He’s 26 and, if typical of his generation, we’re all screwed.
His entire net worth ($23,000) is in a ‘Smart Saver’ high-interest account at BMO. So long as he keeps more than $5,000, he gets 1.1%. Below that a little less – zero%.
Do you understand the inflation rate is 1.4%, I asked? Yeah, he said. But it’s safe. And do you understand that the $253 of interest you earn in a year is taxed at 100%? Yeah, he said, but it’s safe. So you realize that by saving your money you’re losing money? Yeah, he said, but it’s guaranteed.
Do you know that if you put your money in preferred shares of BMO, you can earn 5.95%, instead of having the same bank pay you 1.1% on the identical money? And that instead of paying 100% tax, you’ll pay about 20%? No, he said. But I don’t care.
And I gave up.
As a survey showed one day this week, Canadians – heavy on debt and light on savings – are headed for golden years filled with Friskas and Pedigree. We owe (on average) $1.47 for every dollar we earn. Household consumption exceeds income. A third of us have no savings. Most of the other two-thirds don’t have enough. Personal loan and mortgage debt is at record levels. Wages are flatlined.
The average household investments total $130,000. Average household debt is $112,000. So, we have an average of $18,000 in liquid net worth, with most of the rest in our houses (average family net worth is $364K).
Does this look healthy to you? What might happen if the Canadian housing market followed the path of the American one, losing 20% of its value and trapping untold numbers of sellers in illiquid properties? Has the slide already started?
This week even CREA was chugging Pepto.
New numbers confirm what was forecast here some time ago – sales have crashed lower. In fact, fewer homes were sold last month in a stunning 70% of all Canadian markets, led by Toronto and Calgary. Average prices have also started their descent – down 1.2% from May, which happens to be an annualized plunge of more than 14%. Trust me, there’s more to come. I’ve a hard time understanding how this asset deflation will not last for a few years.
So, the assault on net worth has begun. Canadians’ fav investment (about 70% of us now own homes), and the Boomers’ ultimate folly, is under attack. And who can be surprised? After all, we binged on credit, created an unsustainable bubble and destroyed family balance sheets to get what we wanted, but often didn’t need. Now the reality of recession, debt, taxes and too few jobs hits.
The way out, of course, is clear. Sell real estate before it declines further. Downsize. Consolidate. Rent. Whatever. Trash debt. Drain off equity and invest in assets that pay you to own them. Escape housing’s inevitable decline and build up what everybody actually needs – liquid wealth.
Which brings me to the second problem. Whatever sucked the guts out of that 26-year-old is apparently contagious.
There is news that we’re opening new chequing and savings accounts at breakneck speed. The banks are pulling out all the stops to suck money into vehicles paying us peanuts, while Ally and the Dutch guy bloat with billions. The Boomers are leading the way, says one analyst, because they have “lost their mojo.” That’s not all.
Once again the herd is spinning, shifting, starting to stampede out of Mississauga and Kelowna, and headed for a cliff. Afraid of financial assets, now starting to doubt houses, they thunder towards the safety of cash, misunderstanding the greatest single risk possible is the one dead ahead – running out of money.
I may be boring, but I’ll be consistent. The only way to survive what’s coming is to reduce debt, and increase wealth. With our average liquid net worth, the last place to put money is a savings account or GIC paying you peanuts or fully exposed to tax. Don’t like risk? Buy a 4% bond in the bank, instead of a 1% bank account. Want less tax? Get some bank preferreds at 6%, not a bank GIC at 2%. Want to retire? Buy some stock in the bank, with money from your .25% bank chequing account. Confused? Get an advisor. And not at the damn bank.
And if you’re 26, grow a set. Will come in handy.
190 comments ↓
Garth, how and where do you buy preferred shares in banks?
I don’t quite understand why you dump on 1% savings accounts. Sure, the return is terrible but it gives peace of mind to some, including myself. The act of saving is far more important because frivolous spending means a loss of 100%. This guy investing $23,000 at 5% gives an extra 750 bucks or something but he has the potential to lose everything. It makes far more sense to cut $750 of frivolous spending every year than putting everything on the line for that kind of return. I myself don’t trust anybody in life when it comes to money and the markets are essentially gambling to me. Maybe we lose out on an occasional 10% return but sleeping at night means a lot more.
How do you ‘lose everything’ investing in bank preferred shares? If the bank goes down, so does your 1% savings account, dude. — Garth
Don’t bank on the banks!
Obviously an example. Insert ‘health care’. Or ‘energy’. Or ‘consumer staples.’ — Garth
Garth – dear Garth – you’re anything but boring. I’m sure most if not all would agree.
I agree that the 26y/o should grow a set, but what do you do? I’m a Gen X-er who thinks more like someone 20yrs my senior than my own generation. Tonite, I’m at work, listening to my 6 digit annual income co-workers lament about how they wish they’d rather get something other than stock options so they don’t have to “think about it”. Life is rough.
I on the other hand, have full control of a large nest egg, contribute monthly to my RRSP & the wifes as well, max out the TFSA’s and spend my 12hrs at work researching stocks, warrants, prefs, world events, etc etc. My co-workers, fellow Gen-X’ers prefer to watch Big Brother.
To each their own Garth. You can lead a horse to water…
I don’t think you’re boring.
Does that make me boring?
The official inflation rate may be 1.4%, but the actual rate is significantly higher.
Talk to anyone on a fixed income. Their purchasing power is being eroded at a rate much higher than the 1.4% figure suggests. And many of them are starting to become very nervous.
The chosen path is austerity. It will be a painful journey.
I love periodic summaries like this one Garth. They’re important to those of us who are a little slower in the uptake. The repetition is far from boring, it’s well-needed reinforcement of the concept. Thanks.
Twenty-somethings like this guy are in the perfect spot right now, as least when it comes to real estate: they will be hitting their 30′s (and settling down) after this crash has had a good 4-6 years to run its course, and will be faced with real estate prices that could well be 25%-50% lower than they are today.
A 22-year-old graduating from University today may not have great job prospects for a few years, but boomers will be retiring by the tens of thousands, which should open up a lot of opportunities.
So, by their 30′s, not only will the employment picture be better, but real estate will be back down from the bubble prices of May 2010.
Sorry Garth but I have a lot of trouble with putting my money in the banks no matter what the yield is.
They’ve screwed up our economy and now they’re sucking up our money to increase reserves as well as still misallocating capital. They are the source of our problems and that is that. We need to starve the beast. But I’m Gen-X and you’re a boomer and you’ll never get it. You’ve bought into the system and we don’t trust it.
Regarding those prefs, they do look attractive but I still have issues with the potential widening of credit spreads.
http://www.pimco.com/LeftNav/Viewpoints/2010/Distressed+Debt+The+End+is+NOT+Near+May+2010.htm
But then again, maybe when all hell breaks loose, bank shares will be immune as everyone will throw all their remaining money into more bank shares because that’s all that will be left. LOL. Whatever.
I read the comments here because it gives me a good idea of what people are really thinking when you talk. They write things they’d never say in real life. I love that aspect of the net. And according to you and your followers I should rent (who cares about my hobbies that need more space than a rental can offer), I should probably sell my kids to some pimp, get rid of all pets, etc. All in the name of accumulating more green stuff that boomers will pry out of my hands.
Actually, with everybody so bullish on Canada, I think it’s just about time to get a chunk of my assets out of the CAD.
‘But I’m Gen-X and you’re a boomer and you’ll never get it.’ Actually, I do. And you still can’t borrow the Hummer tonight. — Garth
[quote]How do you ‘lose everything’ investing in bank preferred shares? If the bank goes down, so does your 1% savings account, dude. — Garth[/quote]
Savings account is CDIC insured.
Are you serious? A major bank collapse in Canada is a non-insurable event. — Garth
Brilliant. He has guaranteed himself a financial loss.
The banks are smart. They always name those accounts something like ‘smart saver’ so the uninformed feel like they are doing the right thing.
They must have had an influence on naming the Tax Free Investing Account the Tax Free Savings Account.
And good to see a mention towards ‘Buy some stock in the bank, with money from your .25% bank chequing account.’ As a generalization dividend paying equities haven’t been mentioned enough here.
Financial advisors at banks are told to push certain investments on you — funny how they don’t put the customer’s individual circumstance first. Don’t believe a word these people say unless they start the conversion off with “well, I probably shouldn’t be telling you this…”
Garth is absolute right, the greatest risk is running out of money. Earning less that inflation is a sure way to realize that risk.
Whenever I want to stuff money under the mattress, I always think of the old lady from BC who had $400,000 stashed in cash since the 1930′s:
http://www.canada.com/victoriatimescolonist/news/story.html?id=1ef6cb78-ec44-4285-9525-5324986c90cb
Tell your 26 year old friend that that money in the 1930′s could have purchased 200 condos, but today only 1.
I do agree the 1% I’m getting on my $$$ from my recently sold condo is just under inflation. The way I look at it though: I ditched my condo before the market in Edmonton Started to go down (i’d be getting over $10,000 less today) the tubes last month. I am renting a nicer apartment for $900 CHEAPER than my condo costs were and I have $100,000 in the bank!
I’m too worried about dealing with a broker at the banks. Some retired people I had worked with before lost hundreds of thousands of dollars in the stock market. One couple I met had 1.2 million in the bank, which today is still only 800,000-that’s a 400,000 loss!
If I hold tight won’t interest rates come up again? I work full time and am 25 years away from retirement (I am 40, will work until 65).
Fear is blinding you. — Garth
Would some of you Edmontonians who are using the services of really, really, knowledgable Financial advisors mind sharing some names and address’s in the city ?
We’re from out of town, and will be in Edmonton next month.
We’ve had some truly bad experiences with a brokerage company, and their glib salesmen, so your feedback would be welcome. Thanks.
Email me (garth@garth.ca) and I will pass names on to Jeannie. They will not be posted here. — Garth
Garth your a trouper . I don’t know you do it . I would have pulled out all my hair by now . I hope you wife pats you on the back or something . For you this must be like having a thousand kids all at once. Are we there yet ? Whats for supper? How long is a piece of string dad? Been there don’t want to be there again.
seeking a financial advisor or an investment advisor? there is a distinct differrence…….but if you know what you want to buy, set up a discount brokerage account through your bank.
search ‘independant financial brokers’ and look for someone in your area……interview 3. Be bold and ask good questions….ask them to show you their personal holdings…and their average return they’ve made their clients in past 5 and 10 years- ask them to support their current investment selection with facts- and if you cannot undersatnd the words they are using……keep searching – its complicted by design imo
Garth dear Garth, you are getting a little bit bitchy these days. Be nice to people! Not everyone is made of the same cloth you know!
For myself, I would not at this time buy any shares. I am patiently waiting for many opportunities that will come in the next few years.
As for GIC, heck, if you want to get 4% for the next few years, why not! It’s better than gambling with your money at this time. I am not saying forever! Wait for it, it’s on the way.
I know alot of people in their fifties who ten years ago got scared thinking they too were going to run out of money, and put their money in the hands of “financial consultants” who proceeded to lose everything. Their fear was self-prophetic, but they ran out of their money alot sooner than if they played it safe. The X-Files have it right – Trust no one.
Fear, fear, fear. Why bother coming here? — Garth
In 40 plus years of being a Professional Broadcaster, I will tell you straight, I have met few people as astute as your Host.
Are you paying attention, Canada?
Mr. Turner, you should people’s eyes glaze over when I mention that a home is a place to live it is not a bank and it is a depreciating and expensive Jones.
People thought us mad when we sold and put our money to work. But what I want all of you to weigh in here…..why don’t people see this disaster for what it is?
Typical Mob behavior, Garth?
Now, pray tells what happens when all these broke people get steamed, sir?
With leadership like we have been seeing In certain quarters, makes me think a bunker and a lot of ammo and canned foods are in our future, unless we smarten up, and fast.
A lot of my friends are in Wally World, when it comes to money.
Time for more Garth, less bunk, I say.
“If the bank goes down, so does your 1% savings account, dude”
think you forgot a little thing call CDIC..even if the bank goes under your cover for your first $100K…(although I think CDIC is another taxpayer sponsored deal like CMHC, so we all pay again..)
Still not enough incentive for me to keep my coin in a savings account….
But the preferred are a little bit mysterious and I’ll admit I may be wrong in my interpretation as to how they work long term, but….so you buy a series 21 BMO preferred paying 6.5%, but since they are so popular you pay a premium over thier $25 face value, like today they are going for $28.31. So you pay a 13% premium, so your really only getting a 5.7% yield on your money. Still not bad for little risk. BUT….when interest rates start rising, won’t these preferreds look less inviting, and start dropping in price? Say they go to $23.50 when interest rates hit 5%. Now if you need to unload them, you’ll lose 20% of you investment. If you’ve kept them for a few years, you might break even, or if the Bank happens to redeem them, you won’t loose as much, but what are the chances they do a redemption call when you need your cash?
Doesn’t that 1% look a little more appealing?
I’m thinking that Couch Potato Portfolo might just be the way to go…low cost ETF’s, set’m and forget’m!!
CDIC would never be able to cover a Big Five bank collapse. As for the couch potato strategy, I hope yours has a seat belt. — Garth
Need some advice,
Im 35 , working engineer , 2 kids and only one wife (hehe).
I have about 80K liquid worth (27 K in TFSA-stocks,15K in RRSP-stocks ,remaining in GICs and saving).I want to buy house in a year or 2.Looks like this year will have biggest house price decline in Red Deer.It has already gone down 8-10% in last 4 months.
Should I put the money sitting in GIC/saving into stocks or just keep on hand for a downpayment? What if market goes down (increasingly possible) and my downpayment get reduced?
I agree with Garth on Preferential but I think capital preservation is important if I want to put a big downpayment.
Here are a few comments that are intended to head of some of the unfounded criticisms of this column.
Preferred Shares are much different from common stock. There is much less downside than regular shares because they get priority over all other kinds of shares and (in many cases) priority over debt obligations if a company goes belly up. There is much more potential upside, because preferred shares get priority for payment of dividends. The downside for preferred shares of Canadian banks is especially low, because they are for all realistic purposes guaranteed by a government that in all likelihood won’t let one of its larger banks fail. If the Canadian banking system fails were probably looking at g-cubed scenario (guns, gold, and garden supplies) and you have much worse things to worry about than trying to retire.
So why doesn’t everyone own them? Because a) there are (usually) no voting rights attached to them, b) there is little/no upside from appreciation (i.e., increases in stock price), and c) access to preferred stock is usually limited to institutional investors (so you generally need access to a financial advisor and a decent amount of cash).
Is there risk for preferreds? Yes, there is opportunity cost (i.e., you could potentially make much more if the economy is running at a pace that is above your prearranged interest/divedend rate), and there is also the risk that your preferred shares will be recalled (i.e., you get your money back and no future payments).
Common stock is generally a good idea when a company has high growth potential, Preferred shares are bought as way to lock in a consistent income.
On a side note, I just finished a three week road trip down the US coast to central California and back to Canada. It rains too much in Washington but you can camp on the beach for $15. Oregon is THE hidden gem of outdoor activities-insane beaches/surfing, rivers, canyons, forests, sand dunes, etc. Avoid Yosemite National Park at all costs during the summer, it is a hell hole. Death valley is stunning. Redwood Ntl. Park is way nicer and calmer than Kings Canyon/Sequoia. Lake Tahoe is a party town, don’t go expecting anything else. Lassen volcanic Ntl. Park is a hidden Gem.
Is it me, or are there much more people leaving comments since I disappeared three weeks ago?
That guy is absolutely right. Good boy.
Bank is somehow solid entity. Risk to lose all is minimal.
(I would actually prefer metal-safe-box deposit.)
It is just rational common sense.
This world is full of predators – realtors, bankers, all kinds of advisers, etc.
How can I trust a financial adviser?
Regardless of the charge (some % or flat fee),
they actually care about earning money to themselves,
not about my money.
Only stupid, gullible people will trust strangers.
To invest consciously, you have to become a professional in this field.
It does make sense only if you have really big money.
“the $253 of interest” Ha-ha-ha
Is that a reason to abandon his profession and
start learning investment to get $300 instead of $253??
Alas thats why we’re here…Garth has a much greater grasp of the big picture that us mere mortals..lol..your right, the CDIC probably wouldn’t be able to cover a big 5 failure, and, realistically, if that happened, we’d all settin out the squirrel traps…
As for the Couch Potato, my variation on it is along the lines Garth’s mentioned occasionally, not broad market index ETF’s but sector such as Financial and Energy are probably the place to be long term…
It’s all about risk/reward. Preferred shares fit into the middle section of the investment pyramid below. They’re usually riskier than corporate bonds. If interest rates start climbing next few years (like the 70′s), most preferred shares will be hit harder than other debt-based instruments. Doesn’t mean you shouldn’t add some to your portfolio. If we enter a ‘lost decade’, they could do spectacular – as long as the issuer survives, that is
http://i.investopedia.com/inv/articles/site/investment_pyramid.gif
quick explanation of preferred shares
http://info.nbfinancial.com/fbn/cda/theme/0,,divId-2_langId-1_navCode-10092_navCodeExTh-0,00.html
#1 “Garth, how and where do you buy preferred shares in banks?”
You’re kidding, right?
Something tells me you’re 26.
Fear, fear, fear. Why bother coming here? — Garth
I keep coming back because of the diverse voices on this blog, and you post these views even if they disagree with you, which is noble. I remember back in the late 90′s when practically one of every two people in my department were constantly talking about all of the money they were raking in through the stock market. It was incessant. You couldn’t walk down the hallway without somebody boasting about how smart they were with their investments, laughing at the rest of us. People’s natures haven’t changed any since then. If they were making a killing in the stock market, preferreds, or other financial instruments, we’d all be hearing about it. But it is strangely quiet out there. It’s gotta make you pause and recognize that there are no easy ways to make a quick buck right now. Waiting it out seems like the right approach until things settle down.
#5 northeast canuck
I think making money is pretty exciting.
My suspicions are, once again, confirmed. Too many of today’s crop of 20-somethings are filled, between their ears, with mushy left-wingisms and other non-sequiters thanks to our public school system.
They don’t learn practical life-saving skills, instead they’re trained to whine when the news pimps show up at their demos, oops, I mean protests. How often have you heard THIS clap-trap? “What do we want? Everything. When do we want it? Now!!”
Yes, a nation of aggressive young females and feminized males all latted up with nowhere to go, pour out of our public insitutions having been tutored by a collection of aimless, aging, unhappy ex-hippies with teaching degrees. Bloody marvellous!
The stock market is bad, they are told, because it is part of the capitalist system, they are also told, which is also VERY bad because it hates seal pups, orcas and “things, like, whatever!”
The answer, they are finally told, is that big government will solve all of their problems and the money will come from the “Big Corporations.” Period. Full Stop. That’s the sum-total of their education along with a big dollop of moral equivalency. Vacuous. Dangerous. Depressing.
The net result of this ongoing Marxist Jihad is the Flying Dutchman scooping up these wunderkind with his peruasive banter to join his bank and “save your money.”
School systems should be teaching these young whelps survival techniques, including the following: detecting lying politicians; starting campfires using actual wood shavings; first aid; digging latrines; boiling water; cooling water; working a can opener; operating a hot water bottle; staying out of grizzly bear country; joining the army. Stuff that matters.
And take the Canadian Securities Course to protect against the oncoming slaughter of the meek, and the witless, many of whom are about to be stiffed and stuffed by the boys of Wall Street. If you know how to play you MAY not get stuffed. Training and smarts; the ONLY things now.
For us unaddled boomers and war-babies, who still get by without sticks, wheels and diapers; stay fit. It’s gonna get ugly out there. Read all about it… in 1932.
“This is by no stretch a buyer’s market. At best it’s a balanced market in the majority of markets. People are not out there giving their houses away yet.”
Read more: http://www.nationalpost.com/Home+sales+continue+drop/3281111/story.html#ixzz0tod2zbLL
No, not yet.
Part 2 of Competing Currencies
http://www.connectmidmichigan.com/news/story.aspx?id=482130
I really like the fact that people are waking up to the stupidity of the fiat dollar, oh God help us all if the stupid bloody government can’t be the only currency provider, what a load of crap federal governments are. Say Garth, I’m curious, are you allowed to draw your MP pension yet, do you even get one?
My pension is $26K, which I donate to charity. And you? — Garth
I’ll say it again…pay down your debt, as the earnings=savings are tax free. Keep some cash in reserve in case you have to buy a bunch of 7.62x39mm and Marlboro cigarettes and make a run for the Mexican border. But seriously, until your all your debt is paid off (save those smart SOB’s who weren’t afraid to take variable rate mortgages and are now laughing with their prime-minus “free” money, or those earning 150K plus) I wouldn’t concern myself overly with major investing. My wife and I hammered our debt down as much as possible (and twice got made some great capital gains off real estate), lived like coyotes, worked our asses off, and have seen our net worth go from $18,000 to nearly 400K in the last five years, and neither one of us makes tremendous money, although we do alright. I sleep better at night knowing that our total outstanding debt is less than a years worth of my gross earnings. Now, contrast that with a scenario in which I take Garth’s advice and liquidate my house and farm, toss everything into equities, and rely on the markets to feed and shelter me, and I don’t think I’d sleep that well- actually, I don’t think I’d sleep at all. Once everything’s paid for, yeah, I plan on investing heavily- maybe in equities, maybe in a second or third business, maybe even in more RE if things return to reality, but for any 20 or 30 something gen-Xer who makes around the median income- forget the toys, look after your health, and REDUCE YOUR DEBT. You’ll thank me. As the TPB say, freedom 35 baby, and I’ve got 7 years to get there.
I have online TFSA and RRSP with Questrade, I own preferred shares in banks but I also am invested in companies such as Raytheon and other weapons makers, business is very good and once WW3 starts business will be booming. Ethical investing, yea right, next thing ya know someone will tell me I shouldn’t drive a Hummer because it’s warming up the earth.
Alright all you boomers, just be happy the kid has 20 some grand at all. I’m 26, and all I got is 25 grand in RRSP’s from the company I work for. I graduated secondary and been working in field for 5 years. Still paying off debt and have no liquid funds. I live cheap and put 50% earnings into paying off debt.
Think about that and realize that I am actually better off than a lot of my generation. With most publicly known “saving” methods losing money all around, the kid is just happy that he is not losing at all.
No offense Garth, but you probably came off as another guy trying to sell snake oil.
This site is free, which is why you are here. At least be civil, kid. — Garth
#13 Edmonton guy
…I have $100,000 in the bank!…
And that is what you will have in 25 years.
#15 lmao That’s a pretty good analogy.
A question for any lawyers/others qualified to answer who may frequent this site: In the event of a bank failure, are your assets on deposit with that bank counted against any liabilities you have with that same bank when determining your net owing/owed to the bondholders and shareholders? For example, let’s say you have a 250k mortgage with CIBC, and you have 100k on deposit in a savings account with them as well. Now let’s say they go belly-up. According to Garth, and I’m definitely in agreement with him here, this is a CDIC non-insurable event; however, even though your 100k may have disappeared, that 250k mortgage the bank holds is still one of it’s assets, and would be sold in any liquidation with the proceeds going to the bank’s bondholders (I think). What I’m wondering is if you would owe the whole 250k to the new mortgage holder, or if you’d only be on the hook for 150k as the net sum of your assets and liabilities with the bank.
Can anyone answer that?
Good for the 26 year old for having $23,000 cash. That is great.
At this stage the most important factor in growing his wealth is actually not the return but his added savings every year. Let’s say he does go into preferred shares and gets 6%. So that’s $1380 per year. Big whup.
Meanwhile he may be able to save something like $1000 per month or $12,000 per year. That dwarfs the return on $23,000.
So the main thing is keep on saving… Yeah you probably should get into a better investment. But the main thing is just to save. When you get to more like $50,000 or $100,000 then the return starts to become a lot more important.
Consider a 50-year old with $500k invested. Now a 6% return is $30k and that probably dwarfs what he can save in a year. So for the guy with $500k, it is important to go and find a good return.
When just starting out the thing to do,is save, save, save.
But I don’t disagree that people should be braver. If he puts the money in stocks and stocks drop by half, well then rejoice because at 26 it means he would have the chance to buy stocks cheap.
Retirees should pray for stocks to soar. Anyone under 40 should pray for stocks to tank as most of their stock buying years are ahead of them. Warren Buffett has been telling people this for 60 years, but what does he know?
Garth, the Concessionman had a good question:
“But the preferred are a little bit mysterious and I’ll admit I may be wrong in my interpretation as to how they work long term, but….so you buy a series 21 BMO preferred paying 6.5%, but since they are so popular you pay a premium over thier $25 face value, like today they are going for $28.31. So you pay a 13% premium, so your really only getting a 5.7% yield on your money. Still not bad for little risk. BUT….when interest rates start rising, won’t these preferreds look less inviting, and start dropping in price? Say they go to $23.50 when interest rates hit 5%. Now if you need to unload them, you’ll lose 20% of you investment. If you’ve kept them for a few years, you might break even, or if the Bank happens to redeem them, you won’t loose as much, but what are the chances they do a redemption call when you need your cash?
The preferrds do not have a maturity date – like the bonds. If they had a short maturity date that would be a great investment – but they don’t and therein lies the problem and the reason why it is dangerous to invest in preferreds in addition to the fact that you have to pay a premium at this time if they’re any good.
Obviously I need to explain this more, and will. The ignorance about these assets is overwhelming. — Garth
Oil and pipelines. Six to ten percent dividends while you wait for the capital gains upside. The demand for gas and oil will only increase for the foreseeable future.
I’m not sure anyone else noticed this, CREA usually posts their sales numbers sooner.
I can’t numerically quantify this but I was on their site last week and I was asking myself May? Sales must be down it’s July already for crying out loud! That’s three months behind. Surely a month would be sufficient to add house sales up?
I’m going to chime in here and say that the lack of any kind of focus on financial education our supposed “world class” ROTF! system is definitely not helping. The system is run by those who have come up in a safe, unionized environment where an indexed pension is a right of passage and things like 4 for 5 happen. 4 for 5 is a scheme where a teacher may put away a 1/5 of their salary for 4 years and have the 1/5 as a sabaticle with pay and little consequence to the pension. I’m not saying teaching is an easy job by any stretch but with that sort of disconnect as an example, the lack of financial education will likely continue for a very long time tomcome. I know that this is a Freakonomics type theory but the current results speak at a certain volume in regards to the debt loads being carried currently don’t you think?
I know my education hasn’t been straight forward or cheap. I’d like to point out that by the time I was in secondary school, basic home economics (balancing a cheque book, saving 1/3 of your take home etc.) was no longer a requirement. Again, the stats some may want to see aren’t here for this, it’s a gut thing but my English skills (5) courses min in my day) were there early. Bad grammar I display here aside!!
I can say at 26, you may have gotten my attention IF I wasn’t thinking about what was up with the girls/friends that night but a good book would have been better understood for sure.
A tutorial on the nature of preferreds some time would be nice. i understand that they don’t trade or sell like common stock?
what’s the difference? the benefits? the pitfalls?
See above. You shunned the request for explaining preferreds, which doesn’t look good. It would be good to shed light on the ‘entire’ subject.
Done. I wrote a book on it. — Garth
Speaking of the Young and Feckless…
CBC National News item…..July 15th 2010.
Real Estate Market Cooling across the Country.
http://tinyurl.com/24rslrl
Twenty-something owner is trying to sell downtown Toronto loft she bought in “fierce bidding war” two years ago, at the time paying “thousands above asking”….now the property has been on the market six weeks, and now she’s “kinda wondering what’s happened here?”….
Uhhhhh…..well……
Garth,
As a former Minister of National Revenue (CRA), don’t you know it’s irresponsible of you to say: “…And do you understand that the $253 of interest you earn in a year is taxed at 100%?……”
And you also said: “….And that instead of paying 100% tax, you’ll pay about 20%?…..”
BOTH those statements are completely misleading. As far as I know, there is not a single country in this entire world that taxes people at 100%. I know you meant to say that 100% of interest is TAXABLE, compared to 50% of Capital Gains being TAXABLE.
But for many folks who simply do not understand taxation, their interpretation of your statements will cause needless stress. As in : “Omigod, if we put money in an interest-bearing account, the govt TAKES ALL THE INTEREST IN TAXES.”
Unless, of course, you enjoy sensationalism, and are deliberately doing this…..
Please edit your column. Thank you
Next time I’ll use crayons for you. — Garth
Garth, you have to quit pumping these bank preferreds. Sure, you get 6% which is better than 1%. But the reason you do is because all of the analysts employed by all of the companies, hedge funds, sovereign wealth funds, and every kind of serious money with enough wherewithal to employ analysts for their own account have determined that they need 6% risk adjusted to be worth 1% CDIC insured. Trust me, if 6% for a CBIC preferred share was a screaming bargain then money from all over the world, Chinese, American, Russian, German, Brazilian, they’d all be there bidding up the price.
One of the big Canadian banks has a higher than palatable chance of going down, but no one is sure yet which one (probably CIBC). Hence the rate on the preferreds.
I don’t know which Canadian bank is going down first, but one will. That’s why you get the premium. So if you want to follow Garth into the risk zone, own all bank preferreds by market cap. Diversify. Own a little of each, not a lot of the highest payer. Don’t put all your eggs in one basket, even with Canadian banks.
The reason bank preferreds pay so much is because the market sees risk.
Most of the banks will survive. Make sure you don’t have all your money in the one that fails. No, I don’t know which one that is, but how much they have to pay to borrow money is the best consensus opinion you can get. The more they are willing to pay you for your money, the closer they are to bankruptcy.
I remember my dad socked away a lot of money in Chrysler bonds on the advice of his financial advisor. He was getting 11%. I told him I thought he was frickin’ crazy, Chrysler was going bankrupt medium term, and the 11% was not worth the risk of not getting the principle back. He thought I was nuts, a young kid just trying to one up his dad.
When the bonds matured, though, he did not reinvest. And look what’s happened to Chrysler. I made the right call, he had good timing.
Unfortunately, he reinvested the proceeds in a commercial real estate company, which I also called several years too early but I foresee the same results. But this one isn’t liquid, and he can’t get out.
CIBC preferreds are going the way of Chrysler preferreds. That’s why they pay so well.
Garth is a wise man in many ways, but he is still at heart a boomer. This is why he cannot accept that one more Ponzi scheme cannot save the day. The boomers have known nothing but Ponzi schemes. They do not abandon hope in Ponzi schemes when one fails, they simply create another. They will not ever be another way. So long as there are boomers, there will be Ponzi schemes. They know no other way.
Wrong. Preferred yields (just like bond coupons) are set when issued. They have actually fallen in the past couple of months due to the intense demand for these securities. Learn, then type. It’s less embarrassing. — Garth
If BMO bankrupts you get 100K back insured.
Do you get that with the preferred shares?
If BMO bankrupts, you will get nothing. How can you be so naive? — Garth
Trash debt. Drain off equity and invest in assets that pay you to own them.
First of all, that’s a contradiction from one sentence to the next. Avoid debt, but take on more to invest? Garth said his average return was 8%. At today’s near record-low interest rates you might be marginally ahead by investing from a HELOC, but you better be damn good or damn lucky. Remember you’re paying that interest with after tax dollars!
Escape housing’s inevitable decline
The only way to do that is to sell. Taking equity out of of your house to put into other investments does exactly zero to mitigate your exposure or risk due to real estate correction.
@Grandpa Grinch
I on the other hand, have full control of a large nest egg, contribute monthly to my RRSP & the wifes as well, max out the TFSA’s and spend my 12hrs at work researching stocks, warrants, prefs, world events
It’s funny how it takes you that much time to manage your investments and somehow you believe you’re the smart one… No thanks, I’d rather be the schmuck making small returns for zero effort.
You make no returns, Mr. GIC. — Garth
Sorry Garth about my earlier comment.
You are a smart smart man…
Stocks for the long run…Stay out of bonds! They only have one direction to go in…down…
An absurd statement. — Garth
Are you serious? A major bank collapse in Canada is a non-insurable event. — Garth
CDIC, just as CMHC, can cover everything and they will pay 100%, no matter what. Ask F if you don’t believe me. Of course the gov doesn’t want for this to happen and if it will be the case, they will move everything on the gov’s balance sheet.
BTW, BMO doesn’t need to be covered by both, once the bank gets 100% from CMHC for all the mortgage defaults, BMO will have enough money to pay the savings… no way they can collapse.
And you still can’t borrow the Hummer tonight. — Garth
I think that with 23K he can easily afford a 2007 H3.
You are wrong Garth when you give the same advice to boomers and 26 year old boys. A 26 year old can’t run out of money for the next… 40 years. In 40 years we will probably have a different monetary system anyway. Your advice works for boomers with 100K to 300K liquidity and maybe some equity in their house.
You say that people get scared and are running into cash, this means that for the time to come cash will be king. But you advice otherwise.
You say about asset deflation and price inflation for 6 months already, and I agree with you. However, you advice people to invest in liquid assets (“the ability to turn assets into cash”) — but you don’t consider that people might have some other things to do other than checking BMO’s shares every two hours. What do you think the 26 year old will do with the money he’s saving in 5 to 10 years? He will most probably buy a house, a boat or a hummer, all of which will deflate by then. I see no reason for him to take any risk now, in a deflationary environment, where only the utility bills, gas and grocery prices are going up.
I would like to see you looking at the people’s background when giving advices and maybe, for now, suggesting something like: invest in yourself, do whatever you do good even better, etc. You are talking to a kid, not to an old fart.
You said on June 20th: “If you do just one thing for yourself in the next 60 days, get liquid.”.
I would congratulate the poor kid for being as liquid as one can be. Nice work kid!
Sigh. — Garth
It used to be, for about 60 years, that you worked for a company for 40 years, you got a nice pension and a gold watch, and lived in your nice little paid-for house throughout your retirement.
Then they did away with company-sponsored pensions and invented RRSPs. So now we have to save for ourselves. No problem! We all flocked into the tech boom and lost our shirts. Ooooh, the stock market is evil. Quick, to the real estate market! Oh, wait, this is no good. Quick, to the savings accounts . One boom and bust right into the next. Then complain that the little guy never makes all the money and that once again the banks are evil monoliths.
The missing link here is the element of investment knowledge/know-how. The requirement to know what you’re doing has been downloaded to the average Joe at the same time that the incompetence of professional investors has been repeatedly highlighted in the media.
After the turn of events of the last 10 years I don’t blame average people for flocking to savings accounts for so called safety. I agree it’s not a smart move ROI-wise, but if someone has no ability to manage their own portfolio and has no confidence in finding a professional investor that will act in their best interests, then it’s probably the best place for them.
@#20 Concessionman
When the interest rate goes up, the preferred shares aren’t nessisarily going down. The reason is the peceived risk with the shares. So much uncertainty with our current situation is the only reason the preferred share yield is so high at 6%. For anyone making less than $70K, He/she pays nearly no income tax for the dividend income. The highest tax rate for someone making over $125000 is 20%. Compare to GIC @ 2%, you pay 30% income tax so your return only 1.4%. When interest going up, that means the economy is very strong and people will consider the shares are safer so the yield will decline. Before the financial crysis, the yield from bank preferred shares were always lower than GIC rate and in the range of 3 to 4%.
Concessionman, yes you are technically correct but the purpose of perferreds is to provide income, in other words you buy and hold them for many mean years. Secondly even if the price falls the payout remains the same. Also you have a good opportunity to pick up some them up on sale.
The biggest investing mistake my Dad made was not having cash on hand when stocks ‘went on sale’.
Garth something you haven’t brought up and which are suitible for young people who don’t have much money are DRIP (Dividend Reinvestment Plans) more info over at Canadian Money Saver.
Garth I disagree, if one of the big 6 fail (highly unlikey) the government will step in and bail out the savers, just like he goverments of Holland and the UK did when Iceland went bankrupt. But still a very foolish reason to keep you money in the bank.
Considering that in the last decade or so on three separate occasions countless life savings were gutted in the stock markets it is hard to blame anyone for not wanting to expose themselves to that theatre. This is public’s reaction to the industry’s less than ethical approach to individual investors which went on for decades. I am guessing that most visitors here are familiar with “Juggling Dynamite” so no need for me to get into the gory details. No advice for anyone here just an observation: put your cash into “high interest” savings account and get plucked by inflation or put it in the markets and get plucked by better players. They don’t call it “The Great Game” for nothing…
Savings were only gutted if an investor were dumb enough to sell in a crash. I ‘lost’ nothing. — Garth
$18k of net, non-housing assets, would indicate to me that a sort of mean reversion process must eventually take place, in that, stocks are going to, in the future, rise dramatically against houses, as portfolio assets on the balance sheets of Canadians.
What sort of TSX level would be required to make this happen? 50,000? 100,000?
At a forward P/E of 10, the TSX could earn 1100-1200 in the next year. A forward P/E of 15-20 is more typical of the TSX in a low interest rate environment, hence, TSX = 24,000 isn’t out of the question for the next year or two.
DELETED
#1 Nabby:
Preferred shares are bought and sold on exchanges like normal stocks.
If you want to research them, go to finance.google.ca and start typing a Canadian stock symbol in the box. For example, big Canadian banks are BMO, RY, BNS, TD, etc.
You will notice that a bunch of autofill options come up with a dash, then a letter, like BMO-A, RY-B, etc. These are preferred shares.
If you stretch out the price timeline, you can see the historical dividend payments. From this you can ballpark what you would get paid every quarter per preferred share.
Then, do a bunch more research on investing until you know what you are doing (get professional help if required) and you are good to go.
Looks like things are a little slower in Toronto. The Big Smoke! Business as usual in VanCity!
http://www.youtube.com/watch?v=uht9k7xwSsQ
A little school on Leveraged ETF’s
http://www.fool.com/investing/etf/2010/07/14/leveraged-etfs-useful-but-be-careful.aspx
How about leveraging a house with 95% financing? — Garth
LOL… To bad you couldn’t sit there eating Cheetos and flip the same house 3 times a day.
CDIC would never be able to cover a Big Five bank collapse. As for the couch potato strategy, I hope yours has a seat belt. — Garth
————-
They’d print the money. Just like they did for the ABCP.
Nope. — Garth
What was that? I felt a chilling wisp of Nosty Jr, then it was snuffed out. ahhh….the silence.
Garth,
you might want to mention that Preferreds are issued by companies other than banks and let people know they can invest in more than one company / sector, thereby lowering their risk. So if by some chance, one of the banks goes under, you still have your other investments.
A couple of observations:
It is also clear that people don’t really factor in the tax implications of different investments.
I don’t think people really understand the concept of diversification. A lot of people seem to think you invest to hit the home run or strike out and that there is no in between.
I am very impressed by a 26 year old that has 23,000 in cash.
All my 22, 25 and 29 year olds have is student loans.
Well done lad.
Poor kids. Halfway to middle age and penurious. — Garth
Wow. Suggesting a major bank collapse. How are you boring? I’ve always suspected CDIC was bogus. Now even pensions are up in the air.
The problem with many of us bloggers is that we are imatient. This is going to take some time folks. In the meantime enjoy the summer and this blog.
However, if you are compelled, wear a name tag that states house prices will fall : Forbes, and sit around busy donut shops or put on your bumper. Start a house strike. Put signs in the street, although Toronto has recently made this against the law (Mel Lastman approved of signs for small businesses). Make money on t-shirts at the Ex. I would buy one (XL).
#62Moneta-my understanding is that in this scenario the failed bank would be taken over by a stronger one, helped by the taxpayer. It would then be the big 4.
It would be chaos. — Garth
Garth, I’ll save you a bit of writing…
Here are 2 links to decent overviews of Preferred Shares (first one is far more detailed):
http://www.ritceyteam.com/pdf/guide_to_preferred_shares.pdf
http://www.pallas-athena.ca/Income_Investing_Preferred_Shares.html
These have both been posted on greaterfool.ca in the past, but I believe it was many months ago.
Keep going Garth.
There is a lot of fear and plain old ignorance in abundance out there, but there is also a large silent group watching and listening and knowing you are right.
I believe in time your message will be heard but for most it will be too late because they followed the herd over the cliff (again).
It’s sad it has to be this way, but it is what it is.
Garth,
You really don’t understand the concept of guaranteed investment.
As in, ‘trust me, I’m from the government’? — Garth
Concessionman, the BMO Pref Series 21 you were talking about is a 5 year rate reset pref (govt of canada yield + 4.58%). However, if the rate got too high, BMO may call them at $25. Make your own assumptions and calculate the yield to maturity …. the yield to maturity is less than the running yield.
If they are called you get the yield for owning them and a capital gain for selling them. This blog is now giving me hives. — Garth
Do you advise people buy bank prefereds if all they have is home equity at say prime plus (3.25%)? Naturally the math makes sense but what if interest rates overshoot?
This is likely one of the biggest stumbling blocks people face right now. Do they reduce debt, or rack it up buying investments? They have no other choice right now.
If 100% of your net worth is in a house, you are going down. — Garth
Bank stock? The new world order will bring nationalization of banks and confiscation of private property. It worked in the past. terrorist communism and usury capitalism have common origin
That was helpful. — Garth
Garth, I’m in! I want to buy some BMO prefered shares. Do I buy them from a broker or with the bank sell them to me?
BTW, at least this 26 year old is responsible enough to have 26G in something safe, (howeer i understand it will erode over time). Better than a 26yr old i know who has bought 2 condos based on spec in a sales frenzy!
Here’s some actual figures:
Savings $23,000, interest earned in one year (1.1%) $253, Assumption on income range (40,727 – 64,881), tax bracket in Ontario 31.15%, tax on interest earned $78.81, after tax interest return $174.19, total $23,174.19,inflation 1.4% in one year, inflation adjusted value (or purchasing power) $22,849.75, real return -0.653%.
It is the real return that matters most. The 1.1% account is guaranteed…to provide a negative real return on your funds.
#65 jane54
At least they only have student loans and are not face 100s of thousands in mortage loans + student loans!
At 26 he will be just 56 in 30 years, still years away from retirement.
Yet for each 30 period in history since the 1920s the US stock market has never returned less than 8% a year on average.
Try that with cash!!!!
No. Honestly, I don’t know how to go about buying Preferred Bank Shares. I have an online account with HSBC, but wouldn’t even know what I’d be looking for. Can you give us some of the symbols?
Retail investors cannot even access some of the best preferreds. Besides, if you have to ask, what qualifies you to do this? Danger. — Garth
Garth: There have been discussions in the past about mergers between the big 5-IMO the merger/takeover would be spun as a positive well before chaos. Hard to say for sure.
#13 Edmonton Guy – ‘I’m too worried about dealing with a broker at the banks.’
You can do everything online. It takes about 60 seconds maximum. You get out of it, what you put into it.
“My pension is $26K, which I donate to charity. And you? — Garth”
Awesome, wish more MP’s would do that. I’m only 35, pension, what’s that? I’m a public school teacher so I’m going to cost the Alberta taxpayer in excess of $10 billion once all is said and done to fund my pension. It has to stop, all the fuc**** baby boomers will get theirs, then it will be bankrupt, if not before then. I really don’t expect to see any of the $600 plus a month that comes out of my pay, it’s gone, government guarantee means nothing to me, they can change things whenever they want. I want gold, silver, land, guns, plants, wine, other booze, when TEOTWAWKI comes those are going to be very valuable, not paper money, not like there is enough paper money anyways. I believe it’s $10 billion in actual paper money to the 1 trillion plus on deposit with the big five. When Russia or China move to a gold standard the shite is really gonna hit the fan.
A teacher, eh? I hope you instruct in nothing that requires humanity. — Garth
B.C. real estate a buyer’s market, as sales fall in June
http://ca.news.yahoo.com/s/16072010/74/bc-b-c-real-estate-buyer-s-market-sales-fall.html
Garth,
Didnt you predict like a year and half ago that Bank of Montreal was in serious trouble? Suggesting they may go under?
Do you actually keep track of what you a posting?
No I did not. Rather, I recommended investing in bank equity at that time, which was under pressure. The shares subsequently increased in value. Try eating nuts. Helps memory function. — Garth
Wow! Kids in their 20′s and 30′s! $23,000 in preferreds is a gambling, but borrowing 4 times gross family income to buy real estate is an investment? The next 5 years are going to be hard on a lot of people!
We live outside of Canada but are looking to return in a few years. I’ve been following your blog for a year and its mandatory morning reading for me.
Just wanted to relate a little story of my recent trip back to cow town for a reconnect with old friends and family. Started talking to a buddy about the inevitable downturn in local real-estate and he just shook his head knowingly and smiled. Said that house prices will continue to appreciate 5% per year for the next 3 years. Naturally I bet him $50 that they’ll do the opposite by at least double that.
What struck me as illuminating was the complete belief in his own NOMA (Number Out of My Ass) which he’d come up with based on “gut” feeling and talking to his equally optimistic friends. More than anything it reinforced the point you’ve been making all this time, houses are an emotional asset with much less intrinsic value than folks believe.
One may look at that and conclude that the guy wasn’t very well informed, which may be true in this case. But another friend of mine actually runs an investment advisory business in the city and believes the same! This is a man guiding people in making investment decisions who has the trust of hundreds of families and individuals. In his defense, he does own a Harley.
On another note, I’ve decided to follow your advise and have begun accumulating various pref shares as well as high dividend-paying stocks. I know your focus is mostly on Canadian investments but wondered what you thought of AGNC. Its a REIT specializing in collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S government agency. Normally I’d stay further back from this than a republican rally but the 20% dividend this sucker pays was mighty appealing. Thoughts?
I think you are a smart person, but I decline to comment on individual securities. Other than Harleys. — Garth
The 26 yo with $23,000 may be wise to keep liquid. He will be in a position to take advantage of the changing circumstances and recklessness of others.
There is a lost opportunity “Cost” to not being liquid and having resources to take advantage of genuine opportunities that present themselves. Look at the prices of RE vacation properties in the US right now. Who would have thought that these opportunities would come along?
Uncle Louie is selling his 5 yo boat and motor. Cash only. He doesn’t offer financing and the bank probably won’t either.
The guy wants to feel in control of his money. He does not want to be controlled by money like so many of his friends are. He will learn the dance of risk and reward in due course as he matures financially.
In the mean time, for whatever this 26 yo needs or wants to buy, cash is always acceptable.
Always has been, always will be.
Preferreds (like commons, like marketable bonds) are 100% liquid. Holy crap. — Garth
Possible Cdn economic future http://www.mybudget360.com/american-middle-class-debt-serfdom-only-path-to-middle-class-through-giant-amounts-of-credit-card-housing-debt-loans/
# 8 Moneta, interesting link, thanks
For those asking about Preferreds here is a decent article from Edward Jones…
http://www.edwardjones.com/groups/ejw_content/@ejw/@ca/@graphics/documents/web_content/web222463.pdf
One comment of particular interest “…However,
perpetual (meaning they don’t mature), makes them more sensitive to changes in interest rates. Unlike with bonds, the market price of perpetual preferreds doesn’t benefit from movement toward par value as they move closer to maturity.” (my interpretation — as rates go up, preferreds go down. Full stop. Which is fine I suppose if you expect rates to go DOWN)
The article goes on to compare $10k invested in a 5% perpetual vs a typical 4% common.
I have read that article, and Edward Jones should be ashamed at having produced it. (Oh, wait! EJ sells mutual funds.) In fact, an EJ investment advisor told me recently preferreds ‘have a maturity of 49 or 99 years,’ and so are unsuitable. She made that up. — Garth
“Yes, a nation of aggressive young females and feminized males all latted up with nowhere to go, pour out of our public insitutions having been tutored by a collection of aimless, aging, unhappy ex-hippies with teaching degrees. Bloody marvellous!”
#29 Victoria Tea Party
I find it very interesting, as well as a little offensive, that several on this blog consistantly feel the need to criticize 20-somethings, women, and teachers. Being all three, I find it irritating to hear these comments repeatedly.
Speaking for myself, I know I am financially much more stable than most of those twice my age and I certainly have more than 20-something thousand and I don’t stick all of my money in a “smart saver” account. Because I am female, does not mean I am hormonal and humping my kitchen countertops. In fact, I have sat patiently renting through all 6 years of university and the four years since.
As for # 42 JM in London: If teaching is so awesome with it’s pensions and everything, why didn’t you choose this profession? After many years and much money spent training for this job, it irritates me when people attack the few positive aspects of this career. You are free to complete the training any time you like. Yet, I somehow don’t see you running to apply…I’m sure I could find perks to your profession and attack it if given the opportunity.
Here’s the thing: Yes, I look around too and I am often frustrated and amazed by the fact that many of my peers are willing to rack up debt, buy things they haven’t earned, and have such a strong sense of entitlement. However, I see that in the older generations as well. I find that each generation isn’t that different from the one before it; there are still all kinds. Today’s idiots learned from yesterday’s. If you feel that teachers are all “aimless, aging, unhappy ex-hippies” (Thanks…) than would you really want these people to be educating your youth in financial matters?
Why do you feel the need to attack any one profession, gender, or age group? This kind of blame is exactly the problem. No one is taking any personal responsibility for their own finances. Your wife can’t make you buy a house, your teachers can’t teach you what to do with your money, and our generation isn’t any more lost or ignorant than yours was.
As a teacher, I must teach what our government says I teach. If I stray from the prescribed teachings and some parent finds fault with what I teach, my job is on the line. As this blog demonstrates, no one can ever come to an agreement on financial issues. How would I ever know what to teach the students that wouldn’t upset various people? Financial education should start with parents when their children are young and it is up to us as adults to educate ourselves – not to blame others. For the record however, we do teach some financial education in BC: it is covered under Health and Careers Education. In my school district, we also have many outdoor education programs where we do teach students about maps, outdoor safety, how to start a fire, canoeing, first aid and other “stuff that matters.”
Just my opinion…but then again, I am female!
And a damn fine teacher. Thanks for rescuing the morning. — Garth
DELETED
Debt is Invisible: demand for crude oil in the developed world has been stagnant and has actually decreased in the past few years. North American pipelines that carry gas are finding shale gas to be a big market changer.
With the new emission standards for passenger vehicles and heavy trucks coming into effect next year for both Canada and, more significantly, the US, demand for oil is expected to take a much bigger hit. People may drive more to compensate for the greater fuel efficiency, but they also will be spending that $ they save on paying down debt, food, tax etc.
Now China and India will take up the slack for some of this demand but unless the pipeline goes to port I wouldn’t be buying up shares in expectation of growth.
“I have read that article, and Edward Jones should be ashamed at having produced it.”
C’mon Garth. There’s nothing biased in that article. On the contrary, its quite balanced.
After all, no one likes biased, self-serving comments.
EJ makes its money selling funds, not preferreds. The article is hardly balanced. — Garth
Where can we get a good fee based advisor that will not push their own mutual funds with high MER’s on you? Should we look for a person with a CFP designation? Many people seem to be investment advisors but do not have that designation, is that important? Also what about DRIP’s? buying dividend paying companies with higher yeilds and just reinvesting the dividends in new shares?
It’s not the designation that matters as much as where an advisor works and whether or not he is she is independent and fee-based. If an advisor is paid by commissions from companies whose products he or she buys for you, then they are in an inherent conflict of interest situation. Find an ethical advisor whose only compensation comes from the client. — Garth
#72 Chris L. on 07.16.10 at 7:17 am
Do you advise people buy bank prefereds if all they have is home equity at say prime plus (3.25%)? Naturally the math makes sense but what if interest rates overshoot?
This is likely one of the biggest stumbling blocks people face right now. Do they reduce debt, or rack it up buying investments? They have no other choice right now.
If 100% of your net worth is in a house, you are going down. — Garth
What if 100% is in two rental properties (duplex and triplex) and they are nearly paid for which you plan to keep until you die?
If you get 6% and the money costs you 3.25% (in four days 3.50%) and rising what’s the point? You’re still only make 2.5% with risk and “leverage.” So you sell your rentals and live off bank div so you don’t “lose” equity? What’s the point? At current valuations rentals earn 10%. Can you beat that? I’m trying to get over these hurdles, trust me.
I can pull and diversify, but when interest surpasses yield, I’m losing.
Commercial real estate is not the same as residential. Just calculate the ROI and compare with passive investments that don’t have toilets or tenants, and where the revenue is not taxed as income. — Garth
#21 Contrarian – keep renting, I live in Red Deer and see the same thing. 700k house down to 600k, 469k house down to 499k, all in the last 6 months. This is just a start – everything is seriously overpriced here – and as Garth pointed out…we don’t even have a hooters for all the steel testicle truck owners to visit!
#22 Professor Anon – thanks for the education on preferreds.
#29 Victoria – you made me laugh out loud…bravo, everyone on this site should read your post.
#88 Teacher – I would like to cite Paul Simon ‘when I think back on all the crap I learned in high school’. Every school in this country needs an ‘Uncle Buck’ to give the many unionized, socialized, left wing, brain dead, dried out old scags a quarter to ‘have a rat knaw that thing off your face’. I can’t stand to hear teachers complaint about a job with 2+ months prime summer vacation, Christmas week off, Easter week off, reading week off, every 2nd friday off, teachers convention and off at 3:00 every day all with decent salary and public funded pensions. I call bull on your drivel.
“This blog is now giving me hives…” LOL You and me, both!
#88 Small Town Realestate on 07.16.10 at 8:21 am
Very well said. Bravo.
#38 InvestorsFriend
“But I don’t disagree that people should be braver. If he puts the money in stocks and stocks drop by half, well then rejoice because at 26 it means he would have the chance to buy stocks cheap.”
Rejoice? Have you ever worked for a company that the stock dropped by half?
Investing in the company where you work is almost always a very bad idea. — Garth
I totally agree with Garth. The kid could have his money in other safe places that provide a greater return.
Like #65 Jane54, I also believe that the kid deserves some credit for actually having some savings. Student loans can be a killer these days. I know many former students with useless degrees who will be trying to pay down $50k loans working at Staples. But just think, by the time they are in their 30s that $50k will be gone and they can start investing part of that $11/hour. You have to be practical when it comes to choosing an education. My heart wanted to study history and write music……………but the only problem with that is I would probably be living in either my parents’ basement, or under a bridge if I had chosen that path.
Or you could be writing this blog. — Garth
((The article goes on to compare $10k invested in a 5% perpetual vs a typical 4% common))
the key word is ‘perpetual’ … not all preferreds are perpetual, though some are.
non perpetual preferreds offer a ‘rate reset’ which means that at the end of a specified time period, the preferred holders can choose to convert their holdings to either another five-year fixed-rate pref share deal or a five-year floating-rate pref share.
-When investors convert, the new fixed pref shares will pay a rate that is the sum of the yield on five-year Canada bonds plus a spread, the same spread that prevailed when the original pref shares were issued five years previously. For those holders who opt for floating-rate pref shares, the new yield will be the sum of the yield on the three-month treasury bills plus a spread.
http://www.financialpost.com/opinion/story.html?id=408b9e27-c239-4a00-8092-537463bb338e
Help me out here as I don’t understand….there has been allot of talk about bank shares and to buy them instead of placing one’s money in a GIC but if memory services me correctly did they not loose half there value at the crash of March 09? We all know that the market is over valued and do for a similar correction…only a fool would not see\know this…so how are these safe? What am I missing?
Houses, stocks, hockey cards – everything fluctuates in value. If you don’t sell when they drop in value you crystallize no loss. If you buy at the top, you gamble. Ever heard of ‘buy low, sell high’? Apparently you are missing a lot. — Garth
I just cannot get over how many folks are happy with their money in 1-2% savings accounts or lousy GICs.
Some level of funds should be in cash. After all, we all have daily business to attend to. But as a fear driven investment vehicle? Yikes!
I’ll tell you what. Loan me your $5K, $10K or $50K, and I will immediately pay you your 1-2%; guaranteed, and without you losing half of that again to tax.
I can’t even borrow from the bank at prime minus for that cheap (works out to about prime minus 100%; in other words, practically free). I will happily take the very minimal risk (read as ‘virtually no risk’) that you are not willing to take in order to make a reasonable 5-8% return.
Hey Garth,
What do you think of the Claymore S&P/TSX CDN Preferred Share ETF (CPD.TO)?
Thanks.
I do not comment on individual securities. — Garth
Garth, there’s something you don’t get. It is far more convoluted and ambiguous than you realize for a 26 year old with 23 grand to get real retirement investing help. I’ve been there, I’ve been through it. When I was in my early 20′s starting my career all I knew was “I need to put money in an RRSP”. Naturally I went to RBC and they started drawing money out of my account every month into some generic mutual fund. After that, they don’t care about you! You can ask advice, questions, strategies, and you will get canned answers.
Your rebuttal is “hire a financial advisor”. Ok, how? Literally, HOW? Seriously, HOW?! In my experience, until you have 100k these people do not exist. They are make-believe like elves and eskimos, nobody has ever seen one.
Another thing you have to understand is that this dude’s 23 grand is big time money. Big time money. Losing 40% sucks ass. That’s not fear. It really happened and people don’t want it to happen again.
There is a massive gap between connected people like you or people in the extreme upper class and the rest of us. These financial panthers just simply do not appear and help you plan this ultimate portfolio. They do not call you and help you re-balance. They do not offer tips or strategies. So you are stuck at RBC where they only want to have you on the phone for 10 minutes and want to put your money into a bland mutual fund. Oh, and then try to sell you insurance.
I only recently found that “private advisor” type guy. It was basically a fluke when I went through a mortgage broker and he introduced me to the advisor. He’s not a miracle worker, but at least it’s a real actual person who I have actual contact with.
The bottom line is the majority of 20-something people are walking through a financial desert with nobody to lend them a hand. No indication of which direction to travel. It’s frustrating as hell.
You just disproved your own rant. — Garth
after reading some of the responses here i’m surprised canadians have any money. and these people are usually the first to offer ‘advice’ to friends, family and co-workers – further spreading the plague.
negative rate of return people, just because you’re too stupid to understand it, doesn’t mean it’s not happening.
Savings were only gutted if an investor were dumb enough to sell in a crash. I ‘lost’ nothing. — Garth
Let’s see how you do on the next crash….Yoda!
Let’s clear up some confusion:
Bank accounts in Canada are protected by CDIC:
Canada Deposit Insurance Corp
“The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation created by Parliament in 1967 to protect your deposits made with member financial institutions in case of their failure. CDIC is NOT a Bank. CDIC is NOT an insurance company.”
CDIC insures MOST but not all savings
COVERED:
-savings and checking accounts
-GICs or other term deposits with less 5 year term or less
-money orders, certified checks, bank drafts etc issued by CDIC members
-accounts for realty taxes on mortgaged properties
NOT COVERED:
-mutual funds, stocks, ETFs
-GICs etc with over 5 year term
-Bonds
-Treasury Bills
Pay attention here, if you are worried about it. Much more detail about the rules and how they apply at the links above. As Garth says, the chances of 1 or more of Canada’s ‘Big 6′ Banks failing is about 0. The Government would prop them at all costs. If you are that worried, get a shovel and dig a hole in the backyard. Just do it alone, at night, with no lights on.
———————————————————-
Brokerage (investment) accounts are protected by CIPF:
CDN Investor Protection Fund “Canadian Investor Protection Fund is a not-for-profit organization that provides investor protection for investment dealer bankruptcy.”
“When you open a customer account {Brokerage/trading/investment} at a CIPF Member you may be eligible for up to $1 million of coverage if you suffer a financial loss because the Member cannot return the property in your account to you. Such financial loss must be caused by the insolvency of the Member.
CIPF is sponsored by the Investment Industry Regulatory Organization of Canada (IIROC) and is the only compensation fund approved by the Canadian Securities Administrators for IIROC Dealer Members. All IIROC Dealer Members are CIPF Members”
So if you buy preferred shares (or any other share etc) through a Brokerage/Trading account (I can’t think of how else you could buy them) you are covered by up to $1 Million CDN in the event your Broker fails. Again, in the event of a real problem, I would expect some form of Government bailout.
Note: this does not cover a loss in value if the price falls – that is market risk. There are ways to hedge the risk of loss of value, but those would be mainly through options plays, for more sophisticated investors, who are able to trade options in their account.
Bottom line: no risk, no reward. Keeping your money in the Bank in a regular savings or checking account may feel “safe” – but it won’t cut it if you want growth. The much bigger risk is not having enough money when you retire. Don’t have fear paralysis.
Or maybe you like the taste of cat food (more protein than dog food, I hear).
“The only way to survive what’s coming is to reduce debt, and increase wealth. ” – Garth
Genius. Wait, I can do it too: reduce liabilities and increase assets. Wow that was easy.
Wow Garth your certainly replying to the finance geniuses that we have for entertainment on here today.
If any of them did their own taxes they would also see the stupidity of leaving their cash with Ally or the Dutch guy. I’m always amazed how people can tell me all thats happening with their favorite reality TV show yet have no clue about their financial options.
“-When investors convert, the new fixed pref shares will pay a rate that is the sum of the yield on five-year Canada bonds plus a spread, the same spread that prevailed when the original pref shares were issued five years previously. For those holders who opt for floating-rate pref shares, the new yield will be the sum of the yield on the three-month treasury bills plus a spread.”
Both you and the article have missed option three.
The bank, looking out for their best interest, can redeem them for $25 and, as others have eluded to, those that buy them today for $27+ today will get at redemption hit around 10%. Resulting in an effective yield for the duration held of 3%-4%. The first of the fixed resets start to reset in just under 3 years. Coupon and yield are two different things.
Yes Garth, most don’t understand prefs cause they do not read the propectus, they just sign blindly what others tell them to do.
list of Preferreds via G&M database:
http://www.globeinvestor.com/v5/content/filters/
pick Echange
choose” Banks” under Industry
choose “Preferred” under Security
It may be instructive to see how they did during the last downturn.
going forward 
Even more enlightening is a comparison graph to the TSX index.
Form your own conclusions.
Bank GIC’s with an upside indexed to an index and guaranteed against a loss seem like a no brainer at first…until you find out that you don’t get the dividends.
Garth, what are your thoughts on the CAD vs. Euro for the year? I’m planning on going to school in Italy for six months and I’m wondering if I should buy Euros now or wait a couple months?
I’d take Thrasher in the fifth to show. — Garth
>>> How do you ‘lose everything’ investing in bank preferred shares? If the bank goes down, so does your 1% savings account, dude. — Garth
Bank accounts are gov’t insured (to $60K).
If the bank fails, you still get paid. If a company fails, preferred shares would likely get wiped out (as they were with Fannie and Freddie for example). They got wiped out (dividends stop, shares near worthless), even though the BONDS are fine.
All it would take is “really bad times” for the Canadian banks, short of failing, and pref shares would take a big hit, likely with payments suspended/modified, and share values falling big time. There’s a reason that they’re yielding 5-6%.
In the crisis of 08-09, the worst since the 1930s, not a single dividend payment was missed. You’re blowing smoke. Meanwhile we’re all hung up on this CDIC, obviously. Well, folks, go ahead and believe what you want. Just as the government hopes. — Garth
If CDIC is meaningless, why is CMHC insurance worth anything? If the Canadian housing market melts down the same way as the U.S.; there will be huge losses for the banks, large enough to sink them. So either CMHC pays out insurance on foreclosed mortgages and saves the banks, or the banks fail and CDIC bails out depositors instead. Either way it costs about the same. If you believe that CMHC will save the banks from their bad mortgages, you must agree that CDIC could save depositors using the same borrowed money. I can’t think of a scenario where government guarantees are worthless, yet banks or other private companies are still paying dividends or interest.
Also, I don’t necessarily agree that investors (like myself) with mostly guaranteed short-term investments are fearful. I think interest rates are going up soon, so I don’t want to be stuck with long-term assets like preferred shares or long-term bonds before rates increase. Avoiding long-term investments means buying short-term investments, none of which pay much better than inflation, particularly after accounting for risk. I don’t see the point of buying a long-term investment or a non-guaranteed short term investment, so I am market timing rather than acting out of fear.
I think you agree that people who rent rather than buy a house are not acting out of fear, they are waiting for a better market before they buy a house. I may be wrong about interest rates going up anytime soon; but I am acting on that belief, not fear.
A single Big 5 bank default would overwhelm CDIC. There is no way half of CMHC mortgages will simultaneously default. Comparing Apples and Audis. — Garth
#109
no I didn’t miss it .. in fact I have argued the same point you are making in previous posts
my post was simply to point out that EJ was basing its propaganda on the basis that all preferreds are perpetual, which is misinformation
Garth
Surprised to see you slamming the mutual fund industry since those are the guys that sponsor your tours. Appreciate the honesty.
The bank preferred shares are non-cumulative. If they don’t declare a dividend, none is owed. They can still declare and pay a common share dividend. The common stock dividend has not been cut in decades and would severely affect the stock price. Common stock holders can vote for the board of directors, preferred share holders cannot. If cash flow becomes an issue, who would you appease?
Preferreds are superior to commons and their dividends must be paid first. That’s why they are called ‘preferred.’ No bank, insurer or major regulated Canadian utility has missed a dividend. And no asteroids have hit recently. Both are equally likely. –Garth
You know what is really boring Garth?
Watching the slow decline of property values in Calgary. Have some words with the interest rate people so they jack the rates to at least 12%, that should get things moving quicker than the stagnation that defines Alberta and the tar sand nation.
DELETED
Garth
If a preferred dividend is declared, it must be paid before the common stock dividend. These are non-cumulative, therefore a dividend is not automatically declared. I confirmed this with an RBC advisor.
TRP has a cumulative dividend preferred share.
The banks each issued hundreds of millions in preferred shares to raise capital. As I said, if cash flow becomes an issue, the preferred share owner could be the loser.
This is unlikely but when the government tells me that our banks are the strongest and best managed in the world, I take that with a grain of salt.
No bank has missed a dividend payment. The sun still rises. Get a life. — Garth
#29 Victoria Tea Party
“a nation of aggressive young females and feminized males”
That’s a good one, dude!
“Q: The housing market like the stock market has historically been running on cycles (ie 7 years). Did we miss one, or is a sharp downturn in housing prices coming shortly?
A: Pascal Gauthier:
How fast worries have turned. In 2008, folks were nervous about a US style downturn, then worries turned 180 degress to bubble phobia. Now back again to worrying about a crash. It’s not impossible – but the data doesn’t suggest it’s likely. The market is coming off the sugar of satisfying pent-up demand, ultra-low rates and anticipation of new mortgage insurance rules and harmonized taxes in BX/ON ”
OMG
Hey, at least he’s saving…
Most of the people his age are 23K in debt with their credit cards, card debt and LOCs…
>>> In the crisis of 08-09, the worst since the 1930s, not a single dividend payment was missed.
That’s only true for Canadian banks, not the European or US banks. And as you’ve pointed out, our real-estate crisis is coming, which will be the test for our banks. The S&P U.S. Preferred Stock Index Fund
(PFF) fell from $60 to $14 during 2008-9. (“Oh, but it is different here…”
Let’s talk about Canada though….
The return on Canadian pref shares (including capital appreciation, and dividends) over the last 3 years is 0.30% per year. This is according to the Canadian S&P/TSX preferred share index (of biggest financials).
(google Canadian S&P/TSX preferred share index to find about that)
Over the last year, the return is -7.0%
Year to date, you are down -0.70%
In any of those terms, you would have been better off with a GIC. Of course if you can “beat the benchmark”, and cherry pick pref shares that are going to outperform, then you will get different results. By definition, everyone can’t do that. And those that can are billionaires.
Not true for Polish banks, either. And it’s ridiculous to take an average of all market dividends when the conversation has been about banks, insurers and utilities. If you want to stay with your GICs, have a happy life. Stop trying to convince others to go down your rabbit hole with false logic. — Garth
Where do you put your money? That is the big question. I agree with a previous blogger, I too have money in a T-bill account, about 75% of my down payment, that I intend to use in 1-2 years. is this bad? No, I need to preserve capital. My long bond fund did well the last 2 years, it preserved capital, and gave a modest return, with growth and distributions. it is all 100% in my RRSP so no tax. But Bonds are going to tank with the coming interest rate increases, whats left? Even prefered shares have risk, and they seem harder to liquidate. Can I buy them from the bank, and put in my RRSP, which I intend to use for my down payment? (HBP)
I don’ believe they fit. But for a long term retirement scenario, sure, they would fill in a balanced portfolio, maybe 1/3 of which could be in Prefered.
Ok, I can by preffered shares of Royal Bank from my RBC investment account. Something puzzles me, the share price for both is listed the same, about $54, but the dividend for prefered is .29 compared to .5 for common. the dates appear to be the same for the recording periods. It would seem preferred shares of RY.to pay a lower dividend…
” no I didn’t miss it .. in fact I have argued the same point you are making in previous posts
my post was simply to point out that EJ was basing its propaganda on the basis that all preferreds are perpetual, which is misinformation”
Evangeline, agreed, however, the latest fixed reset with low spread/ reset rates, will more than likely to become perpetuals (ie. not redeemed by the issuer) as it is in the issuer best interest to keep reseting with a low spread and the owners will have to sell in the market to get their capital back. They are in effect paying for a reset and buying a perpetual.
The first reset rate preferreds with high resets are more than likely to be redeemed as the issuer is under no obligation and would be inept to keep paying that erroneously high spread. At this time, owners who paid/pay a premium for these resets may be in for a shock if they believe the implied guarantee of reset from the linked article without doing their own investigative analysis.
Preferreds serve a purpose and there is nothing more wrong with prefs than any other investment vehicle as long as one knows the rules. Any pref purchase should be bought only after reading and understanding the prospectus.
Different topic, if you want a laugh, go to this site
http://www.fisgard.com
and read their comments, such as…
With investors flocking to less speculative havens such as quality Canadian real estate property and mortgage investments secured by CANADIAN real estate, interest in the MIC (Mortgage Investment Corporation) has grown significantly. Professional well-managed MICs are generally debt-free and deliver reasonable consistent dividends in the 5% to 7% range.
these guys toat a track record of 11% over the last 15 years, well duh, 10 of those have been during a boom, but now look at their average for 2010 5%, wait until next year and look at that average.
They make loans to developers at high interest rates, they are loan sharks, and this they call less speculative?
I have a buddy the remortgaged his house, and dumped it all into this company. I pray he pulls out before it is too late…
#94 Axehead….if teaching is such a great job, go to University for 5 years and join the crowd! You might even enjoy spending your days with mature 14 year olds!
Now, what do you do for a living….pretty sure I can cut your occupation to shreds pretty easily as well…though I probably can’t do the job.
Your conversation piece reminded me of this video.
http://www.youtube.com/watch?v=FL7yD-0pqZg
From yesterday 249 Rachelle on
“Rent Controls are horrible, I worked as a property manager ”
On the other hand you say wages have not gone up.”
How does one expect to pay rising rent when wages haven’t gone up? Do you like tent cities? How many absentee landlords renting the crap out of houses . Do you hear the neighbours complaining about noise drugs etc endless calls to the police . Who gets that bill. Did you know that cities in the usa. are billing the landlords for the police calls. I think that is a good idea.
“No one has built a rental building in Toronto for the last 20 years. ”
I can walk around my city and see tons of empty buildings getting flipped for depreciation writeoffs and then years later be called “heritage” buildings and qualify for taxpayer reno money.
@ Bill
Open your Google Maps application. Find a large patch of open sea. Zoom in. Keep zooming in, and in, and in, and in, until you find the smallest little speck of land, the tiniest little island imaginable, so small you could hardly have imagined it could possibly exist in such a vast expanse of sea. Keep your eyes fixed on that island, and concentrate hard on what I am about to tell you
“This is where people who give a crap about your opinion live”
Garth does Nost even know he is on perma-delete? I always got the impression he never actually reads any posts, instead just does drive-by postings to rattle the nest.
Retail investors cannot even access some of the best preferreds. Besides, if you have to ask, what qualifies you to do this? Danger. — Garth
So, what you’re saying is, stick with the Dutch guy?
Only if you like Pedigree. Otherwise get an indy advisor. — Garth
@ #29 VICTORIA TEA PARTY
AGREED!!
I am a 29 yr old female and struggle against the hedonistic, self-absorbed, i-life, play-now-work-later, living-on-credit, hipster-hollywood fantasy lifestyles of my age group and younger. It seems to be perfectly ok to rely on the Bank of Mom and Dad, rack up credit a mile high and be a student in your mid-30′s, with nothing to show for (and I don’t mean a house)!
What happened to responsibility, hard work, investing in your future, educating yourself when you realize you weren’t taught enough – or anything – in school? We have become completely dependent on others to live our lives – what if the supermarkets can’t deliver our food and water? Not many know how to grow a vegetable or even cook, for that matter. Some old values are good ones to pass on. It seems to be something we only read about on blogs (since printed literature is ‘so whatever’)…if we read at all!
We seem to have this attitude that we will always be bailed out and that the 1930′s were a chapter in a fiction novel. ‘Kids’ (and that seems to include the near 30′s nowadays) don’t know the real value of a dollar, and don’t care to learn…Keep the conversations going; if the system is useless, then it is up to us all to educate one another.
Like Garth says, GROW A PAIR! We cannot be (and subsequently raise) a generation of complete narcissistic losers…
Well young fellow, 26 and a few grand saved, good for you, better than debt.
Garth is 100% right grow a set and get on with it.
I was in the same situation as you, I didn’t hesitate and put the money to work in my own business.
I made some and lost some always learned by my mistakes though.
Its the same today you’ll win some and you’ll lose some.
If you’re stupid and don’t learn you’ll never make it.
I look now at a lot of my friends and realtives very, very few of them are in good financial shape, they almost all are counting on selling “the house” for their retirement.
So young fellow if you want to prosper you’ll have to assume some risk somewhere.
Leaving your money where its at and giving up a little each year to feel safe is well….not a good sign of someone who is going to make it.
Look around you, read these comments,lose the fear, be bold, take control of things. Don’t be an idiot either way.
Think.
Good Luck.
>>> [Garth] And it’s ridiculous to take an average of all market dividends when the conversation has been about banks, insurers and utilities.
Noone is doing that. The Canadian S&P/TSX preferred share index is heavily weighted to financials/insurance/utilities (82%).
Largest holdings include the big 5 banks.
That’s the index that is DOWN 0.7% year-to-date, DOWN 7.0% over 3 years.
And that’s an index, with no commissions etc. It would be worse with a fund, or a money manager picking your prefs for you.
I don’t invest in GIC’s, never said that I did. Just wouldn’t touch pref shares, and certainly wouldn’t be pushing them as low-risk, without at least pointing out their dismal returns.
Garth I read you and I appreciate you and I learn from you but ……. I don’t think that you understand how ignorant we sheeple are when it comes to investments, savings, taxation, the economy …. the future.
We are so scared and so angry and we do not trust anyone anymore.
We Baby Boomer Sheeple were taught to go to work and pay off our mortgages.
You have taught us much and you do not get paid to feel sorry for us.
But could you please feel sorry for us even just a little bit.
If we do not trust anyone to do for us what needs to be done ie. some financial planning, where do we go to learn more and become less ignorant.
Wish that young folks in school today could be forced to study finance and the best way for them to participate in their financial future.
Thank you.
Judy
#123
Thank you for your post. I got a lot out of it.
As Garth notes, you can buy perpetual preferreds yielding close to 6%. In B.C. and Alberta the following scenarios are fairly similar. A retired couple with no other income can earn about $130,000 in dividends before they pay a single penny in federal tax. The dividend tax credit works folks. Buy perpetuals, and maybe some fixed resets (understanding that these may well be called at five years at par). How about adding some Emera, Fortis, a smattering of bank stocks, Trans Canada or Enbridge. Pembina Pipeline etc. etc. You will sleep relatively well, your income in retirement will be there and the tax advantages are huge.
PS: You’ll need about 2 million dollars to do this, but if you start early enough, invest for safe growth, cut the debt to zero, drive the car another year or two, make most of your frappaccinos at home, it is possible.
Garth, earlier today you referred to preferreds which are not available to “the retail investor”, by which I mean they do not trade on the open market? If so, how do they work? How are they priced (price discovery), and how are they sold (does the person selling them get a cut)? Why would a company issue such shares, doesn’t make sense to me.
They are gone before you even see them. — Garth
5 years ago we ha d client who wanted to invest 10000 into stocks, preferred shares, RRSP…. From our side he was advised to invest into Real Estate. Game started: Purchased a house at 212000 with 5% down ($11000) and was hoping to do something.
Market went up, he was very happy. Market did go down, he is still happy. Currently his property (rented from very beginning) is bringing over $700 per month, and even market is down bank has appraised it at $340000 (could be sold in no time between $325-330K)
Math is very simple : invested $10000 after market going down still able to get over 10x in return. Maybe something is wrong but numbers are not laying.
With market going up and down you have to wait to get return.
it is a good thing that there are lots of opportunities in investing. Just have to be educated, and make a decision.
Enjoy the ride…
http://flatfee495.com/buyers-still-can-buy-with-5-down.html
I know squat about the financial investments market so I can’t comment here as I did on yesterdays blog ruffling a few feathers. But then yesterdays responses to my posts suggest I know nothing about real estate rentals or sales either?!?
Even if we were to assume that a Bank could go bankrupt and the CDIC was able to step in to pay everyone’s balances, what is the likelihood of this event happening in a given year? I think that even 1% is too high a probability for this happening.
If a preferred pays 5% higher (since it gets taxed less), and the odds are less than 1 in 20 chance of a bankruptcy in a given year, then you should buy the preferred shares. Taking the bad bet is like sitting at a poker table and only playing Aces and Kings all night long.
You have to ask yourself if it’s really worth it to pay a premium of 5% on your savings to protect it against this type of unlikely calamity. If so, then I have some sweet insurance I’d like to sell ya.
Two properties near us that were built in the last 5 years. Spoke to a neighbour about that new phoney brick work on the front of these houses. Supposedly there are already problems with it.
First one: http://www.realtor.ca/propertyDetails.aspx?propertyId=9689709 – asking $444,500. They have moved to Ottawa. He works for a large co. that builds hospitals, schools, etc. Originally from Quebec. Have met her a few times walking her puppy. Seemed v. nice. From neighbours I learned she apparently thought house wasn’t large enough for 4 nor upscale e’nuf.
House has been on the market for 3 or 4 weeks.
Second one: http://www.realtor.ca/PropertyPhotos.aspx?propertyID=9466543&PhotoNum=8
- asking $439, 900. Put on the market about 3+ mos. ago for $480. I’m told. Think a new agent is selling it. Believe chap is a military pilot and was transferred. Went to an OH – weird layout.
Seeing more listings in our area. Some have sold rapidly, but others have been on and off the market for a long time. It’s all about price.
“469k house down to 499k, all in the last 6 months.”
this must be doublespeak
#95 Daisy Mae on 07.16.10 at 9:21 am
“This blog is now giving me hives…” LOL You and me, both!
And I’ll third that.
I’m not very knowledgeable about investments, but damn it, how many times does Garth have to repeat the same thing over and over again before it sinks in.
Also, I find so many blog dogs hate, or are jealous of, those who they perceive don’t or didn’t work as hard as they do, yet managed to accumulate some assets because of age or where they chose to work.
Saving’s accounts do have their purpose. My wife and I keep 2 months expenses in a savings account for use in emergencies, as well as a few hundred in the proverbial mattress. On top of that we have a second savings account for vacations and large purchaces.
Long term savings are in tax shelters, not that we have very much; our immediate financial goals are paying off student debt, which should be free and clear within the year.
#45 kabloona on 07.16.10 at 12:43 am
Nice video, I do not feel sorry for that lady who stupidly paid over asking price in a bidding war.
She will pay big time for her stupidity and “gotta have it now” attitude. I hope it will teach her a good lesson, which will cost her at least $10k+ she does not have!
Bring on the Great Canadian Housing Meltdown!
banks are too big too fail but universities in UK
…”Cable told an audience of vice- chancellors at South Bank University in London: “What we have is an urgent problem. Universities are going to have to ask how they can do more for less. There will probably be less public funding per student … quite possibly fewer students coming straight from school to do three-year degrees.” Universities had to be prepared for a period of contraction. “Britain is a poorer country than two years ago and future spending had to be adjusted accordingly.”
He stunned the vice-chancellors by announcing that struggling universities would be left to go bankrupt. But he said students would still be protected. “It would be similar to banks,” he said. “They can fail, but their depositors are still protected.”
http://www.guardian.co.uk/education/2010/jul/15/higher-education-universityfunding
One point I would add to Garths comments is that it also depends on why you investing. Someone like me who is looking for low risk, long term compounding interest and then income Perferds are perfect. For a 20 something young guy saving up a 20% down payment for a house than a GIC is fine.
BTW Garth thanks for all the info about perfereds I would never of thought of investing in them.
Remember when people actually saved for things?Everything seems to be turning into a Casino.
Very nice to see that BC, the Greatest Place on EARTH – has opted for on line gambling revenue. Doesn’t seem to matter to these folks about the appalling stats of the damage done by gambling problems, video poker suicides and the like. No problem with revenue, eh?
I am wondering when the next shoe drops, and people realize that RE is going to eat it’s young here in the GVRD….lots of angst. Open house in our building, where we rent, and even after 2 reductions in three weeks, the Agent admitted that she has learn new ways to stay positive.
I like the fact that Mr. Turner is happy to allow polite dissent, but his Bon mot slams are spit up the coffee funny, and makes this blog an extra treat.
There’s no need to wonder why the savings rate is so low. If you have money and wanted to save some of it, what to do? It goes way beyond the fact that real rates of interest are negative. (Interest rates are less than inflation, however you choose to define it.)
For a long time, real estate has been the winning strategy for the average, ordinary person without exceptional financial acumen to invest. For a long time, buying a house has been one of the best financial moves a person could make. Home ownership has become a rite of passage not unlike graduating from high school or getting married. As this blog tirelessly explains, using a mortgage as a form of forced savings is no longer a prudent strategy.
For the average person, the world of financial assets is an incomprehensible, scary place that they just don’t understand. The level of complexity is mind numbing. Joe Average feels fear because he doesn’t understand. Even the so-called “professionals” get it wrong all the time. (Even the honest ones that aren’t trying to rip you off.)
Returning to the central question, if you want to save money, what to do?
Everything is fraught with uncertainty and risk. Cash, gold, equities, real estate, fixed income are all troublesome as a store of a value. IMHO, a lot of people just say to heck with it and buy that bigscreen, or that new Hummer that they’ve always wanted. Worse still, they purchase real estate. With a consumer purchase, as at least you can know you’ll get some gratification from your purchase.
If you want to set aside some of your current earnings for rainy day, it’s really hard to know what to do. Wouldn’t it be nice if there was some place you could store value that was “as good as gold” or “CDIC insured.”
What I’m really lamenting is the lack of simple truths that can serve as reliable guideposts in life. In the not so distant past, you could buy real estate and have confidence you were doing yourself a favor. In the not so distant past, you could get an education and have confidence you were doing yourself a favor, that the time and money expended would yield something. All the old, self evident truths seem to have gone out the window. The world might not be coming to an end, but the end of the world as we’ve known it has already begun. (Cue up the old REM song. At least I think it was REM?)
The old rules no longer apply and people are afraid – that’s why we have doomers and sheeple who believe the false promises of governments such as CDIC.
_____________________________________
To brighten up your day, here’s a hilarious link courtesy of Zero Hedge. Gallows humor at it’s finest. You don’t even need an MBA in finance to get the joke:
“Wonderbra Economics: Obamanomic Keynesianism Explained Using Victoria’s Secret Models”
http://www.zerohedge.com/article/wonderbra-economics-obamanomic-keynesianism-explained-using-victorias-secret-models
#133 Judy from SW Ontario on 07.16.10 at 12:53 pm
If we do not trust anyone to do for us what needs to be done ie. some financial planning, where do we go to learn more and become less ignorant.
Wish that young folks in school today could be forced to study finance and the best way for them to participate in their financial future.
*********************************
I agree with this–but–
What about all our academic’s out here who have all sorts of degrees in finance-yet–
missed this whole sorry thing and to this day-have been wrong in their predictions?
Ever wonder why-they have been so off balance?
It’s “because” of their “financial education”
In their world-what’s happening–is not supposed to happen-because-
All we need to do-to correct this is-
Print and throw money at it-
This is the Keynesian way and this is what’s being taught in our university’s and-
It is false economics and the proof of this-is unfolding in front of us-
Learn the crazy Keynesian theory’s–then-
Learn the Austrian theory’s and compare-with today’s reality’s and you’ll find-
The Austrians have been right all along-
Read-Von Mises–Hayeck–Rothbard–
Once the real picture emerges for you and it will-investing for the future will become much easier and less frightening-once you understand-where we’re going and how we’ll get there–
Wow what a great blog for reading today.
I feel sorry for the many people who do not understand investments.
One thing that many people do not understand is that many of Garth’s statements are for long term.
He said in the crash of 08 he did not loose money (cash) but he lost on paper because he did not sell.
Therefore, you need to place your savings in Investments that are properly geared to your tolerance level.
For example if you intend to buy something in the next 6 months you do not buy preferred stock.
However if you saved $10,000 for retirement and its 20 years away then perferreds are a great investment income.
All very very interesting and I think too many people look for a quick answer here instead of reading.
Life is not about your income its about what you spend.
I think one very important factor in this discussion today is the majority of Canadians do not save for long term and therefore they look for a quick fix. I get the feeling people are saving for one or two years and then spending the money.
have a great weekend
#136 Devore on 07.16.10 at 12:59 pm
—————————————-
You can buy preferreds just like regular stocks. But as Garth has mentioned, some are not available to the average investor, and you may not be able to get in on initial offerings.
But, for example, you can buy preferreds in RBC at any time:
http://finance.yahoo.com/q?s=RY-PR.TO
The only thing is that you may have to type in something other than ‘RY-PR.TO’ in your self-directed account in order to buy it.
#140 Live within or under your means on 07.16.10 at 1:29 pm
————————————————-
Thanks for the links, those homes and prices are similar to homes and prices found in Kanata (25-45 min. to downtown Ottawa). Your neighbour won’t find anything much better than that (especially in Ottawa proper) unless she’s looking to shell out 50% more…..perhaps 10-20% more would get her something better in Stittsville, but then you’re looking at a 35-50 min. commute…….
Lord in the red?
The U.S. Internal Revenue Service says Conrad Black owes US$71 for unpaid taxes.
IRS says Black filed no tax returns from 1998 to 2003 and paid absolutely nothing on $120 million in taxable income.
The IRS is also pursuing Radler,
According to Forbes:” the IRS says Radler also failed to file returns for the same years, paid nothing on $111 million in taxable income and owes $66 million.”
I’ve known a couple of ‘day traders’ — the mere thought makes me shudder. A few acquaintances manage their own portfolios as a group, meeting on a regular basis. Equally scary. Today I’ve had it re-inforced once again just how naive we are and how important it is to have a reputable investment advisor. We cannot possibly know all there is to know about everything pertaining to investing….
Nostradamus Jr. (the real and deleted one) — The Grateful Fed has all my credentials. The gentleman put the piece of paper under the counter by the cash register.
#46 my 2 cents, #112 Jeff Jones, #70 andrew.b52, #44 vancouver Sucks, #67 BrianT, #52 Bogdan, #51 Tom, #47 nonplused — “Please edit your column. Thank you. Sigh. Done. Wrote a book on it. An absurd statement. It would be chaos. Just as the government hopes — trust me, I’m from the government”. It’s less embarrassing. — Garth”
Hah! Do you vouch for the fact — Just the facts, ma’am — that all govts. are false nutbar conspiracy theories, that none of us actually exist?
Taken a while, but I KNEW you would come around! Ever thought of putting Mel Gibson in charge of your blog?
Another stunningly magnificent up day on the markets. When sheeple panic big time, then it will be time to listen to The Sage of Omaha’s advice — “Buy when others are selling”.
Just a guess, but Buffett wouldn’t be a billionaire now if he had invested in GICs, CSBs and money market funds.
#40 Debt Is Invisible — “Oil and pipelines. Six to ten percent dividends . . .”
Nice return. Add to the others above to have an adequate pension!
#28 Devore — “I think making money is pretty exciting.”
Money is simply a tool to help us through life. It may be exciting, but just enough, no more.
Pensions made simple Easy when you know how!
9-11 Repeat? It links very conveniently with this.
This almost certainly plays a part with the above.
Sept. 2002 — anyone recall this pic and story? And why is California so utterly broke now, having to slash wages, cut staff and tent cities are sprouting everywhere?
Just in case you thought only the economy was collapsing, there’s more.
re #70 andrew.b52 – I dont’ think you understand the tax system.
How about the 12 billion cubic feet of natural gas that spewed into the gulf. The gas eating microbes are happy but, doesn’t that lead to less oxygen in the water?
Oh yeah, the stock market is a total scam and a ponzi scheme. The only utility of the retail investor is as bag holder.
If anything good comes out, institutions will get it first. If they want to get rid of some completely worthless toilet paper, they’ll sell it to the patsy retail investor as if it was gold. (and charge him commission for the privilege, lol. )
I’m slightly exaggerating, but you get the idea as to why the real good stuff mr. Retail will never see.
The blog today is a total morass of ignorant, ill-informed comment. I have no idea what I bother. — Garth
http://www.youtube.com/watch?v=bNmcf4Y3lGM
23K @ 26 not a bad start for a nest egg. Max the TFSA, get a deposit going in his own RRSP long termer and then contribute monthly. The tax refund shove in next year’s TFSA. Just keep 2 – 3 K in the bank cash emergency.
Re #149 darksad person;
Couldn’t agree with you more. Have been conditioning kids coming out of university the last 20 years to know longer think or question those who taught them. Plus the bullshit cariculum didn’t help out either.
No wonder nobody knows where to put their hard earned money/ savings.
Personally I have no faith in the stock market, our government or our banks even though ouf financial system is supposed to be better than the rest.
What bothers me is the amount of currencies floating around in the world compared to what the world actually produces.
The Elitists are trying to push for a one world government/ one world currency/ one world police state. If they accomplish this what happens to the currencies of each individual country.
We roughly have 5x the currencies / credit floating around than what should be.
If there is a correction on currencies/or one world currency to bring us back into check as to what we actually produce will our debt load be reduced same amount, cost of living …
I would sooner have tangible assets like real estate, gold bars, than be all paper regardless of what the financial sector tells me will happen. What will come to happen in the future will be nothing like we have ever seen. This one will no longer be geographical but global, affecting all of us.
http://www.youtube.com/watch?v=PdiCJUysIT0
-
Of taxpayers money. Isn’t that the lottery jackpot tonight?
‘Quakemarkets — Possible reason why the markets went down today.
NATO and the US are top notch at passing the buck. Seems Obama (and others) are getting their marching orders.
Timeline – A month or so. Put this and the preceding together, and it is quite clear that summer is gonna be toasty (nothing to do with GW)! Add — One more reason.
Look for food / water / gas / diesel shortages to enter stage right, and to begin a hidden inflationary cycle. Plus — Derivatives die in 2022. By then, we all will have broken on through to the other side!
It’s worth paying good hush money to the right people in the right places, at the right time.
This is what the elite plan for. What they get might be slightly different.
BP “Oil reservoirs the size of Mount Everest do not deplete in just 3 months.” wrh.com.
What Garth is trying to say is that if Gen Y doesn’t get with the program and participate in the markets, the entire ponzi will collapse and the folks currently in the market will get slaughtered regardless if they bought common stocks, prefs or bonds. So common Gen Y, help out your parents by getting into the market and propping up that ponzi. Without you, there will be no retirement in Florida.
Actually, without the young fools there would be no real estate market. — Garth
Preferreds are superior to commons and their dividends must be paid first. That’s why they are called ‘preferred.’ No bank, insurer or major regulated Canadian utility has missed a dividend. And no asteroids have hit recently. Both are equally likely. –Garth
If you expect to live a few more years, why would you want a fixed income when you can have a growing income from common stock dividends? With common stock you start off with a lower yield (except perhaps in March 2009), but the dividend and your capital can grow. -Tom Connolly
Less volatility, more income. — Garth
lonely limey
Did as you suggested. Zoomed and zoomed. Only found a lonely limey. Since no evidence of intelligent life, the search continues.
Still trekkin’ dude
Bill
#39 Rainbird on 07.16.10 at 12:00 am
~
Obviously I need to explain this more, and will. The ignorance about these assets is overwhelming. — Garth
Perhaps you should explain ALL the pitfalls and wrong turns that these “investments” can produce, first.
Just my 5 cents.
Garth,
You have definitely put your English studies to good use on this blog. You have a way with words that adds a lot of flavour to the meaningful substance you provide night after night (your pictures are great too). I did a BA in History before I began studying medicine. I minored in biological sciences. It was actually a Harvard educated history prof who told me to choose the medical path. He was 38 when he got his first full time position and 44 before he finally saved up the down payment for his house. He played in a rock band on the weekends to make ends meet. So yeah, the medical path was definitely the more secure one for a lot of reasons. Ironically, I will probably be able to spend more time in Europe studying history as a doctor than I would have been able to as a PhD. You can be a doctor and a closet historian, but a historian acting as a closet doctor would probably wind up in jail. I have the best of both worlds now I guess. I’m sure you would say the same about your current situation. Keep it coming man.
RE # 66 Brian
“Now even pensions are up in the air.”
Literally…
” Canada is buying 65 Lockheed Martin fifth generation Joint Strike Fighter F-35 aircraft at a cost of 16 Billion…”
Okay Garth
lets hear your gambling thoughts on buying BP shares and there lowest rate yet.
RE #71 bee foot
“Concessionman, the BMO Pref Series 21 you were talking about is a 5 year rate reset pref (govt of canada yield + 4.58%). However, if the rate got too high, BMO may call them at $25. Make your own assumptions and calculate the yield to maturity …. the yield to maturity is less than the running yield.
If they are called you get the yield for owning them and a capital gain for selling them. This blog is now giving me hives. — Garth”
lol…didn’t mean to start Preferred’s 101 here but it does show that there are potential pitfalls with them..when I read Money Road I was curious about preferreds already from the occasion mention on the Blog, but always had this though in my head “what if interest rates go up?”. Figured it would be explained in the book but IIRC it didn’t get that deep into them (due for a re-read anyhow, maybe I missed it).
As for the 21′s, that may have not been the best one to choose for my question, as the rate reset feature may be the source of the high premium over face and may not reflect a more generic preferred, but the theory is sound…
#88 Small Town Realestate on 07.16.10 at 8:21 am
Um…Hmmm…Attack? MANY years training? Are you referring to the extra time in teachers college?
Wow! that might seem long…but I’ll ask you quite simply. How much time did you have off work in the last year? You spent money for an education for your profession? Wow! You know, a bunch of us have? Think it’s only teachers?? 
Careful here, dogs by their nature have teeth 
Think you’re special? Beyond where the normal person goes with post secondary?
The social “old school” social contact meant being a public servant meant you took a bit less on the front end for easier working conditions and a decent pension…then the unions got the bit in their teeth. Happened in every unionized sector of the economy.
Let’s take a look at how the private sector (also known as the real indicator of the economy ) has fared so far. Think it’s “different” with the public sector? I’m curious how far it will get before the taxpayer might get a little pissed at taxes (your real boss let’s not forget) going up?
I did qualify all this by saying what you do IS NOT (do you teach Engrish??) easy. I commend and have a massive respect for many of my (and MANY MANY others) teachers but what I refer to is a LACK of financial education in our system –
WHOLESALE DISSERVICE TO SOCIETY IN GENERAL – FULL STOP
I’m willing to bet this isn’t even being read right now…but I could be mistaken.
Care to respond to any “ATTACKS”??
Wow this place turned into conspiracy theories central.
Oh and by the way, be oh so careful here if you lump me in with ANY of the “stupid women” shite… There are those on this site than can back the fact I have UTMOST respect for women…
the reckless for the young
…”On March 2, 2009, AIG reported a fourth quarter loss
of $61.7bn (£43bn) and revenue of -$23.7bn (-£16.2bn) for the final three months of 2008. This was the largest quarterly loss in corporate history at that time.[75] The announcement of the loss had an impact on morning trading in Europe and Asia, with the FTSE100, DAX and Nikkei all suffering sharp falls. In the US the Dow Jones Industrial Average fell to below 7000 points, a twelve-year low.[76][77] The news of the loss came the day after the U.S. Treasury Department had confirmed that AIG was to get an additional $30 billion in aid, on top of the $150 billion it has already received.[78] The Treasury Department suggested that the potential losses to the US and global economy would be ‘extremely high’ if it were to collapse[79] and has suggested that if in future there is no improvement, it will invest more money into the company, as it is unwilling to allow it to fail.[80] The firm’s position as not just a domestic insurer, but also one for small businesses and many listed firms, has prompted US officials to suggest its demise could be ‘disastrous’ and the Federal Reserve said that AIG posed a ‘systemic risk’ to the global economy.[75] The fourth quarter result meant the company made a $99.29 billion loss for the whole of 2008,[79] with five consecutive quarters of losses costing the company well over $100 billion.[80] In a testimony before the Senate Budget Committee on March 3, 2009, the Federal Reserve Chairman Ben Bernanke stated that “AIG exploited a huge gap in the regulatory system,” … and “to nobody’s surprise, made irresponsible bets and took huge losses” (wiki)
AIG settles longstanding fraud cases for $1 billion
http://www.ohioattorneygeneral.gov/Briefing-Room/News-Releases/July-2010/Cordray
Three Ohio public pension funds, represented by the Attorney General, led the class action suit: the Ohio Public Employees Retirement System (OPERS), the State Teachers Retirement System of Ohio and the Ohio Police and Fire Pension Fund (collectively the “Ohio Funds”).
#29 VICTORIA TEA PARTY on 07.15.10 at 10:55 pm
I see you’ve left the ranks of the evolving.
#44 vancouver Sucks on 07.16.10 at 12:37 am
See above. You shunned the request for explaining preferreds, which doesn’t look good. It would be good to shed light on the ‘entire’ subject.
Done. I wrote a book on it. — Garth ……
Garth, I was referring to his comments on the preferred share structure. You have the knowledge to impart the whole story, though breezed past his comments. I’m sure even you could think of positive and negative aspects of the instruments?
and thanks for the book. was a helpful overview.
#165 Bill ( Peterborough) on 07.16.10 at 7:20 pm
***********************
Bill–I really do not see the “one” world currency thing-
Only because-
If-any country-or–group of country’s tried to change the ink color at this point-
{{Gold}} would literally rip the guts out of Fiat in a heartbeat-
“They” at least know this much (I think/hope)
What i do see like you say-is a currency crises–somewhere ahead of us-
It doesn’t have to be the USD to create a loss of faith-
It could start in the EUR/YEN/GBP “or” (gulp) CAD-
Who knows-but-by the incestuous relationship of Fiat-they are all linked-all joined at the hip and if one major fails-the flight from paper-is a real possibility-
Iceland–Argentina-Vietnam-Korea–Hungary-PIIGS-
Little sputters and coughs–fits and starts-first a few-then more juniors-then some mid-tiers–then (gasp) a major??
EUR/Yen/GBP??
Who knows which one first-but-it really wont matter-
because it will be the start of –Governments shoring currency’s up with Gold-to stem the flight-
I know–just another doomer–
http://www.youtube.com/watch?v=NBwC7Qzljso&feature=related
*********************
#176 Behavioral Finance on 07.16.10 at 10:03 pm
Wow this place turned into conspiracy theories central.
************************
Example??
Cuz–if you say these one liners–with nothing to prove out your words–
You lose credibility–
JM – First of all, I have read your comments. With your continued rant, you just proved my point. You and others are focusing on public school education as being flawed and a source of why people have a lack of financial knowledge. While I would be the first to agree with you that our schools could always stand to improve, my point was that they can not be blamed for people’s lack of awareness. Where are people held accountable for their own financial education? Where do parents fit in to this picture? If financial issues should be taught in schools, what would you have us teach? Do you think that your ideas will be the same as the next guys?
My point was that people should hold themselves accountable for their personal financial decisions, not blame teachers, women, or target certain age groups with their comments. I was speaking to you as well as other who have made comments that over-generalize.
As for the comments about my education, pension, etc. That is completely besides the point. I never said I was more educated than others, I never said I was more entitled, or any other such thing. As I said before, the whole point was to ask others to stop focusing on personal attacks against any one group because that takes the focus of real estate issues (which this blog is about) and over-generalizes which ultimately, makes everything you say sound rude and ridiculous.
Again, teaching is not a bad job but if it is so freakin amazing that you have to carry on and on about how we have it way too good, than why didn’t you become a teacher?
Yes Garth, you are right, preferreds are set at issue like bonds. And if you buy at issue and hold to maturity you will get the coupon, assuming no negative events.
However, try and sell before maturity, and you get market rate.
Trade for a while, then type – less embarrassing.
But don’t get me wrong, preferreds can be a good option, just make sure and diversify, as you often advise.
Interesting thoughts. Still it is a choice to be educated, and check the trends…
“…if you put your money in preferred shares of BMO, you can earn 5.95%….”
If you buy preferred shares, you’re also subordinate in the capital structure of the bank to bondholders, uninsured depositors and insured (CDIC) depositors. So – preferred shareholders and boldholders eat dirt before depositors. It’s true that if there is a systemic collapse, and the government refuses to run the printing press, both preferred shareholders and depositors will be eating dirt. But I can’t see why the government wouldn’t at least run the presses and print new money for the depositors. I mean, the government does care about its own existence, doesn’t it? I doubt that in the fullness of time, as the banks’ problems deepen, that the presses will continue to run for risk capital (i.e. your beloved preferreds), because equity is risk capital, and if the bank becomes insolvent, no new paper for you preferred holders! The only way out of this conundrum of deposit vs. preferred is to hold hard (I know, also illiquid) assets. Something you seem to be missing is that the payment of those preferred dividends is predicated on the bank’s customers (i.e. homeowners) keeping current on their mortgage debts. When loans become non performing and stay that way the bank equity holders have to take a hit. With real estate on the downward slope of a “Minsky moment” (look it up) the value of the bank’s collateral (pick a bank – any bank) and therefore solvency, is in a tailspin. Going down. You can see how well (not) this has worked out in the USA. The biggest banks are only solvent because the central bank in the US (Federal Reserve) has bought crap assets at par value, running up the national debt and making their elite friends the risk equity holders and bondholders whole FOR THE TIME BEING. I have (foolish me) faith that the publics in Canada and the USA are waking up to the nature of these central bank Ponzi schemes and are going to force a restoration of the traditional rules for risk capital. Which doesn’t look good for the preferreds you are touting. David Merkel has some pretty illuminating articles about the bad things that happen when people like you reach for yield without proper consideration for the risks assumed with that extra yield. Hint – it isn’t free. You should stop pretending that it is.
You have no idea what you are talking about. — Garth
How can you tell someone to buy preferred bank shares and at the same time tell everyone Canadian real estate will collapse in price? The last thing in the world i’d be buying now is anything to do with Canadian bank shares. When real estate collapses in price all the Canadian bank shares including the preferred will collapse too even though the banks have sold off the mortgages.
That is totally illogical. — Garth
The name of the game right now is preserving capital and keeping it liquid, NOT in trying to make “returns” on it that carry any risk.The only guaranteed way to do this right now is to keep CASH ON HAND, NOT in savings account,or tied up in GIC’s, preferred shares,stocks or anything else. This means keeping cash in your home safe,your mattress,cookie jar or whatever. If enough people do this, it will force the financial institutions, who are recently facing increased capital ratio requirements, to increase interest rates on deposits, including their most liquid ones such as savings accounts. The Bank of Nova Scotia is the first out the gate with this, with their recent ad campaign promoting “Savings” as the new direction,with Valerie Pringle as spokesperson. So, if you want an increase in the interest paid on your deposits in the long term, NOW is the time to WITHDRAW your cash to effect this. The only one benefitting right now with keeping it in the banks, IS the banks.
You epitomize why so many will run out of money. — Garth
Hi Garth,
I think telling people not to have something in GIC’s is awful advice. I say this because many of these banks bonds and preferreds have fixed interest rates, and when rates go up, the prices of the bonds and preferred will go down. Secondly, if real estate is going to turn out as bad as you say, why as you mention at the end, would you want to own bank stock – they are dependant on residential real estate – which like you say and I agree – is in for a rough ride.
You have much to learn. — Garth
Re # 181 darksadperson
Interesting. the U.S.A has not owned a single bar of gold in it’s reserves since the Regan era. Wonder how many other countries are in the same position.
Banking Cabals own the majority of gold through out the world since governments have been trading it for fiat currency.
Sachs and Goldman just recently were fined over $500 million, Big deal , compared to what they come out with in probably one of the largest swindles we have seen in along time.
Just thinking if most of real gold is owned by Banking Cabals, and Joe Public has paper saying that he owns gold stock, Joe Public Is Fucked, that paper may eventually only be good to wipe his ass.
Either way we hypothesis on this it doesn’t look good for the average person.
Again at least if you own land you can feed youself and become self sufficient, How do you do this in the concrete jungle. Real gold not paper gold will have value. In my opinion there is going to be alot of wars through out the world to further break us down, population wise… once we have been trodden down then thats when the final push wiil be made to bring in their agenda’s. Order out of chaos.
http://www.youtube.com/watch?v=jIfu2A0ezq0
#182 Small Town Realestate on 07.17.10 at 12:21 am
It’s not a personal attack.
It’s not a rant, you’re merely calling it that as it helps frame a position you’re taking that is typical. Those weren’t rhetorical questions, they’re calling you out for the whine in your tone.
Your words:
“After many years and much money spent training for this job, it irritates me when people attack the few positive aspects of this career”
so many of us have heard this from teachers & civil servants in slightly whinny tones the self righteous use.
The few positive aspects??
Civil servants are quick to attempt to defend themselves for ridiculous reasons due to their sense of entitlements. I do believe it’s a sense that’s been engendered by unions that have done a wholesale end run on the taxpayer.
Take it real easy with the persecuted women BS.
In North America it’s pure tripe.
That should be saved for where it is truly needed in places where women are truly oppressed. The personal responsibility you speak of is all that’s needed. for that matter, residents of the US, Canada, and some European nations were born winners of the lottery
I believe it is the responsibility for my education is mine and mine alone.
I merely believe to be successful, society as whole needs to revamp what is taught. It takes all of us rowing in the same direction to do it. Try and change the education system sometime and see the result summed up in one word:
Resistance.
Have you stopped for a second to consider who you might be responding to?