How to be a hero

rock 2 modified

Without fail, when I talk of average returns from a balanced portfolio, somebody tries to break my other leg. Yesterday came a nice example:

“Instead of spouting this gibberish as if it were a fact, perhaps you could back this up by something, and explain why, if you are able to beat the market in this way, you waste your time writing this pathetic blog.”

That came after I mentioned a balanced portfolio last year should have given an investor at least a 10% return. Beat the market? Hardly. The TSX gained 9.6% in 2013 and the Dow was on steroids, with a return of almost 30%. During the year, the price of fixed income assets (like REITs and preferred shares, as well as bonds) fell as central bank tapering took hold, but still the balanced investor did fine, at around 11%.

Over the past four years that balanced account gave off an annualized 10%, and over the last decade – which included the biggest stock dump since Al Capone – an investor who ignored all the turmoil would have made just north of 7%.

This shocks people who have never invested, get all their advice from [email protected], have no idea where to find an ETF or a preferred share and believe anything above a brain-dead GIC rate of return involves eating a gun. Unfortunately, this is almost everybody. So, they buy houses instead, creating their own unique risk.

Last week the US stock market gained about 2.5%, and sits just below an all-time high. The 6% correction we saw last month was viewed as a buying opportunity, so investors moved in and bought stuff on sale. Markets, and the investors who form them, believe the US recovery is the real deal, with house prices up 10% annually, corporate profits edging up 8% at the end of 2013, steady employment gains, no debt ceiling crisis in Washington and a central bank that thinks things are peachy enough to strip away stimulus spending. Consumer confidence is up in the States, and the deficit is the lowest it’s been since 2007.

In short, there is no crisis and won’t be one. No big bank failures. No depression or hyperinflation. No credit drought. Not even any lasting consequences from almost five years of intense monetary stimulus by government. The world is simply growing its way – slowly – out of the mess that brought us 2008. So, why wouldn’t you want to have a piece of it?

Trouble is, most Canadians think nothing exists between GICs and stocks. So they dabble a bit in buying equities some buddy talked up as a sure thing, and they get their privates cut off. They buy when things go up and the greed clicks in. They bail when prices collapse and fear takes over. It’s why the greatest selling binge in recent memory came in March of 2009, when markets bottomed and the herd threw itself off the cliff of despair.

This is what a balanced portfolio seeks to avoid. It’s simple. First you elect to have both growth assets and safe stuff in the same mix – I like 40% fixed income and 60% growth. Then you carefully establish the proper weightings of the asset classes. For example, a good mix today for the growth side might be 16% Canadian, 18% American, 17% international and 9% commodities and alternative assets. Then within those larger groupings are sub-groups, such as large-cap companies, small companies or emerging markets.

On the safe side, the forty percent could be comprised of 18% preferred shares, an equal amount spread between government bonds, corporates, high-yield and inflation-indexed bonds, plus maybe 5% in cash (in a high-yield account) since it is both a defensive asset and handy to go shopping with when markets plop.

Voila. Balance. Plus diversification. No mutual funds (use ETFs instead – cheaper, more liquid). No stocks (too much volatility and market risk). Your portfolio now has some built-in hedging, since when stocks swoon, the fixed-income assets should rise in value, and vice versa. You also have income, from dividends and interest. Even if no growth takes place, this puppy should turn out a 3.5% yield – but long-term growth in a recovering global economy seems like a no-brainer.

The next challenge, after building the portfolio, is rebalancing it. For example, hyperbolic large-cap US stocks last year would have distorted the American growth component, while tapering talk reduced the value of REITs and prefs. The smart investor would have sold off the excess equity position, restoring the original weighting, and put the money into the fixed income laggards. This is exactly the opposite of what most people do, which is why they don’t get consistent multi-year returns.

This is why a balanced portfolio lost 20% in 2008 when the Dow crashed 60%, and why it gained everything back the next year, while the stock market took four years to recover. An investor with balance and diversity who snoozed through the crisis, while equity mutual fund devotees were looking for high buildings to hurl from, has enjoyed a decade-long average 7% gain, and doubled her money.

This is investing. It works.

Or you can pay $900,000 for half a house, then pray for a greater fool. Tough choice.

241 comments ↓

#1 T.O. Renter on 02.14.14 at 8:14 pm

Great one.

#2 Schlitz on 02.14.14 at 8:16 pm

Great advice Garth! Thanks for the tutorial.

#3 Rob on 02.14.14 at 8:18 pm

Housing has become so unaffordable that I hope it crashes hard. A house should be a place to live not driven up by speculators and self serving RE agents as a commodity. I hope F after crash finds a better way to regulate this market and hold CREA accountable.

#4 SilverMeridian on 02.14.14 at 8:19 pm

SilverMeridian Greater Ottawa surReal Estate Update

http://www2.ottawarealestate.org/home/NewsInformation/LatestNewsRelease.aspx

I am busy watching Olympic Games 2014, going cut the chase today, without subjecting OREB to my usual dose of ridicule. Here is an abstract from the OREB “News Release”:

“Members of the Ottawa Real Estate Board sold 589 residential properties in January through the Board’s Multiple Listing Service® system, compared with 594 in January 2013.”

“Residential sales this January were virtually identical to January 2013. Our members sold five more freehold residential properties and 10 fewer residential condos. Statistically, the difference is less than one per cent,” says President of the Ottawa Real Estate Board, Randy Oickle.

OREB claims that in January 2014 they’ve sold only 5 properties less that in January 2013, which is supposed to be an insignificant difference, yet according to my records, back in January 2013 they claimed they’ve sold 602 properties:

“Ottawa, February 5, 2013 – Members of the Ottawa Real Estate Board sold 602 residential properties in January through the Board’s Multiple Listing Service® system, compared with 682 in January 2012, a decrease of 11.7 per cent.”

When I brought up similar fact in one of my previous posts, Bottoms_Up pointed out this was probably happening due to the fact that some sales simply fell through. I am kind of agree with that, but it is getting more and more difficult to ignore the fact that OREB may be exploiting the system by playing around with numbers to support their agenda. Did you notice the sales in January 2012? It looks like Ottawa’s RE market has peaked in 2012, and have been on the path of steady decline ever since.

Other numbers that matter but constantly get overlooked by the OREB in their useless “Releases”; there were approx. 5300 properties for sale last month, 300 more then in January 2013. Also, we now have nine full months of unsold inventory in Ottawa, more then double in comparison with the same month in 2010. No wonder, almost half of active listings are currently empty and “Available for immediate possession”.

http://creastats.crea.ca/otta/images/otta_chart04_hi-res.png

Happy Olympic Games!

#5 Robbie on 02.14.14 at 8:22 pm

Right on! I know you’ve said those things many times before but it always seems there are those who haven’t read your blog before or just disbelieve what is said if they haven’t received the same returns.

#6 Smoking Man on 02.14.14 at 8:26 pm

18th, Landing in Vegas around noon, on this trip there will been no swimming in a pool where salt water and wee wee fight for dominance. Straight to the exotic car rental shop Into a fast rag top, line in and cranking hillbilly swamp tunes, 5 hours south lies Yuma.

Check in, unplug the tv, Indian Jones hat on, strip down to the boxers, timer on the smart phone goes off every hour, allowing one shot of jack. Hammering keys, no shaving, no showering, just a mountain of cigarettes butts growing to the ceiling, no sence of time, blinds will be closed. Only sound I will hear will be from my bose noice cancelling head phones listening to The Black Angles album in a continum loop.

Not stopping till I go mad or it’s done.

and with each shot of JD try and figure out how I hell I can ever top this.

https://www.youtube.com/watch?v=NMWyArPcE34&feature=youtube_gdata_player

or this

https://www.youtube.com/watch?v=_RfUj09pWfM&feature=youtube_gdata_player

#7 Stallion on 02.14.14 at 8:35 pm

Garth, you have linked these before but your archive is long and has great girth. Can you please suggest some websites that help us with deciding on which ETFs to buy?

#8 Meteghan on 02.14.14 at 8:37 pm

“5% in cash (in a high-yield account) since it is both a defensive asset and handy to go shopping with when markets plop.”

— Awesome! I did this myself with the same forethought when I set up my investments; independantly; for exactly the same reason; I’m glad that this is validated :) Thanks!

#9 In the Valley on 02.14.14 at 8:48 pm

Please run for Prime Minister

#10 eddy on 02.14.14 at 8:49 pm

#150 DR on 02.14.14 at 6:39 pm

ill say it again,
when can I buy a bungalow in Leaside for 350 again.
35 frontage and private drive.

—-

You’ll need a time machine. Inflation is the hidden tax.
A recent bungalow went for 250K OVER list to end up over one million, 30x 125 ft. At various time through the 2013 I have posted here:
‘show me a Leaside bungalow for under a million’
and sometimes
‘show me a Leaside bungalow for sale, there are NONE on MLS’

I like the Leaside bungalow because its a microcosm of 416. William Blake saw ‘eternity in a grain of sand’ I see the 416 ‘market’ in a Leaside bungalow. And most folks have a mental image of 2 bdrms, bay window and 850 sq feet.

#11 My Life is a Pile of Shit on 02.14.14 at 8:50 pm

When it comes to stocks, there is an old advice that says don’t invest money you can’t afford to lose. Most people don’t have money they can afford to lose, and after two bear markets in the same decade, they are taking that advice to heart (by investing nothing). What you are trying to do, Garth, is to overturn that age-old advice by defeating risk with modern diversification theory. But you make it sound too easy. Most balanced funds don’t earn 7% p.a. over a decade, and they are managed by professionals. I doubt the average do-it-yourselfer can do better.

Then don’t buy mutual funds. — Garth

#12 Larry Laffer on 02.14.14 at 8:52 pm

What, no REIT? Or that would be included in the commodities & alternative assets?

#13 Devore on 02.14.14 at 9:02 pm

#11 My Life is a Pile of Shit

Most balanced funds don’t earn 7% p.a. over a decade, and they are managed by professionals. I doubt the average do-it-yourselfer can do better.

Oh, look, another failure (to read).

Balanced fund != balanced portfolio.

Stop sperging and begin educating yourself.

#14 T.O. Bubble Boy on 02.14.14 at 9:02 pm

Anyone know: is there software out there that runs the basic re-balancing for you?

Seems like the kind of thing that a company would have built by now.

Smoking Man – your next app?

#15 will on 02.14.14 at 9:09 pm

Every blog dog present would want to break that guy’s legs in return for his stupid comment.

#16 blase on 02.14.14 at 9:11 pm

Buffett doesn’t care about “volatility”, so why should you?

Volatility=buying opportunity.

If you’re worried about volatility, buy a GIC.

It defeats most people. Guess you’re special. — Garth

#17 Valleyboy on 02.14.14 at 9:13 pm

When your president is trying to convince it’s people to buy into the Myra program aka us treasuries or debt I think there running out of buyer for there debt. So yes there is a recovery and there should be, for there over trillions into this recovery. But when you have no more buyers than interest rates rise, the people will be in for a bumpy ride. So the last buyers other than the Fed will be the pensions and then the people. I think the US probably can use there people for a couple years to keep interest low if they continue to taper. Also the deficit in 2007 was like 12 tril now its 17.3 trill I wouldn’t say that’s much lower. Don’t you think it’s weird timing also that the fed is tapering and the government needs investors.

#18 Trojan House on 02.14.14 at 9:14 pm

Garth…once again, how can you call a portfolio made up of mostly paper assets “a balanced portfolio”? To be truly balanced, you need to also hold physical Gold and/or Silver and (the dreaded on this site) real estate in addition to what you suggest. Most people are conditioned to buy a balanced mutual fund and a growth mutual fund and are told they are now “balanced.”

Finally, the medication you are taking must be getting to you. Take a real look at what is happening in the world and you’ll see everything is not as rosy a picture as you paint it with respect to the economy. Greece, Spain – staggering unemployment. France – just about broke. Italy – on the verge of government collapse. Cyprus – stealing money from people’s bank accounts (aka bail in). Ukraine – verge of civil war. Argentina – collapse of it’s currency. Venenzuela – the same as Argentina. Thailand – riots in the streets. Japan – going on 30 years of stagflation. Canada – even you mentioned the worst jobs report in a long time. Good ole U S of A – 50 million on food stamps; trillion of greenbacks in debt; under stated unemployment numbers; understated inflation; falling real wages; jobs offshoring, etc, etc.

Seems you’ve been watching CNN and CNBC too much.

#19 Jonno on 02.14.14 at 9:21 pm

Thanks G. Been following your blog for a long while and it’s nice to see a positive alternative to looking around the corner for a greater fool.

With the US market bumping against all time highs do you think it’s wise to start a balanced portfolio now (reports show record numbers of Canadians hoarding cash) or to wait for a bigger pull back and jump on in?

Thanks again for the blog. Only thing that keeps me sane amongst all my indebted and condo horny friends.

Cheers

#20 Tony from Calgary on 02.14.14 at 9:26 pm

@My Life is a Pile…

Garth has to make it sound easy. He’s pushing investment just as Realtors push homes. How else does one keep their Hummer serviced/maintained?

People who really care about the security of your future (and not about making revenues off you) will likely advise you liquidate all debts and gain more control over the essentials of your life – food, water, energy, shelter and community. These are the things that really matter, and I don’t believe its worth risking them just to make a 7% or 10% return on a gamble (or as some would call it, an “investment”).

There’s obviously some good advice to be had here on this blog, but there is an old saying everyone should have realized by now – if something sounds too good to be true, it probably is.

“In short, there is no crisis and won’t be one. No big bank failures. No depression or hyperinflation. No credit drought. Not even any lasting consequences from almost five years of intense monetary stimulus by government”

If you can avoid being snarky/flippant for a moment, Garth, could you point out how you hedge against these events in the incredible, minuscule, off-chance that you are wrong or off the mark? How would one quickly react to any of these events, given the speed the GFC struck the last time around? Even being able to liquidate assets in 1-2 days may not be quick enough when markets operate in nanoseconds…

Cheers,
TFC

The Apocalypse called. You forgot your seeds. — Garth

#21 Cici on 02.14.14 at 9:31 pm

Hey Garth,

Even if the average Canadian isn’t listening to you, the CPP people are…today they announced that thanks to strong equity market returns, the fund has returned 5.9% in the third quarter and is up to $201.5 BigBillions, enough to sustain us all for another 75 years.

Phew, I guess that means the housing Ponzi scheme can continue…

#22 Ontario's Left Coast on 02.14.14 at 9:32 pm

Garth, you are bang-on as usual. Met with my banker last week to move my TFSA mutual funds into a brokerage account enabling me to pay a tenth of my current management fees through ETFs. Your message is getting through and we appreciate everything you do.

#23 Smoking Man on 02.14.14 at 9:32 pm

#14 T.O. Bubble Boy on 02.14.14 at 9:02 pmSeems like the kind of thing that a company would have built by now.

Smoking Man – your next app?

Done doing apps for a while, I’m a writer now, and if that don’t work out, next adventure something handsomely fine.

They look like Me and Debbie

https://www.youtube.com/watch?v=bGRY0pUVsAw&feature=youtube_gdata_player

#24 raisemyrent on 02.14.14 at 9:33 pm

haha people always ask Garth for fairly specific advice. Nothing’s free, you see.
Then he gives us as much as free will buy, and people blast him.
Sigh.
I for one appreciate the insight.

Have a good weekend everyone.

Smokey, don’t go JD crazy on americans, remember, they pack heat! Keep the updates coming though, they’re hilarious.

#25 Ontario's Left Coast on 02.14.14 at 9:33 pm

Smokey, good luck and good writing in AZ. Your drive and passion for the craft is admirable.

#26 Bob Rice on 02.14.14 at 9:34 pm

What are your thoughts on indexed mutual funds, Garth?

#27 Ralph Cramdown on 02.14.14 at 9:36 pm

#18 Trojan House — “Garth…once again, how can you call a portfolio made up of mostly paper assets “a balanced portfolio”? To be truly balanced, you need to also hold physical Gold and/or Silver and (the dreaded on this site) real estate in addition to what you suggest.”

I think you misunderstand. When we speak of “assets,” we mean productive assets, things that entitle us to interest income or a share of profits or rents. Not “assets” as in something that we can sell at the pawn shop if we need money quickly.

#28 crowdedelevatorfartz on 02.14.14 at 9:38 pm

@#11 My Life is a pile of ….

Excellent name, wish I’d thought of it…….

#29 Retired Boomer - WI on 02.14.14 at 9:40 pm

Garth-

We have all this story before. It is a TRUE story. I am living proof. No degree, decent but, not super-fantastic job. Starting the saving thing when I was what, 35. Started putting away 10% (pretax) into that 401-K my wife thought I a f$%king crazy as we were barely above minimum wage in Buffalo, NY. I had just changed careers as a result of downsizing, de-regulation what name do you want to call it? Over the years and a relocation back to the home turf mid-west the savings rate went up to 16% then back down to 10% as retirement neared.
In the meantime bought a home sold it, built another, paid it off before retirement.
Mutual Fund. Plain vanilla Index broad market us, foreign, and a fixed income fund. Still LOVE those, but added a few dividend paying stocks.
So, how did we do? Added all up house, vehicles investments no debt, and 7 figures. (I didn’t think it was that good until I really did a conservative valuation).

Today both retired. Enough to not worry about the price of gas, food etc. We are not wild spenders, and the old geezer allowances, and modest withdrawals should do us fine. Next week off to the south, see you all next month.

Yeah 60/40 split. Yeah plain Index funds. Add spice if you wish. Spend it as you see fit. You did the diligence, not don’t get too stupid, but a little is just fine!

#30 gmc on 02.14.14 at 9:41 pm

I think that most people are just afraid of all of these investment vehicles because of 2008, most on the net, not the mainstream TV, tells us the facts that NOTHING HAS BEEN FIXED SINCE 2008.
Who lost some of their hard earned cash in 2008, probably everyone, so it is not hat we are ignorant of whats out there but more, we are afraid to loose it all, most have jobs and are experts in that field, not fiances, that is why we hire people in that industry, and most let us down, WE ARE LOOSING CONFIDENCE IN THE MARKETS, that is why most probably don’t invest, and the rest are so desperate that they will never be able to invest or yes Garth you are right, ignorant and financially illiterate. I love your blog, you have showed many a guiding light, but at the same time i ma not impressed with the way you belittle Joe six pack, when he doesn’t even have the means to even buy his daily rations.
All the others I suspect, just want to stay out until such time that we can trust the markets again.
Why are all these big guys getting fined everyday it seems and no one is actually going to jail.
I am out of the market until such time, yes maybe I lost a lot of return by not investing, but at the same time, things could have turned out different.
And why not buy some good Canadian juniors for the TFSA.
Gold up to $1300 and going hirer, China, India, Russia and others like Thailand are buying while it is still on sale, as a true “decertification strategy” why not have 10% of your money in gold or silver.
Since 2006 that has been one of my best gains, and I sold my house in 2008 in Canada, Following Garth Blog, in hindsight , I had another several years of gains, but bought in Thailand, $30 000, and a nice new wife to boot so things are ok, but for most, YOU ARE ON THE MONEY THEY ARE DONE, nice home the bank owns.

Thank You Garth, I am more knowledgeable now than I ever have been on finances, it is not just the job of your investment guy to look after your money IT IS YOUR JOB.
I believe after this crash, all will be more financially literate
gmc

Only those who sold in 2008 lost money. Learn that lesson first, and stop trying to manage the world. — Garth

#31 Jimmy on 02.14.14 at 9:42 pm

Have a great Family Day long weekend!

#32 blase on 02.14.14 at 9:43 pm

I am Garth, I read books.

#33 gmc on 02.14.14 at 9:47 pm

The funny thing is I found Garth Turner site on 321Gold, a so called gold bug site.
check it out, he is am American ex fighter pilot and has some great free ground work that he seeks. He actually goes and investigates the resources and does a free write up.
check out NOVO gold, could be the next Wittwaterans basin type deposit, just like in South Africa, I think great for the TFSA.
gmc

#34 John on 02.14.14 at 10:09 pm

What would be an allocation for someone in late twenties and saving for a downpayment with a plan to buy say 2-3 years later when prices drop?

#35 Trojan House on 02.14.14 at 10:14 pm

#27 – Ralph Cramdown – you can’t sell real estate at a pawn shop, lol! I don’t misunderstand. I understand what you call “productive” assets. Assets that put money in your pocket rather than take it out of your pocket, aka you home which is a liability. But to be truly balanced means to have assets in every productive class including gold or silver as a hedge or investment real estate that produces positive cash flow such as multi-residential or apartments (not condos with high strata fees).

#36 MrHulot on 02.14.14 at 10:20 pm

Garth, I like to needle you about RE. Let’s face it, so far you have been wrong. But now with HAM being punted, I think your prediction will definitely come true very soon.

However, besides your RE call, you have been right on with everything else. Stock markets, U.S. versus Canada, CDN dollar. The most valuable thing that I learned from this blog is not to fear the Markets. I have conquered this fear so much that I actually kept buying on this recent downturn.

I have been invested in the markets for two years now since I sold my house in West Van. I have returned over 20% on my money. I am convinced we are in a secular bull market. These gains will continue for at least another four years. If I didn’t read this blog, I would still be scared of my investing shadow and be gaining only 1.5% from my bank. Just like all my friends.

#37 Waterloo Resident on 02.14.14 at 10:45 pm

My timing system indicated on Feb 5, that it was time to set a BUY-STOP for the stock ‘UPRO’ at $83.90 per share, so that’s what I did. The next day it hit the price and only went up from there.

(Previously my timing system gave me a sell signal at $94, so I sold it and waited about a week and a half, and then the big drop began.)

Anyways, UPRO is now at $94.30, a gain of 12.4% in only 6 trading days.

I just carefully checked my market indicators and there doesn’t seem to be any sell signal in store for at least the next 3 or 4 days, so another 2 to 5% gain is probably likely.

So 15% gain per month, and do this 4 times a year, and one can easily make returns of 75% per year or more. I’m trying for gains of 100% annually, but that’s probably not going to happen this year because of the tapering.
(Warning: if you do trading WRONG you can easily lose 75% in just one month doing similar to what I’m doing, so please don’t try it.)

So yes, Garth is correct, if you invest in the market in a balanced portfolia you should be able to get annual returns of 7% to 10%.

( I use a self-directed trading account from TD Waterhouse, nothing special at all, and it is NOT day trading, it is more like ‘Swing Trading’, but my positions are held for a few weeks instead of a few days.)

#38 KC on 02.14.14 at 10:53 pm

gmc #30

I hope your Thailand gamble works out better for you than it did for one of my friends. His lovely new Thai wife turned out to be an excellent house keeper.

When she dumped him she kept the house!

#39 Mr. Monday Night on 02.14.14 at 10:53 pm

Wow, #91 from yesterday really made an impression. I should have known from the number of comments off of it that it would come back the next day.

You have made Mark Wu famous, and I can see from today that you’re also being baited by Trojan House. You don’t have to go too far to find a Greater Fool – there’s one showing up here every day!

#40 Valleyboy on 02.14.14 at 10:55 pm

By the way Garth I think your coming due for another I was wrong post to the gold Doomers and Gloomers. I believe you said at the end of 2013 with a bit to much confidence gold will continue to go lower or head south. The year is far from over or maybe it’s the cold weather. But your voice of reasoning made me slow up on throwing more into the G market when barrick Gold was screaming buy at 16.50. Oh well hopefully I’m not eating crow in a month, but fundamentally I can’t see it. Maybe when Germany gets there gold back, China quits buying, Gold etfs start adding physical not loosing, and the comex quits getting drained. Then I will join the GT train and dump my precious metal stocks. But you were right on the Tapper BTW and I was wrong. So kudos on that call and of course other calls in 2013 I have not mentioned and a few I have also benefited from.
But could you explain why Physical Gold seems to be drying up, is it a lie, a myth, Is fiat loosing faith, or are the numbers getting fudged so Greater Fools like me can so easily see there is no way but up.

#41 Nemesis on 02.14.14 at 10:58 pm

“In short, there is no crisis and won’t be one. No big bank failures. No depression or hyperinflation. No credit drought.” – HonGT…

Funny you should say the “D” word, AuldPol… as there are, after all, worse things than a CreditDrought.

DustBowlsRedux, for example.

When FoodBanks are supporting farmers… you know it’s going to be a somewhat ‘BumpyRoad’ [to say the very least].

http://www.nbcnews.com/watch/nightly-news-netcast/february-14-nightly-news-friday-broadcast-153310787698

[NoteToHommeDuTabagisme: As Yuma Writer’sGarret alternatives go – you might want to consider Ajo, AZ… or TwentyNinePalms, CA. Hmmm… I’ll bet that “HolyCrapWhere’sTheTylenol” knows why 29Palm is both bleak… and TotallyAwesome. Ask him… or if he’s too busy StuffingSilk and/or booking up his next TotalKneeReplacement to respond, then just try this: http://www.29palms.marines.mil/About/LocalAccomodations.aspx ]

#42 wallflower on 02.14.14 at 11:11 pm

China’s financials, in my opinion, present ground zero for the next blowback.
The winners will be those who can manage currency volatilities.
It’s all too complicated for basic investing 60/40.
And, real estate valuations in Canada (most urban areas but not many rural areas) make absolutely no sense. No sense. But, weekly I am told things like, “I sold my house several months ago. Asians were the highest bidder.” “I sold my house last year. Asians were the only offer.” “Someone bought my house. They were not in the country to see it.”
So, I do think there is a lot of parking $$$$ in preparation for the big blow out.

Ambrose Evans-Pritchard:
It was all one global credit bubble. Phase 1 was US housing, Phase II EMU debt crisis, Phase III is Asian/China dealing with boom-bust.
Some say US started this. In reality, EMU excesses even worse; China excess worse yet.

#43 Eager Beaver on 02.14.14 at 11:15 pm

Beautiful summary and tangible advice. Thank you Garth.

#44 Smoking Man on 02.14.14 at 11:16 pm

#25 Ontario’s Left Coast on 02.14.14 at 9:33 pmSmokey, good luck and good writing in AZ. Your drive and passion for the craft is admirable
…….

Damn, hate it when tree huggers give me the thumbs up. It’s like going for a needle, or a root canal only to discover the administrator has a spectacular stack.

How can I chirp this….

Dude, Chick, I know not who you are.

But thanks, I feel I have crossed into a desert with no map or sence of direction. But know it’s what I got to do. Can’t piss off the UCC
As a gesture of thanks, pirate Bay the handsome family, if you’re hooked like me, don’t buy the album, locate then, by pass the middle men. Drop them a check.

Love artists.

#45 Joe on 02.14.14 at 11:19 pm

But but but you can create positive cash flow http://findandflipevent.com/dtm/index-banner.asp?Contact0State=NS&AFID=55031&SID=GG_Halifax_GN708_L0850-go-03&ClickID=02_69840069_88ebaa52-9e7e-4a38-b835-8c1a5c862123
Sad….

#46 KommyKim on 02.14.14 at 11:20 pm

RE: #14 T.O. Bubble Boy on 02.14.14 at 9:02 pm
Anyone know: is there software out there that runs the basic re-balancing for you?

It’s pretty easy to setup in Excel (Or open office’s Calc) or you can download a sample spreadsheet:
http://canadiancouchpotato.com/2012/03/15/a-spreadsheet-to-manage-multiple-accounts/

I’ve made myself a custom one so that I can download the CSV file from my discount broker, paste the info into Calc/Excel, and presto it tells me “how much of what” to buy or sell.

#47 Dr.NickRiviera on 02.14.14 at 11:24 pm

What about 5% in gold bullion? With prices this low, wouldn’t it make sense to stash some away?

#48 World According To Garth on 02.14.14 at 11:27 pm

Again you are the best example of a public servant Garth truly. However in my mind like in the minds of many others to say:

In short, there is no crisis and won’t be one. No big bank failures. No depression or hyperinflation. No credit drought. Not even any lasting consequences from almost five years of intense monetary stimulus by government. The world is simply growing its way – slowly – out of the mess that brought us 2008. So, why wouldn’t you want to have a piece of it?

You have to appreciate that

– Global Warming is not real
http://armstrongeconomics.com/2014/02/13/global-warming-why-it-is-nonsense/

– Banks are evil (HSBC et al 100 BILLION in fines)
http://armstrongeconomics.com/2014/02/13/gangster-bankers-too-big-to-jail/

– There is NO MONEY for Public Service pensions (anywhere in the world). So whose going to pay?
http://www.cfib-fcei.ca/english/article/5039-public-sector-pensions-unsustainable-and-unfair-canada-s-pension-tension.html

– Young people CANNOT find work (anywhere in the world).
http://www.huffingtonpost.com/2013/10/07/youth-unemployment-worldwide-joblessness_n_4019601.html

And yet………………things are going to be great?

Sorry. Just don’t see it.

#49 Infused with Opiates on 02.14.14 at 11:42 pm

21 Cici – though I sense some sarcasm, just to be clear, the CPPIB manages the reserve fund, which currently sits at that $200B mark. That is only about $11K per contributor. What is needed for the 75 yr sustainability
is continued contributions of 9.9% of wages to further
grow the reserve and meet the pay-as-you-go
liabilities of the plan.

#50 Cdn flier on 02.14.14 at 11:43 pm

Loving living debt free, mortgage free on my $91000 public service job that I earned!

#51 Pierre Overseas on 02.14.14 at 11:50 pm

There are a lot of great Canadian websites for investing….Couch Potato comes to mind. Everyone knows you come here to the Angry Man site for shits and giggles only.

#52 MarcFromOttawa on 02.14.14 at 11:53 pm

Great post Garth!

#53 Smoking Man on 02.14.14 at 11:59 pm

Dancing bare foot in the snow after consuming 40 ounces of crown, chased down with two shots of wine.

I seek love from my followers, yet when they capitulate, and now, but I want to smack them.

I have problems, the soon to be shrink out there contemplating
A thesis on old smokey, not realizing they are bitches to big pharma, only studying the profession on a self discovery mission of am I insane..

You are, and it’s a nice warm place.

#54 pofthek on 02.15.14 at 12:01 am

I don’t get people. Back in 2008 I only had about $10,000 invested in some income trusts. When things went down, a couple that I purchased were (and still are) paying me 10%. A couple stocks that I had did disappear but that was a lesson learned. In all, I’m up about 33% over all those years.

In 2008 I was telling co-workers that now must be a great time to buy since everything was so low. They looked at me like I was crazy. If only I wasn’t still paying student loans off at that time.

I don’t understand why people are so scared of investing. On Garth’s advice, I researched some bank preferred shares back last fall and now my boys are earning over 5% per year in their RESPs. Not the greatest, but it’s a start and much better than the 2% (at best) GIC we had… Thanks Grath! I’m looking for a REIT ETF next.

#55 Uh Oh Canada on 02.15.14 at 12:02 am

I was conservative last year and still did 10% on my do-it yourself investments. I just followed Garth’s portfolio recipe.

#56 Madhabfan on 02.15.14 at 12:04 am

Enough of balanced portfolios, HAM, hyperinflation and Canadian housing prices. What we all really want to know is where do you get the great photos?

#57 Cristian on 02.15.14 at 12:11 am

OK, so let’s see what others have to say about this:

In their report of 2012 (http://www.vanguard.com/pdf/s325.pdf) Vanguard says:
““Specifically, Vanguard’s market and economic outlook indicates that the average annualized returns on a balanced 50% equity/50% bond portfolio for the decade ending 2021 are expected to center in the 3.0%–4.5% real-return range (Davis and Aliaga-Díaz, 2012).”

No magic 7% about which you, Garth, are talking to exhaustion. But let’s see what else does the Vanguard report have to say:
““For the majority of years from 1926 through 2011, the yield or income returns on a 50% stock/ 50% bond portfolio exceeded 4%. Over the last several decades, however, the yield for such a balanced portfolio has
been steadily decreasing. At its peak, in 1982, the portfolio’s average yield was 10.6%; by year-end 2011, the yield had dropped to 2.8%.”

Oops! It looks like I was wrong. Some 25 years ago a balanced portfolio was indeed yielding 7%!!! Shame on me…

#58 Yitzhak Rabin on 02.15.14 at 12:12 am

The recover ain’t real, unless you mean the recovery in the price of gold. Which by the way, is the best performing asset class so far in 2014 along with the mining shares.

The next move is a complete reversal of tapering and an increase in QE from the original $85 billion per month. The recovery is phony, have you ever actually tried talking to an ordinary every day American?

#59 Longterm on 02.15.14 at 12:15 am

#37 Waterloo Resident on 02.14.14 at 10:45 pm

I’m up 18.31% on Royal Gold and 11.86% on coffee (commodities ETF based in the UK) in the past three weeks. I use tradestops and set a 10% trailing stop and let it ride. If the trade reverses I ALWAYS pull the trigger, no emotion, no sentimentality. I do this every quarter with a few stocks / assets I follow closely. I often trade the FTSE 100 via and ETF because it tends to be range bound and if the trade goes south immediately, I hold it until it comes back up, collecting the dividends. It’s the whole index so it isn’t going to crater for long. I never hold an individual security into the red beyond a predetermined stop and pull the trigger immediately to avoid more than minor losses.

Mid 2011 to the end of 2013 was a great trading period for indexes. The FTSE was range bound between 5000 and 6000. Buy £50,000 worth of FTSE ETFS at 5200, wait, collect the dividend, sell at 5800 when the stop is triggered and pocket £5700 for a commission of £9.99. Repeat. Much bigger but riskier winners were Avivia and Standard Life, oh how it hit the skids and rose and hit the skids and rose and yo yo of money while paying a huge dividend. Standard Life was so good I kept some of my holding which is up 80% and the dividend on on a DRIP so I continue to accumulate.

If you have some experience, can be contrarian and develop and stick to an exit strategy [the hardest parts] its fairly easy to do basic trades in these markets.

Mind you, I still have the bulk invested sensibly for the longterm but the trading provides a nice boost and if I’m between freelance gigs it pays the bills nicely.

#60 Cristian on 02.15.14 at 12:17 am

“For example, a good mix today for the growth side might be 16% Canadian, 18% American, 17% international and 9% commodities and alternative assets.”

Interesting, why 16% Canadian when Canada represents some 4% of the world markets? Just because one lives in Canada? So a Chinese should have 16% in Chinese stocks, an Indian 16% in Bombay stocks, a Hungarian 16% Hungarian stocks?
Is there any logic to that?… And why 16% and not 17%?

#61 espressobob on 02.15.14 at 12:34 am

#33 gmc

Funny, I found this blog from the same source (321gold) some time ago.

I’ve learned much since then!

#62 WAT on 02.15.14 at 12:41 am

Shocker that Garth’s investment strategy aligns with the service his financial advisement firm offers.

Your strategy is appropriate for most folks 45 years old and over, but inappropriate for those younger than that.

Stop giving people crappy investment advice to further your own pocketbook.

Of course I walk the talk. It works. Oh, and tell how I just profited by giving you free advice. Best work on that attitude, kid. — Garth

#63 The Man From Nantucket on 02.15.14 at 12:59 am

#35 Trojan House on 02.14.14 at 10:14 pm
……… But to be truly balanced means to have assets in every productive class including gold or silver as a hedge or investment

The G-man said something about ~9% in commodities or alternative assets. There’s room for gold/silver exposure there, and that’s probably just about the max percentage you’d want in a sane portfolio. Maybe even building 15% is OK if you can decide you’ve “confirmed the bottom”

Drawbacks have been argued here a bunch of times by Garth and others.

Its only useful as a speculation play, and, if you’re buying small lots of physical metal a few ounces at a time, you’re already behind the 8-ball when it comes to making a buck from the play.

Worse than that, you create a storage problem that needs management. I hate the thought of buying something to rot in a bank deposit box. I also hate the thought of trying to stash something at home when the purchase is registered

So, yeah, ironically, a paper surrogate for the metal in your portfolio’s “alt” section is probably still smarter for most of us.

#64 East Van on 02.15.14 at 1:01 am

This is really really sad:

http://www.straight.com/news/584661/ingastown-trades-cars-condos

#65 Willdaman on 02.15.14 at 1:04 am

Still waiting for an answer to my diatribe yesterday, why is it that anyone would buy prefs in an environment where interest rates have nowhere to go but up? Anyone? Anyone? Bueller?

#66 Happy Renting on 02.15.14 at 1:38 am

#142 ronh on 02.14.14 at 5:46 pm
Slightly off topic, for your reading enjoyment. Do you see yourself?

http://www.fool.com/investing/general/2014/02/10/77-reasons-youre-awful-at-managing-money.aspx

=====================================

Thanks for this, guilty as charged on a few points, of course! Some astute observations on how people (mis-)think about money. We can all be rehabilitated, to some extent, if we just make the effort to learn and change for the better.

#67 Happy Renting on 02.15.14 at 1:41 am

#34 John on 02.14.14 at 10:09 pm
What would be an allocation for someone in late twenties and saving for a downpayment with a plan to buy say 2-3 years later when prices drop?
=====================================

Cash or near-equivalents. Returns will be horrible for the safety and liquidity, but you do not want your down payment fund vaporized when SHTF (likely the same time prices drop.)

#68 Happy Renting on 02.15.14 at 1:50 am

#29 Retired Boomer – WI on 02.14.14 at 9:40 pm

Cheers to you, slow and steady does win the race! Hope you’re not offline too long, enjoy your contributions to the comments section.

#69 Happy Renting on 02.15.14 at 1:51 am

Oh, and how to be a hero (to your dog)? Don’t dress him in a costume like that. Poor guy, look at those sad eyes!

#70 East Van on 02.15.14 at 2:11 am

http://www.straight.com/news/584661/ingastown-trades-cars-condos

#71 Randy Randerson on 02.15.14 at 2:32 am

I started self-directed investing Jan 2013. My return has been a bit over 10%, while my IRR is 16%. Not sure how someone wants 1.5% from GIC, or believes that only professionals can achieve 10% return.

#72 Christopher Lackey on 02.15.14 at 3:09 am

@18 Trojan Horse

“Greece, Spain – staggering unemployment. France – just about broke. Italy – on the verge of government collapse. Cyprus – stealing money from people’s bank accounts (aka bail in). Ukraine – verge of civil war. Argentina – collapse of it’s currency. Venenzuela – the same as Argentina. Thailand – riots in the streets. Japan – going on 30 years of stagflation. Canada – even you mentioned the worst jobs report in a long time. Good ole U S of A – 50 million on food stamps; trillion of greenbacks in debt; under stated unemployment numbers; understated inflation; falling real wages; jobs offshoring, etc, etc. ”

I used to be like this. Really. Same as you. All that stuff is real, and disconcerting. But you know what else is real? 50% returns if you just invested in Ireland or Japan index last year. 30% on the S&P. You can say its rigged all you want but people really made that. Don’t worry doomers will have their day in the sun a little pessimism is probably in order one of these days just like people who bashed precious metals all last year see they’re now up 20+% year to date outperforming all sectors on the tsx. So to your point society is going to the dogs in several places may be true but is it going to the dogs for YOU? Then why not try to make some money while the party continues.

#73 Carpe Diem on 02.15.14 at 3:28 am

I moved from Vancouver to Ottawa in 2008.
2005 to 2008 in Vancouver was an awesome ride.
We doubled our net worth when we sold.

In Ottawa, sold my home in 2010, 2 years after I bought in 2008. It was a sub-urban castle. On such a wonderful cul-de-sac street with a wooded park on one side and the other side the neighbors backyard were environmentally protected land.

But past the park, there was a company dealing with medical nuclear material … WFT ???

Yes we sold at the price we paid. I guess in 2008 we where the fools and paid the price for that home!

Since 2010 we rent and have not regretted it! Better homes and neighborhoods, no reno costs and I get the landlord to pay the shoveling!

And my balanced portfolio has been hitting the 11% mark!

I just can’t justify buying a home at these prices then my net worth keeps increasing at 20+% a year with my current investments and new savings.

I see families struggling in a top 5% neighborhood but I laugh at that. Because my investments are doing just fine while their property taxes keep increasing and/or they have no buyers for their home!

#74 HD on 02.15.14 at 4:09 am

@14 T.O. Bubble Boy

http://canadiancouchpotato.com/2014/02/10/will-robo-advisors-ever-come-to-canada/

Best,

HD

#75 Jackie Chamoun on 02.15.14 at 4:16 am

My return was 25.1% in 2013. Suck on that, house hornies!

#76 Onthesidelines on 02.15.14 at 6:30 am

Good post, Garth. On the other hand, you’re just another guy among many with advice on successful investing. The core premise of your argument is look at the past success of my style and you will be rewarded in the years to come… basically exactly the sort of thinking that is warned against.

Still, you may be right. Unfortunately, dismissing others’ concerns that the world economies including that of the US are still in rather bad shape, without providing a solid counter argument for those concerns does make you look like just another arrogant know-it-all.

If you are wrong, the worst case scenario is that you lose your reputation and disappear off line and from the public’s eyes. For those that follow you blindly, though, the pain will be massive.

In today’s world, for ordinary folks reading this or other blogs, the sad truth is that those that do follows such advice do so mostly on faith and hope rather than a clear understanding of the strategy, its embedded risk and the necessary hedges in case it fails.

My advice to all here is simple: think for yourselves and thread carefully. There is no easy path to riches without risk. Or as another poster noted, if it looks too good to be true, you’re probably gonna get fleeced.

The core of a balanced, diversified approach is reduced volatility and the ability to withstand shocks. Hardly a leap of faith. — Garth

#77 Steven on 02.15.14 at 8:33 am

In short, there is no crisis and won’t be one. No big bank failures. No depression or hyperinflation. No credit drought. Not even any lasting consequences from almost five years of intense monetary stimulus by government. The world is simply growing its way – slowly – out of the mess that brought us 2008. So, why wouldn’t you want to have a piece of it?

Garth it sounds like you are in the never, never land of puberty economics. Puberty economics has never worked and will never work! Give it up Garth.

That was lame, even for a metalhead. — Garth

#78 AK on 02.15.14 at 9:14 am

#11 My Life is a Pile of Shit on 02.14.14 at 8:50 pm
“When it comes to stocks, there is an old advice that says don’t invest money you can’t afford to lose.”
====================================

You should look up some Buffett quotes instead.

#79 Bobby on 02.15.14 at 9:18 am

My balanced portfolio at a very low cost mutual funds company was up 14% last year. Love the US Dividend Fund. Not a problem.

#80 Smoking Man on 02.15.14 at 9:20 am

#67 Happy Renting on 02.15.14 at 1:50 am

#29 Retired Boomer – WI on 02.14.14 at 9:40 pm

Cheers to you, slow and steady does win the race! Hope you’re not offline too long, enjoy your contributions to the comments section.
……………

Wrong, slow and steady wins, the turtle beating the hair is a myth, who’s purpose is to keep you away from the customer list.. When you see a zillionaire, you’re looking at someone that has strung along a few consecutive all in bets. Most people fail. It’s hard, law of averages against you.

But if you want to get into the position of never having to worry about money ever again.

Risk On……. Balls to the wall.

Not for everyone, the mortals that live in fear can congregate together, and tell each other the fable, turtle won.

#81 Castaway on 02.15.14 at 9:31 am

So basically the next time the markets are imploding and no one has a clue as to where the end is, Garth recommends everyone just hold their positions. Everything will be okay. Don’t worry if your portfolio falls 40%.

Typical Monday morning financial advise.

No, I expect you to panic, try to time markets that have already passed and sell into a vortex, realizing concrete losses. You’re right. Much better than staying calm and rebalancing. — Garth

#82 mark on 02.15.14 at 9:37 am

And how not to be a hero – keep speculating on the penny stocks based on what anonymous cranks on the internet say.

http://www.idiottax.net/2014/02/investors-say-darndest-things-part-2.html

#83 Bottoms_Up on 02.15.14 at 10:02 am

#65 Willdaman on 02.15.14 at 1:04 am
——————————————-
as Garth mentions, preferreds are but one component of a diversified portfolio. They generate steady income for those with idle money. Interest rates go up, preferreds price goes down (but income is still generated), and one rebalances their portfolio, picking up more preferreds at the lower prices. It’s not brain surgery. But, if you only have a small amount of money to invest, sure it makes no sense to have 100% of your portfolio in preferreds.

#84 Bottoms_Up on 02.15.14 at 10:05 am

#4 SilverMeridian on 02.14.14 at 8:19 pm
———————————————
Interesting that sales in Ottawa in Jan. 2014 over 2012 are down around 15%. Would be interesting to see the stats going back a few more years. That months of inventory is interesting too, 9 months is quite high and should contribute to lower prices.

#85 No Anecdotes Please on 02.15.14 at 10:11 am

“In short, there is no crisis and won’t be one.” ~Garth.

And that includes real estate, especially in the GTA.

Nobody ever said there would be, unless you bought a condo two years ago with 5% down. — Garth

#86 Trojan House on 02.15.14 at 10:20 am

#72 – Christopher Lackey – No Chris, it is not doom and gloom for me. However, what I am trying to point out is what should be obvious to an educated guy like Garth that things are not as rosy as he paints it. So for him to wax poetic about how the economy is in great shape and the US is in recovery mode (btw, going on its 5th year now and counting – how long do we wait until it is recovered?) is doing a disservice to the people that read his blog and are his faithful followers. It is one thing for him to offer the advice that he does but he should caution people that there is risk involved and actually dig a little deeper into what is going on in the world rather than getting his news from the mainstream media (who, as we all know these days, do little to get to the bottom of a story or look beyond the facts that are presented to them on a press release and who would rather lead with the latest Justin Bieber fiasco than report anything significant).

You are right though, people should be taking advantage of these excellent markets while the the getting is good while at the same time paying attention to things going on in the world so that they can make their own educated choices.

It helps to be accurate. I do not profess the economy is in ‘great shape’ and, in fact, have been graphic about the need for caution – hence a balanced, diversified approach. As for my source of financial information, the last place I would look is the media. Then you. — Garth

#87 T.O. Bubble Boy on 02.15.14 at 10:24 am

@ #74 HD on 02.15.14 at 4:09 am
@14 T.O. Bubble Boy

http://canadiancouchpotato.com/2014/02/10/will-robo-advisors-ever-come-to-canada/

———————–

thanks! interesting that this was posted just 5 days ago over at the Couch Potato.

Looks like wealthfront is the leader (and making some in-roads in the U.S.), but Canada doesn’t offer the scale to make it work.

However – if someone has already written the code, why couldn’t wealthfront or a similar company license the engine to the online brokers? (especially those that aren’t tied to big banks, and therefore don’t take away from competing wealth management business)

#88 Nicolas on 02.15.14 at 10:27 am

Great advice, Garth, except for one thing : I humbly think it’s still too complicated. Imagine a person dies and their wife/husband has to run the portfolio virtually overnight. Now what.

The 60/40 allocation is great. Short term gvmt bond ETF will work just fine for the fixed income part. For growth, 50% US total market ETF and 50% world ex-US. Rebalance once a year. Voilà. In the long run a portfolio like that will beat 90% of investors and hedge funds. Hell, it already has.

#89 Old Man on 02.15.14 at 10:31 am

#81 Castaway – I remember that day well, and sold off my Canada bond portfolio; got myself into a cash position; as was getting ready to pull the trigger. I took my time to review the blue chips in important categories over a period of time that were critical to life that were sold in a panic. I bought them all and sat back watching the circus, as a year or so later they all came roaring back with huge capital gains.

#90 Son of Ponzi on 02.15.14 at 10:35 am

Condoms in Vancouver are way too expensive.
And they are leaky, too.
Buyer beware.

#91 Ontario's Left Coast on 02.15.14 at 10:36 am

#44 Smokey: Damn hate it when tree huggers give me the thumbs up

What can I say… I’m a writer, too. And don’t overthink the ‘Left’ part — I literally live on the shore of Lake Huron. Once again, all the best in the desert.

#92 TurnerNation on 02.15.14 at 10:41 am

Local kando realtors are spinning. The truth is, for the first time – since 6 months ago – I see tons of downtown new build units list under $300k. And they are listing. First year, ever. Piling up.

Well my 2014 predictions here are working out: Gold/silver outperformance in the medium term – helping the TSX too. If I had to pick one stock, Dollarama (DOL.TO) above 80 level. Bain Capital is in.

The perennial mom & pop dollar stores along the Danforth have closed. A new Dollarama is opening near Pape.

#93 Banjopete on 02.15.14 at 10:44 am

#81 Castaway on 02.15.14 at 9:31 am
So basically the next time the markets are imploding and no one has a clue as to where the end is, Garth recommends everyone just hold their positions. Everything will be okay. Don’t worry if your portfolio falls 40%.

Typical Monday morning financial advise.

Why all the hate, it’s just an idea, no one’s forcing you to do smart things? To all the doomers that want proof of good things happening, will you really believe anything anyways? Last I checked the next day keeps coming, most countries of the world still exist, my bank’s still where it was yesterday…

A little less hyperbole and some calm would be nice. Thanks Garth, I’m sorry you have to put up with so much hate in exchange for attempting to improve people’s lives.

ps it’s different here in Edmonton, we have 7 months of winter…

#94 Ralph Cramdown on 02.15.14 at 10:48 am

A case against cash

If you’re holding cash, you’re a market timer. If you’re aiming for 7% overall, cash is earning 2% and you want that cash around at least 75% of the time, “for opportunities,” what you buy with the cash has to earn 22% during the three months in twelve that it’s working, or it is underperforming. If you can consistently pick things that make 22%, why aim for such a low portfolio target? If not, maybe the cash is best redeployed into the stuff that you expect will average 7%.

Cash looks a lot better on your portfolio advisor’s before-tax statement of returns, where it contributes maybe 2%, than it does on your personal after-taxes-management-fees-and-inflation balance sheet, where it shrank in real terms.

If you’re an active investor, you’re either in your twenty best ideas, or you’re in your nineteen best ideas plus cash. Cash IS your twentieth-best idea? You’re not working hard enough: Back to indexing!

If you’re a passive, index investor, cash is NEVER going to be the best performer over a year, but it will OFTEN be the worst.

Which account do you keep the cash in? If it’s in one lump, it may well be in the wrong account for tax efficiency when the opportunity comes, and keeping contribution room in your various registered accounts is often suboptimal. If its in dribs and drabs with 5% in each of your account types, each individual lump may not be big enough to bother with, so they’ll just keep underperforming. If you have to go to another financial institution to get a decent rate, the extra steps and time in transferring back and forth, or the lack of a constant reminder that you have cash there ready to deploy may keep lazy investors (and we are ALL a bit lazy) from fully taking advantage of opportunities.

If you suddenly spot a great market bargain, what’s wrong with borrowing 5% of your portfolio to take advantage of it? It’s a good risk with cash but too risky with debt at 4%? Where’s your conviction?

If you’re young and hoping to buy a home in a few years, somebody will suggest keeping the down payment in cash or GICs, because you don’t want to risk any loss. Then you’ll be thinking of having a kid, and someone will suggest cash to finance the maternity leave. Bigger house in a few years? Keep some cash. Car replacement coming up? Keep cash. Heading for retirement without a lot of money saved? SHOULD HAVE KEPT MORE IN STOCKS, AND LESS IN CASH. There’s always a financial advisor or advice columnist who suggests more cash for emergencies or upcoming big expenses,. Few people are willing to say “keeping that much cash is stupid, you’re throwing away likely gains to avoid a smaller risk of loss because of humans’ natural loss-aversion instinct, which you should struggle to overcome instead of coddling.” And the banks and brokerages love having your float on their books. I will grant that if Vinnie says he’ll break your leg if you don’t have the cash next week, you should keep it in cash.

Cash is a defensive, liquid asset and can be invested to achieve a bond-like yield. Holding a small amount is completely legitimate. — Garth

#95 chickenlittle on 02.15.14 at 10:52 am

#29 Retired Boomer WI:

I’m 35 and I have just switched careers. I am making way less than I used to.

I’m glad to hear that there is still hope for me and the hubby!

Things have been up and down for the last 2 years, but now they are looking up!

Thanks for the encouragement even though it wasn’t directed my way specifically!

I plan on using Garth’s advice.

#96 TurnerNation on 02.15.14 at 11:02 am

The scariest chart I can find. Doomers, this is for you. ,

500 best companies in USA, always. Since you were born. Close your eyes and pick a point. Any one. Did you make or lose?
What a Ponzi eh!? Just a matter of time, before this puppy hits 0.00. Goose eggs coming right up.

http://ca.finance.yahoo.com/echarts?s=%5EGSPC

#97 robert james on 02.15.14 at 11:10 am

Vancouver ,the world class city is way ahead of the curve.. Priceless!! lol http://bc.ctvnews.ca/canada-s-first-crack-pipe-vending-machines-come-to-vancouver-1.1676803

#98 Ralph Cramdown on 02.15.14 at 11:25 am

#96 TurnerNation — “The scariest chart I can find.”

Yep. And that chart actually represents the worst case scenario — a lump sum investment followed by decades of spending, ignoring or burning the regular dividend cheques. Both the trust fund baby who reinvests most of the dividends and lives on the rest, and the working stiff who reinvests dividends and keeps investing part of his income every month would see even greater gains, a fact always overlooked by the “ten years on and the stock market is right back where it started” crowd.

#99 Mark Wu on 02.15.14 at 11:49 am

>>the investors who form them, believe the US recovery is the real deal,

Obviously not. Your brainless ‘analysis’ of the recent stock market bubble ignores the main driving force, which is QE. You may not understand this, but professional investors obviously do. This is why bad economic data boosts the stock market: it makes a taper less likely. Conversely, the slightest hint that a taper is inevitable (in the form of comments from the Fed) has the opposite effect.

Markets have completely absorbed tapering, which is expected to continue through 2014 until QE ends. Helpful hint: when you post here, try not to be a prick. — Garth

#100 Tony on 02.15.14 at 11:57 am

Re: #94 Ralph Cramdown on 02.15.14 at 10:48 am

If you suddenly spot a great market bargain, what’s wrong with borrowing 5% of your portfolio to take advantage of it? It’s a good risk with cash but too risky with debt at 4%? Where’s your conviction?

I buy and sell venture exchange stocks on news out of America and worldwide news. That’s how I make most of my money day trading. Usually you have as much as 20 minutes to trade on the news on the venture exchange. On the TSX you might have 2 seconds, in America nanoseconds.

Day trading is not investing. — Garth

#101 PJ on 02.15.14 at 12:09 pm

That’s right, a balanced portfolio in a rigged market. that’s a great idea. Hey, I didn’t say it, Jim Cramer did.

There’s no systemic depression (although I’m sure some Countries in Europe would beg to differ with that statement), and the recovery is on its way because Goldman Sachs, who have a wonderful track record of complete honesty and accuracy said so in their report.

All that wonderful ”piece of it” that you’re getting, those scum bag Wall Street criminals are going to take it all back, along with all of your lifetime savings. Why? Because now, thanks to Bill Clinton who repealed crucial regulations such as the Glass Steagall Act put into place during the great depression after the bank had pulled a similar stunt to 2008, they can. He completely unshackled Banks and the Wall Street gang which caused the crash of 2008 after 12 years of Ponzi scheme but that was just practice. Now that the people are putting all of their money into markets that are just gas bags of cheap printed dough, the next round is coming and it’s not going to be pretty.

but hey, look on the bright side. Casinos are fun even if the house always wins.

Why do you bother coming here? Did your bunker flood? — Garth

#102 Son of Ponzi on 02.15.14 at 12:10 pm

#94
A case for Cash:
Many Chinese restaurants accept only cash.
Case closed.

#103 RVP on 02.15.14 at 12:11 pm

In Vancouver, you can buy a crack pipe from a vending machine for 25 cents. But a local call at a pay phone will cost you 50 cents (if you can find a pay phone). In Vancouver, there is a supervised injection site where you can go to inject heroin and/or cocaine. But if you try to light a tobacco cigarette at the beach, you may be subject to a fine (even if you are the only person on the beach at the crack of dawn and there is no one around to breathe in the second hand smoke which is blown away by the sea breeze).

#104 Drowning not waiving on 02.15.14 at 12:21 pm

Thanks Garth for you clear and concise opinion. Thanks also to the unnamed Blog Dogs who comment on this miserable blog.
When I first found this blog a few years ago I was about to dive into condo land with both feet as an investment because like most the only investing I knew of is real estate. Once I got a clear perspective and read some more about this and the http://canadiancouchpotato.com
I did exactly as you now propose. I’m getting edumacated and passing this knowledge to my kids. Now they have TFSAs (with their own money) doing the same style investing and renting. I think I may have even convinced my bro to sell the boat anchor that keeps him house poor and do the same.
Just want you to know that you are saving lives and to keep up the good work. Hope the leg is better too.

#105 Infused with Opiates on 02.15.14 at 12:29 pm

60 Cristian – it was just an example, and “home bias” has traditionally been one of the biggest drags on
returns, but I believe there is some merit to it. Maybe
some of the other bloggers can provide counters or
solutions to these points:

1) more products available based in your home country
allowing for better focusing of goals and lowering of management costs, though costs in Canada seem very
high.

2) a larger portion of your portfolio in your home
currency eliminating conversion costs, because home currency is what you deal in for most of your expenses.

3) more efficient use of tax laws.

#106 Ralph Cramdown on 02.15.14 at 12:39 pm

#99 Mark Wu — “Your brainless ‘analysis’ of the recent stock market bubble ignores the main driving force, which is QE.”

Here’s a lollipop, kid. Go study your parents’ stock market bubble. In 2000, AT&T, the big American telephone company, traded at a dividend yield of 2% and a P/E of 78. Today it’s at 5.6% and a P/E of 9.7. 10 Treasuries were paying over 6% then, today they’re under 3%.

#107 Danforth on 02.15.14 at 1:13 pm

I thought I had a fully ‘balanced’ portfolio (I have someone who guides me on this, and I mostly follow her advice)…and something like the mix described here yielded me 22% last year.

I know an active investor who pulled in 44% growth last year. Not for the faint of heart – but look at the return!

#108 Shawn on 02.15.14 at 1:16 pm

ENTRENCHED POSITIONS

Well another day where most of those who post have minds as flexible as concrete and a few are even hostile to any counter opinion.

Well, perhaps new readers and the silent majority who never post can actually learn something. Those of us who post regularly seem mostly beyond learning. We are, it seems, here to preach (and hopefully teach) not to learn. (Thank you Garth for sharing the pulpit).

The silent majority can each decide for themselves which nuggets of learning to absorb and which outlook on the markets and life to adopt.

#109 Mark Wu on 02.15.14 at 1:21 pm

>>In 2000, AT&T, the big American telephone company, traded at a dividend yield of 2% and a P/E of 78. Today it’s at 5.6% and a P/E of 9.7. 10 Treasuries were paying over 6% then, today they’re under 3%.

And your point is? That this isn’t a bubble because different stocks are now overvalued than they were in 2000?

>>Here’s a lollipop, kid.
Personal abuse is always a sure sign that somebody is unable to argue with facts and logic.

#110 WAT on 02.15.14 at 1:21 pm

You (unsurprisingly) missed my point entirely, Garth. A 30 year old that wants to start investing should not be targeting a 7% return. Your one size fits all approach is bad financial advice, but aligns perfectly with what you charge people money for in your day job. You preach it as gospel for all because it’s all you know and do when it comes to investing.

People with small portfolios (younger investors generally) are hurting themselves targeting 7%, which is a return as pathetic as this blog.

I’ll say it again. Bad. Financial. Advice.

Actually I find most young people are insanely conservative, and would chose a GIC or a condo over an ETF nine times out of ten. A consistent, multi-year return of 7% or 8% is, in fact, most appropriate for a 30-year-old, even one who already knows everything. — Garth

#111 Shawn on 02.15.14 at 1:29 pm

Why 16% in Canada?

Cristian at 16 asks (rhetorically)

Interesting, why 16% Canadian when Canada represents some 4% of the world markets? Just because one lives in Canada? So a Chinese should have 16% in Chinese stocks, an Indian 16% in Bombay stocks, a Hungarian 16% Hungarian stocks?
Is there any logic to that?… And why 16% and not 17%?

Cristian, would you really suggest 4% of the portfolio in Canadian equities. The reasons we should concentrate a fair amount include that those investments payoff in Canadian currency. We avoid currency risk. Most of us will spend the majority of our money in Canada so it makes sense to avoid currency risk. Also we are more familiar with Canadian companies. We are comfortable with the rule of law here and not so much with China. By the way China also limits the money that can flow out of its country so that is another risk there.

We spend the next chunk of our money in America and we are familiar and comfortable with it so I believe that is why it gets a healthy allocation as well.

As to why 16% and not 17%, I think the idea is to be approximately right. Buffett has often said he would rather be approximately right than precisely wrong.

I don’t think anyone here opined on what Hungarians should so, other than yourself.

Anyhow there are many ways to balance your investments.

What actually is your own suggested allocation? Would you allocate in strict proportion to world equity market capilaizations, despite the currency and political risks? It’s one approach and it might meet the approval of purists for the efficient market theory.

#112 airhead princess on 02.15.14 at 1:30 pm

#106 Quite right….stocks are cheap on a historical basis….”Here’s a lollipop, kid. Go study your parents’ stock market bubble. In 2000, AT&T, the big American telephone company, traded at a dividend yield of 2% and a P/E of 78. Today it’s at 5.6% and a P/E of 9.7. 10 Treasuries were paying over 6% then, today they’re under 3%.”

Which is why it’s a terrific stock picking market and not a passive index ETF market.

#113 IndexMan on 02.15.14 at 1:32 pm

MCSI World Index, 10 year change in index, 4.54% annualized

DEX Universe Bond Index, 10 year change in index, 5.29% annualized

Since these indicies represent a fair snapshot of the global equity and bond markets, technically that tool Cristian would be correct, a 60-40 split of just equity and bonds would have provided a 10-year yield of 4.84%.

If you left them alone and did nothing. Like, say, Cristian apparently did.

But what of rebalancing? What of currency fluctuations? What of “quantitative easing” and buying power? Changes in inflation? Legal tax avoidance? The fact that along with overall yields on bond and stock portfolios, inflation has been falling steadily and at a much greater rate since the double digits of the 1970’s?

Trying to explain concepts beyond those that support a narrow world view and recency (e.g. HOUSES ONLY GO UP! STOCKS ARE BAD!) is like trying to teach pigs to sing. You get covered in mud and the pigs never learn to sing. Plus the pigs like it.

Still, he does have a point – without some fairly aggressive management practices and an unusual asset allocation formula like the one Mr. Turner suggested, it’s difficult to make more than 5-6% over the long haul. Completely possible, even during the Great Fiscal Freakout, but more work than, say, putting in granite toilets or whatever else the housey set is doing. Of course with inflation 10% lower than it was when Cristian was compiliing his numbers, that still not bad and I’d challenge him to show us a long-term investing strategy that can “beat the markets” by more than 1% over a longer term, and that is routinely available to anyone other than “qualified investors”.

Disclosure: I am an index investor who uses an asset allocation formula similar to the one suggested by our cast-ridden host, and I’ve matched or beat market returns every year I’ve used them through careful (sometimes painful) rebalancing, being mindful of taxes and currency issues, and by avoiding mutual funds, sales loads and all that other good stuff the nice fellow at the insurance company or the bank wants you to buy. They don’t call ’em “products” for nothing.

#114 Aggregator on 02.15.14 at 1:41 pm

#96 TurnerNation

Did you make or lose?

That all depends on what currency you purchased US stocks in and your buy/sell entry points. US stocks look a whole lot different when adjusted for inflation and priced in CAD terms.

Ex dividends and both are adjusted for domestic CPIs.

Wilshire 5000 USD

Wilshire 5000 CAD

Whilshire 5000 USD and CAD

#115 Mr. BigStuff on 02.15.14 at 1:44 pm

In some people there is just no fixing stupid. In spite of all the free advice, freely given here you still spew hate. Balance in investing and life always wins, hating and haters always lose, always!

#116 joe campbell on 02.15.14 at 1:57 pm

the problem with you 10% claim is while it may have been possible last year to make this return you could just as easily say you can lose 1% a year since 2008.

past performance is not an indication of future results, and selective past performance is even less an indicator.

the real issue is people(you) claiming 7% stock returns are typical when such returns have not been achievable during the last 20 years. this is why the cpp (and all retirement plans) are going bankrupt. the cpp making 5.6 last year means that it really lost 1.4% relative to its commitments as the plan is based on achieving 7% return.

stocks are great, i think all people should try to have some stocks, just understand where to invest and afew lessons like nortel, jds, enron, mfglobal, rim.

go ahead a make a chart of the TSX but base it on a fixed holding of stocks(aka an actual index) and plot the returns in the TSX without including fictional gains from selling rim from the index at high levels.

Try reading the article.There are no individual stocks suggested. The 10-year return on a balanced portfolio is 7%. And the CPP is solvent, thanks to its balanced portfolio. — Garth

#117 OnWallStreet on 02.15.14 at 2:08 pm

“Helpful hint: when you post here, try not to be a prick.”

Garth – could you try addressing the points made in this point, rather than simply hurling childish abuse? Why do you believe that QE is priced into the market when most traders on Wall Street obviously don’t?

Obviously they do. — Garth

#118 Retired Boomer - WI on 02.15.14 at 2:13 pm

#95 Chickenlittle

Don’t let the “crappy times” get you down.

Everybody gets thrown a turd sandwich every once in a while. Even our blog host, who can’t dance well on ice while dog walking, can attest. (Garth, hope the recovery is making good progress).

Times always change. You will see this several times along life’s paths. The early & mid 1980’s absolutely sucked for us, but things turned in 1987. Now I see a repeat of much the same.

As for tomorrow, preparing is your best defense. Save what you can, don’t panic when the SHTF. It will, I promise it!! When, for how long, don’t know.
It will rain, that’s why smart ones have a “rain day fund.”

You will retire (or, expire first) someday. It is much more fun to have a little cash, and not have to worry. There is no doubt you will NOT get out of this alive anyway.

Garth’s investing ideas WILL get you there.

Smoking Man’s ideas MIGHT get you there. A “bet” is at best a 50/50 deal always. You might win, you might lose.

My money was on the turtle, not the hare
the turtle focused on the end result.

#119 PJ on 02.15.14 at 2:22 pm

Why does everyone assume I have a bunker? lol.

I agree with your real estate forecast because it is based on the fact that it isn’t properly regulated. Abuse set in and is controlled by sharks. Your research is right in line with the one I’ve done as well.

But somehow, you completely reject the notion that the stock market is rigged, you prone it’s the way to go when the fundamentals in the US are absolutely horrible. US Job numbers retail sales, cooked unemployment numbers, job created are at Mc Donald’s and Burger King while manufacturing jobs continue to disappear.

Not to mention Economics 101: The recession of 2008 was worse than 2003 because the debt was higher. We have a recession every 5-6 years, even during the best of economic times. The next recession will be much worse than the two previous ones because the US debt has doubled since 2008, and the highest debt level in 227 years of history. Come on man, you know that! Either you are in complete denial or you really have no clue about economics and/or history. I’ve read your books, I know you know your stuff.

#120 Shawn on 02.15.14 at 2:24 pm

A Stock Pickers Market? Really?

Which is why it’s a terrific stock picking market and not a passive index ETF market.

*********************************************
I believe it is ALWAYS a Stock Pickers market for the smaller percentage of investors who have good reason to believe that they can beat the market. Why ever accept the index if you can beat it with good stock picking?

And I believe it is NEVER a Stock Pickers market for anyone else. It’s a mathematical fact that trying to beat the index is a zero-sum game. If you have no particular skills at it, you are likely to lose over time. But those of us with the skills, education, temperament and whatever else it takes to do it, do thank you for trying since without losers in the stock picking game there can be no winners.

With stock indexing all investors who do that win or lose equally (assume the same index). Over time stock indexing is a winner as profits flow in from the customers of the companies. As a population, indexers beat the population of stock pickers, every single decade, year, month, day, hour and minute as long as the index is properly defined. That’s because stock pickers excess returns come from the losses of other stock pickers and they face higher trading costs.

The big winners in any time period will be successful stock pickers, whether by luck or skill and their excess returns will come from unsuccessful stock pickers.

Stock pickers here are defined as anyone not following the one true passive index (whatever that is).

Analysis that shows active management beating the index from time to time is flawed because it assumes that the S&P 500, for example, is THE index. Such conclusions are measurement error.

The big winners over long periods of time will be skilled stock pickers. And the skill might be as simple as copying the methods of Warren Buffett as best you can.

#121 Bob Rice on 02.15.14 at 2:41 pm

There is one factor/reality that may keep this RE market from dropping much (if at all…) that you don’t pay much attention to, Garth. If you look at the January numbers, similar to previous months, demand in the GTA market (and I assume in some of the other hot markets) seems to outstrip supply. I know you’ve mention it but I am not sure if people expecting a correction take it very seriously. The reality here in the GTA is that developers are not building enough SFHs. Condos galore, but the newly built detached home has become the exception… Towns, and semis, yes, but the ubiquitous single is become an endangered species. My wife and I will not live in a semi or town. It’s just not what we want, and that’s why we’re not interested in the 416. We work in the 905 and we want to live here… but what makes me scratch my head is with all of the land around here (fields as far as the eye can see as I look out my window), some detached development would make sense…families with kids still prefer it… at leas the folks I know. And we love our privacy, which is why I rented a home on a 80′ x 170′ lot. I don’t want to see my neighbours let alone talk to them… we have plenty of friends and family so we don’t nosy people staring into our windows…

The provincial government must stop it’s antidevelopment policies of restricting development on farmland around the GTA. If they’re interested in helping out the avg working guy or the middle class, stop this nonsense… there are millions of developable lands in the GTA that are not on aquifers/moraine… believe me. Developers should be encouraged to construct detached homes.. We are blaming the wrong guy. Don’t fault people if they want to own a detached home, even if he pays more for it than he should. I rent now b/c I am hoping for (or was) a correction. I can qualify for $975K easily.. probably over a mill now b/c of our income and job security.. but I am not in the least bit interested in taking on that kind of debt. Still, you don’t get much detached in the 905 for 750K.. that’s obscene when you consider all of the land supply we have. Sure, the Feds and banks have made borrowing easy but govt policies have done more damage by implementing anti-development laws… i am pretty sure Mattamy would build and sell a lot more SFH if it wasn’t so cost-prohibitive.. b/w fees and draconian land-use policies, I’m afraid SFH will remain sticky…

#122 bill on 02.15.14 at 2:55 pm

#109 Mark Wu on 02.15.14 at 1:21 pm
take a look at yourself when you say that mark.
”Personal abuse is always a sure sign that somebody is unable to argue with facts and logic.”
your the one being told ‘quit being a prick’ by Garth.
somehow that escaped you? not surprised really.

#123 Mike T. on 02.15.14 at 3:12 pm

#109 Mark Wu

say it with me friend

DIVERSIFIED PORTFOLIO

D-I-V-E-R-S-I-F-I-C-A-T-I-O-N

http://dictionary.reference.com/browse/diversified

distributed among or producing several types: varied: diversified investments.

you are not making intelligent contributions to the (scotch and opiate fueled?) web-blog

everyone knows the world is backwards…guess what, that is not going to change

even better – you chose to come here

#124 WAT on 02.15.14 at 3:15 pm

Actually I find most young people are insanely conservative, and would chose a GIC or a condo over an ETF nine times out of ten. A consistent, multi-year return of 7% or 8% is, in fact, most appropriate for a 30-year-old, even one who already knows everything. — Garth

They are insanely conservative and should actually be very aggressive at this point, especially with a small portfolio.

7% on $20,000 = ?

A pathetic gain.

Your argument is akin to telling a morbidly obese person not to supersize one of their 7 meals at McDonalds per week, rather than cutting out the McDonalds altogether.

Balanced and diversified portfolios are appropriate when you either must be conservative(need the money soon) or when your portfolio grows past that point where deploying that much capital becomes difficult and too time consuming.

Like I said, your advice is self-serving, but more disturbing is it’s BAD advice for many here. But when you sell management services that only does one thing – creating cookie cutter balanced portfolios – I suppose it is one’s interest to tell everyone they should have one, regardless of their circumstances.

I see. You have $20,000, and are giving us investment advice. — Garth

#125 André L. on 02.15.14 at 3:23 pm

Thanks Garth for this very helpfull summary.

#126 Basil Fawlty on 02.15.14 at 3:31 pm

The problem with the balanced approach put forward is the massive manipulation of markets through money printing and QE. These are not “normal” times in the financial markets. Low interst rates and QE have created massive distortions that are priced into the markets and there lies the problem. If you want evidence just look at the effect on emerging country economies based on the recent tapering (decrese in money printing). Hot printed money flowed into emerging economies chasing yield and now it is gushing back to perceived safe havens.
I would love to sit back and collect 7% and spend the days relaxing. however, like Mark Twain said, I am not worried about a return on capital, I am worried about a return of capital.

For several years now you have come to this blog and been afraid. It has not benefitted you. — Garth

#127 Meteghan on 02.15.14 at 3:33 pm

“Actually I find most young people are insanely conservative, and would chose a GIC or a condo over an ETF nine times out of ten. A consistent, multi-year return of 7% or 8% is, in fact, most appropriate for a 30-year-old, even one who already knows everything. — Garth”

That is my eternal struggle with my SO every day (age 34). In her brain a GIC is significantly better than a balanced portfolio :/ Unfortunately.

#128 Aggregator on 02.15.14 at 3:36 pm

#113 IndexMan

The fact that along with overall yields on bond and stock portfolios, inflation has been falling steadily and at a much greater rate since the double digits of the 1970′s

Really? Would you care to provide your Bloomberg tickers for drivers license, car insurance, tuition, rent per sq.ft. and everything else price index? Oh, they don't have that. So inflation must be subdued.

—-

Anytime you want to stump an advisor or equity bull raving about stock returns, ask them a question like how much State Farm's car insurance or local rent price per sq.ft went up since 2009 — then watch the stupid look on their face.

#129 Sally Felix on 02.15.14 at 3:44 pm

“Consumer confidence is up in the States, and the deficit is the lowest it’s been since 2007.”

And you imagine that the 17,000,000,000,000 debt will simply vanish into thin air? Do explain…

Why would it be repaid? Neither the debtor nor the debt-holders wish it. — Garth

#130 rosie "moving forward" in the knowledge that, "this won't end well" on 02.15.14 at 3:50 pm

There are a lot of old young people on this blog today. And old old people to.

http://www.marketwatch.com/story/is-fear-making-you-too-conservative-2014-02-15

#131 karlhungus on 02.15.14 at 4:01 pm

Thoughts on Index funds?

#132 other_side_of_the_fence on 02.15.14 at 4:12 pm

Garth – you are spot-on. I lived through the US housing bubble and I took similar advice from someone quite like you with these results…

3m 0.69%
1y 9.48%
3y 7.87%
5y 10.14%
10y 7.28%

Keep it up. Some people are listening.

#133 Basil Fawlty on 02.15.14 at 4:20 pm

:For several years now you have come to this blog and been afraid. It has not benefitted you. — Garth”

You have a point and hopefully this fear is misplaced. I am expecting economic fireworks by the end of 2015. However, with luck I am nothing but a raving lunatic with an interest in economics.

#134 Old Man on 02.15.14 at 4:22 pm

#128 Aggregator – the official inflation index is directly proportional to the basket items being tested; change the items and it changes the end desired result. Just let the political powers of the present state of mind go back in time using original basket with an array of items. Caesar would throw the stats in the garbage and tell his slaves not to say a word; sign this privacy agreement; or will fire you too. Then proclaims ” I Caesar will create the reality for my subjects.”

#135 Retired Boomer - WI on 02.15.14 at 4:25 pm

#128 Aggregator

Your post was interesting. I believe rather off the mark, but interesting.

1. Since 2009 how much has your driving record changed?
Different car, perhaps? Driving circumstances change?

2. State Farm only issues an auto policy for 6 months. Many other insurers will issue a policy for a full year, with a big discount if paid up front.

3. Rent by sq ft has changed since 2009. In some locales the rate has GONE DOWN. Some locales it has risen, others it has remained flat.

4. Drivers licenses? Have they gone up?? Where????
Does everybody drive? Does everybody who drives have a license?

What was the point you were trying to make?

#136 Shawn on 02.15.14 at 4:30 pm

Stupid Look on Face?

Aggregator, just above said:

Anytime you want to stump an advisor or equity bull raving about stock returns, ask them a question like how much State Farm’s car insurance or local rent price per sq.ft went up since 2009 — then watch the stupid look on their face.

*****************************************
Perhaps the look is one of bewilderment as to why you appear to be noting the high price increases of corporations as a reason NOT to own them.

Prices rise whether your investment account does or not.

But on behalf of owners of corporations everywhere, thanks for your business.

Maybe some day you’ll join us?

#137 Zed on 02.15.14 at 4:38 pm

The size of the portfolio does not matter, if you have $20k or $1 million, the strategy has to be the same.

First save some of your income so you have cash to invest as soon as you can.

Avoid the extra cost of mutual funds, lost money that reduces your returns.

Diversify to reduce risks and let the money compound.

I have been doing that since i am 20 years old and i will retire from work this spring at age 49.

Income from investments is what is required to move on, not capital gains!

#138 Sheane Wllaces on 02.15.14 at 4:45 pm

Not even any lasting consequences from almost five years of intense monetary stimulus by government.

Not yet. Just wait for money velocity to pick up

#139 EFT Trader on 02.15.14 at 4:47 pm

Thanks for the advice over the past couple of years. Through reading your blog and other websites that encourage a balanced approach through the use of EFT’s(MoneySense/CouchPotato), I recently consolidated all my mutual funds into a self directed RRSP and invested in a balanced portfolio of EFT’s. My new MER is around .29 from a previous average of over 2. For those that don’t believe a balanced portfolio can return great returns, check out: http://canadiancouchpotato.com/wp-content/uploads/2014/01/CCP_Model_Portfolio_Performance_1994-2013.pdf. A 7.6% return when looking over 20 years.

#140 liquidincalgary on 02.15.14 at 4:51 pm

@ 99 Mark Wu

QE was ineffective…unless more, larger bubbles are what you wanted (equity/bond markets, housing in some areas)

good on ya, garth

#141 Ralph Cramdown on 02.15.14 at 5:10 pm

#126 Basil Fawlty — “The problem with the balanced approach put forward is the massive manipulation of markets through money printing and QE. These are not “normal” times in the financial markets. […] I would love to sit back and collect 7% and spend the days relaxing.”

There have NEVER been “normal” times in the financial markets such that it was obvious which course to take, then sit back and collect an easy, worry-free x%. Read older investment books, and you’ll see it was always thus. Or think about basic arbitrage theory, and understand that if there was an obvious way to borrow at x% and earn at a low-risk (x+y)%, x would go up and y down in fairly short order.

I was just reading this morning about when short rates were 14% and long rates 16%. Everybody wanted to lend at 14%, and nobody at 16%. It’s hard to imagine now, but it happened. Similarly, we’ve got a new member of the propeller-beanie set here on this blog who insists that stocks are in a bubble (notwithstanding that they’re considered radioactive by most members of the public, that volumes are way down despite the advent of high-speed trading, and that you can put together a nice conservative portfolio of dividend growers with a HIGHER current yield than a go-nowhere-but-safe government bond). I read a claim here that most equity traders believe that most other equity traders haven’t priced in the effects of increased or reduced QE. These worldviews actually exist, apparently!

#142 Smoking Man on 02.15.14 at 5:12 pm

#118 Retired Boomer – WI on 02.15.14 at 2:13 pm

50,50 is correct, but you don’t go all in when it’s 50 50, more like 200% probability of winning , then you go all in.

Example Mississipi stud has the worced odd’s against you, yet I can consistanly win about 500 bucks per hour in range of 10 to 25 dollar anti.

How I get advanatage is un ethical but not cheating…and when I’m really lucky and get a sloppy dealer that slighlty exposes the the 3 down cards, I bet table max. It gives me an hourly pay out advatage of 240 %
So on 100 buck anti, make about 5 to 10k per hour.

But you got to buy my book for that one….I will slide it into a chapter.

Making money is all about risk vs reward. Laws be damnd.

You rob a bank today, Hi risk low reward.

Better to grow 10 accers of pot than 10 plants. Do it once, do it big. The penalty is the same. This is not a confession…..

See where I’m going with this.

#143 Smoking Man on 02.15.14 at 5:22 pm

#91 Ontario’s Left Coast 

#44 Smokey: Damn hate it when tree huggers give me the thumbs up

What can I say… I’m a writer, too. And don’t overthink the ‘Left’ part — I literally live on the shore of Lake Huron. Once again, all the best in the desert.

…………………………………………………….

What do you write about, Fiction, technical, news?

Only asking cause I never see you pump out any big essays. Is that to conceal your celebirty status, or keeping the best stuff or your book.

Or are you not comfortable interacting with the adudiance in blog style.

Writing a book in a room, off it goes to publication, publisher gets it out and if it’s a hit, you only got to deal with talk show hosts. Avoiding the ones that will love and hate you…

That’s what makes me special , I loath my fans and foes eqaully…and not frightend to engage in debate.

It’s nothing personal, just humanity sucks, including me.

#144 Casual Observer on 02.15.14 at 5:35 pm

Clint Eastwood (Dirty Harry) once said, “A man’s got to know his limitations.”

I have been investing long enough to realize that most people have a tendency to do the wrong thing at the wrong time, and I am like most people.

I sat out the crash of 2008, not because I am a great market timer, but because I panicked very quickly when markets started going down. I was lucky. I guess if you’re going to panic, it pays to be early (sometimes).

This taught me that I have a natural tendency to be pessimistic when it comes to the stock market, and to markets in general. This is one of my limitations.

In order for me to be a successful investor, I have to be like George Costanza, and do the opposite of what I would normally do.

I am currently quite fearful that the economic recovery in the US is a mirage built on QE. I also fear that when/if the housing market in Canada turns lower that the economic impact will severely impact Canadian markets, and possibly even my job.

International markets are a scary place too, with many European countries on the brink of insolvency.

Asian economies are on shaky ground, with bubbles galore in China and the Japanese government intent on more QE than any developed economy has ever attempted before.

I’m concerned about continuing volatility in the currency markets as Quantitative Easing, Tapering, interest rate manipulation, extreme debt levels, etc. threaten to send major economies reeling through periods of either deflation or hyperinflation.

Emerging markets are like the wild west. A powder keg ready to go off at any time.

And if that’s not enough to worry about, there’s always the chance of armed conflict between Iran/US/Israel, or China/Japan, or another terrorist attack.

The whole point is, if I let myself think about it, I can come up with many reasons to stay in cash, and I’d still be worried about whether the cash would lose it’s purchasing power because of high inflation.

Having said all that, I am currently invested in a balanced portfolio along the lines of what Garth recommends. I have REITS, Preferred’s, Bonds, Cash, Canadian, US, and International Equities, and even a small percentage of alternative investments.

Every day I feel that I should sell it all, but realizing that is the wrong thing to do, I will continue to add to it every year, and rebalance when it is appropriate. I even bought a bit during this recent market downturn.

I understand that this has served me well because it has allowed me to (mostly) separate the emotions from the investing.

Now all I’ll have to worry about is whether tax rates will skyrocket by the time I’m ready to retire because of all the government resources being used up by the baby boomers…

Long live George Costanza.

#145 Basil Fawlty on 02.15.14 at 5:57 pm

“Why would it be repaid? Neither the debtor nor the debt-holders wish it. — Garth”

This is inconsistent with the current economic policy of China.They are turning their US debt into real essets around the world this includes; farms , mines, strategic resources and precious metals. In 2013 China purchased an average of 100 tons of gold per month and they are not letting up in 2014.

#146 Shawn on 02.15.14 at 6:03 pm

Retire by 50?

Zed, just above reported “i will retire from work this spring at age 49.”

***********************************
Can you share details on how you will do it? Part time income of some sort? Eligible for a pension? Super-frugal life?

I am looking at “retiring” at 55 (in 2015) but will have a pension and a part-time business income that make this possible. Also a large RRSP. Still, it is not easy to contemplate giving up my income from working. I could stay and build up a bigger pension. Most would. But I want out.

Glad to hear some are able to go at 49. Interested in more details.

#147 Retired Boomer - WI on 02.15.14 at 6:09 pm

#142 Smoking Man

I understand, I think. It’s like when GE was $7 or Ford was a $1-3 you pack up the truck and make a HUGE bet…
Or McDonalds at $35….
Yeah, that’s called “found money” when others are panicked, SELL, SELL… yup buy,buy,buy.
Timing…”found money” yeah, some risk, but way less than 50/50 in my book early 2009 best BUY op in years

I am not a gambler by temperament, but hopefully not a total fool either. More half-wit I would say…

Risk VS Reward You certainly said it well right there!!
opportunity- the acreage example was perfect!!

Hey- enjoy Yuma

#148 Aggregator on 02.15.14 at 6:27 pm

#135 Retired Boomer – WI

What was the point you were trying to make?

Show me data for points 1, 2, 3 and 4 and how you would adjust them for quality. After you scratch your head for about hour and realize it's impossible because it's based on personal preferences, then ask yourself how in the world StatsCan does it and why a central bank would tie monetary policy to an aggregate number that is completely diverged from what you're paying for goods and services and interest earned on savings.

If you owned a business, would you use StatsCan CPI to determine your costs? No. Because you have your own data and can determine company costs accurately, make better decisions and take risk accordingly. So why would anyone use CPI to calculate real returns? Because they don't have the data, so they 'assume' prices collated and calculated for them by the government is accurate, when understanding CPI is a key component of financial repression to tax your wealth to death.

#136 Shawn

Prices rise whether your investment account does or not.

Shawn you're probably the biggest nominal return chasing muppet on this blog. Try learning something new and go read what Paasche and Laspeyres index is and stop reading that Warren Buffet book for hundredth and something time. Then we'll talk

#134 Old Man

the official inflation index is directly proportional to the basket items being tested; change the items and it changes the end desired result.

Exactly. And every few years when StatsCan updates their expenditure basket, there is a lower Canadian standard of living that stops drinking Tim Hortons (because it's too expensive) and starts drinking tea according to StatsCan.

#149 Smoking Man on 02.15.14 at 6:28 pm

The weakness and strength of humanity, the ability to think. A baby born today is at a huge disadvantage. It’s starts out perfect, and if it was lost in the jungle, brought up by apes, it would do allot better than the
kids of today.

Today, nothing people given respect by frightened people will give stupid people the venue to shape the child’s mind to consume, to serve, and be a slave, they train it to think that’s
good.

A smoking man child, looks at this and thinks to himself.

Can ET take me away from this hell.

4th JD, delete button soon sir garth.

Stir awesome here at Senica

#150 Shawn on 02.15.14 at 6:31 pm

FACTS on China Debt

Basil Fawlty argues

This is inconsistent with the current economic policy of China.They are turning their US debt into real essets around the world this includes; farms , mines, strategic resources and precious metals. In 2013 China purchased an average of 100 tons of gold per month and they are not letting up in 2014.

***************************************
Actually the Chinese government holds more U.S. debt today than ever before.

They certainly do invest in real assets as well, but they are in no way shape or form reducing their U.S. debt.

National debts of major countries have been increasing for literally hundreds of years.

Your failure to invest because of a fear of the U.S. debt has cost you dearly.

#151 stop being a traitor on 02.15.14 at 6:37 pm

Help send this guy and his cronies get a one way ticket to China.
Chris Alexander says Canada’s doors still open to rich Chinese.
This is the goof we have in our parliament selling out our country to the communist money lauderers.
This is why we have so many condos and office building sitting empty.
This is why the average Canadian cannot afford to be home owners.
The real estate is tied up with illegal money from the Chinese mafia underworld.
The Chinese criminals are using Canada to launder money.
This guy and his traitor friends are responsible for selling out Canada from coast to coast to the Chinese underworld.
The Chinese leaders were the ones who had to complain in order to close the loopholes this creep and his group had created.
Our government did not listen to Canadians but they did listen to the Chinese government. WTF?
No amount of protest from Canadians was able to stop this traitor but the Chinese powers that be saw a criminal amount of tainted money being diverted illegally through Canada that they told our government to stop the bullshit. Then and only then our government reacted.
Contact the prime ministers office and order the government to send this traitor and his cronies to China with a one way ticket.
Who the f is in power in Canada?
WTF?

http://www.cbc.ca/news/business/chris-alexander-says-canada-s-doors-still-open-to-rich-chinese-1.2537826

#152 AK on 02.15.14 at 6:53 pm

“Cloud” computing sales to triple by 2017

#153 Shawn on 02.15.14 at 6:53 pm

CHINA Holding of U.S. Debt

I meant to post the link that shows all the foreign holders of US. debt

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

#154 Greed is God on 02.15.14 at 7:11 pm

What’s the optimal market cap weightings for your sample portfolio, Garth?

Just checked mine (mostly ETFs, balanced geographically and by sector), and it seems to be skewed toward the Giant and Large caps. 75% vs 25% for the Medium and Small caps.

I don’t see much of a consensus on what these weightings should be.

#155 Obvious Truth on 02.15.14 at 7:32 pm

The spectrum of thought today is amazing. It’s clear a lot of folks just don’t want investment returns. It’s like don’t fight the fed is an old saying.

On the other hand we do have some people really thinking this through.

I think the balance of talk is shifting a little towards those looking to take control of their financial future.

Unfortunately the negative narrative gets more play.

We need to celebrate those looking to make a real effort.
Like 144. Way to go. Jerry would be proud.

#156 Trojan House on 02.15.14 at 7:43 pm

#150 Shawn –

You are correct to say that China owns more US debt than any other country, however, you fail to mention that China has warned the US that if it plays games with their debt, they will have a hard time selling to them and other foreign countries. Which is the reason why the US gubmint is now implementing a program for their own citizens to buy up their debt. In case you haven’t heard, it is called “myRA.” To make a long story short, it gives “Americans the opportunity to invest in a treasury security fully backed by the full credit and faith of the US government.” Of course, being already $17 trillion in debt, you may not get your money when they default, or it will never get repaid as Garth suggests.

#157 Ontario's Left Coast on 02.15.14 at 8:13 pm

Smoking Man #143

Mostly corporate spin, which as you know is almost crazier and more outlandish than fiction. I love my work, but my problem is there’s usually not much juice left in the tank at the end of the day. That’s why I was genuinely intrigued by your odyssey to the desert — I’d be up for the trip and the Jack, but the writing would feel too much like work!

Hope things are going well!

#158 Shawn on 02.15.14 at 8:17 pm

That was intelligent?

Aggregator said:

Shawn you’re probably the biggest nominal return chasing muppet on this blog. Try learning something new and go read what Paasche and Laspeyres index is and stop reading that Warren Buffet book for hundredth and something time. Then we’ll talk

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

Well, thanks for the recognition.

More properly that would be the biggest nominal-return-chasing muppet on this blog. Whatever that means.

Meanwhile I must have missed the names Paasche and Laspeyres on the list of the world’s richest, so I’ll stick with reading Buffett. And yes I will re-read what he says.

But don’t you bother, I don’t want the competition.

#159 T-Doge on 02.15.14 at 8:21 pm

#124 WAT on 02.15.14 at 3:15 pm

7% on $20,000 = ?

A pathetic gain.

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

Man, no. More like a consistent gain. Try this:

1). Start with your $20,000 principal at age 30.
2). Compound by 7% each year.
3). Toss in $5,500 each year, conveniently the TFSA limit.
4). Retire at age 65 with over $900k, tax free, and accessible without eating into CPP or OAS.

I’m turning 30 this year and this is precisely what I intend to do. If you can make a better return, more power to you. Most DIY investors cannot. 7% is realistic.

Thanks Garth; I’d still be in GICs without this blog.

#160 Retired Boomer - WI on 02.15.14 at 8:27 pm

#148 Aggregator

No, Prices for things like auto insurance are based on three factors:
your driving history -or lack there of
year & type of car
where, and when you drive

Companies crunch these data points differently, that ids why, here where I live, State Farm is not the least cost provider for ME.

Stats Can, or the US CPI-W, CPI-U CPI-E, or any of the other variants give differing results. Their “fixed baskets” are NOT equal. For the retired geezer, the CPI-E would provide the most advantageous index, but no they use the CPI-W for basing increases. Why you ask? It saves the payor (govt = taxpayers) money. I can’t say I blame them.
It is a ‘reasonable’ though hardly perfect index.
W= working
U = Urban
E=Elderly

No price index is perfect.

If I owned a business I would provide data to the govt statistician, but not rely on it for anything. Why would I?

I’m not sure I have ever seen anyone use CPI to base returns. They have used it to base increases in government largesse, not to be confused with any type of ‘investment’ returns.

As for EFFECTIVE tax rates the last 6-7 years have demonstrated to this family the lowest effective tax rates of our lifetimes on the highest amount of income!
You need to understand that is being said by a Yank.

#161 espressobob on 02.15.14 at 8:28 pm

#124 WAT

You might want to educate yourself on the subject of compounding! Your smart, right?

http://www.getsmarteraboutmoney.ca/tools-and-calculators/compound-interest-calculator/compound-interest-calculator.aspx

#162 KommyKim on 02.15.14 at 8:42 pm

RE: #154 Greed is God on 02.15.14 at 7:11 pm
What’s the optimal market cap weightings for your sample portfolio, Garth?

Here’s a sample:
http://www.turnertomenson.ca/pdfs/2013_Performance_Report.pdf

#163 angela on 02.15.14 at 8:45 pm

dear Garth please be honest with people
no debt ceiling debacle (did you mean they raised it)
deficit never been lower since 2007 (it was 6 trillion then),today it is 17.5 trillion
so the economy is improving but they raise the debt limit to infinity oh ok sure what ever anyone who believes your articles ………. well what ever good luck with understanding reality clearly Garth you are the smartest man alive lol

Learn the difference between debt and deficit. — Garth

#164 kothar on 02.15.14 at 8:55 pm

Really who cares if the US debt is 17 trillion or whatever number it is. In the current monetary world, that is the money that is in circulation to keep things going. It will never be repaid….ever. And as far as the unfunded liabilities of the US, well they will come up in the future as needed. The bond market will either allow it, or it will have to be tweaked if not. Companies still exist, and people still live and buy things. So keep investing in the market for the long haul, and you will get a return. I am long 30+ years before retirement. So really I don’t care what goes on now, or tommorow, or in 5 years! I have learned to tune out the day to day BS. Setup a portfolio like Garth says, with or without help, sit back and live your life. That is what I did, someone is looking after it, and worries about it for me. End of story.

#165 Smoking Man on 02.15.14 at 9:02 pm

#157 Ontario’s Left Coast on 02.15.14 at 8:13 pmMostly corporate spin, which as you know is almost crazier and more outlandish than fiction. I love my work, but my problem is there’s usually not much juice left in the tank at the end of the day. That’s why I was genuinely intrigued by your odyssey to the desert — I’d be up for the trip and the Jack, but the writing would feel too much like work!

Hope things are going well!
……..

How do you f-en think I feel, I have 26 fans, got to deliver some thing, it’s always better to under promise and over deliver, than the other way around.

I’m doomed…

#166 Ronaldo on 02.15.14 at 9:03 pm

#7 – Stallion –

”Can you please suggest some websites that help us with deciding on which ETFs to buy?”

try this:

http://www.investors-aid.coop/

#167 Basil Fawlty on 02.15.14 at 9:17 pm

#150 Shawn

You are correct that China holdings of US Treasuries have increased.
However this Bloomberg articles suggest that the Chinese are moving away from US debt.

http://www.bloomberg.com/news/2013-05-21/china-starts-unit-to-diversify-reserves-from-u-s-debt-wsj-says.html

I was commenting based on anectodal evidence, such as the article above and stand corrected if my original comment to Garth was not accurate.

#168 Waterloo Resident on 02.15.14 at 9:26 pm

A lot of what’s pushing up the stock markets lately has been all of that money the U.S. government has been pushing into the stock market via their buying of Treasuries.
When they started buying treasuries the market did not start to go up right away, there was quite a bit of lag time between one and the other. I guess the same might be true now that the cash spigot is being turned ‘OFF’, the market might keep going up for a year or two just on the fact that there is so much cash sloshing around the world, looking for a place to be invested. But eventually the markets MIGHT crash, they MIGHT even crash to a point lower than they were last year, so prepare yourself for that possibility also. The true economy in the U.S. and around the world is a lot worse than most people realize, and if it wasn’t for the governments around the world pumping liquidity into the financial system we would be in a depression a lot worse than the 1930’s, all because the 1930’s didn’t have massive consumer debt like the way we have it these days.

#169 angela on 02.15.14 at 9:27 pm

Learn the difference between debt and deficit. — Garth
lol my bad all is well then

#170 Waterloo Resident on 02.15.14 at 10:00 pm

I sure hope I’m wrong, GOD I HOP I’M WRONG, but if I’m not then what I’m doing might just save my life and the life of my relatives in the next few decades.

Watch this video, I just found it and it confirms what I started planning for 2 years ago.

US Debt Crisis – 2014

https://www.youtube.com/watch?v=Jjv-MtGpj2U

What you need to do is this: Find out how much after-tax income you earn each year and take 10% of that after-tax income and invest in gold and silver coins. I’m talking solid bullion, not mere paper saying that you have gold and silver. Because if I’m correct, some time around 2020 you will wake up and find that no one has any money to pay anyone with. Well, there still will be money, but it will be relatively worthless. Imagine Monday bread is $3 a loaf, then by Wednesday it’s $29 per loaf, and by Friday its $4,000 per loaf, that’s what I’m talking about. That’s where the value of cash evaporates overnight, it’s called a debt implosion, and I feel the world is quickly moving towards that. Now If I’m wrong that’s okay, you simply invested 10% of your annual income into a stupid investment that didn’t earn you anything. But if I’m right, it will be the only thing between you and death, literally.

Now you might say; where do you keep gold and silver: DON’T PUT IT INTO THE BANK, the government will pass laws making it ‘illegal’ to hold gold and silver, and the will simply repossess all holding of gold and silver held in banks. What you will have to do is take one or two coins a week and trade them in at the local black market for cash, massive amounts of cash, just to buy the bread you need to eat. You will be able to eat, while the others around you are starving to death. That’s what I HOPE won’t happen, but I’m preparing for anyways, just in case it does.

God, I hope I’m wrong!

Stop watching financial porn. You’ve flipped. — Garth

#171 Bob Rice on 02.15.14 at 10:13 pm

http://www.theglobeandmail.com/report-on-business/economy/housing/aggressive-development-the-building-and-selling-of-a-toronto-condo-tower/article16910442/

#172 45north on 02.15.14 at 10:33 pm

AK “Cloud” computing sales to triple by 2017

I worked 30 years in the Federal Government as a system administrator. The Federal Government could purchase cloud computing for half the cost it is paying now. I mean it’s très cheap. For example softlayer offers a 100 Gbyte server connected to the internet for $60 a month. That’s to an individual. The Federal Gov with its enormous buying volume could cut that down. The US Gov has already developed standards.

http://www.nist.gov/itl/cloud/upload/SP_500_293_volumeI-2.pdf

how hard would it be to just adopt it?

Shared Services Canada has amalgamated all IT with the promise of reducing costs

http://www.ssc-spc.gc.ca/index-eng.html

its model of centralized services is completely wrong. For example one of its main goals is the amalgamation of 39 separate email systems. Well how much does each system cost? Well a lot less than it did 10 years ago. 10 years ago a server cost $100,000 now a more powerful , more reliable server costs $10,000. Suppose each separate email system had two servers, one to do the work and one for a backup. cost would be 39 X 2 X $10,000. Less than $1 million. Like what is the total bill for Shared Services? $1 million doesn’t even show up. Further if there is a problem with the centralized system then it’s a problem for everybody. The decentralized approach is more robust and I would argue cheaper. Okay some of the 39 separate systems would occasionally have problems but the problems would be restricted to a particular department. I would argue that they would be small problems.

#173 AB Boxster on 02.15.14 at 10:37 pm

It would be interesting to see how well the balanced portfolio model would work in different decades.
When North American markets stagnated from1966 – 1984 were year over year returns possible?
Frankly, since 1984, anyone that could fog a mirror could achieve excellent returns from just tracking the indexes.
Similarly, anyone would have received massive increases in house value if they had just bought a home then.

It did not require a balanced portfolio or any special investing or RE knowledge to be wildly successful for the past 30 years.

I agree with this blog that RE goofs are fooling themselves that there is any more to benefit from the silly over appreciation of property.

But I don’t agree that expecting a 7% investment return year over year is any different from expecting property to appreciate 7%.

Many of the fundamentals that have lead to overinflated home prices have contributed to overinflated market values, inflated earnings and profits.

Time will tell I guess.

It did. — Garth

#174 WAT on 02.15.14 at 10:38 pm

Man, no. More like a consistent gain. Try this:

1). Start with your $20,000 principal at age 30.
2). Compound by 7% each year.
3). Toss in $5,500 each year, conveniently the TFSA limit.
4). Retire at age 65 with over $900k, tax free, and accessible without eating into CPP or OAS.

I’m turning 30 this year and this is precisely what I intend to do. If you can make a better return, more power to you. Most DIY investors cannot. 7% is realistic.

Thanks Garth; I’d still be in GICs without this blog.

If you have $20k to invest you have the supreme advantage of being able to deploy your entire capital quickly into and out of the market.

Don’t settle for 7%. You cannot retire all that well on $985,000, especially since the magic number for most peoples spending is in excess of $2 million to retire. And that’s today. Inflation adjusted, by the time you retire, $985,000 will not cut it.

More sage words from a guy with $20,000. — Garth

#175 Son of Ponzi on 02.15.14 at 10:39 pm

# 126
“I’m not worried about return on investment. I’m worried about return of investment”.
Mark Twain’s quotes beat Warren Buffet’s hands down.

#176 espressobob on 02.15.14 at 10:39 pm

#168 Waterloo Resident

Thing is the fact that market ‘crashes’ are in fact quite rare! Corrections happen, thats normal. If you can learn to deal with that all the better, think buying opportunity.

Investing is long term, deal with it.

#177 Joe Average, Vancouver on 02.15.14 at 10:45 pm

My 60/40 balance portfolio in TFSA for 2013 – 14% return this year. Thank you Garth without your advise I would never find balls to make this investment. I don’t expect 14% in 2014 but I do expect a lot more than 1.5% GIC.

#178 Son of Ponzi on 02.15.14 at 10:46 pm

#136 Shawn to Aggregator
“Maybe one day you will join us”
———–
Every cult leader’s favorite phrase.

#179 quebec economist on 02.15.14 at 10:51 pm

@120 Shawn

Good answer about stock pickers. In fact a study done by Morning Star has shown that 70% of financial analyst (CFA) perform worst then the S&P over 1, 2, 5 and 10 years. Obviously some do better. But that is an art that most don’t seem to have..and can’t be acquired at school. You need a cool head, macroeconomic outlook, understanding of markets and the desire to do research on hundreds of companies to find the rare good deal.

For those who are not stock pickers, the following blog provides advice to help you build a diversified portfolio. Not as entertaining as Garths blog….

http://canadiancouchpotato.com/

For those who want to be a stock picker I am with Shawn, look into Buffet books, or better is Greenwalds book : Value Investing. Start researching business and practise, practise practise…then play!

Cheers.

#180 late learner on 02.15.14 at 10:56 pm

I love you garth for teaching me about investing. Since i started following your advice in March 2013, I have felt more confident about my financial issues. I am 38 years old and have blown all my money. but not anymore. I wish i have known this before. But i will be teaching my 3 year old from now. I am thinking of making her collect cans, sell and invest–just like an example in million dollor teacher book.
Again, thanks a lot and i love you–in a fatherly way.

#181 AB Boxster on 02.15.14 at 11:00 pm

Re #273 Garth – it did.

I’ll believe it once rates return to historical norms, once QE II has fully ended and once there has been some real resolution to the national debt issues in Europe especially.

Until then I think we’re in for a big roller coaster ride of inflated returns and losses.
If you like volatility, the next few years (decades?) could be a hoot.

#182 Son of Ponzi on 02.15.14 at 11:04 pm

#163
“Learn the difference between deficit and debt – Garth”
—————
Same difference. At one point you have to pay the piper.

#183 Just some guy on 02.15.14 at 11:05 pm

Every now and then I find that this blog becomes a portal into some alternate universe where we see a bizarro world and we are exposed to some of the strangest creatures of that world. Some of the beliefs here are just too odd to fathom. Sure, first year philosophy says look into the abyss and it will look back but I had not expected to see a blank look.

What Garth says about balanced portfolios is true. It works.

#184 Son of Ponzi on 02.15.14 at 11:14 pm

Learn the difference between deficit and debt.
Case in point:
Flaherty decreases the deficit by increasing debt.
Zero sum game.

#185 Aggregator on 02.15.14 at 11:17 pm

Presenting the taxpayer-backed (and secretly bailed out) insurer of last resort, Genworth's (General Electric really) latest quarterly insurance-in-force posting a net sequential q/q increase of $7 billion dollars in Q4, bringing Genworth's total IFF liabilities to $317B dollars, just $33B shy of its limit. More interestingly, 37% of total IFF is backing >90% LTV loans, up from 35% in Q4 '12, of which nearly 25% had originated in 2012 and 2013, at record high prices. Table

Umm, this doesn't seem to jive with F's 2014 budget plan that stated homeowners are making larger down-payment purchases (unless they're talking about HAM). I wonder, with only $33B IIF capacity, what will F's next gimmick be to increase Genworth's limit now that he's allowed the company to take back collateral held in the taxpayer's Government Fund?

And for that, there's always re-hypothecation, where liabilities go off the books and round and round in daisy chains within the inter-bank market until the music stops.

As I stated many times, it's all government, lenders and insures driving housing. There is never of shortage of deadbeats willing to take on a higher mortgage (at least they think so). Alas, as Madoff taught the financial world: just make sure there are more entries coming from the bottom to feed the top, otherwise…

Soft landing? Nope. Just a bigger more levered bubble.

#186 Son of Ponzi on 02.15.14 at 11:23 pm

How do I convert my deficit into debt?
By paying off my old credit card with a new one with a higher interest rate.
And this, my fellow blog dogs, is what is called a Ponzi.

#187 Chickenlittle on 02.15.14 at 11:50 pm

#110 WAT:

So what do you suggest? Wait for another oil spill so you can stock up on cheap oil company stocks? Penny stocks? Collect cans and bottles? Work the Jarvis street corner? Oh wait, sorry, that’s your corner…

Can you please enlighten us on what to do with our hard earned money?

#48 W A T G:

No global warming? Too bad! I was looking forward to hanging out with Jake Gyllenhall…SIGH!

………………………….

#170 Waterloo resident:

Wow, you just made my night ! That was hilarious! Who will be responsible for this? The Masons? Illuminati? Knights Templar?

LOL!

#188 Chickenlittle on 02.15.14 at 11:52 pm

#180 late learner:

It was purely coincidental that I mentioned collecting cans….I hadn’t even read your post!

No offence intended.

#189 Ralph Cramdown on 02.16.14 at 12:02 am

#170 Waterloo Resident — “Because if I’m correct, some time around 2020 you will wake up and find that no one has any money to pay anyone with. Well, there still will be money, but it will be relatively worthless. Imagine Monday bread is $3 a loaf, then by Wednesday it’s $29 per loaf, and by Friday its $4,000 per loaf, that’s what I’m talking about. That’s where the value of cash evaporates overnight, it’s called a debt implosion, and I feel the world is quickly moving towards that.”

Let’s think about this. Most people have practically no savings; what they produce (earn) is pretty close to what they consume (spend). My spending is your earning, and your spending is my earning.

Along comes some clown and claims that loaves of bread are going to $4,000. How can the baker possibly charge that much for a loaf of bread? His customers would lynch him unless they were making $15,000 per hour, so they would be.

Hyperinflation in the past has occurred either in places where ruinous rents (usually war reparations) were being extracted from the economy such that citizens weren’t producing enough over and above those rents to live on (classic Weimar Germany) or because a previously productive economy was utterly destroyed by a bonehead (Zimbabwe). The WORLD’S economy is a closed but very decentralized system.

The US economy (what that video is aiming at) is fairly insular (not like N.Korea, but not like the UK or Japan either) with about 17% of GDP imported each year and 14% of GDP exported. Most of what Americans consume, Americans produce, and vice versa. If bread goes to $4,000 and you’re selling potatoes, you’ll be able to ask $1,000 a pound for them, so why worry?

But why would locally produced bread made with domestically grown wheat in an oven fired by domestic natural gas go to $4,000 or even $40 in the first place?

I don’t know what motivates these people to spout their nonsense aside from ad revenue, but if you look, you can find predictions of US dollar collapse going back to the 1940s and probably before. I’d rather own the bakery than a bar of gold.

#190 Retired Boomer - WI on 02.16.14 at 12:05 am

#150 Shawn
#156 Trojan Horse

Error…. The U.S. people own the bulk of US debt not China, or Japan. The US populace could buy more of it, but why bother at 3.?? for a 30 yr bond? Right now there are better places to put a US dollar than in US Debt.

Foreign holders of US DEBT comprise less than 6 T out of 17 T total…or about 1/3. We owe 2/3 to ourselves.

What percentage of US equity assets are “invested” around the world?

Shawn, I do enjoy your posts.

#191 Retired Boomer - WI on 02.16.14 at 12:15 am

I noticed I have used the term “Mutual Fund” in a colloquial way for either a “Mutual Fund” or an “ETF.”

I hold some of each.
If there is an ETF and an identical mutual fund, with the same expenses, and not too high a minimum investment ($50K is my top end) I prefer the mutual fund.

Where the ETF has lower expenses, I’ll use the ETF.
Please forgive my inappropriate nomenclature.

#192 Van guy on 02.16.14 at 1:20 am

“Day trading is not investing. — Garth”

No its a better return than investing. Whats better than seeing your stock gain 20%+ in several hours and profit lotaken before the close? Minimize risk by not holding anything overnight. You are exposed to more risk the longer you hold. investing is for people wanting 10% returns I 1 year. Daytrading makes $$$$ and reduces the risk of stocks gapping down in one night. Daytrade in any market!! Short stocks that are oversold and watch your account boom when the stock tanks!!!!

Would anyone like a 80% or more a year. This is it, reduce your risk and short term trade in the US market!!

#193 KommyKim on 02.16.14 at 1:21 am

RE: #170 Waterloo Resident on 02.15.14 at 10:00 pm
What you will have to do is take one or two coins a week and trade them in at the local black market for cash, massive amounts of cash, just to buy the bread you need to eat.

Naw, I think I’ll just buy a gun and steal the bread and/or gold from you.

#194 Longterm on 02.16.14 at 1:25 am

#146 Shawn on 02.15.14 at 6:03 pm

Mate, I commend you. Retiring early isn’t that hard.

I’m 43 and have worked full in my life for fewer than 15 years – 5 in Vancouver and 10 in the UK]. I’ve never made much money [hit £43,000 one year] though I did live for 7 years in a flat share in London (UK) through my 30s with my wife [she made £44,000 at the peak] and we managed to save 60% of our net incomes while partying, enjoying London and travelling heavily. We managed 42 countries over 10 years, with many repeats in Europe plus a 14 month stint in 2009-10 in Asia, Aust and NZ. The bulk of our money was diligently saved and invested month in, month out.

At this point we have a large enough portfolio to generate about $22,000 in dividend income, which is tax free so worth about $30,000 pa. This is easily enough to retire on in the less expensive parts of the Med, Mexico or Central America. I’d consider it now but I’m a bit travelled out and have some other interests to pursue.

Neither of us has a pension and I doubt I’ve contributed enough to get a Canadian or UK pension.

In another 9 years [when I’m 52] or so the dividends will continue to compound and by topping up TFSAs until then we should be looking at annual dividend income of about $50,000 and growing annually, which will all be tax free, so similar to making probably $80-90,000.

That’s more than enough to live on where we are in BC plus taking winters off somewhere warm and interesting.

My key ingredients are: regular saving and investing, compounding of dividend aristocrats, realizing you don’t need much stuff, pursing interesting intellectual endeavours and physical challenges over material accumulation and a desire to live my life to the fullest not sit in an office until I’m too old to realize my dreams which then never happen. Dump the stuff, separate needs from wants, and buck up the courage and you can make it happen. Your freedom is in your hands.

#195 mark on 02.16.14 at 1:25 am

Garth please do the minority a favor and stick to housing. Every time you post about investing and the markets I get dumber reading all the comments. But somehow, like staring at a floating turd or watching cnbc, I just can’t stay away.

#196 Vancity D-man on 02.16.14 at 1:39 am

Wow, lots of haters in today’s blog. Garth, I don’t know why you keep doling out you free advice to try to educate the masses. Some of us get it and we do appreciate you trying to wise us up and improve our financial IQ. For the haters and doomers, pull your head out of the sand. Y’all need to read the financial, investment, & market news a bit more and piece together what’s happening and filter out the B.S. Read some more books too while your at it. Thankfully, Garth is a straight shooter and he’s been on a mission trying to educate us. Many a day it seems that he is banging his head against a wall. You’re a better man than i am, Gunga Din!

#197 bdy sktrn on 02.16.14 at 2:03 am

bitcoin bustin’

307 as i type.
ouch.

who got in at 950+???

#198 Goldie on 02.16.14 at 2:07 am

lol @ bitcoin. this is why true physical hold goldies could never catch onto something like bitcoin (even though some have lumped us in with virtual commodity traders). remember people: anything online can be hacked. anything.

http://www.sciencedaily.com/videos/661810.htm

#199 Happy Renting on 02.16.14 at 2:17 am

Warning: pro-RE advertorial, but I still found it interesting enough to read:

http://www.theglobeandmail.com/report-on-business/economy/housing/aggressive-development-the-building-and-selling-of-a-toronto-condo-tower/article16910442/

I remember in 2000 seeing a pre-build 400 sq ft downtown bachelor advertised for $99,900. I sure wish wages had done what condo prices have (through the roof!)

Love that the guy profiled (buying his second condo) works as a “risk manager”. Dude, really?

#200 Robbie on 02.16.14 at 2:51 am

#183 Just some guy

Yes, the wackos are really frequenting Garth’s blog of late. Perhaps Garth can set up an alternate blog site called “Greater Fool…don’t think about what Garth says, just come here and insult him.” The wackos could go there and then those of us who want reasoned discussions and facts could stay on the original site.

#201 A Yank in BC on 02.16.14 at 4:31 am

Why would it be repaid? Neither the debtor nor the debt-holders wish it. — Garth

Ah Garth.. spoken like the true Keynesian that you are. But at some point.. the Piper must be paid I think, n’est-ce pas?

#202 Tony on 02.16.14 at 5:29 am

Re: #181 AB Boxster on 02.15.14 at 11:00 pm

America is in QE3 and most say QE4 will start this June. I think the great untaper will happen sooner. There’s no other reason for American stocks to rise because the dollar barely fell QE4 is the reason.

#203 Obvious Truth on 02.16.14 at 9:44 am

#203. What if QE3 is the reduction or elimination of interest on reserves at the fed. Along with the expectation of the slow creep in rates.

#204 Herb on 02.16.14 at 10:03 am

#183 Just some guy,

nice point about that portal and the blank stare!

#205 AK on 02.16.14 at 10:22 am

#203 Tony on 02.16.14 at 5:29 am
“America is in QE3 and most say QE4 will start this June. I think the great untaper will happen sooner. There’s no other reason for American stocks to rise because the dollar barely fell QE4 is the reason”
====================================

Hey Tony,

Which part of the Mayan Calendar are you referring to ?

#206 Obvious Truth on 02.16.14 at 10:47 am

Sorry QE4 and beyond.

#207 Renter's Revenge! on 02.16.14 at 10:52 am

@192 Van guy:

Only 80% returns??? Clearly there’s something wrong with your trading model. You are a useless moron that sucks:

http://www.ritholtz.com/blog/2014/01/greg-harmon-we-are-all-useless-morons-that-suck/

#208 Son of Ponzi on 02.16.14 at 11:04 am

#189 Ralph
I’d rather own a bakery.
———————-
Now we’re talking.

#209 toronto landlord on 02.16.14 at 11:14 am

I can’t believe how many LOSERS this country has created, and now they want to occupy my rental units.

Now we have garth promoting rentals- How funny is this?

Its really funny how you renters think your smarter and better informed than most people. I beg to differ.
In my opinion, I would bet that your mommy was still wiping your ass at 10 tens of age.

You parasites are ignorant about construction principles, electrical, plumbing, drywall etc… most tenants have no physical/mtce ability but you like spout shit out that makes no sense and really indicates your lack of knowledge.

What’s ironic is upon our initial meeting, the tenants are humble,driven, loving, honest people. Then after a few months, you spit out your rights, and then you like to remind me of my responsibilities to you.
Yes, this socialist govt got out of the rental game and now wants small investor landlords to support and provide shelter to the low life’s that occupy my units. But this game is ending. Landlords are disappearing and would rather keep the units empty instead renting. The game is changing. I don’t want your rent money any more.
Keep the units empty!!

#210 Daisy Mae on 02.16.14 at 11:46 am

#201 Robbie: “The wackos could go there and then those of us who want reasoned discussions and facts could stay on the original site.”

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

Now, I LIKE that idea! :-)

#211 TurnerNation on 02.16.14 at 11:48 am

We need more ‘deathbed confessions’ from Old man.

#212 rhw on 02.16.14 at 12:32 pm

http://www.truthdig.com/report/item/foreclosure_filings_jump_as_investors_eye_exits_20140215

#213 TheCatFoodLady on 02.16.14 at 1:06 pm

#210 – Toronto landlord:

Why are you renting your apartment units to losers? Are you not doing screenings?

Are you not providing your tenants with a copy of the Guide to RTA as you’re legally obligated to do? If you are, they’re not reading it because they’d know their rights as well as responsibilities.

Doesn’t sound like being a landlord suits you.

#214 Basil Fawlty on 02.16.14 at 1:07 pm

#201 Robbie: “The wackos could go there and then those of us who want reasoned discussions and facts could stay on the original site.”

Sounds like a double shot of bore me to tears.

#215 Paul on 02.16.14 at 1:18 pm

#214 TheCatFoodLady on 02.16.14 at 1:06 pm

#210 – Toronto landlord:

Why are you renting your apartment units to losers? Are you not doing screenings?

Are you not providing your tenants with a copy of the Guide to RTA as you’re legally obligated to do? If you are, they’re not reading it because they’d know their rights as well as responsibilities.

Doesn’t sound like being a landlord suits you
———————————————————-
Sounds like you never have been one.
But you have been a Tenant that’s clear

#216 airhead princess on 02.16.14 at 1:38 pm

“#94
A case for Cash:
Many Chinese restaurants accept only cash.
Case closed.”

Ahhh…not quite. Many food businesses either accept only cash or discount for cash because of simple accounting. Some credit cards charge as much as six percent per transaction. In the razor thin margin business of soup stalls and chewy buns…the margin vanishes by accepting credit.

Like every small business there are several sets of books….the act of accepting credit requires a separate account…..meaning even more overhead in time and fee’s.

And lets not forget the small business prerogative of dealing with the tax man….’one for you…three for me’. You don’t have to be Chinese to hate the CRA and the city leeches taking more than their fair share..

#217 GBayBoater on 02.16.14 at 1:39 pm

#195 mark on 02.16.14 at 1:25 am

Now THAT is funny.

GBB

#218 unbalanced on 02.16.14 at 1:39 pm

To Tony @210. Don’t let the door hit you in the ass on the way out.

#219 TheCatFoodLady on 02.16.14 at 1:45 pm

I’ve been a landlord, have worked as a resident manager & am currently a tenant.

As a tenant, it’s my obligation to know my responsibilities as well as my rights, just as it is the landlord’s to know theirs’.

Mine are simple – provide accurate information on rental applications when I move, (haven’t in 6 years – don’t plan to), pay full rent on time every month, report minor deficiencies before they become a major headache for the landlord, keep a clean unit & be considerate of my neighbours.

As a landlord & manager, I appreciate screening can be tough. The world’s worst tenants have the tricks aced & once they’re in, getting them out can take a long time; sometimes well over a year. It’s well worth the time to do as thorough a screening as you can manage & trust your gut. Everything might come up ‘right’ but if you have a feeling there are going to be problems with an applicant – go with the gut.

And in the end, a certain percentage of tenants in a building will always be a headache. And sometimes, a very expensive headache. It seems too that the Landlord/Tenant hearing process for issue resolution is hopelessly tilted towards tenants. That balance has got to be changed.

Being a landlord, as many tenants appear to think, is not a licence to print money. There are a lot of regulations to meet, costs can be very high & cash flow can quickly go negative & stay there. Here in Ontario, especially since HST came in & is applied to many services landlords use, I’ve seen a lot of landlords with just a few units – fourplexes, etc. throw in the towel.

#220 airhead princess on 02.16.14 at 1:46 pm

“Still waiting for an answer to my diatribe yesterday, why is it that anyone would buy prefs in an environment where interest rates have nowhere to go but up? Anyone? Anyone? Bueller?”

Answer…because they pay more than the 10 year notes and will mature at issue price if taken out while trading below face value…..meanwhile perpetuals will continue to pay while rates remain low…which you can guarantee in this time of extreme government debt will also remain ‘perpetual’.

#221 Old Man on 02.16.14 at 1:48 pm

#210 Toronto landlord – You would have no problems with tenants if you had a Tony in your life. Now for a small fee upfront as my management compensation, will call a Tony in the north east end of the GTA. He will have a discussion with these trouble makers of yours, and all will be fine in the end – trust me, as he too is a nice old man.

#222 airhead princess on 02.16.14 at 1:50 pm

“The big winners over long periods of time will be skilled stock pickers. And the skill might be as simple as copying the methods of Warren Buffett as best you can.”

-thats certainly been my experience…..why buy the dogs when perfectly good companies exist?

#223 heineken on 02.16.14 at 2:02 pm

reply to #210 toronto landlord on 02.16.14 at 11:14 am

My brother went into the rental game years ago and after several long years (around 8) he got out of the game quickly.
Also, i have a good friend who lives in Vaughan faced with a basement dweller who hasn’t paid fully his rent.
so the same observations that you have stated, are popping up- that is, renters want a free ride.
My opinion — i agree with you. Most renters have no clue what it takes to buy and support a residence in toronto. they all think that the landlords are making tons of money and they can absorb the cost of a free-loader.
i also agree with your comment that the landlords have been duped and ripped off so much so that they are keeping the properties empty. i have seen this in many buildings in toronto.
Tenants,especially in toronto, are a bunch of dreamers who want everything for nothing. i have seen this first hand. the socialist govt of ontario wants the private sector to look after these losers.
right now in the city of toronto, the public housing is being sold. they want out of the game.

i feel for you toronto landlord.

#224 chapter 9 on 02.16.14 at 2:45 pm

#210 Toronto landlord
To live in my building this is what I look for in a new tenant. Over 30,married,worked for the same company for at least 2 years that requires a criminal back ground check/bonding, no pets, non-smoker,Canadian citizen,no kids. A few times a suite has been vacant for a year and a half but the wrong tenant will cost even more in damage,lawsuits, sleepless nights. It works!!

No pets? You are evil. — Garth

#225 Uh Oh Canada on 02.16.14 at 2:59 pm

I must say, if all the folks commenting here are renters, then I pity all the landlords out there. However, I’ve noticed this blog attracts more ‘crazies’ with their warped opinions than most. Among some commenters are a few gems of wisdom, but the majority provide good comic relief. Isn’t that what we come here for anyways?

#226 gladiator on 02.16.14 at 3:13 pm

Garth, sorry for the OT.
I have an issue and hope fellow dogs can suggest solutions to it. My second-grader kid cannot understand why olympians who didn’t get a medal are so unhappy. Because, she says, “participation is more important than winning”. And when I tell her that gold medal means that person is best in a type of sport, silver is second-best and bronze is third, then she wonders why others don’t get medals too, because there is 4th, 5th best and so on. They all should get medals because they participate in the games and thus no one will be upset.
How do I explain to her that winning is all life is about???!!!

#227 Van guy on 02.16.14 at 3:16 pm

#208 Renter’s Revenge! on 02.16.14 at 10:52 am
@192 Van guy:

Only 80% returns??? Clearly there’s something wrong with your trading model. You are a useless moron that sucks:

Yes only 80% and not the billion % return u see so ya I guess I suck. I could have done better but I havent been abke to find shares to short in many small cap names. I am part of a trading group where the top gains for last year was 144% return on their portfolio. Our average beyween 80 traders was about 67%.

#228 bill on 02.16.14 at 3:49 pm

Keep the units empty!!
doesnt sound like much of a business plan…

I think most of the good’ tenants bought a condo or whatever . which leaves slim pickings ,ya’know?
we can have a vacancy for a couple of months now before we find one that passes all the criteria.

#229 Bottoms_Up on 02.16.14 at 4:07 pm

#227 gladiator on 02.16.14 at 3:13 pm
—————————————–
Wouldn’t it be better to tell her that there are certain extremely talented people in this world that push themselves to the bitter end to prove that they are the best in the world? These are unique individuals that give up the best years of their lives to try to ‘win’.

You can’t compare the olympic games with grade school track and field.

But it is a teachable moment that trying your best is important, and whether to be upset or not about not winning is each individual’s perogative.

#230 Squatter on 02.16.14 at 4:20 pm

They all should get medals because they participate in the games and thus no one will be upset.
How do I explain to her that winning is all life is about???!!
—————————————————–
Your daughter is curious, it’s a sign of intelligence.
Some things in life remain unexplicable.

#231 Aggregator on 02.16.14 at 5:00 pm

#229 bill

Keep the units empty!!
doesnt sound like much of a business plan…

Again, that all depends on what currency you buy/sell, borrow and are taxed in. For example, any Indian investor who exchanged depreciating rupees for a GTA condoin CAD is killing it.

This is isn't your grandfather's housing market anymore. It's going international to the highest bidding speculator as governments capitulate to globalization as the only policy left to boost economic growth. An empty condo depreciating in CAD can still yield a high profit in another currency. It's called the condo carry trade, and it's getting more popular and attractive to international investors.

Frank Knight just released a report showing over the last 12 months, 49% of UK's home above 1 million pounds were sold to foreigners; same thing is happening in Australia and you better believe it's no different in Canada. You don't need data as evidence anymore. It's called globalization, and it's hotter then ever.

#232 Old Man on 02.16.14 at 5:12 pm

#227 gladiator – I was once a great golfer and always entered the Essex-Kent tournament in my youth, but never won in the finals; so close but someone was better – damn sand traps. Now believe your daughter was right, so compromise and make her smile, as we all received tournament caps, and am sure those in the Olympics got something too. Guess what? You both to a degree were right, so admire her wisdom.

#233 Willdaman on 02.16.14 at 5:52 pm

@airhead princess #221
“Still waiting for an answer to my diatribe yesterday, why is it that anyone would buy prefs in an environment where interest rates have nowhere to go but up? Anyone? Anyone? Bueller?”

Answer…because they pay more than the 10 year notes and will mature at issue price if taken out while trading below face value…..meanwhile perpetuals will continue to pay while rates remain low…which you can guarantee in this time of extreme government debt will also remain ‘perpetual’.
—————————————-

If a perpetual pref is currently kicking out a fixed $1.25 per year (and let’s say that equals 5% yield on a current $25 share price) and prevailing interest rates increase to, say 7%, the pref share price will tank in order to make a meow attractive yield out of that $1.25 payment.
Sure, prefs can be bought back by the company at issue price of $25, but why in the world would they???? The company would be paying out 5% in an environment where they wouldn’t be able to issue new prefs at a rate less than say 9%. So while you’re still getting your $1.25 per year, your principal has been decimated and will continue to fall every time interest rates rise.
Obviously interest rates wouldn’t rise to my hypothetical 7% for years (maybe a decade?) but I’m just using it to illustrate my point….and it’s a relevant illustration for those planning on holding prefs for the long term.

#234 Willdaman on 02.16.14 at 5:53 pm

Sigh autocorrect, “meow” = “more”

#235 cmj on 02.16.14 at 5:58 pm

I’ve been investing for nearly 40 years and your blog has helped me build a stronger portfolio through ETFs. I was mainly in blue chip stock in Canada. Now I am diversified throughout the world and also have income producing ETFs.

One guarantee about the markets is it goes up and down. We love it when it goes up and flip out when it goes down. Staying the course, diversification and rebalancing are the keys to successful investment portfolios.

I am able to sleep at nights. Thanks so much, Garth.

#236 Happy Renting on 02.16.14 at 9:38 pm

#224 heineken on 02.16.14 at 2:02 pm
reply to #210 toronto landlord on 02.16.14 at 11:14 am

I’m learning that I should be asking for a discount for being a good tenant.

Being a landlord is a tough business, don’t have to be one to see it. Since we’re part of such a house-horny culture, most people with the means and stability to buy will do so.

#237 bill on 02.16.14 at 11:06 pm

#232 Aggregator on 02.16.14 at 5:00 pm
you know we are in the business of renting apartments in kits.the company I work for doesnt come from india or where ever.
and no matter how we look at it an empty apartment is not a good thing.
the condo carry trade is in my opinion an insignificant factor .
good luck to them.it still sounds like a dumb business plan to me.

#238 joe campbell on 02.17.14 at 1:00 pm

“Try reading the article.There are no individual stocks suggested. The 10-year return on a balanced portfolio is 7%. And the CPP is solvent, thanks to its balanced portfolio. — Garth”

i read the article and am simply complaining you are promising higher than realistic returns without any sources.

personally i find john campbell at harvard a more intellectual read.

the tsx has returned 5.2% over 10 years, however this was mostly achieved by fraud and manipulation of RIM holdings.

it is convenient to create a new investment instrument every 10-20 years once there is enough data to support the current one has low returns and high fees. bye bye mutual funds, hello ETF. tomato tomatoe.

pyramid scams fail when people withdraw money, so as long as no one retires, dies, or goes into a retirement home house prices and stocks will go up.

The returns mentioned are historic, therefore real. You were also wrong on the CPP. But then, yo’re hardly objective so facts seem irrelevant. — Garth

#239 Victor V on 02.17.14 at 1:56 pm

Those who are critiquing Garth re: rate of return clearly do not understand the right way to invest. Best get yourselves a good advisor if you don’t understand the concept of diversification and re-balancing.

Our portfolio is sizable so my wife and I do also invest in individual stocks in addition to ETFs and bonds.

I just looked at a report from our account(s) and in the last 6 weeks our portfolio has gained 8.2%. Now granted, we certainly won’t sustain that rate of return through the entire year, but we take profits and re-balance and save powder to buy in on dips.

I have years of our investment history in an excel spreadsheet, and every time I hear someone fear-mongering about the ‘scary stock market’, I simply look at the column for our cumulative return and smile given our wealth is steadily growing year after year. Sadly, most people will follow the herd and buy real estate at the wrong time and buy/sell their investments holdings at the wrong time.

No one said it was easy to build wealth…

#240 joe campbell on 02.17.14 at 2:51 pm

http://en.wikipedia.org/wiki/Canada_Pension_Plan

“assets held in the CPP fund are by themselves insufficient to pay for all future benefits accrued to date but sufficient to prevent contributions from rising any further”

transitioning from pay as you go to pay it forward is a definition of generational theft. boomers stealing from their kids.

http://www.cppib.com/en/public-media/faq.html
a 4.9% real return basis, after accounting for inflation. without clearly or realistically defining inflation the fund is nothing more than promising diminishing returns. aka boomers get paid, others do not.

as for “the returns mentioned are historic, therefor real” i believe i started out by saying past performance….

the fact that the cpp has made contributions rise by a factor of three to pay for people near retirement is a farce, you cannot have future generations pay your debts. to defend the cpp is a joke.

CPP was designed as a pay-as-you-go system in which current workers pay for current retirees. Surely you knew that. The CPPIB has done well in ensuring decades-long sustainability but, no, it will not support you in retirement. So, best stop moaning and start investing. — Garth

#241 joe campbell on 02.17.14 at 3:47 pm

I would also like to reference your british counter part david willetts.

As for my investments i think they are just fine however more conservative than some of your comments. I do not like the idea of adding more equity into a market that has not had a correction recently. the metrics on risk reward are not as favorable as you indicate, downside risk is nearly outweighing upside. I made 16% last year on the tsx, but am basically holding cash till a correction, which is still leaving me over 50% in equities(including my more conservative wife).

hetty green

buy in may and stay away.