Net Worth Update: 2019 Year-End Review

By Robb Engen | December 31, 2019 |
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Net Worth Update: 2019 Year-End Review

I remember writing last year’s net worth recap and being disappointed that I didn’t reach my goal after the stock market tanked during the last three months of 2018. What a difference a year makes!

My investments were up 20+ percent this year. We also reached all of our 2019 financial goals, including maxing out my RRSP, contributing $12,000 to my TFSA (to catch up on unused room), maxing out the kids’ RESPs, not taking on any new debt, and keeping our epic trip to Scotland and Ireland affordable. 

The huge gains in the stock market boosted our overall assets to more than $1,000,000 and pushed us to within a hair of my 2019 net worth target of $830,000. Here’s how it all breaks down:

Net worth update: 2019 year-end review

  2019 2018 2017 % Change
Assets        
Chequing account $1,500 $1,500 $1,500
Savings account $35,000 $15,000 $12,500 133.33%
Defined Benefit Plan $224,054 $198,920 $174,843 12.64%
RRSP $208,614 $162,939 $162,201 28.03%
TFSA $49,239 $29,378 $20,327 67.61%
RESP $52,754 $38,472 $34,442 37.12%
Principal Residence $459,000 $459,000 $459,000
Total assets $1,030,161 $905,209 $864,813 12.13%
Debt
Mortgage $201,665 $213,678 $225,290 (5.62%)
HELOC $3,816
Total debt $201,665 $213,678 $229,106 (5.62%)
Net worth $828,496 $691,531 $635,707 21.25%

A few questions that I often get asked after posting a net worth update:

Credit Cards & Banking

We funnel all of our purchases onto a couple of different rewards credit cards to earn points on our everyday spending.

Our go-to card is the now discontinued Capital One Aspire Travel World Elite MasterCard. We have a grandfathered version that pays 2 percent back on every purchase and comes with a 10,000-point bonus each year.

Our secondary card is the American Express Cobalt Card, which we use at non-Costco grocery stores and on dining and liquor. Finally, we look for the best credit card sign-up bonuses and time our large annual spending (car and house insurance) around these offers.

We each have no-fee chequing accounts at Tangerine, which we use for bill payments, email money transfers, and the odd debit purchase.

The rest of our banking is done at TD, including our mortgage, line of credit, and investments.

Pension

Each month I contribute roughly 13 percent of my salary to a defined benefit pension plan that my employer also matches. The amount listed above is the commuted value of the pension if I were to leave the plan today. <–Update: I quit my job at the end of the year and I’m just awaiting the final valuation of the plan before determining whether I’ll keep it in the pension or take the commuted value and invest it in a LIRA.

RRSP / RESP

The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.

My preferred method is to list the current value of my RRSP and RESP plans rather than discounting their future value to account for taxes and distributions.

I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP and distribute the RESP to my kids, net worth will decrease accordingly.

Principal Residence

We bought our home in 2011 for $425,000 and developed our basement a few years later, increasing its value to $450,000. The next year I bumped up the market value by 2 percent (which is still less than its city-assessed value), but the local real estate market has since flattened – with nothing selling in our price range – and so I’ve left the value at $459,000 for the past three years.

Final thoughts and a look to 2020

I’ve had a long-standing goal to reach a net worth of $1M by the end of 2020. I’ll need another 20 percent increase in net worth to get there.

One minor wrench in the plan is that I quit my full-time job, and so I’ll be relying entirely on income from this blog, freelance writing, and my financial planning service. 

I don’t see this as a problem so much as an opportunity. Both my salary and career trajectory had stagnated in the public sector, and the next four years of budget cuts look to be brutal. Meanwhile, my side business was growing by leaps and bounds.

Online income surpassed my full-time salary in 2018 and increased by another 30 percent in 2019. And that was with me dedicating just 12-15 hours a week to my online business. Imagine if I put another 10-15 hours a week into it? 

That’s the plan, anyway. If successful, we’ll be able to meet our savings goals, accelerate our mortgage payments, and travel more than ever before. I’m looking forward to the challenge ahead, and to hit that $1M net worth milestone!

How did this year go for you? Did the rising stock market drive your net worth higher? Let me know in the comments below.

Weekend Reading: Benchmarking Your Returns Edition

By Robb Engen | December 28, 2019 |
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Weekend Reading: Benchmarking Your Returns Edition

How well did your investments perform in 2019? Investment performance is critical to achieving your retirement goals, yet it’s one of the most misunderstood concepts in personal finance. Why? Because we need to put our performance into proper context. In other words, we need to compare our returns to an appropriate benchmark.

Investment managers are quick to celebrate strong returns during bull markets, and just as quick to come up with excuses for poor returns when markets fall. What’s important, particularly for those investing in stocks or actively managed mutual funds, is how your returns fared against “the market”.

The easiest way to see how well your portfolio performed is ‘benchmark it’ against an appropriate index, such as the TSX or S&P 500, or some combination of stock markets. You can’t actually invest in the index, so you need to compare your portfolio to an index fund.

Blackrock’s iShares has a robust list of index-tracking products and does a great job keeping its performance up-to-date.

iShares product list

Select the fund or funds that best matches your portfolio. For example, if you wanted to compare to the S&P 500 then select the fund XUS, click on the ‘performance’ tab, and find the YTD or calendar year performance (depending on when you do the calculation).

Now let’s say you’re invested in one of Canada’s largest mutual funds – RBC’s Balanced Fund. As of Nov 30, this fund has returned 13.3 percent. An appropriate comparison for this fund would be XBAL – the iShares asset allocation ETF representing the classic 60/40 balanced portfolio.

XBAL returned 15 percent over the same period, meaning the RBC fund has underperformed by 1.7 percent. That shouldn’t come as a surprise – since we know by now that fees are a large driver of future returns. The RBC Balanced Fund comes with a MER of 2.16 percent, while iShares XBAL comes with a MER of just 0.20 percent.

Asset allocation ETFs make it easy for investors to compare their managed investment portfolios and determine whether they’d be better off investing in index ETFs.

So while your stock picks or mutual funds might have returned a healthy 15 percent this year, you might be surprised to learn the Canadian market is up 21.4 percent (FTSE Canadian All Cap Index) and the S&P 500 is up 29 percent. It’s all about context.

Here’s how my own investments performed in 2019 (personal rate of return):

Account Product(s) Allocation Performance YTD
My RRSP VEQT 100% stocks 20.99%
My TFSA VEQT 100% stocks 24.25%
RESP TD e-Series 100% stocks 21.88%
Wife’s RRSP Wealthsimple 80% stocks / 20% bonds 15.00%

I used to be a stock picker, more specifically Canadian dividend paying stocks. Even though I switched to indexing in 2015 I still like to compare my portfolio against my former strategy. That’s best represented by iShares CDZ – the Canadian Dividend Aristocrats ETF.

Since 2014, CDZ has a compound annual growth rate of 7.04 percent, compared to my portfolio’s compound annual growth rate of 9.29 percent over the same period. To be fair, CDZ will most likely outperform my portfolio this year (it’s up 26.61 percent as of this writing).

Do you compare use benchmarking to compare your investment returns? How did your portfolio perform this year?

This Week’s Recap:

I hope you enjoyed the Christmas break. We’re still in that vortex known as the week between Christmas and New Years – when nobody knows what day it is and nobody cares!

I did manage one post this week – how to make saving a priority.

From the archives: Past performance and your investing returns.

I’m currently reading Superfans by Smart Passive Income blogger Pat Flynn. In the book he suggests coming up with a name for your followers. Which one do you prefer:

  • The Financially Ok Boomers
  • Echo and the Moneymen
  • Echomaniacs

Promo of the Week:

Did you know that 56 percent of Canadian adults don’t have a legal will?

Now you can create a legal online will in 20 minutes for as little as $99 with Willful Wills. Read my full Willful Wills review here.

Weekend Reading:

There’s still time to check out these awesome credit card offers, sign-up bonuses, and deals for December.

Travel expert Barry Choi reviews the best credit cards with travel insurance. One of interest for those over the age of 65 is National Bank’s World Elite MasterCard, which provides 15 days of coverage.

Dale Roberts looks into Canada’s largest mutual fund from RBC and says it’s not so bad.

I love reading personal finance updates and the end of the decade brought us plenty of ‘decade in review’ recaps. Here’s an interesting one from Maria at Handful of Thoughts.

Mark Seed at My Own Advisor updated his 2019 financial goals.

She taught more than 2,000 women how to invest, and always gives beginners the same 5 steps.

Millionnaire Teacher Andrew Hallam compares value and growth stocks in a piece called, Why your fast & furious stocks might be putting you at risk:

“Too many investors, unfortunately, chase past performance. In many cases, they’re breaking sound investment rules to stockpile money in America’s fastest growing stocks. But when their racetrack turns to ice or those tires decide to burst, these are the drivers who will pay the highest price.”

And here’s PWL Capital’s Ben Felix with another Common Sense Investing video, this one looking at investing with leverage:

The Globe and Mail’s Tim Cestnick explains how to get the most out of 2019’s tax changes.

Michael James on Money reviews a book by former U.S. Secretary of the Treasury, Timothy F. Geithner called Stress Test.

Dumbwealth, a recent new find, published some incredible tales of the working poor in Canada.

According to the Wall Street Journal, some dealerships are dressing up borrowers’ car-loan applications with fake, inflated incomes (might need a subscription to read, but try incognito mode).

Also in the WSJ, why concert tickets are so expensive – with average ticket prices increasing 55 percent in the past decade (subscription).

Finally, why nearly all accused money launderers in Canada get their charges dropped

Have a great weekend, everyone!

How To Make Saving A Priority

By Robb Engen | December 27, 2019 |
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How To Make Saving A Priority

Do you want to save more money next year? Most people do. But how do you save more when there’s nothing left over at the end of the month? Try turning the problem on its head. Instead of trying to save what you don’t spend, treat saving like an expense you can’t avoid. That means prioritizing your savings goals ahead of time.

How to Make Saving a Priority

What are your financial goals for next year? Mine are to max out my RRSP contribution room, continue to max out my kids’ RESP account, and to contribute $1,000 per month to my TFSA.

Start by defining your goals. Then, build them into your spending plan for the year. What’s that? You don’t have a spending plan? Download this free budgeting spreadsheet and use the ‘yearly forecast’ tab to assign a job for every dollar you earn next year.

Input your savings goals first, followed by your fixed expenses such as your mortgage, property taxes, and insurance. Then fill in the rest of the spreadsheet by estimating what you’ll spend on variable items such as groceries, gas, travel, and entertainment.

What’s next?

Pay Yourself First

Made famous in The Wealthy Barber by author David Chilton, the phrase ‘pay yourself first’ is now considered to be the golden rule of personal finance. What makes this concept so powerful? It comes down to psychology. 

Parkinson’s Law states that “work expands so as to fill the time available for its completion”. Applied to your bank account, one might generalize, “the demand upon a resource tends to expand to match the supply of the resource”.

In other words, if you don’t make saving a priority at the start of the month there’s a good chance you’ll have nothing left over at the end of the month. You pay everyone else first and neglect your future self.

By paying yourself first, you’re forced to live on the remaining balance in your bank account. Parkinson’s Law still applies: The demand upon your bank account tends to match the supply of money in your bank account.

No problem. You’ve already met your savings goals. Spend away.

Make it Automatic

You’ve already made the decision to save money by paying yourself first. Now you need a system to prevent that strategy from being sabotaged – by you. How? Automation.

Set up an automatic withdrawal from your bank to contribute to each of your financial goals. Even better, match the automatic withdrawal with your pay day to ensure the money is out of your account before you even notice it’s gone.

For me, that means automatic withdrawals of $300 to my RRSP, $1,000 to my TFSA, and $416.66 to my kids’ RESP account. All whisked away before I have a chance to change my mind and spend it.

Enroll in your employer-sponsored savings plan. When I worked at the University, a whopping 13.8 percent of my gross pay went into a pension plan. Granted, this was not optional, but it forced me to live on less than 90 percent of my gross salary while taking care of a good chunk of my retirement savings.

Automatically enrolling workers into their employer-sponsored savings plans is considered to be one of the greatest accomplishments in the ‘Nudge’ area of behavioural finance.

Treat Saving Like a Bill Payment

Your bank knows this. So does the government. They don’t rely on your good faith to pay your mortgage or taxes on time every month. No, your bank takes its money right out of your account like clockwork. Taxes are withheld from each paycheque without fail. 

You can make saving a priority by treating your savings goals like the bank treats your mortgage payment, or like the government treats payroll tax collection. 

Automation equals forced savings. 

That’s why Canadian home owners rarely default on their mortgage. They’ll do anything to stay in their homes, from cutting expenses to the bone, getting a second job, or even dipping into their credit cards (bad idea!) while the bank continues to collect its mortgage payment.

By treating your savings goals like a fixed expense, you’ll force yourself (and your spending) to adapt and live on less. This applies to everyone, from young savers to retirees.

Give Yourself a Raise

You’ve decided to save more money, and made saving a priority by paying yourself first and making automatic contributions to your savings. You’re treating saving like a bill payment or fixed expense so you never miss a contribution. Everything is automated and running like clockwork. What’s next?

Give yourself a raise.

Behavioural economists Shlomo Benartzi and Richard Thaler expanded their research on automatic enrollment in retirement savings plans with a program called Save More Tomorrow. This program is all about gradually increasing your savings rate over time.

Remember when you started saving 10 percent of your net income? Maybe that was $500 per month (meaning your take-home pay was $60,000). Now your net salary has increased to $70,000, but because your automatic savings contributions were fixed at $500 per month, you’re now only saving 8.5 percent of your net income.

Increase your savings rate regularly, either alongside increases in income or just gradually as you get into a better financial position. It’s a relatively painless way to make a big impact on your savings over the long term:

“One of the most powerful factors in growing your investment account value is how much you contribute into your investment portfolio over time. By setting a minimum annual increase, you can take baby steps into growing your contribution rate over time without really feeling it.” – Preet Banerjee

Need More Motivation? Take on a Challenge

We all suffer from financial inertia from time-to-time. If you need a little extra motivation to save, try taking on a challenge. There’s the no-spend challenge, where you commit to only spending money on essentials for a period of time, and then banking the difference.

I like the 52-week money saving challenge. The concept is simple: Save an extra $1 in week one, $2 in week two, $3 in week three, and so on until you’ve saved nearly $1,400 by the end of the year. For a variation, try it in reverse so you’re saving $52 in week one and work backwards from there.

I don’t carry a lot of cash with me anymore, but I always save my change in a jar and use it for the kids’ allowance and tooth fairy money. One way technology has improved this version of saving is through a ’round-up’ feature. The idea is to automatically round-up each purchase to the nearest dollar and put the excess into your savings account.

Of course, there’s always a swear jar.

Final Thoughts

You likely have a lot of competing financial priorities and so savings often gets pushed to the back burner. I get it.

But you must save. You must get into the habit of saving. To do that, you need to make saving a priority by treating it like a fixed expense and making it automatic. Aim for 10 percent of your take-home pay, but if that’s not feasible aim for something – even 1 percent – to start building the habit.

In Michael Michalowicz’s Profit First, he gives business owners this lesson:

“Every time you get a deposit from sales, take a predetermined percentage of that money as profit. Of course there are a few more steps than just that. But even with the simple first step, of taking your profit first, you will become permanently profitable.”

If this simple, yet powerful concept can work for entrepreneurs, it’ll work for everyday people, too. Make saving a priority and always pay yourself first.