063: The Alternative Investments Path to FI | Liquid

Have you ever considered Twinkies, farmland, or video games as investments? Today’s guest has not only considered them, but he’s purchased them as well! Liquid from the Freedom 35 Blog joins us to talk about his unique approach to investing.

We discuss his many investments (from the zany to the mainstream), as well as leveraged investing, his secrets to financial independence, and more. We hope you enjoy this fascinating chat with one of Canada’s most prolific personal finance bloggers!

Thanks again to listener Alexi, who volunteered to edit the transcripts for our show notes. We’re so grateful for your help, Alexi!

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Money Mechanic
Welcome to Explore FI Canada, where we investigate the financial independence topics important to you. Join us as we learn how to optimize our lives, save money and invest for our future. We’ll go coast to coast interviewing experts and chatting with Canadians about their inspirational FI journeys.

Chrissy
EQ Bank’s Savings Plus Account is Explore FI Canada’s favourite bank account. It’s not hard to see why… it functions as both a chequing and savings account, offers an everyday high interest rate, free Interac e-transfers, and so much more. Visit exploreficanada.ca/eqbank to open your account today.

Money Mechanic
Hello again listeners Money Mechanic is with you. And of course Chrissy he’s with me as well. Good afternoon, Chrissy.

Chrissy
Hello, Money Mechanic, my friend. How are you doing?

Money Mechanic
Very, very well. Looking forward to another exciting episode with a very interesting guest today. But we’ve got a little bit of business to take care of before we dive into that. What is the announcement Chrissy?

Chrissy
Well, we have picked a winner for our contest for the Cashflows and Portfolios retirement projection.

Money Mechanic
Awesome. Some lucky winner’s gonna get a full retirement cash flow projection, who might it be?

Chrissy
So we did a random draw.

Money Mechanic
Pick me! pick me!

Chrissy
You don’t need it, you got it figured out. So our winner is Julia. And we have already contacted Julia and she will be coming on the show to discuss her free retirement projection with us once it’s done.

Money Mechanic
Congratulations, Julia. And I know it’s big thanks to Mark and Cashflows and Portfolios…

Chrissy
… and Joe.

Money Mechanic
Yeah, Joe, the invisible Joe on the show. But Joe is a big part of the background there. Yeah, no, thanks a lot to them for doing that. And we’re looking forward to hearing the story and what Julia finds out.

Chrissy
Yep. And we’ll keep you all updated on when that show will appear. As we mentioned, it’s going to take a bit of time to put that together. But hopefully it’ll be in a month or so we’ll keep you posted.

Money Mechanic
Sounds good. Today’s big episode is with a blogger friend of ours. It’s a relatively tight knit community in Canada with all the personal finance bloggers, which is really fun because it’s nice to get to know people a little more than maybe just what they’re writing you get to you know, interact a little bit more a lot of most of the bloggers are very willing to connect with you over their social media accounts. And I know I’ve bugged our guest today quite a few times because he has so many interesting investments that I really look up to him because he’s well obviously dropped the spoiler that he’s at financial independence and I’m jealous and it’s awesome. And I’m like you make fun of me well, I shouldn’t say make fun of me Chrissy because you don’t.

Chrissy
Oh I kind of do.

Money Mechanic
But you poke fun of me that I have like a little investment in everything. But I think our guest today might have a little bit more.

Chrissy
Oh my goodness,

Money Mechanic
Because he has things that I dont have Chrissy, like, I dont have any wine. I don’t have historical coins. I don’t have Zimbabwe banknotes. I mean, come on.

Chrissy
And what about Twinkies? He has Twinkies too!

Money Mechanic
We’re gonna find out about Twinkies. So I think before we get to before we introduce our guests, we should just caveat this episode for our listeners that we are diverging away from the standard, you know, index ETF portfolio. And if that’s what you’ve chosen to do, don’t get discouraged, don’t think you need to change. This is an interest episode. And our guest has a ton of content on their blog, and there’s gonna be people out here like myself, that is the kind of money investment nerd that wants to learn about all these different things. So without further ado, our friend the blogger from Freedom 35, Liquid. Welcome to the show, my friend.

Liquid
Hey, guys, thank you for having me.

Chrissy
Yeah, we’re excited to have you I don’t know why it took us so long to ask you on to the show. I’m so glad you’re here.

Liquid
Yeah, we’ve been talking about it for a while Money Mechanic and I just thinking about ideas. And I think we finally got to, yeah, setting something up to talk about.

Chrissy
Yeah, we’re excited to dig in.

Money Mechanic
Yeah, definitely. And like I said, you and I’ve messaged back and forth online because you have a lot of interesting investments. And I’ve learned a lot from you. I learned a lot from your blog. So for people that don’t know you, you blog at Freedom35blog.com. And there’s a ton of content on there. I’ll let you speak to that later in the episode. But big congratulation goes out to you for achieving financial independence. And we’re gonna ask you a bit more about that in a little while here, but maybe just start with letting our listeners know a little bit more about you and your story.

Liquid
Yeah, so I’m basically a graphic designer. I started working in quite early in my early 20s and just kept saving money and building up investments. And eventually I became financially independent at 33 years old and this was last year. So I was originally planning on freedom 35, hence the blog’s name. But last year, there was a big market correction. So I took the opportunity to throw a lot of cash that I had sitting on the sidelines into the market. And because dividend rates were really high at that time, I was getting some really good yields from banks and oil companies. And that kind of just propelled me and fast tracked my progress so that I basically was able to FI at that time. And since then, I got married, and I moved into a new house. And I’m still working right now. But I’m planning to retire over the next few years.

Chrissy
Exciting, now, So how old are you now?

Liquid
I’m 34. Now.

Chrissy
Okay, so you were about 33? When you reach financial independence, and you said, You started investing 12 years before that, so you were around 21 or so?

Liquid
Yeah, exactly. Yeah, I was 20 when I started working. And my first investment was my condo that I bought, and I moved into. So luckily, I was able to stay in my parents basement for that one, almost one year time frame to save up enough cash to put down a down payment. And things just started to roll from there. And they got into stocks and ETFs and other investments over time.

Chrissy
So I want to know what possessed the 21 year old to buy a condo, I mean, most 21 year olds are not even thinking about purchasing property or any kind of investment. So how, how did you figure that out at such a young age that that would be a good financial move for you?

Liquid
Well, I think part of it is just looking at my parents, they’re kind of good savers as well. And they themselves live in their own house, and they have a rental property. So I kind of thought maybe that, you know, that’s a good option for myself. And also, when I was in high school in grade 11, I took an economics class, which was pivotal to me understanding the kind of power of financial knowledge. And one of the books that we read had a page where it showed the difference between somebody who invested really early on, like when they’re 20 years old, and somebody else who started investing at 30. And the difference was so dramatic. So I just remembered, I have to get started, I have to start investing right away. And so that’s what kind of compelled me to look at investments. And at the time I was weighing, should I put my money in stocks or put my money in real estate? And after some calculation, I just decided, buying a condo was the best move for me.

Chrissy
Now, would you say you were self taught? Or did your parents teach you a lot of this stuff of how to buy an investment property and then and how to invest in stocks.

Liquid
I was probably mostly self taught. There were good role models for me to learn from and certainly use their example as a solid reference. But I think a lot of the investments that I had, and a lot of the ideas that I had about investing, I got more from books than from, like other people around me. So I read Rich Dad, Poor Dad, that was, you know, like a very popular book, even now. And I also read Think and Grow Rich. Yeah, that’s a really good one as well,

Chrissy
Napoleon Hill.

Liquid
I think so. Yeah. Oh, yeah. So just reading books, and just gave me the confidence to start on this track.

Money Mechanic
Yeah, I wish I’d seen that piece of paper when I was that age as well. I missed it by about 15 years. But that’s okay. Never too late to start. No. Now, the Well, two things here that I just want to bring up. First of all, on your page, where you said, you’ve achieved financial freedom, which huge congrats for that is, you said that you reached financial freedom, because your monthly income from your investments was enough to fund your lifestyle. So I just want to kind of highlight that for listeners, because there’s a lot of discussion or a lot of information in the FI community where we think we need to achieve 25x, 25 times our expenses. But you know, you’ve done it through passive income and having that income meet your monthly expense needs. So did you intend to do that from the beginning? Were you always working towards an income stream, instead of trying to save a larger lump sum can just speak to that quickly?

Liquid
Yeah, when I started out, the goal is to become financially independent. And just as you said, it means having enough passive income to cover all of my expenses. But the way to get there is not really set in stone. So the 25 times is more of a guideline that I used. But by no means is it a rule that I have to follow. And there are different thought processes that I use to get there, the most important one was, what can I do today to maximize my potential to reach that financial independence status, eventually, when I’m 35 years old, so there were some trade offs that I had to make, for example, with one of my investments I invested in farmland, that was not a cashflow, positive venture to begin with. And it still wasn’t by the time I sold it seven years later. But because that had a lot more growth potential, I was able to use it to kind of get me further along in that trend to financial freedom. And eventually, when I sold it, I had this lump sum of cash that I can then go invest in cash flow, and income investments.

Money Mechanic
Yeah, I think that’s interesting to point that out, and delineate that because you’ve adapted and changed your journey as you went, taking opportunities, they came along, and then restructuring for what works at the time. So I think that’s important for people to understand is that there’s no one size fits all that’s gonna fit you for your lifetime. It’s kind of modifying and iterating as you go.

Liquid
you have to change your mindset, and you have to change your strategy, because the finance world is always changing. And your personality is always changing. And you just have to be able to be flexible with your strategies, I think.

Chrissy
yeah, that even reflects my own journey, starting off in mutual funds, because that’s all I knew, because my mom worked at the bank. And then when I found the financial independence community, I pivoted into index ETFs. And now my eyes have been open to this whole other world of things that Money Mechanic dabbles in and people, like you dabble in, and also, of course, real estate right there, there are many, many investments that are absolutely valid, and they may not be what the FI community deems as proper investments to each buyer. But my eyes have been opened and I can see it’s possible and valid to reach financial independence in many different ways.

Liquid
Oh, yeah, of course, I think any investment that gets you closer to your goal is a valid investment. And it’s the right thing for you to do. because like you said, there are so many different avenues that you can go with that. And everybody kind of has their own take and their own specific knowledge about certain aspects of the world. And I think honing in on those things that you’re specifically good at, will definitely help you find those kinds of investment avenues that you can take.

Chrissy
And I think that’s the goal of the show to just reveal to people that you don’t have to stick with that dogma in the FIRE community, I think a lot of people are quite stubborn about it. And I was part of that crowd, when I first found FIRE, that index ETFs were the only way you had to go low cost passive index investing. And if you didn’t, there was something wrong with you, you’re making the wrong decision. And so I think that’s what we want to do open people’s eyes up to, to the possibilities of alternative investments.

Money Mechanic
Well, I think Chrissy, you know, index ETFs, they are the way to go for so many people, because it’s the easiest way to go. And you’re going to get the market average. And if you’re consistent over a long period of time, it’s going to get you to your goal. Right. I think that’s the important part is it will get you there. If you want to make it more complicated. Or if you want to try and get alpha and outsize those gains. There are other things to do. I think that’s the interesting part. Some people be like, Oh, this is super interesting. Other people be like, oh, I’ll wait till next episode when we’re back in FI school talking about ETFs. Right, and that’s fine. That’s totally fine.

Chrissy
But we’re not saying there’s anything wrong with Index ETFs. we fully support them and endorsed them. Right?

Money Mechanic
Well, okay, so to that end, I want to hear what Liquid’s secret was to financial independence. And the reason I asked specifically that is because your blog post when you achieved financial independence, you highlighted five key reasons and number one was adopt an abundance mindset instead of a scarcity mindset. Number two was low interest rates. Number three was understand how to value investments. Number four, invest with other people’s money. And number five, copy the best of what others have already figured out. So that’s kind of the high level here. Let’s kind of dig into it a little bit. Number one, what helped you I adopt an abundance mindset?

Liquid
I think being able to figure out what I wanted definitely helped with that. And if there’s like one big thing that I can recommend to people to achieve financial independence, at least, the way that I can see how people can do it, is to really get to know yourself. Yeah. Like Aristotle said, knowing yourself is the beginning of all wisdom. And I think that is still true. Because everything that you tackle, from savings, to investing to budgeting, or anything else financially, has to come from within yourself, and the intention has to be internal. And the motivation has to come internally. And if you don’t really know yourself that well, or what kind of person you are, it can be really difficult to navigate the terrain of financial freedom. And then when you get to financial freedom, you still have all of the same kind of problems that you had before. Because, you know, if you haven’t figured yourself out, it’s just not going to help you figure out all of those other problems that money can solve.

Chrissy
Yeah, and going along with that, you also have to know your values, what’s really important to you, because that’s what will drive you through the rough patches as you go towards FI

Liquid
Yes, exactly.

Money Mechanic
Yeah, we’ve talked about psychology on the show quite a lot. And it’s more and more obvious that that is such a key part of this journey. Alright, what about number two, we’ve been in a low interest rate environment for quite a long time, how does that play into your success?

Liquid
So this one is pretty much going back to knowing myself knowing my risk tolerance, and also looking at the changing, the ever changing environment that we’re in, and being able to be flexible and adapt my financial situation and methods with whatever is going on. So because interest rates are so low, what I was able to do was borrow money from other people, and use that to leverage my investments so that I was able to gain more return over time.

Chrissy
Now we’re gonna dig more into that later on. Because you know, both Money Mechanic and I love using leverage.

Money Mechanic
yeah, we’ll keep this in mind, because it does segue really nicely into a couple questions I have, but let’s just keep it high level for now. So okay, low interest rates, give you advantages. Okay, good. What about number three, which was, okay, so this is an interesting one, too. And I want to dig into this, as you said, Yeah, understand how to value investments. And it’s super interesting, our listeners can go to your blog, and you’ve got a lot of your portfolios outlined on there. And you literally have, like I have, I thought I had a lot of individual holdings, you’ve got a lot of individual holdings. So you obviously understand how to value these investments. So, just kind of give us a little bit of high level on what does that, What do you mean, when you say understand how to value investments.

Liquid
Right, so investments are just like anything else, they are something that you buy with your own money, and you can overpay for it if you spend too much, and you can also under pay. Now as a long term investor, what you want to do is find those undervalued stocks or bonds, or real estate assets, any investments, and you want to buy them at a low price. And then when you sell them later, hopefully they’ll go back to their properly intrinsic value, and you can sell it for a higher price. So most of the money that you’re making, when you’re investing isn’t about when you sell it, it’s about when you buy it, because if you can catch it when it’s at a good deal, then that is the best time to go in. And then you don’t really have to worry about when to sell it as long as you hold it for a long time. And by the time you sell it, chances are it’ll go a lot higher than what you bought it for. So if you don’t really understand what something it’s worth, then it’s difficult to navigate the field and manage your finances and to allocate where you want your funds to go. Because you want to get the most return for your money. And the way you do that is to understand how to value investments and how not to put your money in overvalued investments.

Money Mechanic
So I think that’s interesting. And that kind of also talks about how or why index ETFs are the most popular way of sort of getting to financial independence because it’s difficult to learn how to value investments. And it takes a lot of time and patience and reading and understanding. So for the listeners that are like I just use index ETFs Well, that’s fine, because you’re not having to worry about buying it at its lowest or its highest, you’re you’re going to average in over a long period of time. But definitely if you can get that buy those value investments, then you’re gonna get a little bit ahead on that. So what about number four? Invest with other people’s money, OPM.

Liquid
Yeah, so this gets a little bit back into I guess number two, but basically the idea is to use other people’s money to basically leverage your portfolio. So what I’ve done was instead of just buying a stock or my condo, just using cash, I borrowed money from the bank. And I was leveraging in the beginning at, you know, pretty high amounts 5, 10, 17 times for my farmland, I think. But eventually, if I hold it for long enough, and the income that I’m producing from it can pay off, yeah, can afford to pay the mortgage on it and the debt interest, then I can keep that and hold it and just wait for the asset to go up. Because if I’m leveraged five times, then what that means is, essentially, if the, for example, the price of the apartment goes up by 10%, my actual returns, excluding cost would be 50%. Because of that leverage, so without using other people’s money, I calculated it would have taken me like 36 years to become a FI. But with other people’s monies help, I was able to do it in 12 years.

Chrissy
So without leverage, you’re on hard mode the whole time?

Liquid
Yes. And that’s only possible, of course, because of number two, which is low interest rates right now.

Money Mechanic
Yeah, definitely. And the last one, copy the best of what others have already figured out. You listed some books in here, what? What’s your suggestion there? Number five.

Liquid
Yeah, this is a pretty big one. But it’s basically do what other successful people have already done. Because it’s very difficult to have your own ideas, and to come up with new ways to make money, because pretty much every decent way to make money somebody else has already done. So you can look for those people who are masters at what they do. And you just copy what they do. And that’s what I have done. And I’ve listed a bunch of people, and also they have a lot of books, and they have a lot of interviews, they have a lot of papers written about them. So I just look at what kind of actions they take, what’s on their minds, how they think. And I tried to imitate what they are doing. I’m not trying to copy them directly. Because it’s very difficult to make money by reading like a step by step prescription, it’s much better to understand what it is that they do and try to apply it to my own life. because not everything that every successful person has done. I can relate. So what I do is I look at what they do. And I think does that apply to my life? Can I use that somehow? And if it doesn’t, then that’s fine. I keep it in the back of my head. I can come back to it later, maybe. But for the ones that I can say, Oh, yes, I can do that. Then that’s when I take action. That’s when I write up a plan. And I follow through.

Money Mechanic
So who was it that got you investing in Twinkies?

Liquid
I think that was just me. That was just a fun experiment that I wanted to try because I heard on the news. I think it was local news that the company hostess was not going to make any more Twinkies.

Money Mechanic
Oh, really?

Liquid
Yeah

Chrissy
I never heard that there’s they’re still in business, aren’t they?

Liquid
They are. But at the time, there was a big lockout or something, or something with the unions. And there was like one company who made Twinkies in like the whole country. And they said they were shutting down and not making anymore. So I decided, you know, maybe if I stack up on these, and just buy a bunch, maybe they’ll go up in price over time. So I went to the local store and bought what I could I put them in the freezer. And I think a few months later or something the labor unions came to an agreement. And then they decided to, you know, start making them again. So the end result was I just ate all the Twinkies.

Chrissy
You know, they last forever anyway, right? I mean, people have done experiments, or you just keep them for 20 years, and they’re still just as good.

Liquid
Oh, for sure. Yeah, it was, um, yeah, so it didn’t make any money from that. But when I was looking on eBay, like the like a few days after, they said they were going to shut down. People were selling them on eBay. And they were going for like $30, $40 a box. So I thought, Oh, this is pretty cool. Of course, that never panned out to anything. But it’s just interesting to see the different kinds of investments you can get yourself into if you pay attention.

Money Mechanic
You’ve got a big list, we’ll get to some of these others as the show goes on here.

Chrissy
Yeah, yeah.

Money Mechanic
One of the things that I’ve found interesting, and you’ve written about it a couple times, and I think we’ll just kind of roll into this where you’ve talked about how low interest rates and leverage have helped you shorten your journey and then sort of give you a PowerPoint on that. Can you just kind of talk to us a little bit about what you mean when you wrote about how the real rate of return is? Due to interest rates right now, and how you look at that and see if inflation is this is 3%, or whatever example is going to be, then you know what your actual rate of interest is just briefly kind of run through that,

Liquid
Right. So, in normal times we have a positive real interest rates, which means the interest rate that you’re getting on your investment is higher than what the inflation is. So you’re getting a real return after inflation. But in some situations, like I would argue, right now, the inflation rate is higher than the interest rate on a lot of investments. And that includes interest rates on, say, mortgages or margin accounts at discount brokerages. So what that means is, if you are borrowing at a lower interest rate, let’s say 2%, but inflation is higher at 4%, then that difference, which is that 2%, is actually a benefit to you. Because you are, it’s almost like you’re getting paid 2% to borrow money.

Chrissy
Yeah, I really like that you make that point in your posts, and we’ll share that in our show notes. But yeah, you say thanks to negative interest rates, holding a mortgage produces wealth, net of inflation. And I knew that intuitively. But the way you put it like that, it makes it very easy to understand how you can see how the real interest rates, like once you actually factor in inflation, it actually makes a huge difference when you understand that concept.

Liquid
Yeah, so just to explain that a little bit. Why would holding a mortgage produce wealth is because if you’re borrowing a mortgage, a lump sum, that liability you have is somebody else’s debt, which in most cases, it’s like a bank. And when that bank holds that mortgage as an asset, it is an asset for them, because you’re paying them interest on it. But because of inflation, money goes down in value. So that asset that they’re holding is losing value at if it’s if inflation is 4% a year, then they’re losing 4% of their mortgage asset. But if you’re paying them 2%, then they get a little bit of a benefit there. But it’s still not as much as how much they’re losing. So that’s why to you, it is a benefit, because you are growing your wealth, since you are since inflation is eroding away your debt faster than you’re paying it back. The only caveat that to that, though, is you have to make sure that you’re using the borrowed money effectively, you can’t just throw it in a bank bank account, because then you’ll be losing that same 4% to inflation as well. So you have to make sure you’re getting over that hurdle, hurdle rate of inflation with the asset that you have with the money that you have borrowed from the bank.

Chrissy
Yeah, and obviously, don’t use it for renovations and vacations and cars, which a lot of people do.

Money Mechanic
Yeah. So it’s interesting, it’s kind of one of those little brain gymnastics to get around that and realize what’s going on there. But it’s also a concern right now for, you know, the traditional portfolios that we’ve always heard about, because you’re you’ve given the example of mortgages, but if we’re, you know, for bond heavy in our portfolios, well, then that the real interest rate is is an issue long term as well. And we don’t know what’s going to happen, rates could definitely go up. But that’s also going to be bad for the bonds and that term as well. So

Liquid
yeah, it’s hard to know what interest rates will do in the future, where the economy is going, job reports, that’s why it’s always good to be flexible, and keep an open mind and be able to pivot when the economy changes.

Chrissy
And this ties in to two of the other posts that you did. I’m not sure which one we want to start with where you talk about debt, you really turn the tables on how most of us have been taught to think about debt. And that something actually, before we talk about that I want to ask you about because you’re from an Asian background, and your parents are, I assume, similar in age to our parents probably in baby boomer-ish generation,

Liquid
Yeah, they are.

Chrissy
Okay, So a lot of them are very debt averse. They taught us and they were they came to this country, maybe a lot of them are immigrants. They didn’t want debt, because they felt it was such a burden. And understandably, when they were buying houses in their 20s and 30s. Interest rates were very high, you know, in the teens. So understandably, debt was a huge burden for them, and they wanted to avoid it. And so growing up with that, parents who generally believe that you pay off your debt as soon as possible, how did you become a person who’s so comfortable with leverage and debt?

Liquid
Oh, yeah, my parents were definitely not totally debt adverse because they do have a mortgage as well, and they have a rental property. But yeah, generally speaking, they didn’t want me to have too much debt. But through reading Rich Dad, Poor Dad, what I learned was the way you get rich, especially if interest rates are low, is to borrow money. And you have to make sure that you are solvent and if there’s any issues that come up that you are flexible enough to you know, be on top of that. And not stretch yourself too thin. So I was careful with that I never felt like I had too much debt. And my parents, they’re kind of hands off, which is nice. So I didn’t really have to explain too much to them what I was doing, but they sort of understood that I was using leverage and I was investing.

Chrissy
Yeah, I find even in whether it’s our parents generation or not, there is a lot of focus on paying down your mortgage being debt free. And that is the cultural norm, I would say, for most people, and it’s kind of hard to overcome that and to, to get that courage to do something different.

Liquid
Yeah, I had a lot of help, just by, like I mentioned earlier, looking at what other people do, like Robert Kiyosaki, who wrote Rich Dad, Poor Dad, he mentioned he has like 4,000 units paying him rent every month. So he mentioned that he didn’t need a retirement fund, because that was basically his retirement fund. And the way he did it was just by borrowing money strategically, doing it in a safe way, and just building up from the ground up. And that’s how I knew well, if, you know, because sometimes it’s hard to know if something will work out or not, if you don’t see somebody else do it first. But once I’m able to see an example of other people do it, then I know Oh, it is possible for me as well.

Money Mechanic
Yeah. And I think we need to really recognize the fact that the majority of small businesses and businesses are started by, you know, an entrepreneur going to a bank and or wherever and saying, hey, I need some startup funding to get this business started. And, and they use that leverage to their advantage to get the ball rolling and, and can control that debt and use it wisely. Right? It’s not really any different for us. If we’re using that money to as an investment, it’s you’re buying an asset, you’re paying for an asset, and you’re hoping to generate income from that asset. And I love the comic that you’ve got in the post the illusion of debt. Do you remember that one that was one The $100 and the German tourist in a small town. And I think this is a really important concept that people maybe don’t think about a lot. It’s it’s the Liquidity to the velocity of money. I’ve heard that term thrown around before. It’s how quickly money moves through our system. That that makes the biggest differences as how that $100 serves to everybody’s debt in the cartoon, I then came back. So it was just it by moving around the system and Liquidity is this interesting nuance to understand about our economic system.

Liquid
Yeah, everything in our economy runs on debt. The government borrows money, and small businesses borrow money, large companies also borrow money. Without debt, the economy would come to a grinding halt, which is why debt makes the world go round. And the more you learn about how debt works, the more comfortable you feel, or at least it’s the case for me, the more comfortable you feel, taking on debt, using debt and sort of using it as a tool, because you can see how powerful it can be if you’re using it the right way.

Chrissy
Yeah. And I think that lesson can apply to a lot of investing, the more you know, the more confident you can be, and the more you can trust in your investment and how it will work out.

Liquid
Yep, absolutely.

Money Mechanic
Chrissy, you know what, we should make a little pivot here. Otherwise, we’re gonna get known as the podcast that just talks about debt and leverage all the time.

Chrissy
Yeah, that actually is a good time for a break anyway. Yeah. Let’s have a break. And we’ll be right back with Liquid.

Money Mechanic
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Money
Alright, we’re back here with Liquid from Freedom 35. And I want to pivot a little bit into what you’re actually holding in your investments. And you’ve got to post on your blog, which I like. And it’s called hedge fund, which was click baity enough for me to get in there and go, what’s he talking about hedge fund, but then I kind of realized what you’re talking about. Maybe you can summarize it for us. So I don’t just steal your thunder here.

Liquid
Right. So traditionally, a hedge fund is an investment portfolio that you can invest in and it’s usually a fund manager and what they try to do is add alpha and beat the market, but I kind of use hedge fund the term more strictly as what hedging means. So what this is, is a portfolio that I have put together which is part of my overall portfolio that contains stocks that pay dividends. And those stocks are in industries that I am a customer of, for example, I load up on gasoline so I have investments in oil and gas companies, for example, Chevron or Suncor. So this hedge fund is just a collection of the stocks that I have and I’ve kind of broken them up into different categories. So for example, I have one for transportation I have another one for housing, one for telecommunications for my high speed internet and phone bill and just as an example in there I would have companies such as Bell and Telus, as well as Apple so that’s just an idea and the point of tracking this is because I wanted to see if I can have enough investments in a particular sector that those dividends coming out of those stocks that I own will be enough to cover all of my expenses for that particular segment of my spending

Money Mechanic
yeah I love that and for anybody that is interested in starting out by picking stocks This is one way I learned to is always invest in the things you already own. In the places you already spend your money you know we are all paying a cell phone bills and we’re you know a lot of us are going to a bank if it’s even if you’re an EQ bank, you can invest in equitable group, you know, spend the money invest your money, where you’re spending it. And and I love it, the way you said is you’re hedging it because if they raise prices, they may raise dividends as well. And I’d love to have a free cell phone bill or you know, if you if you use natural gas, you might have Fortis or whatnot. So yeah, I totally agree with that. I like the strategy a lot.

Liquid
Yeah, and like you said, it’s a good hedge against increasing prices, because if Fortis, you know, grows their rates, then chances are they’re gonna grow their dividends. And as a shareholder, you get the benefit of that

Money Mechanic
super simple way to start. And, you know, you talk about you know, finding value, I think here’s, you could probably argue there’s times to buy these companies and times there isn’t to buy the companies. But you know, that’s kind of getting off into the, into the weeds here of how to value an individual stock, I think I’m comfortable enough to just say, hey, I’ve got a, I’ve got a phone bill or a gas bill. Holding that and getting paid a dividend is probably acceptable if I was interested in having individual stocks. Now, beyond that, you have a ton of stocks in your other portfolios, which you do show on the blog, which is, which was very interesting. I think people will find it interesting if they are interested in individuales. How to put that there. Now just here’s a bit of a bigger higher level question, because you’ve got so many holdings. How do you decide whether it should go in your TFSA, your RRSP? Or your non registered, you just got so many holdings? Did you have overlap? Like how do you keep it, how do you kind of keep it organized?

Liquid
I try to keep all my interest paying investments in my RRSP or TFSA. So I tried to load up on my TFSA first, and if I have any US dividend paying stocks, I put that into my RRSP. And for my non registered, I have mostly Canadian dividend paying stocks. And for all of my bonds, they go into my TFSA. For the most part, what I tried to do is max out the room of my TFSA first and once that’s maxed I go after my RRSP contribution room and tried to max that out. However, in some situations depending on the circumstances, I might do a lot of investments in my non registered portfolio because I have access to margin there and I have access to more option strategies there. So it just depends but usually if it’s like a normal year and we see like regular stock appreciation, like no major declines and no like big booms, then I go TFSA then RRSP and I tried to put interest bearing for example, all my REITS are in my RRSP and then I go and invest in my nonregistered after

Chrissy
and just to clarify for our listeners who may not know the reason why Liquid has these different stocks in different accounts is because for instance, US dividend stocks, they are recognized or the US recognizes the RRSP as a retirement account and so that we have a tax treaty with them and so you save on taxes that way if you put your dividend US dividend stocks into your RRSP, whereas Canadian dividend stocks, there is a favorable tax credits if you have them in your non registered. Sometimes if you’re in the right tax bracket, you could even have negative tax rates. So there’s some interesting tax optimizations to be had when you understand what goes in which account

Money Mechanic
When your portfolio’s big enough.

Chrissy
Yeah, yeah.

Liquid
Yes. Yeah, absolutely. And so the main reason I split it up those way, like Chrissy said, is because of the tax advantages. Another thing I think about is when I’m withdrawing my portfolio later on, how am I going to do that? So I don’t want to put too much money into my RRSP, for example. So I’m also making those considerations as well.

Money Mechanic
I’ve got a quick question here, just because you got the portfolios here that I’m actually just looking at them. In your TFSA. I noticed that two of your holdings are I haven’t done a percentage here, but they’re a large percentage of the overall portfolio of the TFSA. Do you make individual adjustments? And I’m wondering because I’ve got a particular holding that is kind of like become above 15% of that, of that just have that TFSA? Do you make adjustments within that? What do you think of that?

Liquid
Not really, I mean, I look at my portfolio, like overall, maybe once a year, but I don’t really make adjustments unless I need to. And I usually don’t need to. So the way I think about it is, yeah, I have a large holding of something. But that’s just because most likely that investment has grown a lot and has an outsize performance compared to everything else. Yeah. So that’s fine. And I have some stocks like that in other places as well. But I would just asked myself, has the initial reason for me buying the stock changed? And if the answer is no, I just keep it.

Chrissy
Yeah, you let it run.

Liquid
Yeah. Because I have heard just anecdotally, more people regretting selling their stocks too early than people who didn’t get into a stock

Money Mechanic
Well, thats me with my hand raise. That’s me over here.

Chrissy
Well, the interesting thing is research has found if you rebalance, less often you actually do better because you’re letting your winners ride and you’re not you’re not skimming off the top right. So it, you have to find that balance, right, where you’re not letting your portfolio skew too far that the in the direction that you’re not comfortable with, and also letting the winners run.

Liquid
Yeah, you definitely have to keep an eye keep an eye on the balance of everything, of course. But yeah, I’ve seen a study where it was like a 50 year or something like a very long time study, where they surveyed different people. And the end result was it was a group of people who outperform everybody else. And they were the people who like kind of died earlier. So they didn’t touch their portfolio and that’s why it grew so much.

Money Mechanic
Now, let’s just pivot a little bit here away because we can get lost in the rabbit hole of all the holdings you have in your portfolio, and anybody that’s interested should go check it out. And I’m sure they can reach out to you on your blog and ask you questions. But there is a long list of interesting investments that we should just briefly sort of touch on before we get to the end of the show because we said we would and I’m interested in it to, Chrissy I’m gonna read the list and then we’ll pick a couple just to, to have a little discussion about because it’s pretty cool as we’ll start with things that you once had, but you no longer have, which was Twinkies as we as we mentioned earlier, you’ve also mentioned farmland in the show, which is interesting. You’ve tried investing in Pokemon cards, you’ve done a little venture capital, you’ve done some European Investment Fund that sounds interesting and you’ve also played around with a little bit of the meme stock with game GameStop. So those who don’t have any more but what you still have which is awesome long list as well, 21, and I’ll run fairly quickly for everybody. Okay, stocks we’ve talked about corporate bonds, peer to peer loans, mortgage investment corporations mix, precious metals, rental properties, crypto currencies, wine, stamps, foreign currencies, historical coins, vintage Canadian banknotes, who knew, Zimbabwe banknotes I hope you’ve got like a 10 billion note or whatever it is. Yeah. Video games and consoles, real estate crowdfunding, magazines, plastic figurines that Star Wars GI Joe I’m not sure. REITs, options, contracts, designer handbags and green energy bonds quite the list. You’re a Man after my own heart, I’m gonna have to drop my list. I don’t think I have that many yet. But I’m getting close. I want to ask about a couple because I am in them. You’ve got peer to peer loans and real estate crowdfunding. So just quickly, what’s Peer to Peer loan that you’re using. What’s that about?

Liquid
Right? So that peer to peer loan platform that I’m currently investing in, is Lending Loop. And they are a Canadian company. I started in 2017. So it’s been a few years. And yeah, it’s basically loaning small amounts of money to small businesses, usually, who then use that money to hire people or buy supplies. And the loans are typically one year to three years, some can get a little bit longer. And you have varying interest rates from 8% to like, 15% or higher. So I’ve been doing that for a while. And with the real estate crowdfunding, that you mentioned. With the real estate crowdfunding, that is,

Money Mechanic
Are you with Addy?

Liquid
I am with Addy. Yeah, I think we’re getting invested in it.

Money Mechanic
Were both of us in that. Yeah.

Liquid
Right. So that is exactly what it sounds like. It’s, it’s investing in real estate in Canada, where you pool a bunch of money together with other retail investors, and you can go buy a property.

Money Mechanic
Yep, that’s a good way to put some money into real estate if you can’t afford to. I don’t want to get too deep into that, because we didn’t say why not just go into REITs and all the rest of it. That’s a topic for another show. But a couple interesting ones. I’m also in those ones as well. Chrissy Do you have one you want to pick off there?

Chrissy
Well, I wanted you to list your video games and consoles, because you wrote about that I was but I thought that was so fun. And something my kids would be interested in is the plastic figurines. I don’t know what kind you’re talking about. But my kids love transformers, like, my husband was into Transformers as a kid. And now he loves that his two boys are into them, too. And I’m just wondering, what do you invest in plastic figurines wise?

Liquid
Oh, absolutely. Um, it’s mainly those one, seven scale PVC figurines from different video games and animes. So I have some ones from Guilty Gear, which is a fighting game. And in for video games and consoles, I started that when I was a teenager. So just buying games. And sometimes I would buy two copies of a game. And I would keep one sealed, and I would play the other one. And you never know with these things. So that the top gainer I have is a game set that I bought together. And there was like a few games in there for $80. And that was maybe like 10 years ago or something. And then that turned out to be one of the rarest games because there was quite a lot of controversy around there. The game is called Rule of Rose. And you can’t buy it now for under $1,000.

Chrissy
Wow, I’ve never heard of that that video game could be worth so much because you think they’re old tech and you need an old console to play them. And they get more and more scarce as time goes on. So it’s interesting that they actually not only hold their value, but they go up in value.

Liquid
Yeah, but it’s very difficult to know beforehand. Which ones do you go up in value because most games lose their value over time when you count in inflation. But there’s a whole market around video games and collectibles and antiques. And it’s just, it’s a really deep topic that I’m certainly not an expert. And but there are people who just spent all day like looking at this stuff. And they know exactly when a game comes out. Like which ones to buy, which ones to hold. Which ones are going to be worth a lot in the future.

Chrissy
Yeah, I find it interesting. Even when we go to Toys R Us with my kids to look at the new Transformers there will be adults out there who are looking through every single package on the rack and finding specific ones. And it’s unfortunate because my kids just want to play with them. And then these adults are taking them to sell and so they can’t find the ones that they want. And yeah, it’s kind of disappointing when that happens, but it’s part of it.

Liquid
It’s because those adults probably grew up with Transformers. So they have that nostalgia. It’s same with like anything Pokemon related to people who grew up with that kind of stuff, like myself, now have the disposable income to go out and buy those. So yeah, it’s unfortunate for the younger generation these days who just want to like play with them and use them.

Chrissy
Yeah, yeah. Well, thank you. That was awesome that you put together that list for us. I thought it was very entertaining. I will throw it in the in the show notes just so people can see it.

Money Mechanic
watches. You don’t have watches on there. There’s good investment in watches.

Liquid
Yeah, I heard about that, too. I just haven’t gotten into it yet. I just Yeah, I don’t know enough about it. But maybe someday I’ll want to learn more about it.

Money Mechanic
Yeah, that’ll be our next tweet session after we figured out options trading you and I kind of started doing options at about the same time. Should we just wrap up this episode with a little banter about that? Sure. So I think our strategy is fairly similar. I’m basically selling cash secured puts to generate some monthly cash flow or if we get assigned then it’s an adjusted cost base maneuver as a capital gain. Do you have anything you want to sort of point out? Why you got into doing it, you’re FI, Why are you now trading options?

Liquid
Well, I think options are a good way to just make some supplementary income on the side, if you have a sizable portfolio to handle that, without getting yourself into, you know, too much trouble and taking on too much risk. I figured it’s reasonable to make like three or 4% annually on your portfolio with option premiums. So I’m sort of doing the same thing, selling put options, but I’m selling naked puts. So most of the time options will expire worthless, so I don’t have to put up anything, but then if it does get assigned, or I can even roll it, then there are different ways to deal with that. But yeah, it’s the amount of money that you can generate from a portfolio using options compared to the time that you put in especially if you are on a roll, and you have previous experience with certain stocks, and you always go back to those same stocks, because then you don’t have to do the fundamental analysis of the companies again, you just go Oh, yeah, I did that option. You know, a couple months ago, it expired worthless. I’m gonna do that again. And it’s just really quick to put on those trades. And yeah, the bang for the buck is just really good.

Money Mechanic
Okay, I’ve got a super advanced question just for all the real nerds out there that are into this stuff. I noticed that you sold some puts on VIEs which are variable interest entities, such as JD.com, Alibaba, etc. These are corporations from Asia that are registered in offshore accounts, like the Caymans, so that your stock holdings actually are not worth anything except the contractual obligation. And yeah, you sold some some puts against those. So you’re comfortable with the basically the underlying structure of those companies?

Liquid
Yeah, I think those are definitely here to stay. Now, it is very risky, because they could go to zero, depending on regulatory frameworks, and just lots of different geopolitical risk with that, but at the same time, those companies those VIEs are undervalued relative to North American stocks. So there is a balance there and I would definitely put those companies in the category of speculation so that’s a very small portion of my portfolio.

Money Mechanic
Yeah, totally agree. Thanks for that. I’m sure you will get a YouTube video off of that from you eventually you’ve got a whole bunch of great YouTubes So since we’re wrapping up here because you do want to dive in with anything else before we let Liquid give his little pitch

Chrissy
no I just want to say I really appreciated your blog I was sort of a casual reader for a few years and then I think maybe last year I finally became a subscriber and I have enjoyed every single one of your posts that you just put a spin on things that no one else does, it’s just very unique the way you look at things it’s very sensible very rational but but different and I really like that I appreciate the uniqueness of what you write about so if anyone hasn’t discovered Liquid independence your blog sorry it’s Freedom 35 blog. If anyone hasn’t discovered it yet I highly suggest that you go take a peek it’s a lot of great content there and you have what 800 something posts are more than that now?

Liquid
Yeah, about 800 posts.

Money Mechanic
And Chrissy Don’t forget there’s always like the random useless fact that he posts in the end of each blog. If you learn nothing else, you had a laugh, which is good.

Chrissy
Yeah, Liquid’s really good with his memes, they’re hilarious.

Money Mechanic
So we’ve pretty much covered it. But Liquid tell us where everyone can find you.

Liquid
I’ve had people tell me they read my blog specifically for those random useless facts for free

Chrissy
Oh, you know, another thing I love about your blog is when you post the negative comments that you get. I just think it’s so funny that you do that, because these trolls are just so mean to you and you just make it hilarious.

Liquid
Oh yeah, you got to find humor in everything. Otherwise, life is no fun.

Chrissy
I love it.

Money Mechanic
So we’ve covered wherever they can find you, go ahead

Liquid
so people can find me. The easiest way is to Google Freedom 35 Blog. That’s my site where I post everything on there. But sometimes I find it’s easier to learn the financial concepts with audio and visual guides. So I have a YouTube channel called Freedom 35 Blog, and you can find me on YouTube there.

Money Mechanic
And I do appreciate the little stick men in your videos because they are really good to watch. I mean the information is important too, but they’re entertaining. So that’s high value.

Chrissy
yeah, your videos are very well done. Just like everything else. Your videos are excellent. I highly recommend you watch this too, you must put a ton of time into it. They’re very well done.

Liquid
Yeah, I tried to, you know, give value to my readers and watchers. So since I’m financially independent, now I have more time. So trying to put that to good use. You know, ultimately, FI to me is not so much about the money, but it’s about the time and freedom that I can enjoy, because I no longer have to worry about money.

Chrissy
Well said. Well, thank you very much Liquid, we’re glad you could come on and talk to us.

Liquid
Thanks for having me.

Money Mechanic
Talk soon. Bye for now.


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