How to invest

At least this pathetic blog is predictable. I write about an investment, asset class or strategy. Then a herd of nihilists thunders in to have a dump. No matter if it’s ETFs, marketable bonds, equities, preferreds, REITs or Lady Gaga futures, we’re treated to a chorus of gnashing and frothing from people who firmly believe what they don’t know.

If there were much doubt why most Canadians are financial basketcases, gaze and behold. In a world of danger and opportunity, it amazes me that people who gladly leverage 95% to buy an overinflated risk-drenched house, cringe and faint at the prospect of owning shares in the bank that financed it. What the hell are they thinking?

In any case, I’ve decided to change the nation, or at least the curmudgeonous farts who read this, with some hands-on advice. So here’s an excerpt from my recent book, Money Road, on how to put together the perfect portfolio. Suck it up. There’ll be a test later.

  • Separate your residential real estate from your ‘investible’ assets.

A house is a place to live which costs money to buy, finance and operate – so it’s an ongoing net drain of wealth, not a generator of it. If the house rises in value and provides a capital gain after all the land transfer taxes, commissions, interest payments and maintenance costs, well great. Bonus. But houses can be incredibly illiquid in a lousy real estate market, might be sold at a substantial loss or even turn into a wealth trap as has happened to millions of US families who sank into negative equity. Do not make the mistake of believing houses equal constant and accessible sources of wealth, relieving you of the problem of having an investment portfolio.

  • Have a portfolio with balance in it.

That means cash-type investments, as well as fixed income and equities. This will give you liquidity (the ability to turn assets into cash fast), as well as income and growth. There is nothing more crucial than asset allocation to achieve growth and protect what you’ve got.

  • How much of each is critical to the overall return your money will earn.

*Keep the cash portion around 5%, so if you’re got $200,000 to invest right now, no more than $10,000 should be in money market mutual fund, or T-bills or a short-term bond. All of those things will give you some income, and can be converted into spendable money within 24 hours.
* Now deduct your age from 100 if you’re a guy, and from 110 if a woman. So, a 40-year old male will come up with 60 and a woman with 70.
* That is the percentage of growth assets, namely equity-based mutual funds or stocks, which should be in this plan. The rest should be invested in fixed-income securities, like investment-grade bonds or preferred, dividend-paying preferreds.
* For a 40-year-old woman (who likely has 50 years to live, 25 of them without employment income), we then get this balance:
o Cash 5%.
o Fixed income 35%
o Growth assets 65%

With a $200,000 portfolio, this means $10,000 in cash, $70,000 in government bonds and preferred shares and $120,000 in ETFs (preferably), equity mutual funds, stocks, segregated funds, commodities or sector funds.

  • The fixed-income portion is best made up of  the highest quality bonds.

For example, those issued by the Government of Canada, Alberta or Ontario, which have AAA ratings (despite their mounting debts) and a zero chance of default since they possess the power to tax. The best kind are medium-term (three to five years left to maturity), because you can always hang on to them and know exactly what they will pay you when they come to term, plus these bonds are less volatile than long-term ones. Every time interest rates change, the value of bonds also change (although the income they pay you remains constant), which means the longer a bond has before it matures the greater the chance a big hike in rates would reduce its value if you had to sell it before maturity.

  • Adding some bank preferred shares to this fixed-income portion of the portfolio is almost always a great idea.

The dividend payments are higher than the yield on the bonds, and this money is taxed at a hugely lower rate, boosting the after-tax return even higher. Since our banks are large, stable and secure, this is a perfect place to look for both income and security.

So far, so good. That’s 40% of your money invested in assets which pay you an income stream and have less risk involved than driving on the 401.

  • The growth component’s critical, since the object is to get the best possible return with the most acceptable level of risk.

As I explain in the book, there are mathematical ways to arrive at this, and sometimes theory does help in practical actions. This is why we need to consider the ‘beta’ of any stock or mutual fund – the way it moves relative to the market as a whole – plus the ‘standard deviation’ – which is the amount it varies over time and the volatility compared to similar kinds of assets. Likewise, we want assets in this part of the portfolio which are diversified from each other, giving us negative correlation (so some rise and some fall as the business cycle changes).

Two Nobel Prize winners, William Sharpe and Harry Markowitz, each had landmark ideas about putting a portfolio together. Markowitz believes every investor should go for the maximum return, while Sharpe thinks investors should never strive for any yield that is beyond their own tolerance for risk. And I`m with Sharpe.

The good part of this process is that the risk factor for investments (the ‘beta’) is well known, so what an advisor must do is match stocks, funds and other assets with the goals of the client, given where we are in the business and equity cycle and the obvious challenges ahead.

The result in this case is $120,000 in assets which include cyclical and defensive stocks with varying betas, some sector ETFs to take advantage of pending opportunities (say, with the price of gold or oil), blue chips (banks, utilities) plus proven growth companies (like some of the tech giants), and a small component of higher-risk and higher-return, like a bond bear fund going into a period of rising interest rates (like we now face).

  • It all has to be done with tax avoidance in mind.

Obviously the less tax you pay on returns, the smaller the risk the overall there is to the portfolio. That’s why your advisor has to curtail the amount of interest income received, while boosting dividends and capital gains. It also means putting the appropriate amount of this portfolio inside an RRSP (typically that would be the bond component), while sheltering gains inside the relatively new TFSA (tax-free savings account – more on that soon).

So there you have an ideal portfolio. Or the bones of it.

You’ll notice there’s no ‘four easy, sure-thing index funds’ here. No time-sharing condos. No 100% gold or silver. Nothing exotic to blow up. No investments you can’t understand. Nothing that can’t be monitored, modified, changed or improved since these days every week brings a new development. Just a solid machine taking you steadily down the road. Wind in your hair, and at your back. Perfect.

124 comments ↓

#1 HouseBuster on 11.26.10 at 10:59 pm

Excellent! I wish I would’ve spoken to you 11 years ago.

#2 Frank form Calgary on 11.26.10 at 11:02 pm

Read your latest book, thanks for all the good advice. Happy to say a good 75% has been already put to use.

It Can’t Happen Here:

Fresh out of the Med Euro county Spain, 100 000 homes walked away from due to default. No ninja loans, no half million dollare mortgages to walking corpses, no ARMS, and fairly strong banking system.

But hey, I know…….Canada is different

#3 MKUltra on 11.26.10 at 11:05 pm

I…err…We…may be SWMJ (Squirrel Whacking Munch Jobs)…but to then have the nerve to call us ‘curmudgeonous farts’!!….is nothing less than……true!!

Like they say over at Budweiser Brewers – “For all you do, this farts for you”!

#4 Jordan - The Healthy Teacher on 11.26.10 at 11:11 pm

Garth,
Love reading your blog, and have read most of your books. I have been getting serious about investing, but I really don’t think I have the time to do it right, nor do I totally trust myself. Are there any financial planners that you know, that are on board with your philosophy? If so can you list them, or just email me!

Thanks again!

Jordan

You can always email me with details of what you seek, [email protected]. — Garth

#5 Devore on 11.26.10 at 11:16 pm

Just a solid machine taking you steadily down the road. Wind in your hair, and at your back. Perfect.

What if you have no hair?

#6 JO on 11.26.10 at 11:18 pm

If you want a simple approach and have the time/knowledge to follow things an hour or two a month, you should consider researching fundamental index ETFs…keep costs down. For preferreds, research CPD from Claymore…minimal company specific risk relative to owning just one or two companies as stand alone shares…go for high quality yield and re invest distributions…hence why modestly rising rates are exactly what you should want if you are a longer term investor…keep duration short on high quality corporates (ladder 1-5 yr, or research CBO..BTW I do not work for any ETF company nor do I sell them).

Cash is great for short periods of time, but long term investors will get mauled in cash..keep costs as low as possible…inflation and taxation are sure to continue to rise…after robbing savers and growing bloated, your friendly gov’t officials will do as they always do once the fake, debt driven economy stalls…come after those same savers and taxpayers. You’ll know they’re screwing you because they’ll tell you its to your benefit (to be robbed) or that we have no choice. Tried, tested and true. I would be shocked if capital gains are not taxed at 100 %, and the dividend tax credit effectively eliminated by the 2012 budget…got to pay for the coming CMHC and bank bailouts and that bloated,overpaid civil service…ooops, its the civilians who’ve been doing the serving.

JO

#7 T.O. Bubble Boy on 11.26.10 at 11:35 pm

Here’s an odd (but related) thought:

Do the uber-rich in Canada (those who invest far more each year than just $20k in a RRSP and $5k in a TFSA) only hold bonds in their RRSPs?

Let’s say you are a multi-millionaire 50-something.

You have say $1M in RRSPs, and $5M elsewhere.

Based on taxation, if you have a balanced set of investments, all you’d keep in the RRSP would be bonds.

Garth – you’re definitely someone who might be in a similar position: is your RRSP room 100% in bonds?

#8 islander on 11.26.10 at 11:38 pm

Check out the massive price drops on Bear Mountain outside of Victoria. You can now buy (if silly) at prices 65% less than the previous list price. Remember that these are brand new units. How is this possible when it is different here in Victoria?

http://bearmountain.ca/FinlaysonReach.aspx?BMRid=o-s-g-vcp&gclid=CLyK3oyEwKUCFQQCbAodVRZXXg

Click on “Pricing and Floorplans”

#9 Pig without Lipstick on 11.26.10 at 11:48 pm

Jesus and Socrates make an interesting historical comparison. Socrates knew he didn’t know, Jesus knew. Garth I think you know you don’t know. Kinda like how Buffet says diversity is a protection against ignorance. Us gold and silver bugs, we know(or atleast feel adequately assured we do). That’s why we can handle the risk of being all in on the precious metals.

Being all in anything is ignorance defined. — Garth

#10 T.O. Bubble Boy on 11.26.10 at 11:49 pm

Speaking of staying liquid to take advantage of new opportunities as the markets turn:

“Nov. 26 (Bloomberg) — Canada’s provincial bonds posted their worst monthly decline in more than two years as borrowing costs rise amid an accelerating global economy.”

http://www.businessweek.com/news/2010-11-26/provincial-bonds-drop-most-in-2-years-on-rates-canada-credit.html

Bond prices decline = bond yields go up. — Garth

#11 Miranda Moser on 11.26.10 at 11:58 pm

An interesting perspective.

#12 T.O. Bubble Boy on 11.27.10 at 12:02 am

Bond prices decline = bond yields go up. — Garth

Exactly what I was implying… the bond market is starting to finally turn, so staying liquid (and being able to shift in or out of certain bonds or other investments) is key.

As you’ve noted a couple of times, harvesting some capital gains on certain bonds/preferreds seems like a decent idea, and shifting some of those funds to a bear bond fund to take advantage on the other side.

Anyone have an opinion on HTD?
(Horizons Betapro US 30-yr Bear Plus ETF)

There are many far more simple bear bond funds out there, but this one caught my eye recently.

#13 Sean on 11.27.10 at 12:13 am

Hi Garth,

My wife and I are 35yrs old and our house is paid off. We now have about 30K to invest per year based on our salaries and our plan is as follows:

– Add the $30,000 annually into our RRSPs (15k each)
– In the RRSP buy 5 ETF’s (40% bond related, 15% technology, 15% energy and resources, 15% financials, 15% retail
– Take the 40% tax refund of $12,000 and add 10K into a TFSA to buy blue chip dividend paying stocks.
– The remaining $2,000 from our tax refund will remain in cash

What do you think of this plan?

#14 What Goes Up, Must Come Down on 11.27.10 at 12:20 am

I was speaking to a friend of mine with whom I go to school, and we were talking about the prices of houses in Calgary (where we live) and other major cities throughout Canada. I was explaining how instead of spending my whole whopping life savings of 11 grand on a down payment for a house I am planning on renting until I feel house prices are a little more reasonable and I have a solid 20% down payment not including my retirement funds.

He proceeded to explain to me that he thinks house prices are not artificially high, it is different here (if only I had a nickel for every time I’ve heard that exact phrase) and he thinks he is well buffered because he got a good deal on the granite and stainless. He actually said he is safe due to his upgrades.

He hasn’t taken possession yet but he is very excited because he has gained equity all ready (supposedly) and it can only go up because there is limited land in Canada and it is in high demand. I do suppose all the cows are occupying the land around Calgary…

My girlfriend works for Scotiabank and I was talking about investments with her friend who also works there. She was very upset that I said I didn’t think mutual funds were the best way to invest because of the high fees, relative to a similar ETFs. It was like I spit in her face. Apparently mutual funds and high interest savings accounts are all any sane person should invest in. Until you cash them out for a down payment anyway…

Another middle aged guy at school (I’m 22 and in trade school) informed me he has all his money in GICs while he saves for a house… not retirement, but a house.

My teacher was saying that he made about $300 000 on his house during the boom before he sold. I told him I thought it was excellent that he sold and cashed in on the gain; but low and behold, he upgraded to a $1.2 million place with the equity. Go figure.

My parents are trying to unload my grandfather’s condo so he can move into assisted living. It’s been sitting on the market in Nova Scotia for the last six months or so but it’s not moving. I told them to drop the price from 210K to around 197K to get some interest as the listing is rotting it is so stale. They wont because he wont get his equity out of it (of about 40k) that he needs for his assistance and he can’t afford it otherwise. I argued that nobody cares what he needs/owes and that the market sets the price. His presumed equity means s*#% and the condo is worth what someone will pay for it. It saddens me, but its true.

My company has a pretty good RRSP and stock matching plan. I tried to convince a friend to set up an account and start contributing. My company will match you $1.50 for each $1.50 you contribute up to 80 hours every two weeks. They will also match you 5% of your salary for stock in our umbrella corporation. I explained that by simply investing those amounts you are contributing about 9% of you salary and they will give you another 9% just to be nice. So each year you are easily maxing out your RRSP. I said you should then take your refund (half of which is from money that was free) and fire it in your TSFA along with some more savings to also max it out.

His response that was RRSPs are a waste of money because you loose half when you cash them out. He stated he can’t afford to spare the contribution amount (poor old 20 yo bachelor making $30/hr) and that a TSFA is a crock because you are taxed on the money you invest and you can only invest in cash. Poor fellow. Ignorance is bliss.

#15 Devore on 11.27.10 at 12:24 am

#9 Pig without Lipstick

Kinda like how Buffet says diversity is a protection against ignorance. Us gold and silver bugs, we know(or atleast feel adequately assured we do). That’s why we can handle the risk of being all in on the precious metals.

That’s why Buffet is diversified.

#16 carol on 11.27.10 at 12:28 am

Well I can see why investing in banks might be a lucrative investment.

I just got my visa statement from td can trust
On 4800 of which i paid down 2000 last month
Was enterest of 127.00
I phoned head office and it was explained to me
that unless I had paid off the full balance
they were still charging enterest on the 2000 i had paid down.

I was going to put my pension fund with this bank
Now they aren,t getting zip nada nothing
Banksters ya thats the word

#17 anon10 on 11.27.10 at 12:42 am

Good news Garth. I think we have finally solved the problem of the huge unfunded liability in the Canada Pension Plan. It looks to me like the folks who look after it are about to change the way they calculate the unfunded liability of the CPP.

The following sentence is taken from the 25th Actuarial Report on the CPP (which was tabled before Parliament on Nov. 15, 2010.)

“If the Plan’s sustainability is to be measured based on its unfunded liability, it should be done on an open group basis.”

Under the old method of calculating the unfunded liability (the closed group method) it was 748 Billion$ on Dec. 31, 2009.

Under the above mentioned (new and improved?) open group method of calculating the unfunded liability of the CPP, it was only 6.9 Billion$ on Dec. 31, 2009.

It is truly amazing how a major unfunded liability problem for the CPP can be solved with just the stroke of a pen.

The following is the link to the 25th Actuarial Report on the CPP. The topic of the unfunded liability and the closed and open group methods of calculating it is discussed on pages 69 – 72 if anyone is interested in reading about this.

http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/oca/reports/CPP/CPP25_e.pdf

#18 wilde_at_heart on 11.27.10 at 12:45 am

it amazes me that people who gladly leverage 95% to buy an overinflated risk-drenched house, cringe and faint at the prospect of owning shares in the bank that financed it.

Why does it amaze you? It’s sort of the investors’ version of Groucho Marx not wanting to be a member of any club that would accept him.

It’s precisely because of the banks seem all to happy to lend to someone to enable them to leverage 95% to buy an over-valued asset that makes some of us nervous about their health.
That’s not to say I’m expecting a USA-style collapse on the horizon but seeing as shares for most of them are also near all-time highs I really don’t think they’re a particularly wise investment right now.

#19 Larry on 11.27.10 at 12:46 am

Garth i get a better return with the guy wearing orange shorts than Govt bonds.

#20 DiGiacomo on 11.27.10 at 12:52 am

Here’s an update for how Calgary prices are likely to look for November 2010:

All numbers based on CREB daily stats – please feel free to correct / comment on any mistakes I’ve made

Interesting Notes:

– Condo Average Sale Price: on track for average sale price of 2.5% BELOW November 2008 – when we were in full scale “worldwide financial panic / RE crash” – (5% correction from November 2009 prices)
– House Listings 60% higher and Condo Listings 40% higher than November 2009 levels
– Condo sales volume in last 30 days 40% decline from Nov 2009 and almost at same rate as November 2008

Houses:
Sales:
November 2008: 670
November 2009: 1095
Oct 27-Nov 26, 2010: 934

Average Price:
November 2008: 435,471
November 2009: 464,444
Oct 27-Nov 26, 2010:456,758

Median Price:
November 2008: 387,300
November 2009: 408,000
Oct 27-Nov 26, 2010: 399,000

Month End Inventory:
November 2008: 5,083
November 2009: 2,658
Oct 27-Nov 26, 2010: 4,213

Condos:
Sales:
November 2008: 284
November 2009: 504
Oct 27-Nov 26, 2010: 296

Average Price:
November 2008: 287,820
November 2009: 294.264
Oct 27-Nov 26, 2010: 280,679

Median Price:
November 2008: 251,800
November 2009: 264,900
Oct 27-Nov 26, 2010: 255,000

Month End Inventory:
November 2008: 2,399
November 2009: 1,434
Oct 27-Nov 26, 2010: 2,035

#21 calgary illusion on 11.27.10 at 12:56 am

“Do not make the mistake of believing houses equal constant and accessible sources of wealth, relieving you of the problem of having an investment portfolio”

Contrary to your last post, this is why people should NOT borrow against the value of their homes to risk on stock markets. It was exactly this kind of reckless leverage that has damaged the world economy. If bankers can’t manage leverage (which the credit crisis proudly showed) – then neither should joe six-pack!

#22 Kevin on 11.27.10 at 1:02 am

Garth, great post again. Do you ever have a bad one?

“Saskatoon housing was undervalued before and now we have caught up.”

Some other places that thought they were undervalued at one time.
Las Vegas
Phoenix
Vancouver
Montreal
All of the US market
South Africa
Many other cities in the world wide housing bubble

The one common theme in every housing market is that the rise in houses values was not in sync with the rise in incomes ( Saskatoon has experienced house prices rise 3 times faster than wages over the last 12 years).

Now that the global housing boom is over and the bust has hit numerous cities in dozens of countries, people should ask one more time, what was Saskatoon housing undervalued to?

Saskatoon housing was undervalued
http://saskatoonhousingbubble.blogspot.com/2010/11/saskatoon-housing-was-undervalued-just.html

#23 Northern_dirt on 11.27.10 at 1:08 am

#8 islander

LIST $1,076,000 SALE $349,000

Wow, Its Black Friday pricing on RE in Victoria!!!

#24 mark p on 11.27.10 at 1:14 am

Garth,
The smart money is putting their TFSA allocated investment funds in Junior Gold Mining stocks with focus on exploration projects in the Yukon where near every stock in the last year has doubled, in some cases became ten bangers. Checkout TSX-V: UW,KAM,ATC,VAZ,GLB, and the list goes on. Taking 10% of your portfolio and investing in Canadian gold stocks with real potential to double in less than a year will yield you the same as 100% of your portfolio in a “safe” bond yielding 10%. The best part of the TFSA is the potential to flip awesome capital gains to tax free income; a sound reason to look seriously at Canada’s mining explorers. Furthermore, it should be said that all of us in the mining community are thankful for the TFSA as a way to raise high risk venture capital which will result in real discoveries. We are immensely grateful to you for creating this opportunity. Me think’s Buffalo Bill’s Wild West show is on again.

#25 sutluc on 11.27.10 at 1:17 am

Off topic, but…
A Vancouver radio station recently had a contest where someone won $50000. The guy who won was all excited, babbling about how he’d been try for years to come up with a DP for a condo and now he had one.
I just don’t know about people…

#26 Nostradamus Le Mad Vlad on 11.27.10 at 1:34 am


Open wide and say Aaahhhh holllyyyy shhhiiiitttt!

“. . . from people who firmly believe what they don’t know. What the hell are they thinking?” — Sounds like a severe case of sheepleitis. No cures have ever been found for the common cold and human stupidity. Do these bozos actually stop to think at all?

“I’ve decided to change the nation” — About time, too. Fire the politicos and lobbyist-cretins who work with and / or for them; do what people in Iceland did yesterday — take their country back for themselves.
*
Chindia This seems to be a case of some unknown entity pulling strings behind the scenes, and the reason becomes clear for the US involvement in Af’stan.

Whoever controls Af’stan gains supremacy over the Caspian Sea region’s vast oil and gas deposits, and also gains for themselves an estimated US$1T worth of untapped diamond and mineral riches which the world is running out of.

But Alexander The Great is the only one who captured and held Af’stan, for three years. The USSR were the last ones to cut their losses.

High Profits See why the jobs are going, going, gone?

Soros + Others Now we all know.

#170 BrianT on 11.26.10 at 10:12 pm — See following. Germany is wobbling and others may crumble.

Gonna be interesting, that’s fer sure. Plenty of indicators are not great for the US; perhaps it’s why the fear-mongering about war has been upped.

HK shows how to do it and 3:17 clip The IMF lends money and steals countries’ resources at the same time.

Obama Is this really the same person North Americans were so taken by not too long ago? Then again, Soros bankrolled him into that position.

#27 Genghis on 11.27.10 at 1:40 am

Garth, you have mentioned on several occasions that bank preferred shares are stable. However when I have a look at the stock charts, over a 5 year period I see some pretty serious volatility during the late 2008 financial crisis. For instance these RBC preferreds (click on 5 year, time period on bottom of chart):

http://www.theglobeandmail.com/globe-investor/markets/stocks/chart/?q=RY.PR.N-T

We are talking a drop on the order of 40%.

Now clearly those that bought on those lows hit the jackpot. Those that hung on did fine. However there would have been thousands of small investors who took a bath on this one (and other Canadian bank preferreds) in late 2008 and early 2009.

If there is another crisis I expect that there will be a repeat. Those expecting stability will be shocked and many will sell, incurring significant losses. Should this come to pass (I believe it is a matter of when, not if) it will be unfortunate.

I am certainly not disagreeing with your arguments. I just think that your readers should be warned about what could happen to preferred stocks in a serious crisis (I know that the 2008 one was not your average run of the mill downturn, that’s for sure).

Nobody who did not sell took a bath. These are bought for income, not cap gains. I just typed that sentence for the 1,500th time. — Garth

#28 Tim on 11.27.10 at 1:40 am

You got most of it, but stay out of bonds-at least stay out of long term bonds. Interest rates, while they make sideline for the short term, will trend higher. Bonds are a horrible investment in a period of low interest rates and rising inflation. Stocks protect you from inflation. Stick with conservative, dividend paying blue chip stocks. If you have to buy a bond fund, stick to short term, 2 years or less. Bonds were a good investment when interest rates were falling and when they were paying 8% a year. We are in a very different environment now. Don’t forget that money managers get paid more to sell bonds than stocks.

#29 nonplused on 11.27.10 at 1:53 am

All very good advice Garth, and I plan to implement it as soon as the global funding crises is resolved. For now I am more worried about “return of investment” than “return on investment”. The number one rule of investing is “don’t loose money”. Although I will agree your strategy as outlined gives a maximum of 5 or so years to get your money back if you hold to maturity.

I wouldn’t put so much faith in the power to tax as a reason to hold Ontario bonds. As Ireland, Iceland, Greece and California have already proven, you can’t tax what isn’t there. Ontario cannot service it’s debt without extreme spending cuts, tax rises or not. It is not possible. Only zero interest rates and unlimited funding can save them. There will be no brighter future based on the promise of higher taxes, and we should stop thinking about sovereign debt in those terms. Oh sure, it’s technically possible to raise taxes to 100%, and thus every dollar paid in interest comes right back to the treasury, but that cannot happen. The economy collapses long before you get anywhere near 100% even as a marginal rate.

Borrowing based on the power to tax is a Ponzi scheme and it always was. The taxes, for the mot part, come from the same people the government is borrowing from. So if you get paid back at all, it’s with your own money.

It is morally reprehensible to lend money to a government. Yes, you get a 4.2% return (yahoo!). But you are also funding the wars, waste, and micro management that government produces. Plus the process is about as morally responsible as defrauding seniors with VLT’s, lotteries, and casinos to fund quasi-charity youth bands and soccer teams.

The Ponzi scheme cannot last, whether it’s paying 4.2% right now or not. Get out of the way. Do not catch a falling knife.

By the way, Garth, when did you go to work for Mark? Did you get threatened? You’ve totally dropped the ball on the risk side other than to talk about housing risk. How you can be recommending Ontario bonds given the state of that fine province is beyond me. Everyone, everyone who does not live in Canada knows they are in worse shape than California, but more smug.

#30 Patz on 11.27.10 at 1:54 am

Garth, you are a prince in black cowboy boots ridin’ in on your hawg to save some ass, senior ass, junior ass any ass that’ll listen. Now that might sound facetious but it ain’t. Take this for instance from comments yesterday by Whistler senior at #144.

HELP! What should I do? My place here was purchased for $710,000. I would be lucky to get $650,000. Should I hold on to it for a few years or bail now with a $60,000 loss. I figure I got 5 years before I need the money out of it.

Well there’s your answer Ws laid out for you. Whatcha gonna do?

Here’s what I think you’ll do: 1st you’ll read Garth’s post and think well that’s interesting, might work, maybe I should sell. But you’ll procrastinate until you can see a loss of $100,000.

Then you’ll put up a for sale sign and figure well, I’ll start by asking $620,000. You won’t get any interest at all but one of your neighbors will sell a comparable for $580,000. So you’ll relist at $600,000 after all you’ll think I need some bargaining room. You’ll spend more time worrying about your losses than actually cutting them. Long story short, your fate is to chase the market down—all the way—at no point will you get what you’re doing.

The market in Whistler? Could easily take a 50% hit or more in your time frame of 5 years for needing money. Personally I think it’ll be worse but hey, let’s stay positive.

Or you could make a smart move; price aggressively, take Garth’s advice and get some peace of mind and a shot at a future. On the other hand being a senior you could die in a 5 year time frame—actuarially speaking.

#31 nonplused on 11.27.10 at 2:22 am

PS: Just in case there is any confusion, it is morally responsible to pay your taxes for a pay as you go government. That’s how you get the justice system, police, defence and some other systems like schools we need (although schools used to be locally funded). It is only morally reprehensible to lend money to a government, because that’s how defence transforms into 10 year Afghan missions, unlimited wire tapping and long gun registries.

CPP or social security is a good example. If the populous decides it’s a good idea to fund a stipend to seniors in need that’s great, but pay as you go. As soon as the government is allowed to turn it in to a “pay it forward” program, the money gets pillaged. Even Gorge Bush admitted there was no money in the social security trust, just IOU’s from the government. They spent the money! Ya, the various Canadian CPP funds have some money invested in crony capitalism, but for the most part it’s gone here too. If you have other resources, count on zero for your CPP retirement whatever you call it. You ain’t getting any of that money back if you are under 50. Or very little of it. It’s a flat tax, fair and square, with the promise that if the government has the money and you need it in 30 years they’ll give you something. But they have no money now, and will have even less later unless we rework the system.

History is full of examples. Governments do not pay back their debts. Doesn’t matter if it’s a CPP scheme or a bond. Eventually all money lent to a government is subject to default. Will it be this year? Not in Canada, but some governments around the world are already trying to hide the state of affairs.

Bottom line: Governments do not pay back debt, they default. The only question is when. And that will include CPP.

PPS: For those who have a mind to see how the structure works mathematically, imagine it this way: The government borrows money from you, and promises to pay you back with interest out of taxes. But who do the tax? Well, you. And maybe a few other people who didn’t have the money to lend the government anything but their CPP donations, but that’s it. They aren’t borrowing your money if there is someone else willing to lend more for less. So your repayment depends on the people that they cannot tax now somehow coming up with taxes to pay you back later. It won’t happen. And it’s immoral. When you lend money to the government you are saying you would like the thug to beat those poorer than you for your profits. But the poor don’t have the money.

Government has to be pay as you go, and it will be after the funding crises is over.

#32 Joseph [Original] on 11.27.10 at 2:29 am

Every major successful investor that I prescribe to, when advising their clients, starts from this same axiom:

“Don’t invest what you can not afford to lose.”

This is the primary reason why you don’t get too many takers on this site who choose to invest in the way that you are directing. What they have accumulated over the years (decades) is enough for them to get by. Taking a chance and investing money that their survival depends upon (or live comfortably) risks blowing a hole in their finances at a late stage in their life.

So you have an uphill battle on your hands in attracting people to make this choice.

Also, the yield of 4 to 5 percent return that you speak of is still really only a pittance of a return for all the time, that one needs to get this kind of thing going and sticking with it .

You might want to start smaller in your efforts to bring investors on side. Promote the 80/20 rule. Tell people keep 80% of their discretionary wealth in fixed incomes like GICs for safety, but invest 20% on potentially higher yielding investments. You won’t earn as much in fees up front with this approach but a 1000 folks investing 10-40K is better than 1 investing $500K, and everybody else sitting on the sidelines.

Telling people to take the bulk of their net wealth and throw it into growth assets is somewhat over the top when all the people today read how scary things are getting out there.

Think incrementally.

#33 dark sad person on 11.27.10 at 2:37 am

some sector ETFs to take advantage of pending opportunities (say, with the price of gold or oil),

*****************

Nice touch G-

You seem to be moving closer to the dark side with each passing day-

http://www.youtube.com/watch?v=UyV8gV7HYp4&feature=related

#34 Dan in Victoria on 11.27.10 at 2:44 am

Building a portfolio?
No diffrent than building a house.
Start with a well thought out plan that serves your family well.
Hire the best people that you can afford.
Good ones are not cheap but in the end will not cost you as much.
Take time in selecting your materials,
Wait if you can till they come on sale.
Build a solid foundation.
Take the time to build it properly.
After all a crappy foundation will be a crappy house.
If you are unsure of anything ask the builder what he is doing , make sure you understand as much as you can (You won’t get it all at once)
Most fellows that I know are only too happy to explain, but keep in mind they may not be able to drop everthing at a moments notice.
When complete it should serve you well for many years.

#35 TaxHaven on 11.27.10 at 2:54 am

“Just a solid machine taking you steadily down the road. Wind in your hair, and at your back. Perfect.”

Unless price inflation eats you alive…or the currency in which this stuff is denominated sags…or some of the underlying assets have cash flow problems…or higher taxes so sap the economy that IT tanks along with your bonds…or…or…

But a good, if rather too risk-averse, bet. Perhaps you should gamble more, given that that’s what they want us to do…

#36 Aussie Roy on 11.27.10 at 3:05 am

Sound advice Garth, I wonder how many deaf ears it will fall upon. Im sure some will read and understand but others will say, screw that too risky, I’m staying in bricks and mortar. Well let them learn the hard way but good on you for trying to help with some sound advice.

Meanwhile the world keeps rotating and Aussie housing gets stinkier by the day.

http://www.theaustralian.com.au/news/opinion/the-high-price-of-punting-on-property/story-e6frg6zo-1225961713650

http://smh.domain.com.au/real-estate-news/race-to-beat-more-rate-rises-20101126-18ani.html

http://www.dailyreckoning.com.au/chinas-gift-to-australia-inflation/2010/11/26/

#37 dm in kw on 11.27.10 at 3:23 am

Hi Garth. Great advice for someone to plan a portfolio around…allocations and reasoning explained in a logical and understandable manner.

Unfortunately the masses often don’t see that the money game has changed until it’s too late for them. It leads to so much misfortune for so many. When present day retirees were young, “spend your working life at one company, buy a house, and collect your CPP and company pension when you retire” was the solid financial strategy of the day, and a lot of them followed it. Unfortunately, it appears that many who did now visit food banks. That’s shameful.

When this generation of young workers is ready to retire, the future I hope for is one where our leaders have put the appropriate taxation and legislation structures in place to help curb corporate and personal greed and give people and companies incentive to do more in their communities. Hopefully in that future, people have the time and capacity to care more about one another, and the size of a retiree’s investment portfolio isn’t the prime factor in determining whether they live a dignified or impoverished life.

When this generation of young workers is ready to retire, the future I fear is the one where the rich get richer, everyone else gets poorer, selfishness abounds and social services are cut to the bone. It could be a mess that no middle class person today will be able to “invest” their way out of, regardless of the strategy they choose.

I guess I’m somewhat encouraged by President Obama. He’s putting a plan in place to bring the troops home. He’s extended healthcare to 40 million Americans who previously were ineligible and he’s actually talking about increasing taxes for the top percentile of income earners to help pay for it…I don’t think that’s happened since FDR was in office. Hopefully Canada will have a PM one day who has a genuine vision for, as Obama called it, “Hope and Change”.

I guess the best we can do is work with what we’ve got today and hope for good things in the future. Thanks Garth for writing this blog to help people do that.

#38 DaisyMyMother on 11.27.10 at 3:55 am

I’m a freak (and old), there I said it. I also would like you to list some good money people in Ontario. Theoretically if I am about to receive $750,000 from unknown, I have absolutely no interest in figuring out what to do with it, besides buy a house by a river with a pellet stove, and a kayak. Got 4 kids and 2 grandchildren (there may be more, not sure) Last kid (the brightest) is going to come out of school with debt (bloody osap loans) and yes she has an Iphone and Ipod, (on loan). Oh and she gave me her ‘old’ cell, which apparently needs a SIM card or something and I only figured out how to open it up today (no, I am not an engineer). I do know one thing, I AM buying the new Michael Jackson Wii thing, I’ve always wanted to learn how to dance. Or should I just have my husband contact you when I actually have the cheque in hand, by March apparently. I’m screwed aren’t I?

#39 Brian1 on 11.27.10 at 4:42 am

#171 S.B.; You forgot to tell us about the comments after the article in your Toronto Life link. One gives Garth and his Dawgs a real disparaging workover. Interesting and entertaining.

#40 Brian1 on 11.27.10 at 4:46 am

I’ve kept this to myself since the summer but I want to now get it off my chest.
There are three ways to get an A in university. First; use sex. Second; use Nepotism. Third; work hard and hope political winds blow your way.

#41 Utopia on 11.27.10 at 5:11 am

“….it amazes me that people who gladly leverage 95% to buy an overinflated risk-drenched house, cringe and faint at the prospect of owning shares in the bank that financed it. What the hell are they thinking”? —Garth
—————————————————–

Two paragraphs in to your article and I just burst out laughing at the idiocy of it all after reading your comment today.

Of course you are absolutely correct. What the hell makes some people so paranoid of banks and bank preferreds after they have already fully committed to a mortgage with the same institution?

Did they actually think to themselves out loud “Oh, I will accept this mortgage despite the fact this stupid lender will be bankrupt in a year because of the poor judgement they showed in lending me “too much money” at incredibly low rates?

Or perhaps they thought,

“Gee, this is such a generous bank. Since I got such a good deal, they will never really succeed or be in a position to pay dividends and yield to their investors”

Or maybe they did not think at all. In the process they forgot to consider that the banks are in the business of banking and by doing so actually have the home field advantage.

That is to suggest that the banks actually know what they are doing. Gee,….I wonder.

Naw. Those fools are just giving money away. Let’s all short their stock. We will make out like bandits and be rich.

RICH I TELL YOU!!!

(Just kidding of course. I say that for the benefit of those of you who don’t get the obvious humour in the moment)

#42 Deliverator on 11.27.10 at 5:25 am

Bond prices decline = bond yields go up. — Garth

Not if you already own the bonds. In that case, any sale would result in a capital loss. Of course, you can just keep the bonds and keep clipping coupons. That’s still better than filling the orange guy’s shorts.

#43 Tony on 11.27.10 at 6:05 am

With all investments you have to look at the upside and the downside. The stock market is what to avoid like the plague. I did mention cue resources here a couple of weeks ago before it tripled. Hmn i think i only mentioned one or two stocks here in the past year. Most people haven’t a clue what they’re doing but it’s simple you look where something is and you know or at least i do where it should really be. This is how to win at everything stocks, horse races, picking football teams, boxing matches anything with a degree of skill in it. Uranium as i wrote on this blog a few months ago was what to buy i even gave everyone a venture exchange stock that was uranium related. Someone was all over most of the uranium stocks on the venture exchange yesterday. Maybe someone who read this blog in the past?

#44 Tony on 11.27.10 at 6:17 am

#12 T.O. Bubble Boy

I’d say you’re about two years off and would expect HTD to fall back down as interest rates fall in America over the next two years.

#45 Ottawahouse on 11.27.10 at 8:05 am

Garth said
So far, so good. That’s 40% of your money invested in assets which pay you an income stream and have less risk involved than driving on the 401.
But Garth you drive a hummer and I drive a smart car.
And I bet the portfolio size is the same.

And your Horizons Betapro US 30-yr Bear Plus ETF
Sound almost too good to be true.

#46 T.O. Bubble Boy on 11.27.10 at 9:46 am

@ #19 Larry:
“Garth i get a better return with the guy wearing orange shorts than Govt bonds.”

The average yield on a 5-yr Bank of Canada bond has been between 2% and 3% over the last year.
http://www.bankofcanada.ca/en/rates/bond-look.html

ING’s interest rate has been between 1% and 1.5%.

Even a 5-year GIC at ING is 2.75%, and with that you’re locked in for 5 years!

Anyone with a decent bond portfolio has corporates, managed high-yield and inflation-indexed securities as well as government-issued. — Garth

#47 Moneta on 11.27.10 at 10:06 am

Do the uber-rich in Canada (those who invest far more each year than just $20k in a RRSP and $5k in a TFSA) only hold bonds in their RRSPs?

Let’s say you are a multi-millionaire 50-something.
———-
In my experience in private wealth management with top notch firms, very rich multi millionnaires have had way more bonds than equities, 60 to 80% of portfolios. Their main goal is to beat inflation. Usually they have taken risk (or are taking their risk) in their business so their portfolio is to reduce it and diversify.

Most of the time, those with the highest weight in equities are those who have the most to lose.

Having said that, let’s remember that for the last 20 years, real returns have been above normal, and investors did not have to own equities to make good returns. But now with yields at 0-3%, I would not be surprised to see exposure to equity rise over the next decade.

The problem is that those who need equity returns most won’t benefit from them. Long term equity returns are good in a portfolio with little outflow , i.e in the accumulation mode. Do the math, in an incredibly volatile market a portfolio with significant cash outflows can get wiped out quite rapidly despite strong long term returns. And the reality is that most RRSPs are emptied within the first 7-10 years.

A friend of mine is an advisor with a large percentage of her book with boomers starting to retire with DCs plan assets and RRSPs only. She is discouraged because most are cashing out at an alarming rate. She just can’t get them to pace themselves.

#48 Agio on 11.27.10 at 10:31 am

Garth-You mention a portfolio of investable assets of 200k. I know it is only an example but how many peole actually have 200k to invest? Not should have but do have. I exclude most who post on this site as apparently they are all the quite well off given their propensity to dispense additional investment advice after you’ve opined, often with cool links and such.
For the most part, I know few people with that type of hard cash liquidity. Most are so debt ridden they have very little. Your insight on this would be appreciated.
Granted I could travel in a circle of underachievers. Seems a big circle.

#49 BrianT on 11.27.10 at 10:42 am

#45Tony-IMO you are dead wrong on that call-we shall see.

#50 Brian1 on 11.27.10 at 10:43 am

I believe the crocodile in the picture to be fake. Too much sunlight through the roof of the mouth.

Duh. — Garth

#51 dogman01 on 11.27.10 at 10:57 am

Is squirrel the perfect austerity dish?
From of all places the BBC.
“The notion of stewed squirrel may not tempt everybody’s taste buds, but in an age of tightening belts and financial severity, the humble abundance of the squirrel is causing some to reconsider its epicurean virtue.”
http://www.bbc.co.uk/news/world-us-canada-11834184

Squirrel…..yum.

#52 squidly77 on 11.27.10 at 11:17 am

Garth, I am starting a national petition to have the job of realtot made illegal and invalid. Realtors are the ennemy of canadian families. Realtors, CREA, REIN, EREB, CREB, TREB, etc are conspiring to take canadian families hostages with the help of crooked banks to enslave us all. Realtots are pure evil, ruining countless lives and bankrupting many of us.
Realtors are NOT professionals. They are hell. They drove home prices ever higher and now are the cause of this global recession. Let`s stop realtors now!

#53 BrianT on 11.27.10 at 11:40 am

Enjoy the Internet circa 2010 while you can-HOMELAND SECURITY is flexing its muscle http://thehill.com/blogs/hillicon-valley/technology/130763-homeland-security-dept-seizes-domain-names-

#54 Just Buy! BoC free money on 11.27.10 at 12:07 pm

It’s hard to understand why people just don’t buy. Yes everything is expensive and very much a “bubble” but let face it money is free. The BOC has allowed people to gamble on housing using no money so why won’t you? Take my situation , My wife doesn’t work but i do making 55K a year self employed. I was able to qualify for 520K and I used credit cards for a down payment(have money for downpayment but will use credit). Is this crazy? Yes it is but what do I have to lose? I’ve given up waiting to buy as the Canadian government wants to keep this bubble alive. My mortgage broker is a genious and was able to fix the numbers and make me look good. I’ve even have a LOC now which will help me make mortgage payment when in trouble. My intention is to never pay off the mortgage since it’s impossible with my income. What do we have to lose? Going bankrupt? Please who cares about going bankrupt. Before that even happens I will save a little nest egg of free credit money and then file. The BoC has gone crazy and it seems [email protected] bent on making Canada bankrupt so why shouldn’t my family enjoy the free money and good life before everyone goes down? If housing goes up you win if not Canada/taxpayers lose. thanks Mark

#55 steve p on 11.27.10 at 12:54 pm

“Growth assets 65%”

well disguised ponzi scheme

Yes, the economy is a myth. — Garth

#56 Moneta on 11.27.10 at 1:21 pm

Garth-You mention a portfolio of investable assets of 200k. I know it is only an example but how many peole actually have 200k to invest?
——
Only about 10% of Canadians households.

#57 Taxpayer like everyone else on 11.27.10 at 1:32 pm

Anon10 @17 – thanks for the link. Interesting reading, if
a bit dry and sometimes difficult to follow.

The two approaches to calculating the unfunded liabilbity aren’t really meant for direct comparison – they are completely different methodologies. The closed approach basically states the current status of the plan as if it was put on hold today – ie continued benefits to all who are collecting them and future benfits for those who have
paid in, based on pensionable earnings, but no new
contributions. Perhaps only presented to show that halting the plan now is not an option.

The open approach shows the much more likely scenario
of the plan continuing for the foreseeable future.

So not quite the “stroke of a pen” implied.

#58 kitchener1 on 11.27.10 at 2:05 pm

Back in 2009 right after TSHF in 08, i was at a dinner with a few bigwigs at banks, the top performers etc..

I was told then and it was later confirmed to my that a certain big 5 bank had anaylized the numbers and figured that approx 20% of people who invested in the equity markets were out for life, they will never invest again unless its GIC’s etc..

The problem with investing for boomers and retired folks is that they simply cannot follow rule number 1 of investing. Its been said before:

dont invest what you cant afford to lose.

doesnt matter if its perferrds or ETF’s etc.. if you cant afford to lose it, dont invest.

Also, I will add, buy and hold is dead and has been for years, you need to be active in your investments.

#59 Devil's Advocate on 11.27.10 at 2:14 pm

#55 Just Buy! BoC free money on 11.27.10 at 12:07 pm

It’s hard to understand why people just don’t buy. Yes everything is expensive and very much a “bubble” but let face it money is free. The BOC has allowed people to gamble on housing using no money so why won’t you? Take my situation , My wife doesn’t work but i do making 55K a year self employed. I was able to qualify for 520K and I used credit cards for a down payment(have money for downpayment but will use credit). Is this crazy? Yes it is but what do I have to lose? I’ve given up waiting to buy as the Canadian government wants to keep this bubble alive. My mortgage broker is a genious and was able to fix the numbers and make me look good. I’ve even have a LOC now which will help me make mortgage payment when in trouble. My intention is to never pay off the mortgage since it’s impossible with my income. What do we have to lose? Going bankrupt? Please who cares about going bankrupt. Before that even happens I will save a little nest egg of free credit money and then file. The BoC has gone crazy and it seems [email protected] bent on making Canada bankrupt so why shouldn’t my family enjoy the free money and good life before everyone goes down? If housing goes up you win if not Canada/taxpayers lose. thanks Mark

A surprising number of Canadians would agree with you. By far the majority. The pups and poodles represent only a small vocal minority which are heard practically nowhere else but here on Garths blog. That does not mean they are wrong – just of an extreme opposite opinion to you.

What happens if something goes array in their well laid out plan. “Life is what happens while you are busy making plans for the future”. “They who make no mistakes are not trying hard enough”. “If your not living close to the edge you are taking up too much space”. There is so much that could be said of those who worry about the future, who sacrifice their youth for the future they may never have.

#60 Gord In Vancouver on 11.27.10 at 2:16 pm

Court petition claims Millennium defaulted on $75 million in loans for West Vancouver project

http://www.bclocalnews.com/news/110883909.html

#61 s on 11.27.10 at 2:22 pm

It seems as if alot of posts from people don’t seem to grasp the idea of diversity. For example many people are questioning preferred shares and their merit compared to gics or bonds or whatever. The idea is to “diversify” ie. spread all your money around and don’t have it all in one place, ie. all in real estate or bulk of it. Break up all your cash and put it in different asset classes, different things, and according to what vehicle is best. TFSA’s put in growth items, not GIC’s or low interest paying things, RRSP put interest bearing items like bonds, and if you have cash account use dividends paying items as this is very tax efficient. Just don’t buy only preferreds or just a certain ETF with you money, allocate and break it up so that if one goes down the other may go up and you get balance. Also just buying individual equities “common stocks” maybe more risky than an ETF as the ETF holds a basket of stocks and low MER’s. So if one stock goes down not all will, so you get a lower decline. But if the single equity goes down it may do so big time. Also alot of people can’t follow investing day in day out, hour after hour, that is where a good financial planner or unbiased person can help. Just do your research.

#62 Devil's Advocate on 11.27.10 at 2:22 pm

#53 squidly77 on 11.27.10 at 11:17 am
Garth, I am starting a national petition to have the job of realtot made illegal and invalid. Realtors are the ennemy of canadian families. Realtors, CREA, REIN, EREB, CREB, TREB, etc are conspiring to take canadian families hostages with the help of crooked banks to enslave us all. Realtots are pure evil, ruining countless lives and bankrupting many of us.

Realtors are NOT professionals. They are hell. They drove home prices ever higher and now are the cause of this global recession. Let`s stop realtors now!

Squid:

Did you not get my notice of rent increase to you yet? Of course you have the option to buy the property at it’s current market value. Which is your choice? You have until Christmas Eve to decide. But remember, time is of the essence Squid… I’ve got other buyers lined up pending your decision…

Merry Christmas Squid.
REALTOR D.A.

In the spirit of the season, as my gift to you, I will credit you back 10.0% of all the rent you have paid these last 10 years toward the purhase. I can afford to since the property is now worth four times what I paid for it. ;-)

#63 Debtfree on 11.27.10 at 2:27 pm

@ #49 agio I read here that less than 9% of canadians own equities .I still find that hard to believe but so far I have not had my bsOmeter go off on anything garth has posted here. Try being debt free and your circle will shrink to a party of you and your spouse . Learn to invest and most of your coworkers/friends will not talk to you but that’s because they cannot bs you anymore . I’m long retired so that one is from memory …thank goodness. A wise thing I once read was ” be careful what you read ,you become what you read ” I didn’t believe it at the time but no truer words were ever written. If you want to keep you old friends Stop reading garth . His books and books like his are trying to cut you from the herd and trust me the herd won’t like it.

#64 SRV ES339 on 11.27.10 at 2:28 pm

More insanity in the TO market…
Checked out a very high end 1+1 BR (920 sq ft) condo in beautiful Port Credit the other day… still under serious construction but about half of the 200 (?) units are occupied. Rent already reduced by >15% for a really amazing corner suite.
Did some research, and about 1/3rd of the occupied suites are up for lease (flippers can’t get their purchase price back I assume), listed at astronomical prices (good luck with that). And, guess what, most are also up for sale, with some prices over $1.5 M (for 2000 sq ft + units with lake view terrace)… with a modest $1200 mainenance fee!

This thing has meltdown written all over it… even as a low life ‘renter’ (and a great lease price) I wouldn’t touch it… trying to imagine how much wealth could be lost in this one 20 story project over the next couple of years… I think your first impressions were right Garth… this still could get very, very ugly!

#65 Got A Watch on 11.27.10 at 2:51 pm

Garth, I congratulate you on the service you are doing for ordinary everyday consumers with that post, and your books, and this Blog, etc. You are a credit to this great nation. And I don’t even own 1 of your books, but I will buy one, I promise.

All you people who comment with a whiny “but this” and “but that” are proving you are no smarter than the average can of soup. Sorry to be so harsh, but that is the cold hard reality of it. Garth just gave you the real deal, free, just shut up and do it, and stop complaining about it.

If you don’t care about your money, why should anyone else? The ‘Big Banks’ sure don’t, they exist to part you from your money in service fees, interest, and by selling you their crap ‘Mutual Funds’, or whatever. Neither do most ‘advisers’. They can find another client much easier than you can make back your losses from following their bad advice. Wake up, smell the coffee, and take an interest here, or be prepared to spend your retirement in a cardboard box under an overpass, and then don’t complain about it either.

People who “invest” everything in one asset class fully deserve to lose all their money. Like the ethnic groups mentioned here who think real estate is always the way to go, nothing else is any good. You just proved you are dumber than a box of rocks.

And a special shout out to all the goldbugs, always a source of endless amusement. Let me spell it out for you: goldbug = moron. Not because you may have, and may continue to make money on gold etc. But you are a prime example of linear thinking, a mental rut that you need to escape from, a one way view of the world. If you are an active trader, and prepared to sell at a moments notice, disregard this paragraph. At times, I have probably owned more shiny metals than just about anyone here, but I stress the “at times”. For example, and I really don’t care if you believe me or not, I bought 40K oz of silver at $7.05 US and sold at $15.90 US, via RBC certificates. And don’t even start with me about “it’s paper, man!” either, if you think RBC is going bankrupt, better dig a bunker and crawl in there clutching your gold, and good luck to you. Everything has risk attached to it, then you die. That was one trade, there have been many others. But I am not wedded to gold or silver or anything (I am ‘divorced’ from a common-law relationship, but that is besides the point I am making here), there will be a time, probably in about 5 years or so, give or take, in this crisis period, when gold will hit a peak. And after that, it will fall for 20 years or so, just like it did after 1981. The classic goldbug will still be holding all the way down, saying “but, but, but, it’s gold, man!”, and will watch their “profit” vanish. There is nothing wrong with owning gold at times, but be prepared to sell it when you think the time is right.

And that goes for ANY asset, there is a time to buy, and then a time to sell, and take the profit. I don’t care what it is. If you are feeling personally insulted after reading this, you are a prime example of what I am talking about. Do NOT, EVER, become emotionally attached to things you own. OK, I love my ’69 Dart GT, and my dogs and cats, and I like my house, but they are not investment assets, they are a labor of love. And I’d still sell my Dart and house if I really needed the ca$h.

The reason I sound annoyed here is because I have friends who have made every mistake outlined by Garth and the other commenters here. They ask me for advice, but never follow it, and then whine about it later, “My bank screwed me!”, and I just laugh. Stupid is as stupid does. No sympathy here at all. Your whine plus 50 cents won’t buy you a cup of coffee.

Avoid anyone who describes themselves as “Bullish” or “Bearish”, they are just telling you they have a bias. A good trader or investor remains emotionally detached, neither too excited when they win, or too sad when they lose. A long term study of professional traders I recently read found they averaged about 55-60% winning trades, the rest were losers, and they were pros who do it all day, every day. Money management is the key, don’t put everything into one thing, and be prepared to cut your losses closely at a moments notice, and I don’t care what the “asset” in question is. It took me over 10 years to learn these lessons the hard way, it is more a mental attitude thing than anything else. Just picking the right stock or Fund or gold or whatever just proves you are lucky, not smart, in most cases. I used to have a “broker” and he did his very best to make me broke, and is still out there somewhere, giving people bad advice. Get an accountant, a lawyer and a financial adviser, now, and stop dithering about it. A good accountant is better than gold, unless you like to send a lot of money to Ottawa.

I am personally not that diversified at all times, or even most of the time, but that is because I am an active trader and a speculator. I will buy a stock in the morning and sell it at lunch time, or get stopped out if it goes down, and I don’t care at all. Losing trades are just part of doing business, if you think you won’t make any mistakes, you are even dumber than a can of soup. I try new types of trades just for the hell of it, and I learn something each time, regardless of if I profit or lose. I’ve made many losing trades, but still broke even or made a minor profit, having sold covered call options and bought some off-setting hedges. If you are not prepared to trade like that, just follow Garth’s advice here, it is better than gold. The gold bull market will end one day, and Garth’s advice will still be golden. Real estate goes up, and then it goes down. And don’t bother to reply with a “but, but, but”. Blah, blah, blah, I don’t care. Have a great weekend all, even those who found this personally insulting. Too bad, so sad. Rant off.

#66 S.B. on 11.27.10 at 2:57 pm

Hmm in Whistler:

“In 2011, Whistler will experience its first year in a non-growth capacity since Myrtle and Alex Philip purchased property on Alta Lake in 1914. Simply put, all the development and expansion that will ever take place, has already been planned. Sure, some buildings will be torn down and others will go up, but Whistler’s footprint has been stamped in the snow and it’s not expected to grow. This phenomenon is referred to as reaching build out and it means the financial bolstering that comes with expansion is gone. ”

http://www.piquenewsmagazine.com/pique/index.php?cat=C_Frontpage&content=Budget+open+house+1747

#67 Keith in Calgary on 11.27.10 at 3:01 pm

FWIW that is not Squidly77 posting in #53 but someone trying to make him look stupid.

#68 Timing is Everything on 11.27.10 at 3:01 pm

A bit off topic, as today’s blog is about investing.

However, food for thought for the ‘rest of us’ (you know, working 40 somethings with steady careers/jobs, that pay the bulk of the taxes in Canada and probably have a bit O’ mortgage left) I call us ‘tweens’

http://www.canadianmortgagetrends.com/

#69 Moneta on 11.27.10 at 3:06 pm

The two approaches to calculating the unfunded liabilbity aren’t really meant for direct comparison – they are completely different methodologies.
———
All you need is a nice decade of 6-10% inflation, while benefits staying flat and premiums going up to solve the problem.

The money will be there but what will it buy?

The issue for 90% of Canadians is not about finding higher retuning investments, it’s about physcially and mentally preparing for a drop in lifestyle.

#70 Dan in Victoria on 11.27.10 at 3:20 pm

Got A Watch @ 62
That wasn’t a rant.
That was giving them their cake with no icing.
Most of these morons will come and ask questions, and keep it up till they get the answer they want.
Then pat themselves on the back for being right and toddle off.
Seen it a dozen times.

As far as friends and business associates…..

“They ask for advice and never follow it.”

So true. A buddy asked for some advice a year ago re some real estate.
I simply said you’re going to take a hit, deal with it now.
He looked at me like I had two heads.
End result, dumped a pile of money into it , one year later down a 100K.
Hes hanging on for the spring turn around.
I said I agree he smiled and said you think so ?
Yeah in about five years.
Maybe.

#71 Dan in Victoria on 11.27.10 at 3:25 pm

Moneta @ 57
Stunning absolutely Stunning.
How many have 500K?

#72 Blitzkrieg on 11.27.10 at 3:27 pm

Got a Watch,

Love your rant, a lot of smart points that others should get accustomed with. Emotionalism and investing do not mix and they never will, whatever the asset class. You could be emotionally attached to your home, which is fine but don’t treat it as an investment

#73 Macrath on 11.27.10 at 3:40 pm

#66 Got A Watch

Great rant ! What do you think of technical analysis?

Personally I think it`s a lot of stock market Voodoo, but if enough traders believe then perception becomes reality.
Then any graph will tank after an ominous head and shoulders pattern or the infamous death cross.

#74 celticmelt on 11.27.10 at 4:11 pm

Have to agree here, if people payed as much attention to the equity markets as they do to football and hockey they would not be whining so much about the payments on their Ford Exploitation. This society is getting more surreal by the minute as the great money disaster unfolds. Time to take financial shelter and find real opportunity in investing.

Also I have a bone to pick with all the inter generational labeling that is going on in this blog. I dont’ mind the labels so much as their accuracy.

In the mid eighties when the whole concept of boomers and the gen x split became noted, boomers were thought of as people born after the end of world war two up to about a couple years after the Korean conflict.
Now we seem to have this concept that people in their mid forties are also boomers, I disagree.

I was born when Kennedy was shot and and so when the real boomers were dropping acid and freaking out at UBC, I was in kindergarten. So later, rather than dropping acid and freaking out over the establishment; when I was a young adult it was the career orientated early eighties trying to recover from disco, big difference. That is the reality of an older generation x and not a boomer.

That’s my rant and I am sticking to it, haha.

Oh and for the equity lovers I still think you should try some diligence on V.CBS, major leverage.

#75 TheBigLebowski on 11.27.10 at 4:18 pm

#9 Pig without Lipstick
Being right for ten years is ignorance defined. Welcome to 1984 thought police

#76 Timing is Everything on 11.27.10 at 4:40 pm

#66 Got A Watch said – “Garth just gave you the real deal, free, just shut up and do it, and stop complaining about it.”
“If you don’t care about your money, why should anyone else?”

Agreed.

I love my ‘64.5 Mustang, and my dogs (no cats) and my wife (even though I don’t tell her nearly enough) and daughters (not necessarily in that order ;)) and we like our modest house and 2 acres. The Mustang and the house/2 acres could go if I really needed the cash.
If we make a profit (likely) on the ‘homestead’…bonus.
Ya, we’re a bit emotionally attached to the ‘property’, but we can afford to be. We made it this far ‘on our own’. We’ll get thru the second half too. And Garth, one of these days, you’ll get an email from us, when the time is right….stay healthy, at least until you get my email. ;)

#77 Moneta on 11.27.10 at 4:44 pm

Debtfree on 11.27.10 at 2:27 pm

Well said.

#78 Mikey the Realtor on 11.27.10 at 4:53 pm

Got a watch,

It sounds like you got everything in order, but one thing I noticed is that you don’t own any rental property, give me a call and I will set you up with a nice cash cow.

Do me a favour and don’t let DA solicit you, he has been trying to take my clients as of late, what a weasel.

#79 David B on 11.27.10 at 5:15 pm

Ireland.

BY QUENTIN FOTTRELL

DUBLIN—Irish Communications Minister Eamon Ryan said Saturday that talks between the EU and the International Monetary Fund on an €85 billion ($112.5 billion) Irish aid package will conclude Sunday, and he described as “inaccurate” speculation that the interest rate on loans would be as high as 6.7%.

—————————–

So just what is the real interest rate on these bailout packages?

#80 Patz on 11.27.10 at 5:15 pm

#55 Just Buy! BoC free money.
Interesting post and one of the best definitions of “moral hazard” on a personal level I’ve seen.

#67 S.B. good post on Whistler buildout.
I’d go further; Whistler is dead meat. W’s business model of creating a “destination resort” worked well in an age of globalization, unlimited credit and growth. But we’re contracting now, defaulting or paying down debt and W’s priced itself out of the local market. A good business model then is now a crack ho’ without a fix or a john.

#81 tran, Calgary on 11.27.10 at 5:23 pm

http://calgary.kijiji.ca/c-housing-housing-for-sale-OPEN-HOUSE-BUILDER-DIRECT-KINCORA-SHERWOOD-AMAZING-PRICES-W0QQAdIdZ244621181

Calgary developers blinked first.

Kincora Glen Rd NW, Calgary, AB, Canada
2157 sq. ft., Asking $399,900

Offer $350,000, developer most likely will accept.

#82 Timing is Everything on 11.27.10 at 5:28 pm

#75 celticmelt

Yup, like I said…We are ‘Tweens’…It was difficult to get drugs in grade 5 in the 60’s.
Not like like today.

#83 Sail1 on 11.27.10 at 5:30 pm

Garth wrote: That’s why your advisor has to curtail the amount of interest income received, while boosting dividends and capital gains.

Garth, you actually think in all your wisdom, that a 70 year old gray haired woman, would trust any individual with their life savings? You may be 70% correct in what you are preaching, but you should take a basic course in psychology. At any mention of anything with no guaranteed returns, or fees, you have already lost them. Maybe understanding how they survived to that age, may shed some light, in order for the bulb in your head to turn on. Change your demographics, you may stand a better chance of converting people on the fence.

I’m not out to convert anyone. Reasonable people can take my advice or leave it. Fools like you, however, find it necessary to taunt and criticize. Shove off. — Garth

#84 Brico on 11.27.10 at 5:30 pm

Don’t forget a max of 10% in gold and/or silver. I would include the the mining shares in that (majors only) For most I would forget Jr Mining stocks.

If you want to play Jr. Mining stocks with < 5% of your risk capital:

I have an 80/20 program going. I take my risk capital – let's say $10,000. Look at a trading range and divide into trading blocks. Say 10 blocks or for 10 – $1000- blocks. Buy every $.20 down and sell $.60 up. Sell 80% at a gain at enough just to cover the 20%. Buy – Sell -Buy sell on and so on. I have a reasonable range with predetermined buy- sell points. I like the volatility in the Jr. Gold/silver stocks – like SAN Gold. I have a accumulated a good amount of stock in different companies doing this. I call it my drip irrigation $$ system – $$ little at time. Do it in your trading account and direct the accumulated core positions with a "gift in kind" (use the commission fee deduction) to your TFSA account. I no longer drop large amounts at a single price point and pray (2007-8!). If you get lucky, one of these stocks flies – then you can sell in your TFSA.

I found this worked great for U.TO. I think Uranium has a future. Over about 2 years I have about 500 shares of U.TO in my TFSA. All obtained using the 80/20 system. Looking at natural gas stocks now. U.TOi s too high now to get enough shares into the TFSA.

I have 8 different companies in the TFSA all with the "markets" money used to get them. It works best for stocks < than $5.00 since you only have $5000 cap per year. It also forces me to think long term. Cheap now sell much higher latter – try to get a good volume of shares into the TFSA. The goal in time is to have a balanced TFSA – sell and roll into other income generating vehicles. I want the cash volume to take advantage of interest generating investments inside the TFSA when they are attractive. Rates have no where to go but up. The goal is a TFSA travel/fun income stream in 30 years.

I also stay away from messing around with my RRSP account. Keeping a balanced program there while having my "urges" satisfied with a modest trading account and TFSA.

#85 realpaul on 11.27.10 at 5:49 pm

Great advisory Garth. This portfolio balancing thing the ‘key’ for the long term. Keep ’em’ coming.

One question…..if a fee based financial planner takes 1% for the intial construction of the portfolio does that mean if when rebalancing in a years time he gets the 1% again on the total amount or on the value of what is being rebalanced?

Fee-based advisors who manage money for clients often charge a percentage of the assets under management, calculated on a daily basis on the actual balance and deducted monthly. The fee comes out of RRSPs and TFSAs tax-free (which means the government pays for half) and with non-registered plans, it is tax-deductible. It’s also half or two-thirds less than most people pay to own mutual funds. — Garth

#86 Burnt Norton on 11.27.10 at 5:49 pm

#55 Just Buy! BoC free money on 11.27.10 at 12:07 pm

Why not just buy you ask? Because some of us have integrity and don’t consider personal bankruptcy to be a whimsical affair.

Think about looking at yourself in the mirror every morning after having semi-purposefully declared bankruptcy. Like what you would be seeing?

#87 Anthony on 11.27.10 at 5:51 pm

Excellent advice….was it your broker you past down this knowledge to you? Is this consistent with your Dow 30,000 backing in 2000? Trouble with your advice is that you can’t see risk in the investments advise, and neither can your naive following. Why don’t you stick with real estate advice on this blog and leave your financial advice on another blog/book? Have book sales died that badly that you need to cross-polinate?

Your real estate postings on this blog have been very helpful to me over the last couple of years and I am happy to re-visit the blog for that advice.

I think it is you mutual fund salesguys at Olympian Financial who are in a bad way, judging from that comment. — Garth

#88 Brian1 on 11.27.10 at 6:17 pm

Got a Watch; Yes, a good rant. Even Kevin O’Leary believes in buying debt. Preferreds in banks are good.

Preferreds are equity, not debt. — Garth

#89 anon10 on 11.27.10 at 6:23 pm

Is squirrel the perfect austerity dish?

#90 Debtfree on 11.27.10 at 6:34 pm

@ 81 anthony can I call you fat tony ? The only reason that you mutual fund parasites still have a sales job is that the wool you and the banks have over the uneducated pop. of our country. Please people read” the Naked Investor ” it will show you what a scam mutual funds are . The only one’s that make money on them are the companies that sell them.

#91 jess on 11.27.10 at 6:39 pm

… rogue file

Customers using microblogging site Twitter reported chaos with their bank accounts as mystifying sums appeared and disappeared, leaving many unable to withdraw cash.

http://www.rawstory.com/rs/2010/11/aussie-banks-computer-glitch-left-millions-money/

#92 Devore on 11.27.10 at 6:44 pm

#21 calgary illusion

Contrary to your last post, this is why people should NOT borrow against the value of their homes to risk on stock markets. It was exactly this kind of reckless leverage that has damaged the world economy. If bankers can’t manage leverage (which the credit crisis proudly showed) – then neither should joe six-pack!

Bankers “can’t handle” leverage because they are being backstopped by government. They can actually handle leverage just fine, they just see their risk differently than you do, because they have information (and guarantees) you do not.

It’s all about risk. If you remove risk from something, like western governments and central banks have done in the last 10 years from banks, you will get something that looks like very reckless behaviour, but is in fact perfectly rational. And safe (for the banks). That’s what happens when you try to centrally plan an economy. Blame our government for setting stupid policy, not our banks for following the carrot and taking advantage of it.

#93 Devore on 11.27.10 at 6:49 pm

#27 Genghis

We are talking a drop on the order of 40%.

And you should have been buying them with both hands, as your (effective) yield would have doubled at the bottom. Alas, “everyone” was expecting interest rates to shoot to the moon, so 8-10% seemed like chickenfeed.

#94 Crash Callaway on 11.27.10 at 6:58 pm

#90 anon10

“is squirrel the perfect austerity dish?

Yes they are.
A big pot of squirrel is also considered “preferred shares” at all the local redneck meetings.

#95 Debtfree on 11.27.10 at 7:05 pm

Any chance that you would include a list of recommended book titles either here or in the next book? I for one would like to read some if not all . It would be great to find or be shown a new thread in this sweater of life…. cheers. Thanks a lot.

#96 dark sad person on 11.27.10 at 7:05 pm

Hello Everyone

My name is dark sad person and I am a goldbug–but–
Tonight I’m happy to tell all of you that since joining G’s House of Rehabilitation-it has been 30 days since I’ve laid in the corner and licked my bullion-

clap clap clap clap clap clap clap clap
clap clap clap clap clap clap clap clap
clap clap clap clap clap clap clap clap

Now here is my story-

I first tried bullion in about 2001
Just a “bit” at first–i thought-
What could a bit hurt? and actually i have to admit I enjoyed it-I “loved” it!
I felt it gave me power and a feeling of security over Politicians and Bankers and from there it really progressed and deepened to the point that I was using almost everyday!
Of course everyone was telling me I was foolish and bullion served no useful purpose in life-but I wouldn’t listen-I only now understand that i was severely addicted-but like any bullion junkie-you cannot see and deal with “others” rationality-

I mean-I would dream up all sorts of excuses-I would point at the debt charts (credit at that time) and say to them-
This is crazy-people making $10/hr are getting 1/2 Million $ loans-
Governments are hyper-inflating the credit supply!
I was such a Moron-
I would boldly shout-Bullion will stand the test of time!
Like it always has!
But-my friends and all people that tried to help me see the error of my ways couldn’t convince me otherwise-so i fell deeper and deeper into my habit and began isolating myself-
Then!
I discovered blogs and started meeting people-with the same problem as me-they were all hopeless Bullion addicts-all thinking the same sick thoughts as me!
This is when i first started to question my habit-but-
it was so much fun and that “feeling” of “power” was so overwhelming the “shine” from a piece of licked Bullion was so dazzling-that the guilt I “should” have been feeling because of my addiction-was tossed aside very quickly-which I’ve only now been begun to learn-is a symptom of the “disease” itself!

But never the less-the years went on and the habit and conviction brought on by severe addiction continued unabated and untreated-
I needed more and more -I “couldn’t” stop myself!
I was sick-
I bought into every dip that was offered and believe me-
there were lots!

I consummated-I indulged-I overdosed-I craved-

I “thought” that by looking at a chart from west to east and south to north-if the squiggly line was heading north as it went east–i couldn’t “possibly” be wrong-

I “thought” that by looking around at all the insanity caused by Hyper-inflation-that i was doing the right thing-
But–
Since I met G and “others” here-
I have begun to think 2wice about my habit and my lifestyle-
So–as bullion dances around deciding whether it will go south as it goes east or continues going north as it goes east-
I have for the last 30 days hedged myself short with a tight stop-

I know it’s a small accomplishment in a long healing process-but-hey!
It is a start!
Unless I get hit with a stop!

Thanks everyone for coming out and listening to my story-

clap clap clap clap clap clap clap clap
clap clap clap clap clap clap clap clap
clap clap clap clap clap clap clap clap

#97 Leanne on 11.27.10 at 8:01 pm

#52 dogman01 on 11.27.10 at 10:57 am
“Is squirrel the perfect austerity dish?”

Warning: May contain nuts.

#98 Ben on 11.27.10 at 8:15 pm

What’s all this crap about Pensions, RRSP’s, ETF’s, Bonds, etc …
I look at my retired parents and they don’t spend shit nor do they want to. Their happy to just be with each other… Mom in the formal living room that only she sits in with her lap top reading and sending email jokes…. Dad in the family room that only he sits in with the newspaper and the remote. They meet 3 times a day at meal time and go to church on Sunday.
They could be in some Ontario Housing project and be just as happy.
We work work work while were young and miss out on half of life then we get old and don’t care if we have a life.

#99 Jeff Smith on 11.27.10 at 8:19 pm

hahaha, I heard Europe is pulling a USA. USA does quantitative easing to bail out USA, so EU is QA to do the same thing. It’s gonna be interesting from here on.

http://news.ca.msn.com/top-stories/cbc-article.aspx?cp-documentid=26436887

#100 gpc on 11.27.10 at 8:46 pm

The jargon used in the financial industry is one of the reasons people don’t invest well, they don’t understand what their financial planners are telling them and it scares the hell out of them. In other words some guy tells you to put your money someplace that you don’t understand and then just asks you to sign a bunch of papers with a lot of small print-

Most people will just go with what they know.

Example:

“portfolio has corporates, managed high-yield and inflation-indexed securities as well as government-issued”

Which means what exactly?!

How is that different from having your car fixed? Why should you know how the catalytic converter works? Life is complicated and sometimes it makes sense to hire expert help. — Garth

#101 Devil's Advocate on 11.27.10 at 8:53 pm

#87 Burnt Norton on 11.27.10 at 5:49 pm
#55 Just Buy! BoC free money on 11.27.10 at 12:07 pm

Why not just buy you ask? Because some of us have integrity and don’t consider personal bankruptcy to be a whimsical affair.

Think about looking at yourself in the mirror every morning after having semi-purposefully declared bankruptcy. Like what you would be seeing?

You mean the mirror in his warm new home with the new X5 for her and Porsche Cayane for him in the garage, 52″ plasma 3D TV for the kids X-Box, Stainless appliances for her, Man Cave for him, weight room for all in the winter and inground pool for all in summer.

Ohhhhhh I think he’ll be just fine with what is staring back at him, just fine.

Why do YOU care so much Burnt Norton?

#102 Stampede Sam on 11.27.10 at 9:02 pm

Being all in anything is ignorance defined. — Garth
******************************************
Are you saying I’m wrong to have my total net worth tied up in Elvis memorabilia?

#103 Nostradamus Le Mad Vlad on 11.27.10 at 9:09 pm


#24 mark p — Great post! That’s what I would like to get into next year with a TFSA.

#54 BrianT — UK too.

5:26 clip It’s all about the oil for the US, not Iran (and Iraq’s) non-existent nuclear weapons.

Iceland is better off than Ireland.

Pope St. Galgore seems to have been misquoted.

War On Banxsters “Okay, so war is inevitable. But if we are a free people then we have the freedom to decide for ourselves just who we shall make war on. Shall we spend our blood making war on the enemies the bankers have chosen for us, or are we, like the people of Europe, better off making war on the bankers?” wrh.com. Choose wisely; it’s not hard!

Next Debt Stuff “The US debt crisis began in Washington with the passage of the Federal Reserve Act in 1913. The instant that bill became law the nation’s doom was sealed!” wrh.com.

Obama The Bomber The elite are well pleased with him.

Portugal & Ireland “The very nature of a private central bank issuing the public currency at interest is to sink the nation and the people further into debt. The Euro, like the dollar, is a boat with ten holes and only nine corks, and the “bailouts” are simply yanking a cork from one hole and pounding it into another.” wrh.com. Protestors have taken to the streets in Italy for the second consecutive day, and the elite are doing the same thing here.

Korean War “It is obvious, by both the holding of these talks, and the reporting of them by Japan’s NHK, that the governments of both Japan and the Phillippines believe that renewed war between North and South Korea is imminent.” wrh.com. Brought to you by a FF! G-20 “This is one of the reasons the US government may be seeking a military confrontation with China, under the guise of responding to North Korea’s shelling of a South Korean island last week.

“Unfortunately, unless this is an absolute blitzkrieg, there is no way the US can actually win such a war; we don’t begin to have the troop strength in our military, already weakened by two wars going horrendously badly, and most of our manufacturing has been offshored.” wrh.com.
Spain’s bailout may be too much for the Euro, and it does not take into account a possible German bailout,

It had to happen; banxters are moving into hospital beds.

#104 hobbitt on 11.27.10 at 9:27 pm

#49 Agio on 11.27.10 at 10:31 am
Garth-You mention a portfolio of investable assets of 200k. I know it is only an example but how many peole actually have 200k to invest? Not should have but do have. I exclude most who post on this site as apparently they are all the quite well off given their propensity to dispense additional investment advice after you’ve opined, often with cool links and such.
For the most part, I know few people with that type of hard cash liquidity. Most are so debt ridden they have very little. Your insight on this would be appreciated.
Granted I could travel in a circle of underachievers. Seems a big circle.
————————————————–

I think this amount would include the cash from the sale of their house. Get liquid, he says!

In a world in which 70% of people do not have pensions, what the hell do people think they’re going to live on? — Garth

#105 S.B. on 11.27.10 at 9:35 pm

Latest Leslieville (Toronto) stats.

Days on market has spiked. 80 yr old semis with nightmares behind the walls & attic (knob & tube wiring, asbestos, dead raccoons, lead pipes, etc), and a musty basement.

http://www.leslievillepost.com/2010/11/19/leslieville-riverdale-beaches-real-estate-trends/

And then there’s Riverdale: where yuppies and DINKS pay 900k+ for detached houses.

#106 McLovin on 11.27.10 at 9:42 pm

Garth a great post as usual. I am constantly surprised at how few people grasp basic financial concepts that are available on the internet and in countless books.

I would like to add a few tips I have picked up over the years and hope that they can be of use to people:

1. Never put more than 5% of your total investable capital in any one stock. No matter how good it looks or sure you are, there are hundreds of other ideas. (This would have saved me thousands over the years and is my single most important rule of investing)

2. Use stop losses. Sell at 25% down no matter what. Its simple and takes emotion out of the situation. If you follow rule #1 and #2 the worst hit you can take to your total investable capital is 1% on an investment that goes wrong. This is also known as never fall in love with your investments. So many people let losers run and take huge hits that take years to recover. I have made this mistake too many times to count.

3. Diversify! Like Garth said above, always have some fixed income. His simple rule of thumb is a good one. Different sectors and markets are a good choice.

4. In most cases choose dividend or distrubtion paying investments. That way, as things go up and down you are paid to wait.

5. If you don’t know enough, use a professional. Not a mutual fund salesmen but a fully licensed IIROC investment advisor. Interview three and choose the best one. Don’t be afraid to get help if you need it. Just like good Dr’s and Lawyers there are good advisors who do a good job, you just need to find them. Review your portfolio with them face to face every six months and hold them to their benchmarks. If they haven’t met it they better have a good reason why.

I wish I knew these rules 15 years ago. If you follow them and build a solid diversified portfolio you should be able to withstand anything. We live in a scary world where more and more shocks and crashes will happen. This is the only way the average person can save for retirement and still sleep at night.

Please don’t debate me, I am only offering my free advice and tips I have learned the hard way. Take it or leave it

#107 Devore on 11.27.10 at 9:50 pm

How is that different from having your car fixed? Why should you know how the catalytic converter works? Life is complicated and sometimes it makes sense to hire expert help. — Garth

Which should still not excuse complete ignorance. You want to know SOMETHING about your car, so that you can tell when your mechanic is trying to take you for a ride, and how to find one who knows what he is talking about and you can trust. Shouldn’t you do the same with your life savings and retirement nest egg?

I don’t avoid mechanics because I don’t know how my catalytic converter works, and I certainly don’t try to fix it myself with duct tape.

Then start learning, and stop emoting. — Garth

#108 Burnt Norton on 11.27.10 at 10:22 pm

#102 Devil’s Advocate on 11.27.10 at 8:53 pm

Hey DA, good question bud. Why do I care?

I care because it’s worth me spending a little of my valuable time to suggest to anyone interested in reading that, in the end, for pretty much everyone, the accumulation of material wealth AT THE EXPENSE of values like honesty and integrity will likely lead them away, rather than towards certain goals espoused as worthy in this blog, namely: freedom, happiness and satisfaction.

#109 Burnt Norton on 11.27.10 at 10:34 pm

#102 Devil’s Advocate on 11.27.10 at 8:53 pm

(prev post should read “away from…”)

Hey DA, I also care because I’ll be one of the sucker taxpayers who will be footing the bill for the dufus defaulters. You’re welcome.

#110 Warren Buffett quotes on 11.27.10 at 10:41 pm

Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

“I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that. “I’m paying $32 billion today for the Coca Cola Company because…” If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money.”

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.

For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.

Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.

“If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period?”Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.”This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

#111 Erikson on 11.27.10 at 11:14 pm

“#55 Just Buy! BoC free money on 11.27.10 at 12:07 pm
It’s hard to understand why people just don’t buy. Yes everything is expensive and very much a “bubble” but let face it money is free.”

Psychology
You are borrowing someone else’s money and for a time,
but must return your own and forever :)

#112 nonplused on 11.27.10 at 11:17 pm

Looks like Gen Y didn’t get the memo:

http://www.reuters.com/article/idUSTRE6AI4LP20101122

Most of the Gen X’s I know use Doug Casey’s “make 100% on 10% of your money rather than 10% on 100% of your money” trading style. For instance I have a friend who used his tax free savings account to buy Silver Wheaton at $10 for a nice 2.5 times gain in 6 months while he sits on a boat load of cash. It’s not very safe but the idea is you only expose a small part of your cash at a time. A 40% market correction (coming soon to a TSE near you) can be devastating if you are all in.

Jim Sinclair is usually out on a limb but he’s been mostly right all the way along so far. He is now saying that any thoughts besides self preservation are pure madness. http://www.jsmineset.com Warning: Jim is a gold bug so true Garth faithful won’t like him.

Market depth is pretty much non-existent right now. There are a bunch of boomers selling a good 10 billion a month and the electronic turbo trade programs, and that’s it. Looks like the boomers are going to hold their stocks “for the long run”.

The reason the “orange guys shorts” look so good to X & Y is that they are CDIC insured shorts. Maybe you don’t get paid much, but in deflation that’s the last of your concerns. However you should get your money back. (I agree with Garth that bank failures are not coming to Canada, even if CIDC goes broke. However, a funding crises when the Treasury tries to bail out CDIC is almost certain.)

This is an old post but it’s good: compares Ontario to California:

http://globaleconomicanalysis.blogspot.com/2010/03/california-usa-vs-ontario-canada-which_29.html

For those who will not read what they do not want to believe here are some highlight:

State/Province Population Deficit Capita Deficit Debt
Ontario 11,410,046 $21 Billion $1,840 $220 bil
California 36,961,664 $20 Billion $ 541 $84 bil

In short Ontario is on the way to hell 3.5 times faster than California (per capita, and yes that is the way to look at it) and is already 10 times more indebted than California (per capita again). If you want to by a safe state/provincial bond, buy a California bond before you buy an Ontario bond.

There is no recovery coming folks. You are being lied to by the MSN. And as Mish points out at the end of the California vs. Ontario piece, the only reason Canada hasn’t fallen in line with Europe and the US is because our housing bubble has not yet popped. But it will.

I believe:

Garth thinks houses in Canada might correct 20% and then grind sideways at around minus 5%/year. Maybe he’s right. But out west, I think we are looking at 40% to get to the pre-bubble original trend.

I generally like Garth’s portfolio advice. But I believe the world financial system is not fixed, not even close to fixed, and we are all going to be Irish by the end of 2011.

The MSN is lying to us about the state of the world and underreporting what is really going on in Europe. But North American boomers still think CNN.com represents online reporting. They haven’t found the internet yet, even as they get their MSN over it.

I do not believe taxes can be raised even 1% in Canada (except maybe Alberta). They are already hindering growth. Further tax hikes will result in commensurate drops in GDP and increases in black market activity, making the funding situation worse.

I do not believe Canada will avoid a funding crisis in at least Ontario and possibly at the Federal level as well, especially once the real estate bubble pops. And I don’t rule out a few other provinces joining in. Alberta and Sask might be the only provinces that avoid it, actually.

All provinces in Canada and the federal level budget are headed towards austerity. It is unavoidable.

So, in short, Garth’s 6% portfolio makes perfect sense if you aren’t scared $hitless like me. I will implement something along those lines after the funding crises are resolved. Until then I am 10% gold, 10% swinging for the fence, and the rest oil/resources/CDIC cash.

I believe lending money to a government is immoral. Doug Casey has a great recent piece on this if you want a more thought out discussion but its spread out through several articles and interviews. Conversely I also believe borrowing by governments is immoral. They cannot pay the money back and they know it. Government should be pay as you go.

I believe all western governments, including Canada will default and restructure their debt within the next 10 years. And I believe the bond holders deserve what they are going to get. It is immoral to lend money to government (except in times of war or national emergency), and they deserve the losses they have coming.

I believe the need for evasive manoeuvres is greater now than in 2007. Xurbia is gone, (killed I assume by border inspection fees) but the need is higher.

#113 nonplused on 11.27.10 at 11:22 pm

Yuck my table looks awful let me try again:

Ontario
Population 11,410,046
Deficit $21 Billion
Per capita deficit $1,840
Total debt $220 billion
Per capita total debt $19,200

California
Population 36,961,664
Deficit $20 Billion
Per capita deficit $ 541
Total debt $84 billion
Per capita debt $2,273

#114 Increasing that 1% on 11.27.10 at 11:50 pm

“Your whine plus 50 cents won’t buy you a cup of coffee.”-Got a Watch

Eyeah, I’m going to be using that one
——————————————–
The Boomer/Gen x thing- mid 40’s does seem too young to be Boomer
——————————————–
And whew, Black Friday is almost over, and no casualties- except
there was a clip of people rushing into I forget where, and one or two at front who tripped and screamed, as people jumped over them,
then a guy comes back who had gotten in the store- looking like he was going to help-
but no, he starts waving people to keep coming in beside them, while others continue jumping over them.

’tis inneresting the risks some people WILL take

#115 nonplused on 11.27.10 at 11:53 pm

Of course, I meant MSM – Main Stream Media. MSN.com tells some fibs too but their business section is actually not badly balanced for a large corporation. Much better than CNN.

#116 nonplused on 11.28.10 at 12:44 am

#45 Tony

“I’d say you’re about two years off and would expect HTD to fall back down as interest rates fall in America over the next two years.”
Are you expecting rates to go negative? I mean, many already are negative after inflation and taxes, but I’ve never heard of a bank charging interest to hold your money. Although they do charge to hold allocated gold and always have.

#117 Agio on 11.28.10 at 2:03 am

64 @ Debtfree-Where did I say Turner espoused bullshit? I said posters did. I aske Turner a question. Re-read my post.
As for my financial situation, I could use your moniker-maybe I’ll rename myself Debtfree the Second Coming.
Isn’t about me, it’s about the other 90% or more of the people in this country. Turner writes about them all the time.
You can’t on the one hand say doom is coming and everyone is broke then on the other say “So you take 200k” and do such and such. The question is how do you get there? I always wonder that when I’m looking across a table at a person who has been telling me for years how much they’ve been making and investing while asking me to give em a 2nd mortgage or a buyback on their mid-life crisis Harley which is usually cross-collaterlized with 2 other lenders.

#118 Happy Renter on 11.28.10 at 7:59 am

Garth, make sure that you aren’t making a common mistake when giving advice to retirees, which is to recommend dividend income unreservedly. While it may be an attractive form of income from a pure “tax payable” perspective, it is also the worst form of income from the perspective of income-tested benefits. Due to it’s gross-up-and-credit tax treatment, dividend income ends up counting against income-tested benefits at more than a 1:1 ratio (see line 234 on the Federal Income Tax Form), generally speaking.

Thus, a 65+ year old who receives an average income should ensure, with the advice of their (hopefully competent) tax professional, that they would not benefit more from a different form of income.

I will also remind you that, despite your loathing of financial “products,” many instruments exist that create tax efficient income and even tax-deferred income out of quality investments such as dividend-yielding stocks, to the investor’s benefit (even if also to some salesperson’s pocketbook).

I marvel few on this blog can read. I posted an article yesterday about balanced portfolios with a diverse asset mix. So why write a comment warning of an undiversified income stream. Huh? — Garth

#119 X on 11.28.10 at 9:26 am

‘In a world of danger and opportunity, it amazes me that people who gladly leverage 95% to buy an overinflated risk-drenched house, cringe and faint at the prospect of owning shares in the bank that financed it.’ Garth

Hilariously True!

#120 Steven Rowlandson on 11.28.10 at 9:57 am

Hello Garth
I tend to agree with posting #53. Realtors and banks are a big part of the problem. They have a huge incentive to jack up home prices in order to inflate commissions and the size of the mortgage.
This creates an insurmountable problem for people in canada particularly for those who want to buy their first home, get married and start a family. I think the business/institution abolishion list should include more than just realtors though.

Steven

#121 Taxpayer like everyone else on 11.28.10 at 12:14 pm

119 Happy R – a point often forgotten but which I was reminded of a few days ago.

Some sources suggest that in some cases it may be
beneficial to put dividend assets into a TFSA – no
income delcared except maybe cap gain made up to that
time. I didnt understand Garth’s reply, as this could apply
regardless of whether your stream is diversified.

As you say, discuss with your advisor.

#122 Zeemak on 11.28.10 at 2:04 pm

Just a suggestion, you should have those facebook/twitter etc. links at the end of each blog so that good advice can be shared easily with friends. Will get the word out there faster and more people will learn asset allocation is simple terms.

#123 Devil's Advocate on 11.28.10 at 6:16 pm

#121 Steven Rowlandson on 11.28.10 at 9:57 am
Hello Garth
I tend to agree with posting #53. Realtors and banks are a big part of the problem. They have a huge incentive to jack up home prices in order to inflate commissions and the size of the mortgage.
This creates an insurmountable problem for people in canada particularly for those who want to buy their first home, get married and start a family. I think the business/institution abolishion list should include more than just realtors though.
Steven

What a stupid short sighted comment that is Steve. First really think about it; Realtors earn what 5% or in the case of this province 7% on the first $100,000 and 3% on the balance of the purchase and sale price. Of that 50% goes to the other co-operating brokerage. Of the 50% that is left 50 to 70% goes to overhead. So on a $500,000 home a Realtor earns what $5,000.00. Now consider that the average Realtor sells 6 homes in a year.

Now Steve after considering those facts, do you really think pushing up prices is a primary concern for most Realtors? I’d say lowering prices so they can sell more of them is of more a concern.

#124 S.B. on 11.28.10 at 6:49 pm

Here is a four minute video (written by gold nuts I think) but the scenes of Black Friday mayhem, of Americans crushing each other to land cheap electronics, speak volumes:

http://www.youtube.com/watch?v=fOshw4kIGR4

Its title: The Madness of a Lost Society.

However, these people would just as easily camp out overnight to land some granite and stainless…