Is a $78,000 gingerbread house worth the investment?

gingerbread houseThe Christmas season is well underway: lights strung up outside the house, stockings hanging over the fireplace and the shopping (almost) done. It’s the time of year to take a break from your real estate investments. That is, unless you are investing in the one house with building materials undoubtedly tastier than bricks and mortar: the gingerbread house.

Typically, the purchase of a gingerbread house would cost an investor around $20 or so. But the folks at VeryFirstTo, an online luxury retailer, have created a gingerbread house that they’re calling the “most precious Christmas gingerbread house ever”. It’s also the most expensive, at $77,910 USD.

“The house, perfect for Christmas, will be totally bespoke and created in the likeness of your own home,” wrote the retailer in a press release.

So, is the house worth the investment? While most homes of the gingerbread variety feature candy cane lampposts, mortar made of icing and decorative gumdrops, this one is adorned with 150 AAAA-grade South Sea pearls and a five-carat Mozambique ruby set amid the icing.

So, if you have a spare $78,000 lying around this holiday season, you could indulge in this extravagant investment, or maybe it would be better to use that amount for a downpayment on your next investment property.

After all, the gingerbread house won’t have any significant long-term appreciation, once it’s been eaten by your Christmas guests.

RRSPs and Double Digit Safe Returns

At this time of year the big banks start ramping up their marketing for RRSPs. If you have waited until the last minute, like many Canadians, and make a phone call to your local branch to buy RRSPs, you must first ask a few questions to yourself before going ahead with the transaction.

  • Are you only buying RRSPs because you can get an income tax return?
  • What will you invest your RRSPs into?

    RRSPs are a vehicle to differ the taxes on your investment until you pull them out.The investments held within a protective tax bubble can grow tax free, allowing the investment to compound itself

and grow much faster than if the gains were taxed.

Many Canadians believe that buying RRSPs is a smart way to save for retirement.The act of buying RRSPs will usually provide you with a tax return, however that is not enough. Before transferring money into your RRSP account, decide what you will invest those RRSPs into. Banks make it easy to pick from a list of mutual funds, and a professional will manage your money for you so you don’t need to think abut it anymore. Before buying mutual funds, or another bank supported (and heavily promoted) product, determine who’s best interest these products are catered towards

How does the bank make money from you? Fees.The banking industry in Canada has done an excellent job of masking these fees, which will have a dramatic effect on the final value of your RRSP account.

Most Canadians are unaware of other investments that are eligible to be held within their RRSP account. Before you purchase hidden fee mutual funds, consider investing in an arms-length mortgage.When you invest in

something like a stock or mutual fund, they all have disclaimers saying past performance does not guarantee future performance. When you invest, make sure you are truly investing and not speculating.When you are guessing or counting on unknown variables, you are speculating. Investing is based on concrete facts.That is what I like best about arms-length mortgage investing. It’s predictable to the penny how much your RRSP account will be worth 3 years from now.You can easily and safely earn double digit returns, no matter what else is going on in the economy.

A banks major business is mortgages. 99% of Canadians pay their mortgage on time. Banks do not like risk, that is why they are in the business of mortgages.You can become the bank, and start earning fee free, double digit and predictable returns on your RRSPs in an arm’s length mortgage.

As always, do your due diligence. If you consult the advice of a financial planner, make sure they provide fee based advice, instead of getting paid from the built-in fees of their own products.This way you ensure that the advice given is in your best interest.

How to Calculate Return on Investment

An investor cannot evaluate any investment, whether it’s a stock, bond, rental property, collectible or option, without first understanding how to calculate return on investment (ROI).This calculation serves as the base from which all informed investment decisions are made and, although the calculation remains constant, there are unique variables that different types of investment bring to the equation. In this article, we’ll cover the basics of ROI and some of the factors to consider when using it in your investment decisions.

On paper, ROI could not be simpler.To calculate it, you simply take the gain of an investment, subtract the cost of the investment, and divide the total by the cost of the investment. Or:

ROI = (Gains – Cost)/Cost

One major factor that doesn’t appear in an ROI calculation is time. Imagine investment A with an ROI of 1,000% and investment B with an ROI of 50%. Easy call – put your money in the 1,000% one. But, what if investment A takes 30 years to pay off and investment B pays off in a month? This is when time periods come into play.

Often it is easier to compare one investment to another by dividing the ROI by the number of years each one takes to mature. On a side note, to determine how long until your original investment will double, you divide 72 by the ROI.

The Bottom Line

ROI is a useful starting point for sizing up any investment. Remember that ROI is a historical measure, meaning it calculates all the past returns. An investment can do very well in the past and still falter in the future. For example, many stocks can yield ROIs of 200-500% during their growth stage and then fall down to the single digits as they mature. If you invested late based on the historical ROI, you will be disappointed. Projected or expected ROIs on an unproven (new) investment are even more uncertain with no data to back it up. For this reason, Investors must perform their due diligence and have a plan in place before making the investment. Otherwise, they are speculators.

Your Personal Wealth Ratio

In order to properly understand the purpose of a wealth ratio, we will first define wealth.

Definition of Wealth: The number of days you can survive without working.

What is a Wealth Ratio?

Your personal wealth ratio is the amount of passive income divided by your expenses.

Passive Income = Wealth RatioExpenses

If you have ever played Cashflow 101 or 202, you understand that when your wealth ratio is >1 you are technically out of the “rat race” and are financially free. This is because your passive income is greater than your living expenses allowing you to have an infinite number of days you could survive without working.

How to Increase Your Personal Wealth Ratio

There are two ways to raise your wealth ratio to 1 or greater. One is to raise your passive income, the other is to reduce your expenses. By choosing great passive income opportunities, you will be on your way to financial freedom. At the same time you can reduce your expenses. I recommend you take a look at your expenses each month and figure out what you need to make each month to live. Then set goals in order to move your personal wealth ratio to become greater than 1.

When your passive income is greater than your expenses, technically you be wealthy. This is how rich people switch to becoming wealthy people.

See you at the top!

Who’s influencing you?

Birds of a feather flock together. The people with whom you habitually associate are called your “reference group.” According to research by social psychologist Dr David McCelland (Harvard), your “reference group” determines as much as 95% of your success and failure in life.

  • Who do you spend the most time with?
  • Who are the people you most admire?
  • Are those two groups of people the same?
  • If not, why not?

We become the combined average of the 5 people we associate with most. The quality of our health, our attitudes, and our income can be determined by looking at the people around us. The people with whom we spend our time determine the topics of conversation that dominate our attention, and the attitudes and opinions to which we are regularly exposed. Eventually we start to eat what they eat, talk like they talk, watch what they watch, read what they read, think like they think, and even dress like  them.

Think of your friends who order greasy appetizers or cocktails before dinner, as part of their routine. Hang out with them long enough and you’ll find yourself grabbing for cheese nachos and potato skins, and joining them for that extra beer or glass of wine, eventually matching their pace. Meanwhile, your other friends order healthy food and talk about the inspiring books they are reading (or the latest issue of DealFlow Monthly) and their ambitions in their business and investments. You begin to assimilate their attitudes, behaviors and habits. You read and talk about what they talk about, the the movies they are excited about, and you go to the places they recommend. The influence of your friends on you is subtle and can be positive or negative.

It may be time to re-appraise and re-prioritize the people you spend time with. These relationships can nurture you, starve you, or keep you stuck.

You cannot hang out with negative people and expect to live a positive life.