Entries from August 2017 ↓

Moister math

Jason has $19,000 in his CIBC chequing account earning 0.05%. “That sucks,” he says, and it does. But there are tens of billions of dollars in Canadian bank accounts on any given day losing money, even with inflation at just 1% (which is 20 times more than Jason is earning).

Maybe you should flip this cash into your TFSA and invest it, I said. Crickets. Then, “How?” he asked.

This 32-year-old has two uni degrees and now works for the federal government in a responsible position wielding semi-judicial powers over citizens’ lives. He has an apartment, a steady GF and a DB pension. Life is good. But J’s a case study in the financial illiteracy that permeates society. When banks are the only place you learn money stuff, and [email protected] is always selling you into GICs or mutual funds, no wonder so many people are pooched. No wonder they see gambling on real estate as the only way to get ahead when their liquid assets lie comatose and softly bleeding in a bank vault.

Jason can open an online trading account with CIBC Investor’s Edge, for example, buy a clutch of ETFs and pay $6.95 per trade. He could try one of the robos, like WealthSimple, where an algorithm invests for him and he pays an annual management fee of 0.5% on his twenty grand plus embedded ETF charges. He could throw his cash in with his mom’s and use her fee-based advisor, paying 1% and getting an actual human to help with tax planning plus decisions about cars, houses and personal relationships (seriously). Or he can go to the bank, get free help and end up with mutual funds costing 2.5%.

Any of those are better than what he’s doing. So, I’m giving the moister a few ETF names (he only needs four) with which to build a balanced and diversified portfolio inside his tax-free account. If he just keeps his hands off them (no silly trading when Trump blows up or the markets correct), and shovels in the yearly max, the result will be sweet.

The math is simple. Start with twenty grand in the TFSA and add a hundred bucks a week. Assuming a 7% annual return (consistent with the past few decades) by age 62 Jason’s TFSA will contain $747,000, of which $556,000 will be tax-free growth. If he retires with his gold-plated, federally-kissed defined-benefit pension, he could draw more than $50,000 a year from the tax-free account to supplement his monthly retirement allowance, still retain the $747,000, be entitled to CPP and OAS without the extra fifty grand being added to his income and taxes.

So if a moister like him learned nothing else, it would be this. Stop saving money and invest it instead. Empty your savings account, cash in all GICs and put the dough into a handful of cheap, liquid, efficient, diversified ETFs. Open only one account – a TFSA – and make the maximum annual contribution ($5,500). Tell mom you don’t want cash for a condo down payment, but you’ll kindly accept a cheque for $52,000 to fully fund your tax-free account. PayPal wold be fine, too. No bitcoin, though.

As for the current moister investment of choice, things just keep getting worse for real estate. A new poll finds 86% of the 25-30 crowd think property is a great investment, despite the fact anyone buying today is probably going to lose money for the next decade. The evidence is everywhere. Even the realtors are screaming it…

Over the next two or three years interest rates will rise slowly, steadily and painfully for those with fat mortgages and skinny equity. The bank stress test will likely be in place this October, just in time for the next round of mortgage increases. By the end of 2017 the price drop in the GTA from April highs could be 30%. Maybe more. That would equal the US housing bust’s low point and approach the 1990 crash, from which the market took 14 years to recover. There will be no major community in Canada immune from higher loan costs, less credit or falling equity. Anyone who buys now with all their savings and big leverage will wish for a do-over.

Yeah, it’s not an easy time to be 32. But it never really was. Three decades ago mortgages cost 12%. Nobody could buy with 5% down. So houses were cheap. But back then there were no TFSAs, online trading accounts or wealth-builders like exchange-traded funds. Inflation was 7% (not 1%). Unemployment was 50% higher.

So, Jason, we inhabit an aberration. The cost of money, like inflation, will go back up. Real estate will come down. The economy will continue to expand and financial assets should do well. But never before have so many people been so indebted, so deluded, nor so willfully imprisoned in their homes. The world, in short, will be the oyster of the liquid, the flexible and the free.

Best start today. Now you know how.


The day’s news is below. First, let’s talk about what really matters to humanity. This blog.

I admit it. The site was born almost a decade ago when a new book needed flogging (people used to read wads of paper covered with words). In the wake of the American housing mess, I worried we were on the same path. And we were. Still are. Similar outcome.

Over the years, GreaterFool evolved, straying into economics, personal finance, taxation, investment assets and, naturally, dogs. Then came hormones, moisters, house lust, wrinklies, [email protected], thirsty underwear, FOMO and so much more. Now (says Google Analytics) the site is visited 7 million times a year.

As regular addicts know, I’ve also allowed my two fancy portfolio manager buddies, Doug & Ryan, to write a post on alternating Saturdays, so they can still have plenty of time to polish their Porsches and trophy wives. And all along the way one thing has been consistent – roughly 1% of the daily readers leave comments.

So yesterday we passed a milestone, as the 500,000th approved comment was published (from some dude named ‘paulo’ in Peterborough). Illustrating that I have no life, every one of those comments was moderated by hand. Some had colourful language tamed. Others required a comment. And hundreds were deleted, trashed or put into a special spam file I am assembling for the authorities. As Dorothy and Bandit can attest, this whole process may have involved scotch, hurled epithets and fast motorcycle rides to recover.

Days ago I mentioned a recent tidal wave of deplorable comments aimed largely at immigrants, natives, Chinese people, lefties and 1%ers. Me, as well. Open attempts to keep prejudice, racism, xenophobia and haters off this blog earned me a death threat or two. That admission brought on a whole 24-hours of sucking-up comments which puffed my ego, making me completely forget about being garroted.

“How about assign people to pre-filter for you? I’d do a day a week or every two weeks.  Maybe that’s weird or maybe it give you an idea. But it is oh so wearing.  If you had a break from the filth and just see only the good or at least neutral. I see how it affects the people around me who have to receive crap and they don’t see it as much as you.” — Kevin

It also brought offers (like the one above) from readers I’ve never met to vet comments, provide bodyguard services, or sue the shorts off the weenies who made such threats. Additionally, it raised the question of whether this blog is doing things correctly. Should comments be allowed only from people who register, or would that stifle free speech? Should there be comments at all? Should they be better organized so people can respond directly to others? Should filters be installed to automatically weed out weasel comments containing objectionable words or phrases? Would Smoking Man OD as a result? Or, is this blog okay the way it is, and I just need more alcohol?

Given there are now over half million comments posted, seems like a good time to reassess. If you have an opinion, let’s hear it.


Well, the deathwatch continues. Days ago we told you August sales in the GTA could end up being 50% less than the same month last year, according to realtors now kissing their Audis so long. Mid-month numbers (internal) from the real estate board show that purchases were down 36% up to yesterday, and that listings have shrunk materially (down 10%) as dismayed sellers abandon the market.

No wonder. Prices have just entered bear territory – marked by a 20% decline. What cost $920,800 in April is now fetching $731,600 across this vast territory of six million souls – 5.996 million of whom will not be buying a house this month.

So has the bubble burst?

Of course. That’s obvious. And it won’t be reflating after Labour Day. Nor is Vancouver spared, where condo sales have powered ahead, move-up buyers have disappeared, and the detached market is in seriously bad shape. All the poohbahs populating the mainstream media are praying this is a soft landing and the market will unwind in an orderly fashion. But history suggests otherwise. Bubbles almost always end in a mushroom cloud, not a sprinkle of regret.

Anyway, speculation is idle. The autumn is a complete unknown. The central bank will probably hike again. Mortgage rates will likely rise. The feds will drop the tax hammer on small businesses. Trump will edge closer to self-destruction. And you can count on that stressful new stress test at the bank.

Says a veteran realtor: “If you bought anytime since last Labour Day, you are probably worth less than you paid. That is no small number of people when you consider how busy the previous year was. The closer to April 30, of 2017 that you purchased, the deeper you are in the hole.”

No soft landing for you.