It isn’t that owning a house is a flawed idea. Just too much house. Or with too much debt. Or thinking that paying off your mortgage is a financial plan. In the years ahead millions of people will seriously wish they also had liquid assets, growing predictably and throwing off cash flow when they need it – a mat leave, job loss, retirement.
I’m a hard ass on real estate not only for its bloated cost and uncertain future, but the fact most homeowners have little else. Since this housing gasbag inflated, people have saved badly, invested little and become less diversified. By putting most of their net worth in one thing, they’ve escalated risk. Three factors nobody can control – an aging population, normalizing rates and historic family debt – guarantee disappointment ahead for the house-heavy.
Is this you? Then change it. Start now to build a balanced, diversified and liquid portfolio – instead of a house, or certainly along with it.
How you do this is a big topic. I’ve touched on parts of it before, like asset allocation, rebalancing and how to find an advisor if you know diddly. Let’s recap a few of the highlights, since most people only know what [email protected] tells them.
The best non-house portfolio is balanced, diversified and liquid. “Balanced” means it contains safe assets which will have less volatility and pay you to own them, as well as assets which are linked to corporate and economic growth. A good mix is 40% of the safe stuff and 60% of the growth stuff, since it’s proven amazingly stable over the past weird decade. The more secure assets are called “fixed income” and pay you in interest or dividends. The growth part yields capital gains, as well as dividends.
All three – interest, dividends and cap gains – are taxed differently, so bonds (highest taxed) should go inside an RRSP while assets giving you quarterly dividends should be held in a non-registered account and the ones with highest growth potential (and biggest capital gains) are good for the TFSA.
It’s a common misconception that ‘fixed income’ means government bonds, which are low-yielders today and whose capital values will decline gradually as interest rates rise. Sure, a little of this is good to help stabilize the portfolio, and bonds can rise smartly when stocks take a dump, but government debt should be only five or 6% of the portfolio. Combine that with some corporate bonds, real return bonds (whose yield rises with inflation) and some high-yield bonds, and this will total about 20% of your holdings, or half the fixed-income portion. ETFs (I recently briefed you on those) are the best vehicles for owning these asset classes.
The other half of the fixed income portion should be preferred shares, prefarbly in top-quality issuers like banks or insurers. These now pay a fixed dividend of at least 5%, plus give the dividend tax credit boosting the effective yield into the 6% range. They’re far less volatile than common stock in the same companies, and offer more safety, since dividends on preferreds must be paid before dividends on equity shares.
Overall, this 40% of the portfolio should kick out a return of about 5% – twice the rate of return of a GIC at the bank, and totally liquid. Why lock your money away for years and pay tax at the highest rate on money you haven’t even received when you can have this? Duh.
The growth part of the portfolio is where diversification is so key. Some people worry stock markets are too high and this paralyzes them from buying anything, like equity ETFs, with exposure to them. True enough – US markets are in nosebleed territory and could easily correct by 5% to 10% (anything more is unrealistic) – but other assets are relatively cheap. Like REITs (real estate investment trusts) which should make up no more than 8% of the things you own (and which pay you a regular income stream, often without tax).
In a diversified portfolio, total US exposure should be close to 18%, divided between large, medium and small cap companies. Canadian holdings would be less (including small companies), around 16%. International, a little more – including a small weighting in emerging markets. And it’s always good to have a bit of exposure to alternative assets, like a completion ETF. All that brings you to 60%, and the need to learn about rebalancing.
Amateurs expect everything they own to gain in value. Experienced investors know better. In fact the very definition of a balanced and diversified portfolio is change. If bonds get hammered a little, it’s because stocks are rising. If the Dow is sideswiped, your preferreds will probably jump. Almost always the stuff that’s losing altitude becomes cheap and attractive while the stuff shooting higher is over-valued. So, you sell what goes up and buy what falls. That’s rebalancing.
If you originally decided REITs should be 8% and they pop to 12% of your portfolio, for example, then sell 4% and buy what’s pooched. If interest rates creep and bonds fall (along with your house) when the Fed tapers, then do the opposite of what everyone on this blog tells you. Buy some.
This asset mix has delivered an average return of about 7% over the last decade, which included the greatest meltdown of a generation. Over the last five years, it’s been more. This is a substantially greater appreciation than real estate, even in delusional Vancouver or crack shack Toronto. And, of course, it includes zero stocks (too volatile) and nary a mutual fund (too expensive).
Unlike your house, the portfolio can be liquidated in one minute and turned into cash in three days. It can provide you with a taxless ‘return of capital’ income, finance years in retirement, generate money whatever stock markets are doing, and nicely compensate for the pain you’ll feel as your real estate piddles away.
Or, you can do what everyone else is. Good luck with that.
147 comments ↓
Nice investment coverage
One more thing: the 40/60 rule is for long-only investors. Anybody with personal debt (mortgages car loans and God forbid credit card revolvers) should pay that off first before buying any lower yielding bonds (risk adjusted)
LH
Excellent. Thanks!!
Dogs just stay away from Ontario bonds.
Wink. I know shit……
The lunatic fringe runs that show.
RIP tomatoes dudes near Windsor, daltons wind machines all around, electric power prices threw the roof.
That’s why your going on pogy.
But let’s all vote for the old chic that jogs and threatens the fat guy.
Long live Ford……..
Thanks for this Garth. The situation today is that because of extended QE, fixed income and equities have both appreciated. When it ends, stocks will take a beating and yields will rise, taking bonds and fixed income securities down too. We’re not in normal times.
I’m almost tempted to go to all cash now and get back into the market when QE is over, or at least tapered, since I’m up so darn much over the last 5 years.
But that’s trying to time the market, right? And we all know that’s stupid.
Equities and bonds will not fall in tandem. You are overthinking things. — Garth
After years of injecting all kinds of stimulus, central banks continue to offer even more assurances of cheap money and asset purchases.
This has resulted in an inflated stock market; a market which should technically be an indicator of how well the economy is doing.
Deflation causes a country’s debt-to-GDP ratio to rise.
As prices fall GDP is lowered, which then leads to a country’s inability to service its debt – the same debt accumulated as a result of easy money.
In other words, if deflation occurs, many countries could default…or print more money to prevent that from happening – which is exactly what the US is doing.
The central bankers’ blueprint is very simple: If they can make you believe that inflation is low, then they can print as much money as they want, further entangling the world in a central bank credit system.
While there have been talks of the Fed scaling back, the chances of QE stopping anytime soon is slim to none.
Here’s where the topic of currency wars come back into play. The US has allowed the Fed to increase the monetary base and devalue the dollar for more than two years.
Ever since QE was initiated, they have told us they will slow it down – yet, the only thing they’ve done is increase the amount of QE.
As the world’s most powerful country prints, other countries have to do the same to keep up or risk a major decline in their economies.
Instead, the stock market has become an indicator for the amount of money being put into the system and monetary policies by central banks around the world.
The “general” concept behind QE and stimulus measures by central banks is to inflate an economy into growth during times of distress.
If the headlines are correct and we are experiencing real growth as the stock market suggests, why would central banks need to continue their intervention?
The reality is that central banks don’t need to intervene. They want you to believe that we absolutely need inflation because the opposite – deflation – is a terrible thing.
They want you to believe deflation represents a lack of economic growth. But historically, deflation under normal circumstances has never been the cause of poor growth – as a matter of fact, it was quite the opposite.
The reality is that central banks don’t need to intervene. They want you to believe that we absolutely need inflation because the opposite – deflation – is a terrible thing. They want you to believe deflation represents a lack of economic growth.
But historically, deflation under normal circumstances has never been the cause of poor growth – as a matter of fact, it was quite the opposite.
So “they” may tell you that deflation is a very bad thing. But what deflation really means is a lack of growth in “their” banking system.
The Fed is a bank. Its growth – like all banks – relies on lending. If people stop borrowing, banks wouldn’t make money. The more they lend, the bigger they become. And the Fed has lent more money since 2007 than it ever has in its history.
The Fed’s policy is to prevent inflation from falling too low. What that really means is that their policy is to prevent the cost of living from…well…staying the same.
Inflation is good for those who are heavily indebted, but punishes those who have been financially responsible.
The scary part is that people have fallen for the “we need inflation” mentality because they have been so heavily brainwashed by the media that inflation is a great thing and deflation is really bad.
If our society never fell into this debt crisis, we would want deflation. But since our world has fallen for the idea of cheap money via the central bank system, deflation can be scary.
Deflation increases the real value of debt. In other words, deflation makes it harder to pay back money that you have borrowed.
Let’s use housing as a simple example. If housing prices drop by 10% (deflation), a homeowner with a large mortgage could see the real value of his debt rise by 10% because he now owes 10% more than what his home is worth (assuming he borrowed all the money for his house to keep the math simple.)
Since deflation means lower prices, which can eventually lead to wage declines, that same homeowner would now have a higher ratio of monthly mortgage payments to wage income.
Deflation would mean higher loan-to-value ratios for homeowners, leading to increased mortgage defaults (which we saw in 2007) and ultimately a crash in the banking system.
Banks need people to borrow to keep their system alive and they have done a great job of making everyone pay more for everything as a result. The more expensive things get, the more we have to borrow – and that’s good for the banks. Housing prices haven’t gone up because the real estate market is hot; they’ve gone up because credit has been cheap.
Deflation causes a country’s debt-to-GDP ratio to rise. As prices fall GDP is lowered, which then leads to a country’s inability to service its debt – the same debt accumulated as a result of easy money.
In other words, if deflation occurs, many countries could default…or print more money to prevent that from happening – which is exactly what the US is doing.
The central bankers’ blueprint is very simple: If they can make you believe that inflation is low, then they can print as much money as they want, further entangling the world in a central bank credit system.
While there have been talks of the Fed scaling back, the chances of QE stopping anytime soon is slim to none. Ever since QE was initiated, they have told us they will slow it down – yet, the only thing they’ve done is increase the amount of QE. As the world’s most powerful country prints, other countries have to do the same to keep up or risk a major decline in their economies.
Countries all over the world have been cutting rates in the past years in
attempts to devalue their currency to regain a competitive price advantage and to prevent deflation.
But the problem is that the scale eventually needs to be rebalanced to bring equilibrium back to society. When one country prints, another must follow suit or suffer the consequences of economic decline.
Over the past few months, countries all around the world are attempting this rebalancing act. Last week, the Czech National Bank began to intervene in currency markets to weaken the koruna by selling its own currency, targeting a lower exchange rate as part of its battle to avoid deflation. The koruna fell by more than 4 per cent against the euro as a result.
But shortly after that, the ECB reduced the benchmark interest rate by a quarter point, bringing it to a record low of 0.25 per cent because of disinflation (slow down of inflation) fears. One more cut and money will be lent out for free.
For the first time in four years, Peru’s central bank also joined in the rate cuts on Nov. 4, because of slow export growth; once again, as a result of its currency being higher relative to the countries it exports to.
And despite the massive increase in job growth for New Zealand, its central bank has delayed expected rate hikes while Australia’s Reserve Bank chairman says its currency is overvalued and it may also be forced to cut rates.
Meanwhile, Japan has already been cutting rates and printing more money (relative to GDP) than any other country, but is still struggling to meet its inflation target of 2%. As rates remain at record lows all over the world, more borrowing will take place, further engulfing every society into the central bank monetary system.
While a country can impose import duties, capital controls and other techniques to fight the currency war, the most “tolerated” act is to print and inflate. At the end of the day, it ALL bodes well for the central banks as countries battle for a cheaper currency via direct currency manipulation.
Interview with Garth on This Week in Money
http://talkdigitalnetwork.com/2013/11/this-week-in-money-110/
Ford nation on sun TV tomorrow night at 8pm
Dudes toting man purses, go for your loti. Switch the channel.
Real men, I suggest Sleman Clear… With a shot of 18 year old scotch.
Can’t wait…..
#6 Ripped on 11.17.13 at 6:57 pm
Nice, I will translate what you said in a few words.
The old model of smacking workers by spiking rates when ever the Labour pool shrunk is over.
Inflate debt away. Something I have been saying here for years.
Cash under mattress or GIC s no good. I buy stocks, and real estate.
The market going up us just the currency defaulting…
In black jack they call that a push…..
Bitcoin is now at $530..this is the elephant in the room.
To #6, Ripped: and your point, in the context of Garth’s blog post, is?
Garth a friend of mine bought a nice place last year for $250k. Comparable places (same street, same model, similar condition) are now selling for $280k. Your ~10% correction hypothesis would effectively take us back to 2012 levels (and yes this is a major city). I understand you need to be conservative to cover yourself a bit but to talk about a correction that would roll back prices about one year, while this blog has been on about an overvaluation for over 5 years, well..does not compute, really.
If you think houses are fairly, sustainably priced, buy one. — Garth
Hi everyone,
Quick question for Garth or anyone else that cares to answer: This week Claude Chiasson from the Devoir warned readers about REIT, saying that government regulations could change at anytime, the same way that they did for non-real estate income trusts a few years back. Do you have an opinion on this?
I hate to admit it, but although I’ve been against his advice for the last five years (he changed his discourse right around that time), so far he’s been right, so I fear he’s either very lucky, or has some kind of insider knowledge.
Do you have an opinion on that, or about the some 500 Irish construction workers that are being brought over to Canada for hire? If RE is winding down, why would we need all of these extra construction workers?
Something doesn’t smell right…
There are no proposals to change teh taxation of REITs. Rogue asteroids are also a concern, however. — Garth
I want a TV show
In the run-up to the 2008 meltdown, commodity prices were surging. Oil hit $147, potash spot pricing of $750/T, copper at record prices, etc. In this major market move over the last 5 years, commodities have not faired as well. Is that because the underlying economies globally are not that strong? Perhaps the real stock market driver being the QE that is putting subsidized pricing on all Financial assets. I have to listen to Stan Drunkemillers thesis as he was the worlds best money manager over the last 30 years. Not one down year, north of 20 net annually.
#6 Ripped — “This has resulted in an inflated stock market; a market which should technically be an indicator of how well the economy is doing.”
Nope. If you get something as basic as that wrong, I don’t need to read the rest.
Didn’t I sound like Smoking Man…. rambling on but have no idea WTF he’s saying?
LMAO
We just got the Coles notes of the public library collection of personal investing books. 5 mins and no charge.
Love the first line. If you own a home with the bank without massive leverage and have been responsible enough to save and invest you will be just fine.
You can take advantage in inflation, deflation or stagflation. Just rebalance. Balanced Savers never lose no matter what fed policy happens to be. That’s because we can take advantage of it.
Of course the fed will buy bond till they get inflation. It’s their mandate. Contrary to popular belief they don’t hide it. They never surprise. The interviews are just jawboning to get what they want in markets. The statements and minutes are available to everyone. They are what matters.
Thing is you can’t bet the farm one way or another in case things go against you. That includes buying Nona’s house for 1.2 M. ( Double land transfer. Ouch. )
You just can’t be so rigid that it stops you from making money. Greedy is bad too. Look for opportunity. It’s everywhere but in housing. Only catalyst is inflation. Bad for high leverage refi. For the less leveraged and balanced investor I say bring it on. We know where to be when it happens.
Smart savers and investors always win.
Garth, you’re big on preferreds for FI. Are you advocating individual stock selection or are you good with something like BMOs laddered preferred share index?
Thank you very much Garth,
Love the breakdown and explanations going with every set of diversifications. [email protected] would not be so forthcoming. Highly appreciated. Keep up the good work.
Could I just get a point of clarification on the allocation of assets between RRSP, TSFA and non-registered accounts?
I understand the idea that with RRSPs the main tax benefit (beyond prev discussed situations – Home buyers plan, spousal rrsp, etc) is pretty much a deferral. All the interest earned, on withdrawal will be taxed at the marginal tax rate. Given the future uncertainty of taxation rates in the future, which is highly unlikely to be any lower, wouldn’t the preference almost always be to put the interest earning assets in TSFA?
I don’t have a particularly large portfolio (about 15k total) so I’m not really going to max out the limit anytime soon despite my best efforts. I just figured since dividends and cap gains don’t need as much help as interest, the TSFA could be my best choice. This however flies counter to what you have written. I must be missing something.
Why would you earn interest if you have only 15K? — Garth
It’s too bad that the price of housing in Toronto (and Canada in general) cannot be expressed as a p/e ratio, as one might use to judge the relative undervaluation or overvaluation of a company’s stock. Then people might understand the absurdity of these prices.
Garth – are you still an iShares guy? Or, has Vanguard’s slightly lower expense ratios got you hooked on their ETFs?
#17 Ripped on 11.17.13 at 8:22 pm
Didn’t I sound like Smoking Man…. rambling on but have no idea WTF he’s saying?LMAO
……
When I figured it you will be first to know.
Hammered at Seneca, going to be late at tax farm.
I kiss no ring.
Please fire my ass.
Wana go back to drinking 24/7
Every thing you read says it’s bad. Drinking that is
The places I go in the zone.. Man spectacular.
Was just on everest counting corpses. Of failed smoking men.
Listing to sid baret. Wish I met him. He
@Homme de Fumer/#14
Be careful what you wish for…
http://youtu.be/8FjCZoq_MX8
[NoteToSelf: This one would be an absolute snap to write!… but what would we call it? GotIt! “Real Smoking Men of Toronto!” hmmm… perhaps we should start small?… a LateNightSlot on community access cable… a ‘C’List TalkShow format? Yeah, that should be doable! Damn, where did I put DonCherry’s tailor’s number!?…]
It is possible for one to purchase US based and Canadian based investments via a self-directed account.
However other international investments are not accessible at-least as far as I know.
Is there any organization that offers that via a self-directed account, because Royal and TD do not seem to.
#20 A Yank in BC on 11.17.13 at 8:39 pm
Try price to rent ratio. And the Economist thinks by that metric we’re 70% over-valued in Canada.
#24 HAWK on 11.17.13 at 9:02 pm
It is possible for one to purchase US based and Canadian based investments via a self-directed account.
———————————————————
Of course, I trade U.S. every day with my RBC Action Direct. As a matter of fact I haven’t touched a Canadian stock in probably 10 years. The TSX and VSX or whatever it’s called and resource stocks don’t interest me.
#28 Hawk:
TD Direct Broker allows investments from other exchanges other than US & TSX. The commissions can be expensive however, but I believe most Europe and Asain Exchanges can be accessed.
Great Post, as usual. Good sense, diversified, rebalanced.
While some believe the market is not reflective of business, I do believe it is a good barometer. 2013 has been a great year as the US slowly recovers despite your politicians. Of course, it is not done yet.
As I recently took a look at my numbers they are quite robust. Getting ready for the year end rebalancing, and thinking about 2014. The wife retires at years end. No more “earned income” so will move a higher percentage into fixed income (currently about 20%) to more like 35%.
Need to think about next years taxes, and planning for withdrawal to supplement my modest pension income.
Will -hopefully- let social security “grow” a few more years before tapping that stream.
Despite all the dormers out there, it has been a VERY good 4 year run. Next year? Who can know the unknown?
Stay invested, stay diversified, stay away from DEBT.
Sorry, works here in the cow lands
This is all good advice in a stable interest rate environment, or even a slowly rising one. The concern I have is for when QE tapering does finally start.
The Fed thinks that by slowly tapering, rates will rise moderately, but the market reaction tends to be more violent, as if QE is being stopped altogether.
This is because markets are forward looking. Why would anyone want to hold bonds when they are almost guaranteed to have capital losses going forward?
If rates rise rapidly, equity and bond markets will be negatively affected. The Fed will be forced to back-track again, otherwise markets will be at risk of a severe correction, undoing all the monetary stimulus in short order, putting the “recovery” at risk.
They’ve painted themselves into a corner. Very interesting times ahead…
Or, the people running central banks are smarter than you. — Garth
Esteemed analysts are now suggesting a %5 Crypto-Currencies weighting as an essential part of a balanced portfolio. (ie. mcxnow.com)
You forgot the recommended weighting in Twinkies. — Garth
I truly believe now that Rob Ford is The Smoking Man. Both sound like a crackhead and alcoholic.
EQUITIES MARKETS IN NOSE BLEED TERRITORY?
For the long-term investor (as opposed to the trader), equities markets are not really overvalued by most common metrics.
PE’s are within long-run average levels and earning growth has been robust over the past five years. Sure earnings growth has faltered over the past couple of quarters but that’s likely a short-term issue.
In real terms the S&P and DOW are about where they were 15 years ago when earning were a magnitude lower.
This is all with a back drop of moribund world economic growth. When growth returns to normal levels then watch as all the money sitting on the sideline pours into the equity markets and drive equities to unrealistic highs. That’s the time to start watching for an equities bubble.
Could there be a 5% to 10% or even 15% pull back in equities in the short term – sure its a possibility. Over the longer term its a certainty. But you cannot forecast it. If it happens, great, buy some more if you can. When a pullback happens just remember – every pullback has been followed by recovery and high-highs in equities.
#33 J. Girn on 11.17.13 at 9:36 pm
SM is RF? You give Ford way too much credit for analytical ability, even completely twisted.
4 Wychwood Park – WYCHWOOD
http://themashcanada.blogspot.ca/2013/11/and-it-went-for-4-wychwood-park-wychwood.html
FINALLY!!!!
Three years and at least 10 price changes later, this house at 4 Wychwood Park that I first posted in January has sold!!!!!!!!!
It was first listed in July 2011 for $3,495,000.
It needs a lot of work so there was no way it as selling for that.
In October, the price was down to its lowest asking price of $2,495,000.
It just sold….
For $2,178,571.
#32 Jiminy — “Esteemed analysts are now suggesting a %5 Crypto-Currencies weighting as an essential part of a balanced portfolio. (ie. —–.com”
I love it. A website aimed at people with a limited understanding of money AND technology.
Wasn’t there a guy a week or two ago who made off with $1 million worth of other peoples’ bitcoins? Claimed he was hacked and he wasn’t going to bother to call the police?
That’s a key difference between a traditional bank and a purveyor of these fine new digital currencies. A traditional bank gets robbed, says “we wuz robbed,” sucks it up and makes depositors whole. The bitcoin website says “YOU wuz robbed” and flips the ‘open’ sign to ‘closed.’ Growing pains, I’m sure.
P.S. Don’t let your wife find out that your magic beans have gone to zero, or she’s going to be pretty ‘esteemed’ at you too.
“Or, the people running central banks are smarter than you.” — HonGarth
“It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. [I]f the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with ‘free banking.’ The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” – Paul Volcker, ex Federal Reserve Chairman (in the Foreword of “The Central Banks”)
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” – Alan Greenspan
MyBad… I just felt like FlexingContrarian this evening. You were saying, AuldPol?….
Wanna make coin? Swing/day trade Hot US momo stocks. Make 5-10% on your trades with little downside. The longer you hold a financial asset, the more risk you are exposed to. Who lossed $ in 2008? Investors did, traders were already already stopped out and shorting. Long term investors were bag holders or losers. 10% returns are to small, 30%+ is what you want folks!! Technical analysis is more useful than fundamental analysis. Good luck guys!
Or, the people running central banks are smarter than you. — Garth
I hope so. I have a “balanced” portfolio that I do not wish to see negatively impacted.
I’m just not smart enough to see a way out that doesn’t hurt in some way.
If growth were to accelerate, it would allow some “cover” for rising rates, however, the biggest obstacle to growth is excessive debt.
This debt has to be either paid back, defaulted on, or inflated away, otherwise it will continue to get in the way of growth.
Barring some new productivity enhancing innovation (like the internet), that means either austerity, inflation, higher taxes, restructuring, or outright default.
I don’t see any other way. I guess that’s why I’m not a Central Banker.
visorman30, you can definitely shelter your interest in your TFSA but then where are you putting the growth portion of your portfolio? If it is in your RRSP you are converting dividends and capital gains into heavily taxed income when you withdraw them. Given that your portfolio is smaller than the TFSA contribution limit I guess it’s not really an issue for you though, you may as well pile everything into that until it’s topped off.
Hey – we have a Garth portfolio!
20% Bonds = XBB.TO + XRB.TO, or similar
20% Preferreds = CPD.TO or ZPR.TO
18% U.S. = VTI, or similar
16% Canada = VCN.TO or ZCN.TO (or, XIU.TO + XMD.TO or XCS.TO)
12% Intl / Developed = VEF.TO, ZDM.TO, or similar
6% Emerging Markets = VEE.TO or VWO
(or, 18% in VXUS or similar)
8% REITs = XRE.TO, VRE.TO, or ZRE.TO
————
Make sure the investments are balanced against the house using the “Rule of 90” threshold (90 minus your age = % of net worth in house).
So, let’s say you’re 40 years old, with a $700,000 house and a $200,000 mortgage ($500k net worth from the house)… then you’d ideally have $500k in investments:
20% Bonds = $75k in XBB.TO + $25k in XRB.TO
20% Preferreds = $100k in CPD.TO
18% U.S. = $90k in VTI
16% Canada = $80k in ZCN.TO
12% Intl / Developed = $60k in ZDM.TO
6% Emerging Markets = $30k in VEE.TO
8% REITs = $40k in ZRE.TO
—————————-
YTD gains would be:
$75k in XBB.TO * -0.81%
$25k in XRB.TO * -9.515%
$100k in CPD.TO 8 -2.68%
$90k in VTI * 27.51%
$80k in ZCN.TO * 11.21%
$60k in ZDM.TO * 24.40%
$30k in VEE.TO * 0.30%
$40k in ZRE.TO * -6.02%
TOTAL = + $40,382.75 (+8.1%)
Just to reinforce the obvious, those are not my recommended assets. — Garth
Awesome Garth, just awesome.
If they don’t get it, they’re not listening.
for people who want to take a back seat with their MONEY and not get involved, a 5-7% rate of return will not even keep up with inflation, especially after the taxman gets his share.
garth, your investment advice is okay.
but I want to make money higher than 5-7%.
are you kidding me.
right now, mortgage interest is so low, that everyone should be locking in for as long as allowed – 10 years. the bank is giving money away. never will I see this again. free money.
If you purchase a $750k beater home in Toronto with 5% down, and rent it out. you end up getting so many tax breaks.
garth any idea how easy it is to rent out a home in Toronto? how many students enroll at u of T?
how about 110,000 students. then theres Ryerson, rcc etc.. if I put down $40k (price of a ford f150)and I obtain a annual growth of 15% in the annex based on 750k. How much is the growth garth? $112,000. Not bad for a 40k investment.
who cares if the tenants destroy the place-everything can be fixed with plaster and paint.
the math doesn’t lie.
this is the greatest money opportunity of all time.
debt can be used to destroy individuals or it can be used as a spring board for higher wealth.
either YOU control your money, or the money will control you.
In the 60’s we were told that if we had nothing we had nothing to lose.
Then the Wealty Barber told is to pay ourselves first.
Now Garth tells is that we need to rebalance.
Me confused.
#6 Ripped
Several very salient points made. I may not totally agree but unlike others I read and re read your post.
Extraordinary Monetary Policy is a one legged stool; producing an economic pogo stick effect.
It has taken the government of Japan and BOJ several years to realize QE as a stand alone policy appears to work towards stabilizing the financial sector but is very limited in addressing structural economic problems.
The BOJ and the Fed have not been able to generate lasting PCE inflation; perhaps next up to the QE plate will be the ECB.
Ultimately, inflation will eat into your discretionary spending and to a more detrimental extent, if wages also fail to meaningfully rise. Consumers will adapt by shifting their financial resources accordingly.
Outright debt monetization by the unelected FOMC takes the pressure off of the elected reps making tough decisions needed to be made.
What makes the hair stand up on the back of my neck?
The very economic rules and models that the Fed makes use of, have artificially skewed data fed into them.
These models are what they heavily rely on to make their policy decisions…
Stocks not near a bubble? Hold on there Janet Yellen:
http://finance.fortune.cnn.com/2013/11/15/stock-bubble-janet-yellen/
How this economic recovery is different:
http://www.cnbc.com/id/101200237#_gus
Smoking Man,
Please tell how you inflate away 17,000,000,000,000.
Is there an ETF out there that has a 60/40 split similar to what’s suggested in this blog?
Maybe an ETF with ETF’s in it?
#26 Hawk, many international blue-chip companies list on the US exchanges as ADR’s. You need to do some research but there are lots out there that can be acquired for minimal trading fees.
Note Garth’s advice that you should only be looking at individual equities if you have a six figure portfolio.
Seven figures. — Garth
Three factors nobody can control – …, normalizing rates – … guarantee disappointment ahead for the house-heavy.
While I agree fully we are in a housing bubble and that it will deflate/crash etc. on its own accord, I just can not see any of the powers that be letting interest rates rise. The key reason is given frequently on the Greater Fool blog – only around 1% of the Canadian or American population is on the saver side of the balance sheet. So where are the votes in benefitting 1% and shafting 99%?
Of course rates will normalize. Nothing to do with votes. — Garth
I found this link regarding Larry Summer’s speech to the IMF where, in my mind, it is promoting more QE.
http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/
He sees “secular stagnation” – a long period of negative real interest rates and low economic growth. I daresay he thinks Government (public) debt is a non-issue due to low interest rates as long as the US can service the debt. Janet Yellen appears to be onside. I concede Larry and Janet are smarter than me but my instincts tell me that excess bank reserves will just be added to the public debt sometime down the road and taxes will have to rise. I see Larry’s plan as the “golden delevering” through negative real interest rates and taxes to make the US public debt sustainable. I am convinced the US Fed will fight debt deflation to the last US taxpayer.
This plan is all fine and dandy but my real debt concern has been private debt, not public debt. The following retort from Zerohedge article expresses my opinion.
“In principle that’s great. The only problem is that the bubble reflation and bursting process always and without fail is destructive to those people who live within their means, and rewards those who spend like drunken sailors, who engage in reckless economic behavior, who build up massive debt burdens which can never be repaid, who misallocate capital and resources, and who become too big to fail and are allowed to hold the entire global economy hostage. For a great example of all of the above, see 2008.”
It should be interesting what the next US debt ceiling debate produces.
i hear rumours on howestreet.com [bob hoye]that China will permit more than 1 child per family if the family invests at least $300,000 in an off-shore property!!
I will stand by my prediction that technology is about to radically change the economy for good within the next 20 years. We won’t recognize it anymore. We will be astounded that people got paid to do tasks that will easily be replaced by computers, robots and automation.
On top of that, on demand custom manufacturing will be mainstream as every house hold will eventually have their own advanced 3D printer pumping out all the crap we now drive to the store to get and recycling it when we get sick of it instead of throwing it away. Strip malls will be empty, ships and trains will be parked, parcel service will end. Finished products will start with a design on your computer and end with the real deal a few feet away. There will be billions out of work.
The only absolute is raw resources. Canada is going to do fine in the new global realm cause we got em and others don’t.
Made myself some good coin today .
Drove down to Costco in Bellingham today.
Loaded up on cheese, butter and milk.
And gas, was stuck behind a guy (Asian features) who filled 5 – 40 liter containers, plus his Mercedes SUV.
Border line-up 1 hour each way.
Good time to spend time with family.
Just to reinforce the obvious, those are not my recommended assets. — Garth
Yes, of course… that would make you the Couch Potato guy!
If I had to guess, the changes would be:
Individual Bonds vs. Bond ETF
Individual Preferreds vs. Preferred ETF
XIU and XMD for Canadian Equity
No BMO products
Some sector ETFs vs. only broad index ETFs
80% of holdings in gold bars and bitcoins (just kidding)
Thanks for this Garth, and for all your posts.
I have been reading your blog for 2+ years now and I can honestly say you’ve changed my life – thank you!!
I have a plan for the future and have rescued my money from mutual funds. ;-) I’ve just finished putting together my own diversified portfolio, thanks to all your advice and tips.
I’ll continue to watch it and rebalance as necessary. It’s an incredible service you provide to all your readers and I’m very grateful. I have a feeling I’ll be raising a glass to you in ~30 years when I retire comfortably, thanks to your advice!
Regards, Kate, Vancouver (still renting!)
#29 RayofLight on 11.17.13 at 9:22 pm
Thanks, I must look into that then.
Some illustration to US recovery:
http://www.zerohedge.com/news/2013-11-16/spot-striking-similarity
How about the xtr fund which pays you six cents per share oer month. Great way to earn income.
“Every American family deserves a false sense of security,” said Chris Reppto, a risk analyst for Citigroup in New York. “Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal.” Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week’s congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder. “America needs another bubble,” said Chicago investor Bob Taiken. “At this point, bubbles are the only thing keeping us afloat.”
Expecting “unbalanced” people to have “balanced” portfolios is wishful thinking.
Jackofall 12 what floor did u fall from ?
Do u only just jack ur self, you are in the 95 %
Well dun idiots every wheare yup
#53 not 1st on 11.18.13 at 12:14 am
I will stand by my prediction that technology is about to radically change the economy for good within the next 20 years. We won’t recognize it anymore. We will be astounded that people got paid to do tasks that will easily be replaced by computers, robots and automation.
==================================
You`re probably right but how will you get paid?
Or, the people running central banks are smarter than you. — Garth
Can you say that with a straight face? Too funny.
“The other half of the fixed income portion should be preferred shares, prefarbly in top-quality issuers like banks or insurers.”
Prefarbly?… What is THAT?
Here’s a riddle:
Prefarbly preferred shares?
Preferably prefared shares?
Or preferably preferred shares?
I’ll give you three guesses. :-)
#52 Al
People will believe anything. Especially about Chinese. Chinese seem so alien and remote to the average North American, you could claim anything about them, and people will nod their heads and say ‘yeah, that seems reasonable’.
Planet earth is host to a growing population consuming more and more of less and less.
When it peaks this suckers going down like a lead balloon.
Nice Garth. Short, sweet, and informative. Easy to see why your Blog won the #1 Award for Top Canadian Financial Blog. Also, all the dawgs know your blog is also the World’s #1 Most Entertaining/Witty/Amusing and addictive blog too. Rob Ford said he is getting help for his alcohol/crack problem. I think it would be good for him to switch addictions, from alcohol/crack to “Greater Fool” would be a good/healthy switch for him. I wish Mayor Ford the best. He isn’t the first person, and won’t be the last person to go into recovery. I still think he is simply a good man who needs help, and I wish him the best.
Ripped=correct
Ralph=fail
There fixed it for you!
#54
“And gas, was stuck behind a guy (Asian features) who filled 5 – 40 liter containers, plus his Mercedes SUV.”
That’s a good way to make an ash of yourself!
Equities and bonds will not fall in tandem. You are overthinking things. — Garth
When QE stops, which it will in near term, bond rates will rise with the end of cheap money and the equities market will correct.
Non correlation may have been a valid assumption in the past but not today. It is that kind of thinking that was embedded in the quant’s models that brought us the financial crisis when they assumed real estate prices across the country were not correlated. You ned to realize that correlation is not static, it is dynamic and it can and does change.
Your big time wrong on this one Garth.
Not at all. The market will react temporarily (as it always does), and many speckers will get slaughtered as usual. Then money will flow from risk to secure to yield. It doesn’t vaporize. You should never exit a basic asset class. — Garth
#63 Andrew Woburn on 11.18.13 at 1:53 am
You`re probably right but how will you get paid?
———–
Garth is right about companies exploiting technology. They will get leaner and leaner at the expense of people but eventually even companies will face pressure as well as tech obsoletes them too. Costs of lots of things will come down drastically when people and large infrastructure and distribution are gone.
3D printing is a radical game changer. It’s not just artists printing crazy shapes, they have metal alloy printers and concrete and food printers and body parts and clothing. There is even a house printer being designed. Someday we will think it wad nuts to build house the way we did or even move and sell. You will be able to print yourself a new house every few years if you want. Just knock down the old one, melt the materials and start again.
I don’t know how people will get paid in the future.
Fortunately nobody can print a pathetic blog. — Garth
#53 not 1st on 11.18.13 at 12:14 am…
“I will stand by my prediction that technology is about to radically change the economy for good within the next 20 years.”
I seem to recall reading that in Popular Science, let’s see, oh right – that would have been September 1957.
@ #12
Garth a friend of mine bought a nice place last year for $250k. Comparable places (same street, same model, similar condition) are now selling for $280k. Your ~10% correction hypothesis would effectively take us back to 2012 levels (and yes this is a major city).
There are no major cities in Canada where a house sells for 280. You are claiming a 12% increase in a year and only the truly major cities were anywhere close to that…does not compute.
I followed this blogs advice in baby steps slowly balancing things and bang, out of no where my town takes a hit with the Heinz,s plant leaving . I know housing will take a hit until the jobs come back if ever .Once again having your net worth in one asset ,bad ,diversify ,good.You can say depending on one main employer is short sighted thinking and foolish just like having one main asset like housing for growth plans , Ouch .The future is a little less scary when diversified .
#72 Not 1st
You will be able to print yourself a new house every few years if you want.
—
don’t hold your breath I’m still waiting for my jet pack
So do ETFs that have a capital gains in addition to dividends fall into fixed income or the equity part of a portfolio? How would you determine asset allocation for ETF with both caps and divs?
Equity. Dividends on common stocks are, unlike preferreds, not fixed. — Garth
“#23 T.O. Bubble Boy on 11.17.13 at 8:47 pm
Garth – are you still an iShares guy? Or, has Vanguard’s slightly lower expense ratios got you hooked on their ETFs?”
He recommends ETF’s…as to WHICH ETF’s to purchase? For that you pay the 1%
;)
For obvious ethical reasons I do not recommend specific assets on this blog. Every investor is different, with age, family status, wealth and risk tolerance influencing the final makeup of any portfolio. I impart a lot of free knowledge here, and hope readers have the good sense to pursue it properly. — Garth
#72 Not 1st on 11.18.13 at 9:51 am
Pretty amazing stuff:
http://www.youtube.com/watch?v=ehnzfGP6sq4
#74 JWK – ”There are no major cities in Canada where a house sells for 280. ”
Been to Calgary latel?. Lots of them.
dinatesFor=Calgary,+AB&mode=Box&province=AB&cityName=Calgary&zoom=15&south=51.08698608800723&west=-113.98179110343335&north=51.10908541197518&east=-113.9292627220857&mainlist.listingPageSize=20&mainlist.groupByCities=true&listingtab.index=1
Your free advice is always welcome, when is the next book?
Garth,
Thanks for the post, really like this sort of stuff, and thanks for giving specific targets. I presently follow a passive investing strategy – you would call me a Potato – and mine is rather simpler. Less asset classes (I count 11 you have recommended, whereas mine is presently only 6), and somewhat more “round” allocations (I use 20% US equity, for example, rather than 18%, and 10% REIT rather than 8%) which I suspect makes little difference in the long run.
Some questions.
1) Why do you specifically recommend a completion index? Why not just use a broader index, like VTI for the US, or ZCN/VCN/XIC for Canada, that includes the small caps. Is the reason not to use the above based on a small cap/value bias? If so, what’s the point of such a “small smattering”? Wouldn’t it need to be rather more than a few points to make a real difference?
2) About the high-yield bonds, are these really “safe”? I am under the understanding that high-yield bonds generally show a significantly positive correlation with equities, which is exactly what you don’t want in the fixed-income portion of your portfolio. They seem to offer an unfavorable risk/reward profile.
(a) A completion ETF is more sector-specific than geographical, and may contain missing elements such as US real estate trusts. (b) High-yield bonds can pay you 7% in distributions. Well worth a small weighting. — Garth
#53 Not 1st – ”I will stand by my prediction that technology is about to radically change the economy for good within the next 20 years. We won’t recognize it anymore. We will be astounded that people got paid to do tasks that will easily be replaced by computers, robots and automation.”
I would hazard a guess that one of the reasons our economies are in the shape they are in is due to people being replaced by computers (high unemployment) and other technology. It’s all fine and dandy to do this but when there are no longer enough people left employed to buy the stuff these companies are building with robots, etc., something has to give. Not everyone was born to be a techie. What are all these unemployed going to be doing. Fighting wars?
This question came up in conversation the other day. I hope someone can answer it:
When a bond ETF loses value due to rising rates, with rates staying constant thereafter, would you permanently lose some principle value in the bond portfolio, or would the result be similar to directly holding a bond? When you hold a bond directly, as long as it is held until maturity, you get your principle back, but are you more susceptible to principle loss using bond ETF’s?
Bond ETFs are essentially derivatives. Bonds are bonds. But who would ever hold one for 30 years? — Garth
#35 Smoking Man on 11.14.13 at 11:08 pmThis guy has a huge connection to the UCC
http://www.liveleak.com/view?i=eec_1384474203
Anyone catch the weather today, this guy called it a week ago when the forecast was calling for calm winds.
UCC
I appreciate this info, however, what is your advice if you don’t have the necessary room in your RRSP to hold the 18% US and 20+ % international? I have a pension which takes up a lot of RRSP room. Is it still worthwhile even if you have to hold them in a non-registered account?
#59 – ETF Guy
”How about the xtr fund which pays you six cents per share per month. Great way to earn income.”
Have had this one for quite some time. Low volatility, nicely diversified, good yield. One of the better ones.
#53 not 1st
“…as every house hold will eventually have their own advanced 3D printer pumping out all the crap we now drive to the store to get…”
—————————–
We’ll still have to drive to the store to get bucket loads of magical 3D printer ‘ink’ that has the capability to transform itself into any one of the thousands of metals and hydrocarbon compounds found in an average consumer item such as a camera or a weed trimmer.
But other than that… we’ll be flying.
hi garth
i know you’re hating on housing now and i understand your methodology with having a balanaced portfolio which we do. still, we recently sold our condo and want to purchase a home. do you have a recommended rule of thumb for mortgage and income (i.e. no more than 3 times your gross income)?
thanks
maggie
I don’t hate housing. I just feel bad for those seduced by it. — Garth
We all make mistakes in life. That’s what humans do best, we all screw up sometimes, its what makes us human. Rob Ford, is what we all are. Love him or hate him, he’s us.
The leftie Pinkos cant understand why he’s so popular. Read above, Pinkos don’t understand the silent majority.
On another note, DDD may well be the new Apple, check it out, it’s been good to me. As good as SIRI has been for my returns since 2009, it may be time to exit. Hope you took a short position in APPL last year, it did pay off large.
Be careful what you do though, as you never know when you bite the tail of a Tiger. What you think is wise, gainful and good today, can financially destroy you in the end. Did you get that.
@Ronaldo/#83
“What are all these unemployed going to be doing. Fighting wars?” – Ronaldo
Yep. Pretty much. But drones are expensive… ergo: …
[WJS] – U.S. Military Eyes Cut to Pay, Benefits
…”SIMI VALLEY, Calif.—The U.S. military’s top commanders, groping for ways to cope with a shrinking Pentagon budget, have agreed to a plan that would curb the growth of pay and benefits for housing, education and health—prized features of military life that for years have been spared from cuts.
Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said in a weekend interview that without such changes, the cost of military personnel would soon rise to 60% from about half of the defense budget.”…
http://online.wsj.com/news/articles/SB10001424052702303755504579204141223865178
BonusZen [ApocryphalQuote 1954]:
Henry Ford II: Walter, how are you going to get those robots to pay your union dues?
Walter Reuther: Henry, how are you going to get them to buy your cars?
The problem, which causes so many investors to minimize their gains is most people don’t understand the difference between volatility and risk.
When you go to a financial advisor for the first time they will ask you questions in order to measure your level of tolerance to risk, such as “how would you feel in the event of a sudden drop of 20% in your monthly statement?”
Obviously most people want nothing to do with that!
Unfortunately people end up basing their decision on knowledge they don’t have about how the stock market really works. And when you make decisions without knowledge you make bad ones. What you should know is that the stock market is simply a means own businesses, the downside is that in the short term these markets are plagued by emotions, mood and speculation, they are volatile, in the long term however equity price ALWAYS end up reflecting the true value (and growth) of companies. As Warren Buffet say, don’t watch so much the stock price of the companies you own, watch their performance instead, keep the good ones, replace the others, then be patient. That’s how you make money on the stock market and believe me you can make a lot.
But to do that you (or someone to help you) need to be selective in what you buy (no in general no ETFs). And above all you need to teach yourself to be patient and to ignore most of the know-it-all comments in the medias and blog.
(BTW the best regulated market is the US and most of the best companies in the world are listed there, so this 18% exposure limit mentionned by Garth is absurd)
Note that Garth is playing the same game here, confusing risk (which is not having enough money when you need it) and short term volatility.
This blog is fine, but if you’re thinking investment go read Warren Buffet instead…
Actuall,y volatility is risk, as it triggers emotions and rash investment decisions. Keeping both under control determines success. I’m glad you are not an advisor. — Garth
Calgary and Edmonton home prices are dead, flat and falling. Every city in Canada has seen 40% + appreciations in value since 2008, where Calgary and Edmonton can not even maintain their 2007 price values, that’s almost 7 years of negative return on your investment.
Edmonton SFH in 2007, $451,000, 7 years later, $392,000. Calgary SFH in 2007, $506,000, 7 years later $472,000.
Considering 3% compounded inflation since 2007, Calgary homes now cost $115,000 less than they did 7 years ago. All that with 3% opposed to 6% mortgages available.
The mortgage savings alone would save you $75,000 over a 5 year term on a CGY home. It all equals a TOTAL PRICE COLLAPSE IN ALBERTA’S MAJOR CITIES.
When you read a CREB media release, read it carefully, they always state that “current prices reflect homes that CREB follows”
Not ALL homes.
The TREB numbers are out.
I must admit that I am impressed.
http://www.torontorealestateboard.com/market_news/release_market_updates/news2013/nr_mid_month_1113.htm
The only thing that totally surprised me was the big increase in Condo sales
This is much above my expectations, here is what I have for numbers
I actually have more units reported as sold than they posted. Most probably many of these deals were rejected by the banks as insane.
Co-Op Apt 3
Co-Ownership Apt 2
Comm Element Condo 14
Condo Apt 558
Condo Townhouse 208
Det Condo 1
Leasehold Condo 1
Parking Space 1
Here are the charts. These are the last set that I will post around here or anywhere else
Unfiltered: http://img822.imageshack.us/img822/377/rqaz.png
Under $1M removed: http://img822.imageshack.us/img822/377/rqaz.png
Between 200K and $1M:http://img842.imageshack.us/img842/2386/hnji.png
Note that the last two graphs show that the situation is not as spectacular as TREB is depicting it.
However I think that Flaherty will have to do something, his latest move did not do anything other that to overheat segments of the market that were OK before.
As long as people bid for crappy houses like the ones that Garth posted here a couple of days ago, F has all the reasons to worry.
Calgary SFH price 2007 – $506,000
Today $472,000, or minus $34,000, minus $115,000 lost to inflation, minus $75,000 on a 5 year mortgage (government engineered interest rate decrease), it all equals a $224,000 savings on a CGY home when compared to 2007.
That’s a 40% + savings. Or a 40% PRICE COLLAPSE.
Why the media, Calgary and Edmonton realtors continue to pump this market as improving and ready to double bubble again is perplexing, perhaps they’re lively hood depends on it. Who knows, but buy in CGY or EDM now and your guaranteed to lose money.
Everyone that’s bought CGY or EDM real estate has lost a lot of money since 2007, a lot of money. Where’s Don Campbell these days anyways?
Does CREB understand the difference between Calgary proper and Calgary Metro? Do they include Chestermere, Springbank and other metro areas in their Calgary proper sales statistics? HAHA the jokes on you!
We need the highly respected and reputable Ross Kay to do an audit out here. I for one, will not be a tad bit surprised to the outcome.
#62 Tiger on 11.18.13 at 1:37 am
Jackofall 12 what floor did u fall from ?
Do u only just jack ur self, you are in the 95 %
Well dun idiots every wheare yup
__________________
Tiger I don’t understand you. Please try again. I think you were trying to insult me though so let me say it was uncalled for. I’m asking why garth is only calling for a ~10% correction instead of something much larger. In some major markets, 10% would only take us back about a year. This would not bring us anywhere close to historical norms.
#42 T.O Bubbleboy
Nice post… It gives the readers here an accurate account of what balanced means. It also shows why balance is so important when investing.
@ #12
Garth a friend of mine bought a nice place last year for $250k. Comparable places (same street, same model, similar condition) are now selling for $280k. Your ~10% correction hypothesis would effectively take us back to 2012 levels (and yes this is a major city).
There are no major cities in Canada where a house sells for 280. You are claiming a 12% increase in a year and only the truly major cities were anywhere close to that…does not compute.
________________________
Condo terrace home. Where did I say house?
#12 Jackofall on 11.17.13 at 7:33 pm
—————————————
The question to ask yourself is, does it make sense that an identical house bought 1 yr later costs 12% more? What is responsible for that price appreciation?
Inflation certainly accounts for a small part (~2%, thus 10% is attributable to the ‘GreaterFool’ bug–partially caught with the help of media, agents and inlaws).
This has been happening every year for at least a decade. Something has to give at some point.
The long-term trend of real estate is that it moves with inflation. It needs to be affordable to the masses and, invariably, the long-term trend will ensure that.
#47 Son of Ponzi on 11.17.13 at 10:56 pm
——————————————–
$17 billion is $48,500 per american.
1) increase immigration
2) increase output
3) increase taxes
4) promote policies that maintain inflation (i.e. QE)
Devore # 66
Are you saying that Aliens have landed in Vancouver and Richmond?
#45 Son of Ponzi on 11.17.13 at 10:54 pm
——————————————-
Rebalance:
If an asset class represents 5% of your portfolio, ensure that it always represents 5%. Thus, when you look at it next month and it represents 10%, well, you gotta sell half your position and put that money toward an asset class that decreased in proportion over that time.
Mike # 60
Great Post.
Memorize it Blog Dogs.
Some scary charts about the much pumped up US recovery.
http://www.exploringmarkets.com/search/label/Jeff%20Gundlach
The QE &The Stock Market shows you what many around here refuse to see: your 8% returns are as safe as the appreciation of the housing sector
I can’t think of an asset that is safe these days.
I am not sure why Garth is saying that this won’t end up well when he is referring to housing but he is not saying the same when it comes to stocks or any other financial instruments
The “diversify!” discourse is in vain if you sell your house high now and you buy whatever form of investment at top. IMHO they are not safer than a house in any respects.
It would be interesting for those who want to attempt to diversify to see a list of sectors/indexes or anything else that are safe to buy at this point when everything is over inflated
Any speach about US recovery when the feds are so reluctant to taper is just a good joke. The very continuation of the QE is in fact the admission that US and the entire world economy are not doing well.
A house is one asset. A balanced, diversified portfolio contains 12 or 15 asset classes, most of which have little or nothing to do with the US economy. Stick to RE charts. — Garth
@ #86 OT on 11.18.13 at 11:29 am
I appreciate this info, however, what is your advice if you don’t have the necessary room in your RRSP to hold the 18% US and 20+ % international? I have a pension which takes up a lot of RRSP room. Is it still worthwhile even if you have to hold them in a non-registered account?
——————————-
You should be balancing across all of your investments, pension included.
So, if your pension is invested fairly conservatively (say 60% fixed income and 40% domestic large cap), you’d figure out what pieces of the overall portfolio are not covered by those pension investments, and but those in your other accounts.
Is Bitcoin the coming one world currency?! Should everyone be jumping in now?
Garth can you weigh in on this?
My god it’s at $650!
#12 Jackofall on 11.17.13 at 7:33 pm
—————————————
The question to ask yourself is, does it make sense that an identical house bought 1 yr later costs 12% more? What is responsible for that price appreciation?
Inflation certainly accounts for a small part (~2%, thus 10% is attributable to the ‘GreaterFool’ bug–partially caught with the help of media, agents and inlaws).
This has been happening every year for at least a decade. Something has to give at some point.
The long-term trend of real estate is that it moves with inflation. It needs to be affordable to the masses and, invariably, the long-term trend will ensure that.
________
You’re preaching to the choir here, Brother. I’m sorry everyone seems to be misinterpreting my post. I’ll go away now.
Hudak supporting Wynne when it comes to Ford.
PC’s lose the loser already……
Get some in that can win……
Emotional contagion
Much has been written about crowd and group behavior in the investment industry, but one aspect that has received little attention is emotional contagion. As the term suggests, people can infect each other behaviorally. And in the field of investment, this can cost everyone a lot of money.
The term contagion has a negative connotation from its customarily application in the field of medicine and disease. Still, the term is very apt in the context of investment, because contagion frequently leads to irrational or imprudent behavior. It prevents “healthy” evaluations of investment opportunities, and gets in the way of sound judgment in decision-making.
Contagion leads to the classic blunders associated with following the crowd – buying into the market when prices are high, and fleeing in panic when they drop. Contrarian behavior, generally the best (or even, arguably, the only) way to really make money, is, by definition, undermined by emotional contagion.
http://ca.finance.yahoo.com/news/logic-antidote-emotional-investing-170000180.html
#111 tom meyers
If you want to learn about how our minds work I highly recommend this book:
http://en.wikipedia.org/wiki/Predictably_Irrational
#106 recharts — “I can’t think of an asset that is safe these days.”
Cash and short term currency-issuing government debt are always safe. If you’re normally good at picking assets and asset classes (and be honest with yourself, don’t confuse a bull market for brains), and you don’t see any opportunities, hold cash and wait for things to get cheaper.
If you don’t have a great long term track record of past picks, maybe just diversify and rebalance, because you don’t know.
Regardless, great stock pickers and asset allocators don’t “think of” assets, nor do they sit around looking at other people’s charts and the fairy tales they inevitably come with. They do their own homework, crunch their own numbers, read the reports and filings, kick the tires, etc.
Dow 16,000…
Garth, be consistent now – isn’t it time you rang a few bells like you did for gold a year ago. U.S. equities way ahead of themselves.
I did several months ago. I’ve also counseled against overweighting in equities, or holding any individual stocks. The rest is up to you. — Garth
@ 21 Visorman:
At those kind of capital levels I found that the most important things were finding low cost methods of trading (no more then $7/trade and no more then 1% of each trade) and putting the money in places that the tax man can’t touch it. If your income taxes are too high and you don’t have other write offs an RRSP can be good but, it is harder to get out. If you are looking to keep the money in for a long time but, it doubles as an emergency fund (that you might need to access) then the TFSA is a good bet. No taxes, easy to access.
I view trying to diversify into multiple accounts (TFSA, RRSP etc) as for those who are saving much more then the contribution limits (saving at least $15,000/year).
Max out your TFSA first. Then max out your RRSP contributions, then start to work into other accounts.
The problem with this approach is that you can only hold CDN$ in a TFSA meaning buying equities in USDs costs alot in exchange fees. I buy CDN$ denominated ETF’s to access foreign equity in my TFSA. (Horizons has some, eg. HEJ. Not a suggestion, just an example.)
Lets play this TFSA game to see how effective it can be.
Lets assume you have a max contribution to the TFSA at current, $25,500. Now lets assume that the limit goes up $5500 each year until 2019 (when it will reach $58,500), that you make a maximum contribution each year and that you get returns of 7% each year for the next 30 years (until 2043.)
By the end of 2043 the TFSA will have about $450,000 (and all you put into it was $58,500, your last contibution being in 2019.) $450,000*.07= $31,500 (your 7% return in 2043). Thats right, the TFSA will kick of $31,500 each year at that point, all tax free! And anything you take out, you can re-deposit next year to continue tax free earnings.
Thats when things start really getting interesting because anything in a TFSA is considered as taxed already which means it can be withdrawn and put into an RRSP… You see where I am going with this. Untaxed income deposited into an RRSP and used as a tax write-off…
#108 James Bond . maybe this is the answer. Or you may want to ask Warren or Charlie and see if they are buying it.
http://www.youtube.com/watch?v=bdJ-lo8la3w
#108 James Bond in Gold Finger on 11.18.13 at 1:54 pm
They were at $309 1 week ago. Man I wish I didn’t read this blog in April when Bitcoins were laughed at and mocked when they could be bought for less then $200. Instead I put my money in a balenced/diversified portfolio earning 8%. FML.
Gambling is not investing. — Garth
From our favourite RE super-hero duo: “We’ll get you the action”
Or how easy it is to sell over-asking when the Okanagan is full of Greater Fools…
http://wolfhomes.com/blog/category/newsletter-2/video-market-updates/
http://www.theglobeandmail.com/globe-investor/inside-the-market/market-updates/at-midday-dow-runs-out-of-momentum-after-surpassing-16000-for-first-time/article15486243/
The Dow and S&P 500 surged past the 16,000 and 1,800 milestones, respectively, but both U.S. indices pared some gains soon after markets opened. Round numbers often act as resistance points for chartists, but clearing them can also provide momentum for investors eager to chase performance.
In Canada, the Toronto market hit a two-year high at the open, though gains were fairly mild and held back by falling gold stocks.
It's becoming blatantly obvious as to what's driving Canada's housing market, and that is foreign bank [money laundering] and non-OSFI regulated lenders who are securitizing subprime mortgages backed by government guarantees. chart
F's rules are what they intended to be; a pony show for the public.
You are whacked by your own prejudice. Sad. Smart brain infected. — Garth
In Edmonton #YEG we saw the average price of condos plunge almost $8,000.00 just from September to October this last month passing. In addition, Unemployment in Edmonton Soared to 5.3% down from 4.4% last year, that another 6,500-7,000 people who lost their jobs in this city!
I have about 20% of my net worth passively in XRE but it’s a personal gamble I’m taking depending on how the pattern plays out. I’m interested to see if it plays out like 1994 (hopefully not) or 2004 in which if it followed it closely we’d see a one-day shakeout of about 2.5% (Fri/Mon?), in which it saw a gain of about 4% in the subsequent 3 weeks after that shakeout, and an additional 5% & 9% in the 3 and 4 months subsequent to that. I know this is sort of like reading tea leaves and will get burned more often than not but I want to increase the odds of having my cake (distributions) and eating it too (capital gains) X-D
Going against a balanced, diversified portfolio I’m thinking to reduce XRE or something else and go a little more into EM/China (on which I’m already sitting on a decent unrealized gain) as it is up against/breaking out over important resistance. Another gamble as it may just linger, headfake, or jerk about until longs are shaken out or bored/feel like it’s dead money.
@ #12
Garth a friend of mine bought a nice place last year for $250k. Comparable places (same street, same model, similar condition) are now selling for $280k. Your ~10% correction hypothesis would effectively take us back to 2012 levels (and yes this is a major city).
There are no major cities in Canada where a house sells for 280. You are claiming a 12% increase in a year and only the truly major cities were anywhere close to that…does not compute.
________________________
Condo terrace home. Where did I say house?
OK fine, “same street, same model” implies a home. Try this: there are no major cities where a ‘Condo terrace home’ sells for 280k…and the 12% gain still not realistic…
I can not BELIEVE it!
Rob Ford may have just pulled off the utterly impossible and saved himself – holy flipping perceptions…
He’s not an addict. period.
He parties way to hard , a little too often? yes.
tone down the partying, keep working and maybe eat more veggies.
tha is all.
HAHAHA
ford for mayor 2015 (or whenever it is)
Why is Canada doing a better job training/ finding Canadians to fill these jobs? Why is bringing the Irish over ok and not other foreign workers like the Chinese? What happens when the Irish apply for residency and the bubble bursts? Who is paying the EI and perhaps in the future welfare payments?
http://www.citynews.ca/2013/11/17/irish-job-fairs-could-bring-484-construction-workers-to-canada/
garth,
i unsure about homes increasing in price but condos/ townhouses have dropped in prices in burnaby/ coquitlam/ new west since 2011 so uncertain how truthful the realtors really are
Finally!… AuthenticZen tailor made for SaltyDogz!…
FirstUp: Scientists struggling to explain the RobFord Phenomenon arrive at a startling conclusion:
[LAT] – Cheating students more likely to want government jobs, study finds
…”College students who cheated on a simple task were more likely to want government jobs, researchers from Harvard University and the University of Pennsylvania found in a study of hundreds of students in Bangalore, India.
Their results, recently released as a working paper by the National Bureau of Economic Research, suggest that one of the contributing forces behind government corruption could be who gets into government work in the first place.”…
http://www.latimes.com/science/sciencenow/la-sci-sn-cheating-students-government-jobs-corruption-20131118,0,2929974.story
And, not to be outdone by those PeskyPoliticalScientists @ Harvard, the University of Ottawa’s very own Prof. Tracy Vaillancourt confirms what many men have long suspected… that ‘Girlies’ are indeed, frequently, their own worst enemies…
[TheRoyalSociety] – Do human females use indirect aggression as an intrasexual competition strategy?
“Indirect aggression includes behaviours such as criticizing a competitor’s appearance, spreading rumours about a person’s sexual behaviour and social exclusion. Human females have a particular proclivity for using indirect aggression, which is typically directed at other females, especially attractive and sexually available females, in the context of intrasexual competition for mates.”…
http://rstb.royalsocietypublishing.org/content/368/1631/20130080.full?sid=7db
And, to conclude today’s ‘V’ wars, Qatari designers of the Al-Wakrah World Cup Stadium have issued the ultimate ArchitecturalRiposte to their Chinese rivals’ PeoplesDaily HQ… May the best genitalia win…
[UK Guardian] – Qatar’s accidental vagina stadium is most gratifying
http://www.theguardian.com/commentisfree/2013/nov/18/qatar-accidental-vagina-stadium-al-wakrah-world-cup-stadium
You are whacked by your own prejudice.
Nick Clegg calls for new taxes for foreign investors in London's property market
Bubble Trouble Seen Brewing in Australia Home Prices
You'll never understand this market if you don't read history and keep thinking in Canadian dollar terms. Capital flight is alive and rampant.
For those wondering what Canadian home prices are returning in foreign currency terms, look here. (YY% for October)
#117 Spiltbongwater — “They were at $309 1 week ago. Man I wish I didn’t read this blog in April when Bitcoins were laughed at and mocked when they could be bought for less then $200. Instead I put my money in a balenced/diversified portfolio earning 8%. FML.”
Not sure if you’re joking or not, but you can spend your life looking at investments you didn’t make last month and could’ve made a fortune from… It’s no way to live.
An investment is part of a business (or country) that will pay because that entity is generating wealth and will pay you the fraction of it that you were promised, whether as an equity holder or a debt holder.
Bitcoin is pure speculation, like any commodity play. Wanna go up against smarter, richer, and more automated traders than you in a zero sum game?
Hey, Is It A Problem That We’re All On One Side Of The Boat?
Gee, we’re all on one side of the boat now–long the S&P 500, NASDAQ, Dow, Eurozone stocks, the Nikkei, not to mention rental housing, junk bonds, bat quano, ‘roo belly futures and the quatloo–basically every “risk-on” trade on the planet–is that a problem?
This is what I am doing. I do not use to invest in something that I do not know and I do not put my money in other’s hands. If I am smart enough to make good money I should educate myself to be smart enough to invest it.
My personal feeling is that the financial markets and the economies are doomed to repeat the 2007-2008 experience when they postponed problems instead of confronting them. For this reason I am not even going to bother to learn about what you as investor do, so I have to hold on my cash. My only fear is that we will reach a point when they either let these inflated assets crash or they will print money and let the inflation absorb the mess. At that time the smart money and the big fish would have put their money in inflation safe assets. I guess this is what I will have to do before the tsunami hits the shores.
Probably it is all about how fast the other countries manage to get out of the USD trap. China and others have already given signs that they do not enjoy the money printing that is happening in US. Unfortunately they probably have lots of US dollars and bonds and they need time to get rid of them without devaluing them.
From what I understand emerging markets (B$) have become addicted to these cheap money as well so I don’t see the feds tapering soon or the interest rates changing. The result will be that the inflated assets will implode under their own pressure.
What I don;t understand is why with the current money printing the inflation is not going higher. Is that because the money printing and the distribution of these money is selectively directed toward financial institutions ?
No crash is coming. No tsunami. No rerun of 2008. If there’s a correction in markets, it will be the normal variety (5%-20%) we see most years. Hate to break it to you, but the world’s recovering a little more every week. — Garth
#6 Ripped on 11.17.13 at 6:57 pm
—
At 1355 words, I’m having trouble reading your comment in one sitting. Can you provide the Coles Notes version?
Perfect for this blog… and reason why correction must be looming:
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/the-rise-of-the-miserable-canadian-homeowner/article15495215/
Irish superlative
Thomas Byrne found guilty of all charges in €52m fraud and theft trial
Case was the biggest white collar criminal trial in modern Irish history
http://www.independent.ie/irish-news/courts/thomas-byrne-found-guilty-of-all-charges-in-52m-fraud-and-theft-trial-29763352.html
=======
http://www.irishtimes.com/business/economy/ireland/revenue-collects-4-3m-after-french-pass-on-tax-details-1.1574015
Balance with a post-colonial gov??? and sheep electorate. 2 party system?????
Canadians cant find ‘balance’ in wealth until find balance in life, which means active political activism and 5 major + 5 middle parties in the so called parliamentary system
interesting read
http://goo.gl/iy6Wge
how fed took down silk road and what went there,
“The informant directed investigators to the site, accessible only through the Tor anonymizing network, and explained how transactions for the sale of heroin, cocaine and LSD went down using the digital currency Bitcoin.”
http://goo.gl/43bnPp
Bitcoin Bank Robberies And Millions In Losses…
We’re all on one side of the boat.
The tide lifts all boats equally.
Whatever.
Garth says no tsunami.
So keep on paddling towards the ocean.
anyone catch this little bit of mind control?
http://www.cbc.ca/news/business/canadians-top-job-satisfaction-survey-1.2430864
dont complain, this is as good as it gets!
im sure SM will agree… best to be your own boss
No crash is coming. No tsunami. No rerun of 2008. If there’s a correction in markets, it will be the normal variety (5%-20%) we see most years. Hate to break it to you, but the world’s recovering a little more every week. — Garth
Sure doesn’t feel that way what with all the bubbles and unprecedented debt around the world today. If I’m paying the minimum amount on my credit card every month but still spending heavily, until there is no physical way I can ever pay back the balance, how can that end well? I suppose if I could print my own money……hmmmm.
UBC student selling his Lambo.
Self explanatory.
http://vancouver.en.craigslist.ca/van/cto/4185946557.html
Canadian Watchdog, thanks for sharing. Garth, why so politically correct? Who are you afraid of offending? And what part of C.W.’s charts do you dispute?
None. His charts do not support his prejudice. — Garth
#138 shanks on 11.18.13 at 7:08 pm
anyone catch this little bit of mind control?
http://www.cbc.ca/news/business/canadians-top-job-satisfaction-survey-1.2430864
dont complain, this is as good as it gets!
im sure SM will agree… best to be your own boss
…………………………….
So true, mind control
if everyone loves there job and I don’t there must be something wrong with me.
Truth is Our school system does a magnificent and through job of making happy slaves.
In fact subject of the next Smoking Man lesson.
Thanks
>Is Bitcoin the coming one world currency?! Should >everyone be jumping in now?
>Garth can you weigh in on this?
>My god it’s at $650!
I remember reading articles about it when it was ca. $6, talking about how quite a few young Wall Street bankster types were making a hobby of the thing, and planning all sorts of shenanigans that would be illegal on a real market.
Missed out there, but who would have guessed it would go to this extent…
#133 D.D. Corkum on 11.18.13 at 6:33 pm
Ripped
At 1355 words, I’m having trouble reading your comment in one sitting. Can you provide the Coles Notes version?
——————————————————–
The Fed keeps printing and lending and the rest of us shmucks keep borrowing. Get it now?
#141 blase
Here's another one courtesy of FSB's latest shadow banking report: chart
The best part of that report is a new term (to my knowledge) called "self-securitisation", which is basically a way of primary dealers (major banks) to bundle all their crappy loans and reverse-repo it with the Bank of Canada for quick cash, or better said, it's a perpetual bailout mechanism that can go on forever, or at least until it all implodes on some lender's balance sheet.
We've gone beyond the world of finance into some other dimension of perpetual monetary creationism with zero resistance. What this really means is that every accounting and finance student who is currently learning a broken system will have a worthless degree in due time.
It's all being made up as we go. There are no rules anymore. Just looting.
THANK YOU!