick individual REITs and the TSX universe has about 50 different REITs to choose from, meaning it’s really not that diverse. It’s still a decent place to start for investors looking for a little real estate exposure.
The iShares Preferred Share ETF (TSX:CPD) is also a pretty solid choice for folks looking for a little income that isn’t really correlated to the overall stock market. Again, I’d rather pick individual preferred shares but it’s a decent hands-off option.
I also think there’s potential to use sector ETFs to bet on either the energy or material sectors recovering. I wouldn’t even touch those sectors with your Visa card but there are certainly worse ways to bet on a sector coming back into favor.
Let’s wrap it up, pup
I realize sector ETFs are specialty products that not many people own. That’s good. We don’t want large groups of investors to acquire these things.
I’d recommend somebody looking to overweight a sector to just pick the best names in that particular part of the market and build your own mini sector ETF. Most of the big ones in Canada concentrate on a few top holdings meaning it’s really easy for you to replicate one on your own.
When we last visited my Lending Loop portfolio, I was doing approximately 9% annually from lending small businesses cash at exorbitant interest rates, which was pretty solid in my books.
Unfortunately, 2018 was not such a good year, although that should just be a one-off occurrence. Let’s take a closer look.
Lending Loop — 2016 vs. 2019
I first joined Lending Loop at the beginning of 2016. It then promptly ran into some regulatory issues and wasn’t really ready for business until late in the year. I stuck with them though, and by early 2017 I was up and lending.
The problem back then was a very poor selection of loans. Lending Loop had plenty of investors looking to earn some interest but very few companies looking to borrow. You really had no choice but fund everything that got offered.
As I previously mentioned, one of those loans did poorly, and it was finally officially written-off in 2018. The good news is the company did repay about 30% of the loan before defaulting, and the company is about a three hour drive away if I want to take out my frustrations on some of the owners’ personal property. If only I knew who they were. And I wasn’t a giant wuss.
When I first put cash into Lending Loop I simply invested 20% of the portfolio into every loan I liked. So this write-off turned out to be approximately 13% of the original portfolio. I’ve since invested more money, which reduced the write-off to approximately 4.5% of my portfolio.
So that hurt 2018 Lending Loop returns. And since the additional investment wasn’t made until the third quarter of 2018, my new investments haven’t really had a chance to add to the bottom line. So 2018 will go down as a losing year. I lost approximately 3% this year.
Don’t worry. I’m not
Lending Loop is way different than just a couple of years ago. The loan selection has improved exponentially.
Although there’s currently only three loans available to fund on the marketplace right now, there’s at least 10 that have raised all the allotted money in the last couple weeks alone. I used to get email notifications of new loans but I’ve turned them off because there were multiple loans being listed every day. It’s easy to build a diverse portfolio these days.
(Lending Loop also lets you auto-lend to any new loan on the platform. I like to be a little selective, so I haven’t turned that feature on. But it’s an easy way to automate diversification)
I’ve also tried to skew my portfolio a little bit to higher quality loans, with some success. Here’s what my current portfolio looks like today:
About 40% of my portfolio is in A and B graded loans, and C+ has 17% of the portfolio too. I’m trying to get some exposure to the riskier part of the market (and those 18-22% yields) while still skewing towards better credit quality.
(Many of the D-rated loans I have feature good earnings and solid balance sheets. Some of them I’d even categorize as being mispriced. We’ll see how they do over time.)
Right now my current annual yield is a little over 14%. Remember Lending Loop takes fees out of that, so I’m looking at approximately a 12% total annual return (assuming no write-offs).
Should you join Lending Loop?
I’m not sweating my 2018 Lending Loop loss. My portfolio went from five names to 27. It’s much more diversified these days, and is protected from the odd loan blowing up.
Besides, it’s fun to scrutinize the loans on the marketplace. There’s enough selection I can avoid certain borrowers for the dumbest reasons. It’s basically like a financial version of Tinder.
And Lending Loop does a nice job of providing the info needed to easily scrutinize your portfolio. They do a nice job with all that stuff.
I’m a big fan and continue to be a big fan. I’ll probably add funds to my Lending Loop account sometime in 2019.
I think y’all should join me. If you are interested, you can use my referral code (just click on this link) and we’ll both get a $25 bonus once you lend $1,500 to businesses.
The other day, after Tom Brady and HIS PACK OF SUPERHUMAN FOLLOWERS ANNIHILATED THE LOS ANGELES RAMS, I found myself sucked into a internet rabbit hole reading all I could about my new favorite person. What have you done for me lately, Warren Buffett?
It turns out Tom and wife Giselle Bundchen own themselves a crapload of real estate. They have a property in the wealthy Boston-area suburb Brookline. He also owned property in New York and Los Angeles, although both of these have now been sold.
Taylor Swift, another of Nelson’s favorites, is also a big real estate tycoon. She owns approximately $80 million worth of real estate in total, spanning 8 different properties in 4 states. She owns two houses in Nashville, a couple more in Los Angeles, three condos in New York City, and a vacation house in Rhode Island.
This all got me thinking. Why exactly do so many celebrities buy real estate? And why so much of it? Why not just put your cash in the stock market instead?
I’m not sure I know entirely why, but I have some theories. Let’s lake a looky-loo.
Say you’re Taylor Swift and you’re going out to LA to record your newest record, tentatively titled Catchy Nonsense. Sorry, I’m being told Lady Gaga has already trademarked that title.
You have the paparazzi following your every move and 14,000 fans who will scream their head off if they catch even a fleeting glance. You also have that boyfriend who you’re trying to keep secret for some reason. This is all very important to you because it’s the only real stress you have in your life.
So she (and every other celebrity) does the logical thing and spends money to make the problem go away. If you have your own place in a city where you spend a few weeks every year, then you don’t have to worry about finding a place to live, dealing with a new hotel every time, and so on. You just show up and everything is as you left it.
Even if it costs $500,000 a year to maintain these Beverly Hills mansions, it’s probably still worth it to Taylor. After all, she is swimming in cash.
But wait. If it’s just for privacy concerns why have two places? And wouldn’t having a house in a city make it all the easier for fans to find you? Which brings us to the second reason celebrities buy real estate.
Celebrities! They’re just like us!
If you ask them the average celebrity would tell you they’re not speculating in real estate. They’re investing, stupid. And then their security would usher you away.
But we all know it isn’t investing in real estate when the place just sits empty most of the time. At least get some revenue by renting it out on AirBnb. Taylor Swift should totally do that. She’d get a huge premium for it. “Sleep in the same bed Taylor Swift does!”
And then when she actually shows up take that bed and BURN IT. BURN IT AND SEND IT TO HELL. Like she’s going to touch the same bed us plebs have.
Real estate generally keeps up with inflation, but there are certain costs of owning it. I’d reckon most celebrities buy real estate as a store of value versus trying to make money. They can sell the place for a little more than they bought it for and enjoy it in the meantime. The property tax, insurance, and maintenance expenses just kinda get forgotten about.
Real estate is easy to understand
A lot of celebrities are, well, pretty dumb. They get suckered into moron investments from their posse and lose millions in the process. They’re constant targets for crooked financial advisors. It’s little wonder why they don’t trust people with their money.
Does this sound like the kind of person who is going to buy and hold a portfolio of index funds? Probably not.
But real estate, they can wrap their heads around that. Houses go up in value! It’s basically guaranteed!
Taylor Swift probably has a big chunk of her net worth invested in the market, btw. Her father worked as a broker with Merrill Lynch for years. You know when the family moved to Nashville to help her get into country music? Ol’ Scott Swift just transferred to the Nashville office. Not really a big sacrifice there, is it?
Let’s wrap this up
So it turns out there are quite a few reasons why celebrities buy real estate, even if that might not be the ideal investment philosophy. Like a lot of real estate “investors,” celebs would probably be better off buying a collection of REITs.
But at the same time I’d argue making money is likely a secondary goal. They want a place to go when they’re in a certain city. And I’m sure they don’t mind the attention they get from owning beautiful houses. No magazine is coming over for a tour of their stock portfolio, that’s for sure.