Rinse & repeat

CAR DIVE modified

“A friend put me on to your blog a few years ago when I was thinking about buying a house,” says Ted. “We had a kid instead. I’m writing because I’m not sure who best to turn to with regards to our finances. Both my wife and I have trust issues with banks/financial planners and you seem like a knowledgeable, disinterested 3rd party.”

You’re not alone, Ted. Most people would give someone else a kidney rather than hand over management of their money. I get it.

“Both in our 30s – I work, she stays at home with the kid. 250k in savings (bank/TFSA), one 70k locked-in RRSP. My small pension is a defined benefit (who knows if it will be there when I need it…) Wanted to buy house but it’s nuts. Rent @1400 /month.

“The issue is neither of us trust the banks nor anyone else offering financial advice. We both are hesitant (if not downright resistant) to put money in the market mainly because neither of us really understand how it works and it all seems like gambling. I’ve read your advice on your blog but struggle to understand how to implement it without blundering off a cliff.”

This attitude is why the banks are so full of money, and earn massive profits. But with savings accounts paying under the inflation rate and five-year GICs at 2.5% or less – usually taxable and with no cash flow – it’s also why people like Ted get sacrificed. Not trusting anyone can cost you a bundle.

When one of those Big Banks asked twelve hundred people between 45 and 70 if they thought they’d outlive their money, 44% said probably. When asked, ‘Have you done little or no planning?’, 15% said, you betcha. None. Nada. Zip. In BC, that number blossomed to 25%.

And for those who have prepared, what’s the strategy? Says the bank: “The number one step toward preparing for retirement is saving as much as they can (26%), followed by having an RRSP (22%) and investments (13%).” I hope you caught that. People think an RRSP is a thing, not a process. And twice as many would rather save money than invest it – probably because they don’t trust. As a result, 44% figure they’ll likely run out.

This is probably why another Big Bank survey found 41% of all Boomers expect they’ll have to dump their houses, or at least downsize, in order to finance their retirements. That process is expected to start sometime in the next five years – just when I’m anticipating real estate values to be a steady downward glide. Good luck to them.

What’s interesting in our society is that the apples have fallen near the tree. The Wrinklies, in general, had a one-asset investment strategy most of their lives. They bought houses, paid them off, and consumed their incomes. They eschewed investments (except a few bank mutual funds) and believed it would all end up okay. Now, says the survey, 44% know better. And it’s too late to recover.

So along comes the generation of Teds. Although he’s the exception – opting to have liquid assets instead of a mortgage – most of the Boomers’ kids today are reliving their parents’ mistakes. In fact, they seem to crave it. Most can’t wait to sign up for their first home loan. They fear losing money, even when it’s never happened to them. They’d rather save than invest. It’s a one-asset strategy all over again – except this time the outcome’s likely to be worse.

Their parents mainlined real estate when houses were cheap, inflation made incomes rise and debt fade, and when economic growth was robust. Today prices are off the chart and we’re stumbling along trying to avoid deflation. The risk involved in taking on highly-leveraged real estate is palpable – far greater than when houses cost a third and mortgage rates were 11%.

Yet, here we are. Rinse and repeat. Boomer kids ape their folks, desiring houses and fearing investments – at exactly the time they should have learned the opposite. So how do they expect a different outcome? Or do they care?

Ted has $325,000 in liquid assets in his thirties. If he and his wife fully-fund their TFSAs ($62,000) and then add $11,000 a year, keeping the funds invested to earn 7% (the historic average of equity markets), they’ll have $1,511,028 in three decades, $1.1 million of which will be compounded returns. That still leaves them plenty for a house downpayment in the next year or three.

Why would sensible 30-somethings not do this, instead of feeding a savings account?

Right. Because they don’t trust. Because they learned financial wisdom at the knee of a generation that, despite being favoured with five decades of wall-to-wall growth, made lousy choices and is now in a cold sweat.

And I thought this crop was different.

130 comments ↓

#1 daddio on 06.25.14 at 5:46 pm

congrats to all you new grads ( Dakotah)
The future is yours to seize !

#2 Josef on 06.25.14 at 5:47 pm

FIRST!!! OH YEAH BABY!!! YEAH!!! DO I MAKE YOU HORNY!?!

#3 JSS on 06.25.14 at 5:47 pm

Has anyone ever looked into the Saskatchewan Pension Plan, for those who don’t have a pension? Any success?

This plan shows it made around on average 8% annual return over the last couple of decades.

#4 Derek R on 06.25.14 at 5:49 pm

You’ve got to trust someone to some degree. The trick is not to go overboard.

#5 Joe Schmoe on 06.25.14 at 6:04 pm

The fear response to investing is interesting.

I am in my early 40s, people in my post graduate age group were strategizing to borrow money for investment in the mid 90s. Most of us rode the up and down of tech stocks and got creamed on a few investments…but it didn’t make us fearful.

Curious on what changed in 10 years. The ease of diversification is astounding…the cost of diversification is even more astounding compared to 15 years ago. (EFT vs Mutual Fund and online investing)

So why are people afraid?

I get surly when people talk about RRSPs as a thing.

#6 totalinvestor.com on 06.25.14 at 6:10 pm

Rule number 1, always pay yourself first. Amazing how many people don’t even get this part right.

http://tinyurl.com/o3u2kt6

#7 Happy Renting on 06.25.14 at 6:12 pm

For the most part, the next generation hasn’t seen their Boomer parents completely hit the wall (yet). Still lots of consumption and illusions of prosperity all around. They’re just copying what they think worked for mom and dad. They don’t know their parents have a future of food bank use to look forward to. When they see it happen, it will be too late to realize they weren’t emulating financial winners.

#8 4 AM Sunrise on 06.25.14 at 6:17 pm

Back when I worked at a bank, I helped a 17-year-old customer once. He had $30k that was earning 1.2%.

– So how much will I get at the end of the year?
– $360.
– WHOA! That’s like, SO much money!
– No, it’s not…

And then he babbled excitedly about how his dad was going to help him set up a TFSA on his 18th birthday. He said he wasn’t afraid of investing because “I’m young, and if something goes down, I have time to wait it out and make back my money.”

He reminded me of myself when I was his age. Lots of enthusiasm and some parroting of the material taught at a bank-sponsored investment (read: sales) seminar. “I have time to wait it out” does not mean you can be stupid about investing!

The force is strong in this one. There is hope.

#9 Happy Renting on 06.25.14 at 6:18 pm

Ted – get yourself and your wife educated. Seriously, there are tons of free websites and books at the library to teach you the fundamentals of investing. Then, when you hire some help, you’ll have some ability to gauge if they’re doing a decent job and not swindling you. If you don’t want to blindly trust, you have to at least know enough to know what’s going on. Yes, it’s a lot of work, but you’re losing a ton of money by not at least knowing the basics and implementing a sensible plan.

#10 Happy Renting on 06.25.14 at 6:20 pm

Oh… And is that belly-flopping car a Kia? :)

#11 Okbut on 06.25.14 at 6:52 pm

Garth, I see you as the voice of reason when it comes to real estate. However, I’m not sure why you’re so bullish on investing in the stock market etc. — if/when the economy falters due to a real estate correction, who’s going to have the money to purchase all of the products of the companies who are listed in the stock market? Who’s going to have the money to keep the market inflated with stock “investments”?

A Canadian housing correction will hurt leveraged homeowners a lot more than the TSX. — Garth

#12 gmc on 06.25.14 at 7:00 pm

Can’t blame them for not trusting, nobody knows the truth anymore!!!!
Moody’s cut Canada big banks for their bail in policy, so see WTF is going on.
still say put some of that TFSA money on good Canadian juniors.
http://business.financialpost.com/2014/06/11/moodys-downgrades-outlook-for-some-of-canadian-bank-debt-over-bail-in-regime/

#13 r on 06.25.14 at 7:00 pm

Go with warren buffet advice invest in low cost s&p 500 index fund. According to him that what he wants his wife money to do when he die. According to him most managers don’t beat s&p 500 return in the long run. This could be simpler then Garth advice on balanced portfolio. I am assuming u do not understand Garth balanced portfolio concept and rebalancing it
Garth might advice u on the risk of investing in S&p 500 index only. I am not expert on investment

#14 R on 06.25.14 at 7:06 pm

Is a new Garth Turner book in the making? Or does he feel there isn’t enough new information to justify an update?

#15 gmc on 06.25.14 at 7:07 pm

here it comes, by the fall if not sooner, are you ready!!!
todays Quote
“The implied understanding is that crowd behavior and markets are definable and thus predictable, which they are not — that there is a science to something in which very little science is involved. Predicting the markets is not like predicting the phases of the moon. As Charles Mackay went to lengths to point out in Extraordinary Popular Delusions or the Madness of Crowds (1841), you cannot rationalize what is essentially irrational. That is one of the reasons why people own gold coins. Hedging one’s portfolio with gold comprises the armchair approach to outlier or black swan events, and it is essentially foolproof. ”
why load up that TFSA with some good Canadian juniors
such as :http://www.theralase.com/www2/ a cure for cancer perhaps or if you are into gold
Novo resources: potential new Wittwaterrans type deposit in Australia….. half of all the worlds gold come from Wit in South Africa, and still has 1.3 billion Oz in that area. Novo $1:40/share
cheers and good luck
Yo should read Charles McKays book it was written in 1841 and stands true for today,….. Madness of the crowd, tulip mania etc…… it’s all happening TODAY.

#16 Ready to Rocket on 06.25.14 at 7:07 pm

The latest rocket-car test was a success!
(if you ignore the splash-down landing).

#17 joe on 06.25.14 at 7:14 pm

You can’t go wrong with a new house and q5 audi…
money are cheap……opportunity of a life time to use…

#18 Smoking Man on 06.25.14 at 7:46 pm

http://www.torontomls.net/PublicWeb/CL_CF.asp?link_no=53407178.059400&t=l&fm=MA

Canadian housing correction will hurt leveraged homeowners a lot more than the TSX. — Garth

Sure it will, but it’s aways off..

The Herd buying in Long Branch sure aren’t scared.

A little shit bungalow, 2 Crystal Cresent.
South of Lake Shore.

Are you ready……….

778,000 1/2 way down on above link.

Grasshoppers, how long have I been telling you about the Gem of a hood, we now have a Starbucks, an LCBO woo-hoo walking distance.. Being built at no frills.

The amount of people in suits ridding on go train explodes..

Never bet against The Smoking Man

Ying Yang, your buddy should have bought the one on James Street, it was better.

#19 miketheengineer on 06.25.14 at 8:01 pm

Garth et al:

I got burned investing directly in the market…picked the wrong stock, had the wrong strategy…lost a wack of cash.

I got burned investing in mutual funds…fancy guy in a nice suit came into the office, they gathered everybody up, brought in the donuts and coffee….listened to the professional selling his snake oil….then the market went boom….lost 50% or more of my investment. Took over 4 or 5 years to come back to where I started…lost 5 years of interest …mutual funds lost it for me. Through in a job loss and some emergency withdrawls…and ta da. All the fancy dude had to say, was this can happen with funds too bad. No advice. Usually when the stocks go for a big crap, the job market does too…double wammy for us.

I got a bit lucky with my home. It did go up a bit, but I had to re-finance due to job loss, kids, cars made in america “blowing” up at the wrong time…general life issues, so now back to square one.

If you can find an investment, like blue chip stocks, that pay dividends…that may be the route to go. Or get some kind of “real” professional to help you…though I think Garth and his bunch may be the better of them out there…or the most honest ones out there, and can give you the whole situation. Anything tied to the market has risk…home ownership has risk…going to work…another risk

I have my health and my spouse has still stuck around, so I am very, very grateful, for what I do have. I have a new job now and I invest with the company (minimum that I have to get matching), and slowly trying to pay off the credit card bills.

This TED guy is my hero…250k…eeee gad!

#20 Stickler on 06.25.14 at 8:16 pm

A 50% decline requires a 100% gain to recover.

If you bought XIU (Toronto stock exchange 60) in 2001 @ ~17 now it is worth $21.50

That is a 26% gain total over 13 years (156 months)…they’ve only been above water for 40 of those months.

And if they bought in 2008 they may have just broken even.

That is why people are afraid.

Great time to mention a global diversified and balanced portfolio including bonds & REITs (yes I know).

as for housing…people will keep buying in as long as they think that prices will keep going up. Once that “breaks” watch out below.

Buy and hold for 13 years? Only if done the correct way. How many times do I have to use the word ‘rebalancing’? — Garth

#21 Sheane Wallace on 06.25.14 at 8:18 pm

#11 Okbut

This is where the real economy is and in the presence of unbearable debt and coming inflation what else do you suggest other than stocks and maybe some gold?

?

#22 Daisy Mae on 06.25.14 at 8:24 pm

Ted: “….and you seem like a knowledgeable, disinterested 3rd party.”

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

Garth is VERY knowledgeable…and hardly a ‘disinterested 3rd party’. He’s extremely interested — the ONLY one who cares. Give him a chance. You will NOT be disappointed.

#23 Sheane Wallace on 06.25.14 at 8:25 pm

Joe said today that people should be careful when looking for higher yields. I guess what he meant is that we should be sticking to ‘safe’ investments and keep buying his bonds in a Negative Real Interest Rate environment.

Does this guy understand that his policies are the reason for that? Is he that dumb really?

Increase the interest rates (Poloz) and stop CMHC (Joe).

#24 Sheane Wallace on 06.25.14 at 8:27 pm

#20 Stickler
……………………………
Buy when people are afraid. Stock market is going much higher in mid to long run.

Or buy bonds/keep cash if you feel they are safer. I won’t.

#25 Frustrated on 06.25.14 at 8:38 pm

Im looking at houses because Im ready to buy. I see things are starting to change slowly. I don’t see any more multiple offers. From what Im told, people are putting in offers and getting turned down from the bank because they wont lend out as much as they did in the past. More houses coming up for sale and less buyers then before. Its going to be an interesting second half of the year.

#26 TO Renter on 06.25.14 at 8:40 pm

I will say that the hot housing bubble has done wonders for the grittier, seedier, unloved, depressing areas of the big cities.

Love the revitalization and rebuilding, fingers crossed the quality is built to last (skyscaper glass shedding condos aging into future ghettos notwithstanding).

Everywhere I go undervalued pockets are getting a long overdue makeover as people return from the urban sprawl and take a flyer on an “up and coming” central hood with good transit access… and walk-in for your next tattoo… Long Branch… who’d a thunk it?…

#27 Uh Oh Canada on 06.25.14 at 8:40 pm

Garth, still waiting for your Plan B.

#28 Sheane Wallace on 06.25.14 at 8:46 pm

lies again….

https://ca.finance.yahoo.com/news/employment-minister-tells-skills-summit-canada-face-gap-141346191.html

Here is another ‘professional’ telling us that it is the fault of the young Canadians that they don’t have the skills needed to find a decent job.

Not a word of course that nobody will hire them in the presence of cheap foreign workers that can legally work here thanks to him and his policies. I am sure we will be well rewarded in the private sector in the future for his services.

As for the young Canadians fresh out of universities and colleges? some of them will never work.

#29 My Life is a Pile of Shit on 06.25.14 at 8:48 pm

Garth, your model portfolio has a 7% return only in retrospect. Going forward, it may do well or it may suck; it’s still a gamble. One could have invested in a plethora of mutual funds 7 years ago, and their combined return may be no better than 3% per year since summer ’07. It was the model portfolio 7 years ago. Who could have logically predicted that portfolio would suck? So you think you should’ve done this and that, and you tweak this and that, and you think you have a new, improved model portfolio, which will surely return 7% per year. But the future is a road not travelled. Maybe 7 years from now, you will need another new, improved model portfolio.

There is no static model that works on its own. You need watchful eyes and continuous rebalancing plus modifications as conditions warrant. That is key to consistent returns. As the post says, this requires trust. — Garth

#30 Freedom First on 06.25.14 at 8:48 pm

Frightening reality for many people you describe in your post Garth. And everything you have written in the last few years I have seen played out in my life by the people around me. The good, the bad, and the ugly.

I rarely talk finances with people anymore, but when I was younger I would talk about how I handled my finances with various people. Often people would listen, and then tell me that I worried too much. I was quite startled they would say that at first, but upon reflection I just laughed to myself about it. I never said to these people that I handle my finances like this so I don’t ever have to worry, as I wasn’t worried then nor am I now. I have simply always placed freedom first.

I like what Garth teaches us on his blog. Keeps a person free of living under a cloud of financial pressure, and quite possibly from a self-induced financial suicide, like Liam from Ireland was just telling us about. Don’t go there. Nothing is worth it.

#31 Smoking Man on 06.25.14 at 8:51 pm

So I finally let my wife read the book. She couldn’t get past chapter two…

Called me a depraved psychopath… It’s disgusting,.

It opens in a hotel room in Vegas.

The main character suffering from drug induced hallucinations, his thing is talking to him, with a hat, mini Ray-Bans, smoking a cigar, trying to talk him into doing crazy things..

I thought it was hallarious…

Do I change it…

I mean she hated, really hated 50 shades of Grey.. She only finished it to see what the buzz was.

Is this is a good sign? …. Is the world ready for an in edited Smoking Man

Ladies did anyone of you like 50 shades..?

Stop it. Right. Now. — Garth

#32 Tony on 06.25.14 at 9:02 pm

Re: #5 Joe Schmoe on 06.25.14 at 6:04 pm

I can tell you what has changed. Back in the summer of ’29 shoeshine boys and elevator operators were giving stock tips. Now those same shoeshine boys and elevator operators know Wall Street today is nothing but smoke and mirrors. That’s what has changed over time. I think everyone knows how ponzi or pyramid schemes end and don’t want any part of stocks.

Now the shoeshine boys give mortgage tips. — Garth

#33 Nemesis on 06.25.14 at 9:02 pm

#@Ralph#168/PriorThread. #Tweren’tAlwaysThatWay! #AfterBurnersAreGoArrowSquadron! #GuessWhoseLaidOffEngineers. #TookUncleSamToInfinity&Beyond.

http://youtu.be/S74zf0YZX20

#Well,Actually…ToTheMoon.

http://youtu.be/aSPbwXUq9vM

Not bad for a bunch ‘o GreatWhiteNorth’Champagne’Swillin’, BackBaconChompin’ JohnnyCanucks. Eh!?

[NoteToGT: I’ll deal with HommeDuTabagisme later. If you really want to punish him… We could always find him an agent?]

#34 Cow Man on 06.25.14 at 9:08 pm

Amigos:
Garth is trust worthy. I am 66 and have learned to never trust the Life Insurance Sales guy. No one cares about your assets like you do, yourself.

#35 Happity on 06.25.14 at 9:08 pm

Moody’s changed Canada’s bank outlook to negative due to the gov plan to implement a bail in and the banks poor ability to handle senior debt and the nefarious uninsured deposits.

Looks like folks who are fan boys of the banker system didn’t get that memo…

That did not happen. Senior debt and uninsured deposits were downgraded – a total non-event for the banks. — Garth

#36 Okbut on 06.25.14 at 9:14 pm

>A Canadian housing correction will hurt leveraged homeowners a lot more than the TSX. — Garth

The problem is that “leveraged homeowners” includes a large proportion of those that have money to spend. In the US at least, when real estate crashed it took the stock market with it. I don’t see why the story will unfold any differently here.

Sheane: …what else do you suggest other than stocks and maybe some gold?
Don’t take my advice, I’m heavily invested in the stock market without having any idea what i’m doing.

I would suggest US stocks, but then there’s this:
http://www.usatoday.com/story/money/business/2014/06/25/economy-first-quarter/11332011/

Or maybe Chinese companies? but then there’s this:
http://blogs.marketwatch.com/thetell/2014/06/23/major-housing-bubble-is-achilles-heel-of-chinese-economy/

So what’s left, cash? Ok, but not if inflation spikes, which seems likely to me.

Gold? It’s value is pretty fragile in my opinion, it’s more entrenched than BitCoin and the like, but any valuation above its use in industry seems just as arbitrary.

Any ideas?

#37 Smoking Man on 06.25.14 at 9:15 pm

Stop it. Right. Now. — Garth

OK I will,

But I mean, flying bats, buzzing and swooping the red shark in the desert is so 70s

#38 Happy Renting on 06.25.14 at 9:20 pm

Oh, forgot to mention: out for a walk last week and passed an open house. Beautiful, sunny day, perfect to get the house hormones going. Anyway, on the porch, a huuuuge RBC sign (human height) for mortgages.

I gave it the mother of all eye rolls!

#39 devore on 06.25.14 at 9:21 pm

Right. Because they don’t trust.

They don’t trust, because humans are notoriously lousy at assessing risk. We trust total strangers with our lives every day, not even thinking about it. We blissfully do things that are risky compared to things we are deathly afraid of but are much safer.

#40 High Plains Drifter on 06.25.14 at 9:24 pm

No more temporary help in Alberta to help out serving the permanent working class but temp. help for the corporate class, no problem. This vote getter just may backfire.

#41 justdoit on 06.25.14 at 9:26 pm

Just do it.

I am earning around 13% net of fees this quarter and for the past 18 months. nothing fancy 65/35 split – so very conservative. my equity in my house is earning zilch. which is why I am pushing the wife to sell, rent, and invest the equity.

If you can read, and you have a computer and half a brain, you can invest in a prudent way. That gives you half a brain more than most of the kids giving advice. yikes.

#42 Financial Freedom at 40 on 06.25.14 at 9:30 pm

Re #28 Sheane Wallace

DocZone – Generation Jobless
http://www.cbc.ca/player/Shows/ID/2330990900/

#43 Happity on 06.25.14 at 9:32 pm

That did not happen. Senior debt and uninsured deposits were downgraded – a total non-event for the banks. — Garth

Nice to know you don’t object to the fact of Canadian and global bail in plans.

Who cares? Will never occur. — Garth

#44 devore on 06.25.14 at 9:38 pm

#20 Stickler

A 50% decline requires a 100% gain to recover.

If you bought XIU (Toronto stock exchange 60) in 2001 @ ~17 now it is worth $21.50

1. Nice picking dates selectively.

2. This is severely lacking in balance.

3. You’re not counting yield paid out during this period.

#45 Mr. Frugal on 06.25.14 at 9:39 pm

#9 Happy Renting on 06.25.14 at 6:18 pm

Ted – get yourself and your wife educated. Seriously, there are tons of free websites and books at the library to teach you the fundamentals of investing. Then, when you hire some help, you’ll have some ability to gauge if they’re doing a decent job and not swindling you. If you don’t want to blindly trust, you have to at least know enough to know what’s going on. Yes, it’s a lot of work, but you’re losing a ton of money by not at least knowing the basics and implementing a sensible plan.

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

This is the right on the money! Nobody is as interested in your financial success as you are.

#46 pimco pimp on 06.25.14 at 9:45 pm

So how come never a mention about laddering bonds
rates go up rates go down……smooth
high quality always in fashion

#47 takla on 06.25.14 at 10:03 pm

new construction condo complex in whiterock,im gazeing down off the scaffold as a realestate agent pulls up,out pops her lacky and she pass’s him a handful of red “sold stickers”in bold.

Off he goes and puts one in the window of each of the corner condo’s in the development and hurrys back ..moments later their gone.
Another nesfarious selling ploy confirmed by the super on site as nothing has sold and the marketing just started today!

#48 Catalyst on 06.25.14 at 10:04 pm

“disinterested 3rd party.”

Why would anyone want a disinterested 3rd party to manage their money. I will give you disinterested advise for free – go to any Financial advisor at your bank and have them put you in the lowest MER balanced conservative mutual fund they have.

If you are in your 30s and have $250K in cash with little investment knowledge then be realistic and realize that you have too much to learn to go it alone. Are mutual funds optimal? No. Are they practical for you, I would argue yes.

If your wall is showing water damage from a leak, do you call a plumber or spend the time to read up and fix it yourself. Don’t be ashamed to leave it to the professionals.

#49 Ralph Cramdown on 06.25.14 at 10:09 pm

#29 My Life is a Pile of Shit — “Garth, your model portfolio has a 7% return only in retrospect. Going forward, it may do well or it may suck; it’s still a gamble.”

The fundamental direction is up and to the right. The global population is growing; more people who consume and produce more stuff. We’re getting better at what we do. More efficient, more productive, inventive.

Could it all go to hell on a long-term basis? I can think of a few scenarios: Massive deadly pandemic, nuclear war, sudden growth of a new religion led by a charismatic. Other than that, ou and to the right, with bumpiness.

The interesting question is what happens to markets if humans get better at investing? If more and more people invest for the long term using index funds or in pension plans, trading volume and volatility just keeps dropping and dropping. Who’s left to set the prices?

#50 Chickenlittle on 06.25.14 at 10:10 pm

Hey! Did anyone go to the “Flipping Formula” seminar today in Hamilton?

The “free lunch” was nothing more than a bunch of candy.

2 of my friends went and they said it was a joke.

It was a huge scam all around.

#51 Nemesis on 06.25.14 at 10:19 pm

#SpoilerAlert! #SmokingMan’sNovelRevealed! #Synopsis:AfterTheTalkingPenisPrologue.

http://youtu.be/qcGWLKH2EBI

#52 young & foolish on 06.25.14 at 10:20 pm

Ted could become a Boglehead ……..

#53 Bobs ur uncle on 06.25.14 at 10:24 pm

Smokie, I generally try not to feed a troll, but this one is for you:

http://m.youtube.com/watch?v=_MsO1FLYee8

#54 young & foolish on 06.25.14 at 10:40 pm

“watchful eyes and continuous rebalancing” = fees

A full-service, fee-based advisor should cost no more than 1%, tax-deductible. Way less than most bank mutual funds, with a personalized portfolio. Or, your Mom can do it for you. — Garth

#55 Mark on 06.25.14 at 10:57 pm

“who’s going to have the money to purchase all of the products of the companies who are listed in the stock market? Who’s going to have the money to keep the market inflated with stock “investments”?”

Historically the TSX and the housing market have been inversely correlated. So as houses go down, stocks go up, and vice versa. Keep in mind that a lot of spending isn’t “consumer” spending, but is rather business spending, business investment, etc. Also, as houses go down, risk premia for business borrowing should also decrease as part of the ordinary business cycle (they’re currently quite high).

As it stands, there’s $900B of CMHC-insured subprime credit that is invested in the housing market. If even some of that gets invested in other non-housing sectors of the economy, watch out!

#56 Habs76-79 on 06.25.14 at 11:15 pm

#39Devore on 06.25.14 at 9:21 pm

Right. Because they don’t trust.

They don’t trust, because humans are notoriously lousy at assessing risk. We trust total strangers with our lives every day, not even thinking about it. We blissfully do things that are risky compared to things
we are deathly afraid of but are much safer.

————————————————-

I trust to think in a greater context that what you say is because through evolution (or devolution maybe) humans are losing an ability to assess risk. Life is increasingly bubble wrapped even over the few scant decades I’ve been alive. For instance kids no longer allowed to be kids, Society asking, NO DEMANDING! from govt. and is sorted bureaucracy to solve as many or all problems possible (FAIL). Thus the parts of human evolution that has allowed us to better risk assess in life may be diminishing.

Kids fall, scrape knees, and get hurt, they thus learn. Adults need to fall maybe literally and figuratively too, then learn from hopefully only a series of little mistakes through life to hopefully keep us from making big and sadly critical or fatal ones. Looking for others especially in govt. and its wide bureaucracy to save us all, from all risks, all the time is a HUGE MISTAKE!

#57 4 AM Sunrise on 06.25.14 at 11:16 pm

#48 Catalyst on 06.25.14 at 10:04 pm

I think by the word “disinterested”, Ted meant, “not having a personal interest” i.e. a stake, or an agenda that involves churning clients’ accounts for his own commission-based interest.

#58 VStrom Rider on 06.25.14 at 11:19 pm

“they’ll have $1,511,028 in three decades”

Unless she leaves him, in which case she’ll get most of it and he’ll live out the rest of his life poor. The biggest danger isn’t outliving your money, it’s your wife divorcing you and taking it. It’s a fact that most marriages end in divorce, the chance of two people staying together for 3 decades is slim. That’s why I’m never getting married, I might only be able to contribute $5500 instead of $11000 each year but at least it will be all mine.

#59 Waste of time on 06.25.14 at 11:20 pm

A full-service, fee-based advisor should cost no more than 1%, tax-deductible. Way less than most bank mutual funds, with a personalized portfolio. Or, your Mom can do it for you. — Garth

The 1% on Registered accounts is not tax deductible
It’s 1% plus ETF fees
Still a good deal vs mutuals, GICs etc-just sayin

#60 Tom from Mississauga on 06.25.14 at 11:35 pm

10% average annual return in my TFSA since 2010 has got me to 43K, all now ETF’s (except Gibson Energy). Thanks again for convincing me to open that up Garth! This guy should have a modest spousal RRSP, eh?

#61 Carly in Cabbagetown on 06.25.14 at 11:37 pm

Wicked rain in the GTA tonight!

Makes me wonder about all the storm damage in the area, including tornadoes ripping up suburban subdivisions. Apparently none of it is necessary, and better quality construction would prevent most of the damage.

http://www.citopbroker.com/news/damage-in-ont-tornado-could-have-been-prevented-6851

So do you think those 1.3 million dollar suburban homes that Garth wrote about people lining up for have such basic necessary upgrades to keep their roofs on?

Me neither.

And climate change now shows Canada is warming up twice as fast as other areas.

http://www.wwf.ca/conservation/arctic/threat/

Yup, the Harper environmental solution to sell more tarsands and transport the goop to BC’s pristine shores makes perfect sense.

Not.

Weather extremes like today are the new normal. Humans are too stupid to learn better in time.

#62 Tom from Mississauga on 06.25.14 at 11:42 pm

BTW, the 2 articles the Globe and Mail had with CMHC new CEO Evan Siddall was informative. He may lower the $1 mill cap. Flaherty moved tightening over to CMHC boss, smart. I wonder how his wife will do as premier of Ontario in 4 years.

#63 Prairie Girl on 06.25.14 at 11:45 pm

To JSS re: Saskatchewan Pension Plan
I remember looking into it awhile back
– I was surprised with how few people are invested with them.
– I was impressed by their long-term ROR.
– I learned that I can’t transfer my money out into a self-directed account later.
If you learn anything else, can you post it so I can learn too?

#64 Prairie Girl on 06.25.14 at 11:58 pm

Has anyone read MILLIONAIRE TEACHER by Andrew Hallam? If so, what did you think? Do you think it would be good advice for Ted (i.e. self-directed index investing, rebalancing annually, % in bonds = your age – 10). By the way, Ted, I’m a parent of young kids and have to stealthily sneak time to read (like when I’m in the bathroom for 30secs before one of the offspring barges in because they miss me). So, I often feel overwhelmed with the prospect of educating myself on matters of personal finance and then putting that education into practice. We’re making progress though and it is super-exciting – compound interest and rebalancing turn me on. My husband and I are in the process of firing our Investor’s Group advisor and moving everything into self-directed accounts with Questrade. Any other blog dogs with Questrade out there? I bought Andrew Hallam’s book in CD form and am almost all the way through it, simply by listening to 5 min here and there while cooking after the kids go to bed or in the morning while washing up the dishes before heading off to work. Andrew Hallam says that, from his personal experience, if you read these 2 books, you’ll know more than 99% of investment advisors: A Random Walk Down Wall Street (Burton Malkiel) and Common Sense on Mutual Funds (John Bogle – he’s the ‘buy and hold’ guru). So, for us overwhelmed people, 2 books doesn’t sound like such a big deal after all. I think slowly but surely we’ll make progress and then maybe it’ll be exponential growth after that – the hockey stick curve baby, ohhhhh yeah! I like what one of the other commenters wrote: Up and to the right – with bumps. AWESOME!

#65 Son of Ponzi on 06.26.14 at 12:02 am

Regarding the pic:
Obviously not a soft landing.

#66 JimH on 06.26.14 at 12:10 am

#39 devore

“… They don’t trust, because humans are notoriously lousy at assessing risk. We trust total strangers with our lives every day, not even thinking about it. We blissfully do things that are risky compared to things we are deathly afraid of but are much safer.”
…………………………………………..
Beautifully stated truth, devore. An excellent post! Thanks!

I have read so often about how schools and colleges should be teaching courses in markets, money management and investing.

I’m not saying any of that is a bad thing, but without understanding risk and how we assess and manage it, it will go for naught.

As an investor/speculator with close to 20 years experience now, I have had more than my fair share of triumphs and a little less than my fair share of defeats.

“Mother Market” quickly teaches you humility even as she struggles to teach you to listen and to heed the “language of the market”.

It is painful to read through so many entries on this blog written by intelligent and genuinely searching readers who are terrified of taking effective control over their own financial lives, and have no idea of where to start.

Well, you have to start somewhere, and I suggest you take it slow and by taking baby steps. You did learn to swim, didn’t you? And you did this by closing your eyes and jumping into the deep end? I doubt it.

Garth has freely given of himself and of his excellent investment advice on this blog. There are a many other excellent investment blogs (Minyanville, Abnormal returns, Pragmatic capitalism, The Big Picture, etc, etc.

Toni Turner has written several books on trading that take much of the mystery out of trading the markets for men and women alike, and she’s a winner. There are lots of similar books about Peter Lynch and other great traders, and all have lessons to teach.

Jesse Livermore has been a lifetime hero of mine, and made his first stock trade at the tender age of 15. He had kept his ears open and learned all he could as a stock boy runner in Boston, and when he saw the market conditions and investor sentiment and his charts all coming together, he went all in and bought some stock in Burlington Railway… all of $5 worth. He held the stock for two days and sold it for a profit of $3.12… The date? 1892.

If a fifteen year old boy in 1892 can muster the courage and drive to learn to manage risk, trust in himself and his own judgement, allocate resources, overcome fear and take profits by controlling greed, then those of us with far greater resources really have no excuse.

There is so much bitterness and finger-pointing toward banks, politicians, bureaucrats, immigrants and even hapless real estate agents, who really just saw an opportunity and capitalized on it; (besides, what else can they do?… Heart surgery?)

To subject these folks to our collective venom is a waste of energy and is really just diverting our attention and our abilities from taking charge and control over our own lives and futures.

So, I suggest, like little Jesse, we get educated, learn from our past mistakes and learn from the triumphs of those greater than ourselves, stay humble, and do some hard research into the more than 1,200 ETF’s out there that have good daily volume (for liquidity), represent various sectors of the economy, give diversity by their very nature, and look to be in an uptrend or recovering from a downtrend, and keep an eye on the big picture; like the DOW for example, here;
http://stockcharts.com/h-sc/ui

Now… WWJD? (what would Jesse do?)

And never forget that re-balancing, re-allocation of weightings, and capital preservation are a constant and on-going part of the game. And never, ever forget that yes, just being in cash is sometimes a good position, too!

Good luck. If we want to, we’ll all find our way!

#67 Nemesis on 06.26.14 at 12:24 am

#VevoJourney. #”Don’tStopBelieven'”. #NemWasBornIn’SouthDetroit’.

http://youtu.be/VcjzHMhBtf0

#68 Christopher Lackey on 06.26.14 at 12:40 am

Knowledgeable disinterested 3rd party.

I owe Garth a lot just by coming here. William Bernstein’s “If you can” (google it) is a good starting point.

Index and rebalance into infinity is the short answer. Or, load up the tfsa with small caps, your rsp with div-paying USD stocks, and your non-registered in canadian div-paying blue chips with DRIPs. Either way, don’t get greedy (no one went broke taking a profit) and don’t be afraid to double down when things are really bad (blood in the streets).

#69 Nemesis on 06.26.14 at 12:50 am

#SmokingMan. #PrepareToMeetYourAgent.

http://youtu.be/0HtZ2M4e_AM

#BeCarefulWhatYouWishFor.

http://youtu.be/O1SR-LHpNhc

#70 Brett on 06.26.14 at 1:22 am

It would be great if you could discuss rebalancing in more detail and when it makes sense to take profits. I’ve built a broad based ETF portfolio, based on your recommendations over the years, and the performance has been excellent with the dividends an added bonus. With markets way up, I have some holdings that are approaching 50% gains on paper. It would seem like the right time to take profits but my portfolio mix is already balanced so I’m not sure what the best approach is. Sell, take profits and build up cash reserves temporarily until the next dip or hold and continue to collect dividends and reinvest those?

#71 wallflower on 06.26.14 at 1:23 am

Where are these shoeshine boys?

#72 Jon B on 06.26.14 at 1:36 am

Financial security solution not mentioned: just earn more money.

#73 Ulsterman on 06.26.14 at 2:11 am

Oh no, Ted’s single income saving success is really gonna depress those who thought bloggers were exaggerating their incomes! $325k by his early 30’s just by saving his pennies and not investing? Holy cow Ted, I’d be tempted to just continue whatever it is you’re doing – you’ll be a millionaire by 50 and not have to worry.

#74 investor Rob on 06.26.14 at 2:13 am

1. Read Millioniare Teacher

2. Make an appointment to see Garth

that’s all you need to do

good luck

#75 investor Rob on 06.26.14 at 2:15 am

@ Catalyst

good point but [email protected] won’t have a clue what your talking about

low cost MER WTF??????

#76 Londoner on 06.26.14 at 6:14 am

BOE proposing a limit to the number of mortgages lent at more then 4.5 x earnings by UK lenders. Cap of 15% of total residential mortgages issued.

http://www.bbc.co.uk/news/business-28016952

#77 Stickler on 06.26.14 at 6:26 am

@ #44 devore on 06.25.14 at 9:38 pm

#20 Stickler

A 50% decline requires a 100% gain to recover.

If you bought XIU (Toronto stock exchange 60) in 2001 @ ~17 now it is worth $21.50

1. Nice picking dates selectively.

2. This is severely lacking in balance.

3. You’re not counting yield paid out during this period.

———————————–

You are missing the point. 1. Most people that do invest have a huge home bias. 2. Add in the modest yield and my points still stand.

I agree with international diversification & different asset classes. I’m saying that many “investors” only buy a canadian mutual fund, and have been underwhelmed for 13+ years. And that is why they are scared.

I am not.

But I do think that housing is in for a tumble. As soon as the herd stops believing that home prices will rise automatically.

#78 Howard on 06.26.14 at 7:08 am

While most people buy a home because it’s seen as a good investment, the main reason for buying isn’t that. They just want a nice place to live, without having to deal with incompetent/slummy rental companies, and yes that’s the majority of the rental market. You have to be willing to put up with a ton of crap when renting.

#79 earthboundmisfit on 06.26.14 at 7:12 am

@ Prairie Girl
Dumping Investors Group – Smart
Educating yourselves – Smart
Realizing it’s not rocket science – Smart
You guys are going to be just fine – Congratulations

#80 Mr. Frugal on 06.26.14 at 7:54 am

#63 Prairie Girl on 06.25.14 at 11:58 pm
Has anyone read MILLIONAIRE TEACHER by Andrew Hallam? If so, what did you think?….

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

Yes, The Millionaire Teacher is a great. Here are some others you might want to check out;
– MoneySense Guide to the Perfect Portfolio by Dan Bortolotti (His website http://www.canadiancouchpotato.com is a gold mine!)
– The Gone Fishin’ Portfolio by Alexander Green

You mentioned “The Millionaire Next Door”. This is also an excellent book. We used to have all of our TFSAs and RRSPs in GICs. For the couple of years, we’ve been in the process of rolling everything over into a balanced portfolio (i.e. ETFs and e-Series Mutual Funds). The interesting thing is that now when I go to the bank, I know ALOT more than the “financial advisor”.

Some people would rather have somebody else do this for them and that’s fine. But, I think that if you read alot and setup a good plan you can manage it by yourself; there’s no need for a financial planner.

That could be a false economy, when you’re likely paying more to the bank in mutual fund MERs (not deductible) than you’d pay to someone for managing the portfolio, giving tax planning help and plotting your future. — Garth

#81 Obvious Truth on 06.26.14 at 8:14 am

Discussions on post about investing are getting really good. People are asking questions and not afraid to learn. learning about investing is a process and will evolve over time.

Don’t get caught up in popular opinions and continue to read. The majority of people have no clue about investing. But there is no magic or mystery. Most people like Ted need to keep their risk low for quite a period of time. He’s saved a lot and has normal questions and worries.

Garth gives you the roadmap regularly.

Why not try one of those phantom model portfolios for a while. You sound like a smart couple. Have fun with it. There is no hurry.

Personally I’ve trimmed for the summer. Markets look tired to me and in need of a vacation. It’s just part of my own trim to rotate/buy cheap sell expensive.

#82 jess on 06.26.14 at 8:16 am

“By far the country’s largest payday lender, Wonga was revealed to have sent letters to tens of thousands of its customers pretending to be solicitors in order to scare them into paying the debts more quickly…It made up plausible sounding names – ‘Chainey, D’Amato & Shannon’ and ‘Barker & Lowe’ – and printed headed letter paper to make sure the con worked.”

Read more: http://www.thisismoney.co.uk/money/cardsloans/article-2669413/ED-MONK-Wonga-sending-fake-solicitors-letters-customers-shows-really-thinks-them.html#ixzz35kKdBrPa
================

New York Attorney General says it is set to file a ‘securities fraud’ lawsuit against Barclays
London-listed bank accused of misrepresenting safety of its US-based ‘dark pool’ trading system
NYAG complaint portrays ‘a flagrant pattern of fraud, deception and dishonesty with Barclays clients and the investing public’

Broker-run trading systems known as dark pools, where participants are anonymous and trading information is hidden until after the trades are completed, are a key focus of Schneiderman’s sweeping investigation into the U.S. stock market.

By Ben Griffiths and Jonathon Hopkins

PUBLISHED: 07:41 GMT, 26 June 2014 | UPDATED: 09:55 GMT, 26 June 2014

Read more: http://www.thisismoney.co.uk/money/markets/article-2670418/Barclays-stung-US-lawsuit-dark-pool-system.html#ixzz35kLuO0Zy

relationships
company inside a company inside a company.”
Sun, Sand and Dirty Money

Seychelles, a thousand miles from anywhere, is an offshore magnet for money launderers and tax dodgers. A look at this corruption-haunted archipelago shows how the offshore secrecy system has grown — and where it’s going
http://www.icij.org/offshore/sun-and-shadows-how-island-paradise-became-haven-dirty-money

#83 Porsche on 06.26.14 at 8:45 am

#53 Bobs ur uncle

Good one!

#84 Mr. Frugal on 06.26.14 at 8:46 am

That could be a false economy, when you’re likely paying more to the bank in mutual fund MERs (not deductible) than you’d pay to someone for managing the portfolio, giving tax planning help and plotting your future. — Garth

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

Garth – I love everything you do here! I really do. I’m not trying to pick a fight. But, I think that some people are able to manage their own finances; provided they are willing to put in the effort to educate themselves. I also think that 1% adds up to alot of money on a larger portfolio. I think there would a market for financial advisors that charge by the hour and act as a mentor for DIY investors. Basically, you would pay them a flat fee to review your plan and they would provide feedback and suggestions.

I have never met a DIY investor with the disciple or the balls to succeed at tasks such as rebalancing. Why would you not get some help with something as vital as lifetime financial security? — Garth

#85 Roial1 on 06.26.14 at 8:46 am

Garth, how about a name change from TFSA to TFIA.
Tax free INVESTMENT fund.

Maybe we can change the vector of the view of this tool.

Al in lotus land (ya, I’m home again)

#86 Aggregator on 06.26.14 at 8:56 am

The tree huggers say condos should be built better and fetch higher prices.

An urban planner warns: Beware of the too-cheap Toronto condo

Ute Lehrer, an associate professor at York University, would like to see people paying more for Toronto condos.

Why? Because you get what you pay for, she says.

“Sometimes you have to invest more up front in order to save later,” says Ms. Lehrer, who has a PhD in urban planning. “If I had the authority to advise, I would actually suggest that the entire building industry produce higher-quality condominiums over all, and that, of course, means higher prices.”

I don't know what planet Ms. Lehrer lives on, but I do know taxpayers are paying her a hefty $113,500 salary to advise on economical issues that she is absolutely clueless about.

#87 Ralph Cramdown on 06.26.14 at 9:04 am

#76 Stickler — “Add in the modest yield and my points still stand.”

I’m sorry, but no.

Talking about investment returns over fourteen years and “forgetting” about a 2% yield is a gross misrepresentation. XIU paid out $3.20 in that time, jumping your gains from 26% up to 45% if the dividends weren’t reinvested, and higher (with the benefits of dollar cost averaging) if they were.

An extra 2% compounded over a typical investor’s portfolio’s lifetime is the difference between retiring well-off and retiring rich. This is why fees, diversification and rebalancing are so important.

I agree with you about many investors having home bias, and too-high fees, but let’s not make poor arguments by forgetting about the dividends.

#88 Ralph Cramdown on 06.26.14 at 9:10 am

Garth, you’ve stressed many times how planners’ fees are tax deductible while mutual fund MERs aren’t.

Does it matter? MERs are sucked out of a mutual fund before the unitholders get income or capital gains, so they’re effectively paid in pre-tax dollars, I think (as long as the fund is making money…). Whereas advisor’s fees are paid with after-tax dollars, and deductible.

Isn’t this a wash? Honest question, because I’m not entirely sure.

A fee is a fee. The average equity mutual fund MER is 2.5%, and reduces performance by that measure. This is an absolute cost to an investor. An advisor’s fee of 1% is less than half the fund charge and after being deducted typically falls to a real cost of 0.7%. Do the math. Over a number of years the difference can be dramatic. Plus, you get someone to talk to. — Garth

#89 tripp on 06.26.14 at 9:24 am

Their lack of trust is not surprising. It is difficult to find a good mechanic, plumber, roofer, dentist etc. I don’t see why finding a good financial/investment advisor would be any different.

#90 Ralph Cramdown on 06.26.14 at 9:29 am

Saskatchewan Pension Plan:

Interesting. I looked, and I thought the 1% expenses were a bit high, but then I read this:
http://fullcomment.nationalpost.com/2014/06/25/forcing-ontarios-chronic-under-savers-to-contribute-to-new-pension-plan-wont-save-money/

I think the really big plans (CPPIB, Teachers, CALPERS) have lower expenses and better track records. Low management fees and expenses should be one of the major advantages of a well run pension plan, along with ability to get into asset classes that individual investors can’t.

The other problem with the SPP is that your estate gets your money back if you die early. You might think of that as a feature, but it isn’t. The point of pensions is to provide a large pool of people with a life income. Just as life insurance customers who live a long time subsidize the payouts of those who die early, pooled pension customers who die early subsidize those who live long.

The SPP isn’t that. When you retire, you can buy an annuity, and those are pooled, but lots of life insurance companies sell annuities. Are SPP’s rates better?

In the gradual shift from defined benefit pooled pensions to defined contribution individual plans, we’ve completely lost the life income/pooled risk aspect — the longevity insurance — that pensions traditionally provided. We’ve gone back 200 years in financial innovation.

#91 Londoner on 06.26.14 at 9:29 am

Carney speaking about the proposals made by the BOE’s FPC to control the expansion of the UK housing market:

“The actions of the FPC shouldn’t prevent households who can afford a mortgage from obtaining them or they shouldn’t impose limits on the availability of lending to support the expansion. The measures are proportionate. They don’t prohibit all high loan to income lending. In some cases, such as for first time buyers, these mortgages can be appropriate. Currently around 5% of all new mortgages are to first time buyers who borrow at more than four and a half times their income. Such lending can continue and even increase under the measures announced today.”

#92 Rational Optimist on 06.26.14 at 9:29 am

50 Chickenlittle on 06.25.14 at 10:10 pm

“Hey! Did anyone go to the “Flipping Formula” seminar today in Hamilton?

The “free lunch” was nothing more than a bunch of candy. “

TANSTAAFL

#93 rawdiswar on 06.26.14 at 9:46 am

I’m a 30 yr old self taught investor with ~90K in index funds/ETF’s. I rebalance regularly but don’t think it’s worth anyone’s time or my money to pay someone to manage my meagre portfolio. When is it worthwhile to pay a fee-based advisor 1%?

Most of what I’ve learned has come from Canadian Couch Potato, The Millionaire Teacher and A Random Walk Down Wall Street. Also a tip of my cap to David Chilton and Khan Academy.

Want to meet people from my generation (1984) with the least financial common sense? Go to any Canadian university grad school department. The level of debt has basically so high many have given up hope of ever being financially independent or owning a home.

Oh well.

#94 World Traveller on 06.26.14 at 9:52 am

Stop it. Right. Now. — Garth

Hey Garth, I think you have created a monster, maybe try the DELETED button again?

#95 Keith in Calgary on 06.26.14 at 9:54 am

What 95% of you are seeing (and 75% don’t realize) is that we are currently living thru the greatest false economy of our time. Absolutely nothing about what is occurring is based in the reality of genuine consumer demand and sound economics, spun off as a function of a sound and stable long term “moral” financial policy.

In a situation like this you do not invest, for nothing is really worth anything, today, all assets are, at various times, in a government supported bubble……..so what you do is, you trade……you do not invest.

You trade……….

#96 Doug in London on 06.26.14 at 9:58 am

Ralph Cramdown, post #49:
The interesting question is what happens to markets if humans get better at investing? I’ve wondered the same thing. While you wouldn’t get the same buying and selling opportunities you get now, the system would be more stable and require less costly bailouts at the taxpayer’s expense.

@Carly in Cabbagetown, post #60:
You’re one of a very small minority who actually gets what’s really going on. Right now the focus is on economic growth at all costs, and that any initiative to cut greenhouse gas emissions is seen as too costly. It’s going to take economists putting forth a business case that doing nothing will be more costly than making a serious attempt to cut greenhouse gas emissions now before any serious action is taken. The trouble is, by the time most of the world figures that out it may be too late.

#97 Daisy Mae on 06.26.14 at 9:59 am

#57 4 AM Sunrise
#48 Catalyst

I think by the word “disinterested”, Ted meant “not having a personal interest”…

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

Yes. It was simply a bad choice of words. But if he wants someone to trust, he should know he can trust Garth.

#98 Rick on 06.26.14 at 10:03 am

As noted in the recently published _Death_of_Money, Ted’s behavior is understandable and rational. The policy of low interest rates is calculated to get people to spend their money instead of saving, but has the opposite effect. As noted in the book, a young person in their 20s saving for a downpayment on a house, or an older person in, or close to, retirement is risking losing 30% of their savings overnight by investing in the stock market. So instead they compensate for the low savings rates by saving even more and spending less and putting their money in guaranteed investments with piss poor returns that at least are guaranteed.

As for the so-called “diversified investment portfolio” another book, Worry Free Investing, by Zvi Bodie, debunks that.

_How_To_Make_Good_Decisions_, by Gerd Gigerenzer, Gerd Gigerenzer, uses the “turkey illusion” to demonstrate the financial industry’s approach to modelling decision making under uncertainty. We pay rich financial services folks to make predictions based on the past that are only ever correct by chance, in order to absolve ourselves of responsibility for when they go wrong.

Imagine you’re a turkey. Every day you’re approached by a man with a bucket of corn who feeds you. Your mental model is based on what has occurred in the past: the farmer feeds you. But the turkey is unaware or chooses to be unaware that .. Thanksgiving always comes.

Invested turkeys have earned an average annual return on a 60/40 diversified portfolio of 7.3% over the past 10 years – which included the biggest meltdown in a generation. And nobody, ever, has lost 30% of their money overnight in the stock market, unless they bought some individual turkey stock. I think you need to lay off the corn. — Garth

#99 Daisy Mae on 06.26.14 at 10:09 am

#63 Prairie Girl: “My husband and I are in the process of firing our Investor’s Group advisor….”

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

Good plan!

#100 };-) aka Devil's Advocate on 06.26.14 at 10:09 am

This is probably why another Big Bank survey found 41% of all Boomers expect they’ll have to dump their houses, or at least downsize, in order to finance their retirements. That process is expected to start sometime in the next five years – just when I’m anticipating real estate values to be a steady downward glide. Good luck to them. – Garth

It is ever thus. We do tend to at least downsize as we head into those more sedentary years. As far as the housing market goes thing always seem to settle out into some form of equilibrium. I am not too concerned.

According to surveys Boomers have, on average, 1.6 real estate transactions left in them. The Millennials on the other hand have over 6. I’m not suggesting they’re going to save our bacon – they want quite different housing than Boomers did in their equivalent years.

Paradoxically what Millennials seek in housing is happens to be just what Boomers are now seeking in their next home (walkability, eco-friendly, smaller homes). Problem is Boomers have more money with which to pay for it and can outbid Millennials. Consequently Millennials are being pushed into that which the Boomers are leaving behind as the only affordable option left for them. What’s the outcome?

Boomers are prepared to pay proportionately more for their next home than the selling price of that which they leave behind. (Check out the prices of a retirement rancher in Kelowna’s South End compared to an executive two storey in Kelowna’s Kettle Valley neighbourhood). So really, it is all working out just fine.

Oh and let’s not forget that there are currently more Mellinnials than there are Boomers. So I think there will still be a decent enough market for those homes Boomers will be selling.

Yes, certainly SHIFT does happen.

#101 flamed out in kitchener on 06.26.14 at 10:11 am

The understanding (lack of) of RRSP’s always astounds me. There is enough material out there to educate people on RRSP’s to sink a small ship; yet few seem to grasp what an RRSP really is. It’s so bad, that when I started withdrawing from mine at age 52 (do not want a RRIF to maintain full flexibility of withdrawal decisions) the bank told me I couldn’t do that until age 71 … What the [email protected]*# … had to get senior manager involved to explain to [email protected] that I could take out whatever I wanted, when I wanted (with holdback of course) … Wow! A friend of mine thinks his RRSP is a singular investment on its own … I told him it’s a tax deferral container (classic blank deer in headlights stare response) – he also refuses to open any statements he gets so he doesn’t even know his account balance !!! Wow again !!

Garth, you have my respect for continually trying to educate … I gave up long ago.

#102 Daisy Mae on 06.26.14 at 10:15 am

#79 Mr. Frugal: “But, I think that if you read alot and setup a good plan you can manage it by yourself; there’s no need for a financial planner.”

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

“Anyone who represents himself in court has a fool for a client” — same holds true when investing. It’s far too complicated for the average ‘Joe’.

#103 Shawn on 06.26.14 at 10:17 am

You’re Savier than you think?

Here’s a shocker forom Statistics Canada

“Following the (second world) war, gross national saving rates in Canada averaged about 25% for the period from 1950 to 1971, above the 22% average rate for that period in the United States. The Canadian saving rate declined during the 1970s and 1980s, and then stabilized around an average of 22% for the 1990-to-2011 period, not significantly different from the saving rate in the United States.

http://www.statcan.gc.ca/daily-quotidien/140626/dq140626c-eng.htm

******************************************
This suggests that overall Canadians, including through corporations are saving a lot and and the savings rate has not declined much at all.

As far as household savings go, the often-referred-to 20% plus household savings rate from circa 1980 is shown is these charts to have been basically a spike, a statistical anomoly. If people were “saving” a lot in 1980 it was not actual savings but probably more a deperate attempt to pay dowm mortgages because of the massive interest rates.

Anyone who was following what the economy was doing in 1975 through 1985 knows thoese were hard times with high unemployment. The notion that average household savings (as in money going into investment and savings accounts) was really 20% back then has got to be a statistical artifact.

From a quick read, the statistics Canad article does not really explain what is meant by “savngs”. Is paying down a debt savings? I believe it is on their definition. But that’s not the common definition of saving.

#104 calgary Rip off on 06.26.14 at 10:19 am

What nonsense.

You havent provided different angles, only one.

Yes housing is overpriced. What about different provinces? You fail to mention whether there are rent controls from this reader. If there arent, the renter if they can find a place is at the whim of the landlord.

It is not as simple as investing. It is about having a place to live. Investing is pie in the sky thinking. Try imagining if you cannot find a rental. That is often the reality in Calgary.

This blog does a great disservice by not specifying that investing and renting may not alway be the best option. If the people that are investing and renting are in their 20s, 30s, 40s, what happens if they live until they are 100? Do you advocate renting for the next 60 years? Seriously? D-U-M-B.

It is a fallacy to think you can trust anyone financially. Everything and everyone is crooked. Banks, landlords, etc.

It is best instead to look at specific personal variables rather than blanket statements about buying or renting.

In my case renting was the same cost as a mortgage. Given that my job is secure and I have at least another 30 years to work, why would I rent unless the job seems insecure? If the job were insecure, or it seemed highly likely that prices would drop then, yes, renting would be better. As it stands each year my employer sponsored benefits helps to establish an rsp which I choose how much I want to go in and at which profile, high, medium, or low risk.

These matters are not as simple as buying a fruitcake at the nearest superstore, in some cases renting may be better, in some cases acquiring a mortgage. And if you are lucky and have money after all that you can invest.

Get your facts straight.

#105 Terry on 06.26.14 at 10:20 am

Some interesting observations from Edward Hadas of Reuters. Psychology and easy money explains the housing boom in Hoser-land, nothing else. When the mood turns, it will turn nasty.
http://blogs.reuters.com/edward-hadas/2014/06/25/housing-the-ultimate-momentum-trade/

#106 Daisy Mae on 06.26.14 at 10:20 am

#80 Obvious Trusth: “Why not try one of those phantom model portfolios for a while. You sound like a smart couple. Have fun with it. There is no hurry.”

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

There are many other ways to “have fun”. Planning for your retirement isn’t one of them. ;-)

#107 Pounding sand in Peachland on 06.26.14 at 10:50 am

#17 joe…I like the q5 Audi

#108 HD on 06.26.14 at 11:32 am

#49 Ralph Cramdown on 06.25.14 at 10:09 pm

The interesting question is what happens to markets if humans get better at investing? If more and more people invest for the long term using index funds or in pension plans, trading volume and volatility just keeps dropping and dropping. Who’s left to set the prices?

I’ve always wondered about the same thing.

There are lots of good quality financial blogs/books out there and the information is easily accessible for virtually anyone who wants to learn.

As a result, it is very possible for more people to come around and realize that investing long term in the broad market is the way to go.

Will it happen eventually? Hard to say……or maybe the herd will never get it even when available knowledge is right in front of them.

Best,

HD

#109 Financial Freedom at 40 on 06.26.14 at 11:36 am

Re: #79 Mr. Frugal

Also supportive of managing your own money and educating yourself at first, ideally when you are young. Then you are in a position to be a much more active partner with your adviser.

The guy/gal in the cubicle at the bank, or even their investment arm, in my experience, is not the same as the guy/gal in the nice corner office of the wealth management firm.

I also found there are many interesting products available that I can’t access as a private individual with a DIY approach to money management.

You also get tax planning advice, insurance advice, estate planning tips….

Best money I ever spent. Shop around. Compare. Sign up when you find someone smarter than you with access to things you didn’t know existed.

That could be a false economy, when you’re likely paying more to the bank in mutual fund MERs (not deductible) than you’d pay to someone for managing the portfolio, giving tax planning help and plotting your future. — Garth

#110 happity on 06.26.14 at 11:41 am

Can you taper a ponzi scheme?

Should you buy $us investments when the brics are dumping?

Should you invest in equities when central banks own 50% and have their own admitted agenda, like the recent mark carney admission if manipulating markets?

Should you sell your house and dump the proceeds into a balanced portfolio of the above?

#111 Financial Freedom at 40 on 06.26.14 at 11:47 am

Postscript…
One quick indicator that a planner might be ‘smarter’ than me was their CFA, CFP, MAcc, CA, CIM designations. I can add a few letters after my name but simply haven’t had the time or need to top up on all the financial ones. But meet with these nice talkative folks and hear their pitch and approach and all the diverse goodies they have access to – that part is free. You may be impressed, and sleep even better.

I still manage a portion of my own portfolio myself, just for the satisfaction, mental exercise and occasional dose of humility. You don’t have to put all eggs in one basket.

#112 Ralph Cramdown on 06.26.14 at 12:04 pm

#100 Daisy Mae — “Anyone who represents himself in court has a fool for a client” — same holds true when investing. It’s far too complicated for the average ‘Joe’.

Pshaw!

Trying to beat a benchmark is hard — you’re pitting yourself against some of the smartest people in your country, and in the world. Trying to match a benchmark is easy; you’re pitting yourself against some of the stupidest people in the world, they who buy high fee mutual funds, chase performance and sell at market bottoms.

Read some Jack Bogle and/or Canadian Couch Potato (6 hours, maybe), learn about tax implications of various investments in TFSAs, RRSPs and non-registered accounts (maybe another 3-6 hours), pick a rebalancing strategy (1 hour?), find low cost funds to implement your strategy (3 hours?) and check your portfolio and rebalance according to that strategy (1-2 hours per year). Spend time reading about market psychology and history, and human psychology in general, to keep you from following the herd to slaughter.

Unlike teaching yourself plumbing or electrical, where all the books in the library say pretty much the same thing, investing is different. Many of the books in the library are geared to people trying to outperform the market. There’s many different ways of doing that, and they conflict with each other. Index investing is unsexy, and comparatively few books are devoted to it.

Further, the entire financial industry is split into two broad camps. The fee based camp often paints investing as too complicated for your puny little brain to handle, and the commission based camp says it’s easy, you just have to keep buying and selling, at least 100 trades a quarter, and take a drink every time Cramer’s eyebrows go up.

There’s nothing wrong with hiring skilled help for appropriate compensation. But if you can teach yourself minor car repair, plumbing or how to change a light fixture, you can probably teach yourself index investing.

#113 Casual Observer on 06.26.14 at 12:06 pm

#36 Okbut on 06.25.14 at 9:14 pm
“So what’s left, cash? Ok, but not if inflation spikes, which seems likely to me… Any ideas?”

Here’s what I’ve done.

http://www.greaterfool.ca/2014/06/22/stress/#comment-310993

#114 brainsail on 06.26.14 at 12:08 pm

“In a coordinated move, the Bank of England and U.K. government unveiled three measures aimed at curbing some of the excesses. ”

“How to tame your property bubble”

http://money.cnn.com/2014/06/26/news/economy/property-uk-curbs/index.html

“1. Loans worth more than 4.5 times income must make up no more than 15% of new mortgages.”

“2. Mortgages worth more than that will no longer qualify for government guarantees under its Help-to-Buy program.”

“3. Banks will have to assess whether borrowers could make their repayments if interest rates rise by three percentage points in five years.”

#115 TEMPLE on 06.26.14 at 12:09 pm

I have never met a DIY investor with the disciple or the balls to succeed at tasks such as rebalancing. Why would you not get some help with something as vital as lifetime financial security? — Garth

Garth, that is a logical fallacy. Just because you have never met a DIY investor with discipline doesn’t mean they aren’t out there. Your line of work brings you into frequent contact with people who need your expertise. By definition, a successful and disciplined DIY investor is unlikely to contact you.

As it happens, there are a number of successful DIY investors roaming around on your blog. I don’t know if you qualify that as “meeting” but they are here, quietly making money in the shadow of index funds.

I’ve bickered with you before about fees, but fees are one of the main reasons I don’t use an investment advisor. Your fee ends up being 0.7% after tax for well-heeling clients, presumably before ETFs take their little bite as well. That adds up! For someone doing well on their own, why drag down returns by paying someone else to do the same thing?

I’ve sent clients your way because I respect what you do for people who need investing help, but I think you are creating a DIY investor strawman.

TEMPLE

#116 TO Renter on 06.26.14 at 12:31 pm

Apparently we are mostly “losers”

http://www.huffingtonpost.com/dan-solin/canadian-investors-are-lo_b_5517436.html

(Basically index funds and ETFs vs expensive actively managed funds)

#117 Casual Observer on 06.26.14 at 12:53 pm

#102 calgary Rip off on 06.26.14 at 10:19 am
“In my case renting was the same cost as a mortgage. Given that my job is secure and I have at least another 30 years to work, why would I rent… ?”

If we could lock in our low mortgage rates for 30 years like the Americans can, I’d say go ahead.

But given the fact that you will most likely have to renew in 5 years or less, I would say interest rate risk is one of the major reasons to not buy.

Not to mention property taxes, strata fees, maintenance, etc.

#118 Big Brother on 06.26.14 at 1:51 pm

MKULTRA says Smoking Man was at his casino last night hallucinating again. He wants to be a Hunter S Thompson but we programmed him to be a fat white guy with straggly hair.

#119 AB Boxster on 06.26.14 at 3:10 pm

Um Garth,

They don’t trust because so many in the financial services industry are untrustworthy.

Do you trust a doctor to give honest medical advice?
Perhaps because the profession has high ethical, moral and education standards and a strong regulatory body.

Do you trust your lawyer to give you fair legal advice?
Perhaps because the profession has education standards and a regulatory body.

Do you trust a pharmacist to give you honest drug and health advice?
Perhaps because the profession has very high educational standards, and a strong regulatory body.

Do you trust a financial advisor to give you honest financial advice?
Well, there are no (or mostly pathetic) educational standards for advisors, there is no fiduciary responsibility to the clients they serve, there is no governing body with any teeth to address unethical behavior or incompetence, and most of them work for the banks to plug their high MER mutual funds.

Yep, sounds like a great industry to trust one’s life savings.

Sure, some can do their own investing, just as some can do their own surgery, their own lawyering, and self medication.

The vast majority rely on professionals to provide these service for them.

Yet in financial services most advisors are glorified salespersons, with little true education, are rarely held accountable for their actions or ethics.

Consider if other professions (doctors, lawyers, pharmacists) had the same professional, ethical and educational standards as those in the financial services industry.
These professions would be as useless as most financial advisors.

Instead of lamenting over peoples fears, perhaps lament over the state of this industry.

All good reasons to steer clear of the mutual fund salespeople at the bank, insurance floggers or anyone paid by commission. Find a fee-based advisor, fully licensed and regulated by IIROC, who absolutely has an ethical and fiduciary responsibility to clients. — Garth

#120 Bill Gable on 06.26.14 at 3:21 pm

“Federal Reserve Bank of St. Louis President James Bullard predicted the central bank will raise interest rates starting in the first quarter of 2015, sooner than most of his colleagues think, as unemployment falls and inflation quickens.” [BLOOMBERG].

Totally in line with what Garth and his business partner, Scott Thomensen have been warning us about.

Link: http://tinyurl.com/lxen2k2

#121 Corban on 06.26.14 at 4:02 pm

Sobeys is closing 50 stores in western canada.

#122 espressobob on 06.26.14 at 4:16 pm

I have never met a DIY investor with the discipline or the balls to succeed at tasks such as rebalancing. – GARTH

Seriously????????? Are you educating or selling?

Seriously. Never seen it. — Garth

#123 Smoking Man on 06.26.14 at 4:21 pm

#119 Bill Gable on 06.26.14 at 3:21 pm“Federal Reserve Bank of St. Louis President James Bullard predicted the central bank will raise interest rates starting in the first quarter of 2015, sooner than most of his colleagues think, as unemployment falls and inflation quickens.” [BLOOMBERG].

Totally in line with what Garth and his business partner, Scott Thomensen have been warning us about.

Link: http://tinyurl.com/lxen2k2
…….

So that’s it then, so dude at fed said so…

I AM SOUTING

REVISED GDP Q1-( 2.9)
That’s a minus…..

#124 Shawn on 06.26.14 at 4:24 pm

Job losses

Sobeys is closing 50 stores in western canada.

And yet they did not have to give special notice to the Federal labour Minister as apparently Bell Media had to do when laying off just 120 people.

It’s bizzarre that the labour minister was notified of 120 layoffs at Bell Media. Smacks of over-regulation and micro-management.

Anyhow, not to worry we have plenty of grocery stores in the West. Efficency is good for the economy. Thousands upon thousands of grocery workers were hired by Target and Walmart and others as new stores were opened in the west int he past couple of years.

Broadcasting is federally-regulated. Grocery stores are not. — Garth

#125 cash hater on 06.26.14 at 5:01 pm

Just in from CBC.
CBC to cut 1500 jobs in the next 5 years.

Yeap, some strong economy as realturds would so nicely put it.


Remember what I said this week about media canaries? — Garth

#126 Renter's Revenge! on 06.26.14 at 5:39 pm

@118 AB Boxster:

I do my own self-medicating, and I’m not even a doctor! :)

#127 Smoking Man on 06.26.14 at 5:53 pm

#117 Big Brother on 06.26.14 at 1:51 pm

Hunter S Thomson. Held back….

Wrong about casino…

Let’s see how good you are.. Where am I going this weekend.

#128 maxx on 06.26.14 at 6:45 pm

#6 totalinvestor.com on 06.25.14 at 6:10 pm

“Rule number 1, always pay yourself first. Amazing how many people don’t even get this part right.”

If people learn nothing else, this is the one to internalize. Not a thing of beauty, not sexy nor even interesting…..but oh lord what spectacular results it produces.

To emerge around mid-life, fully owning your life is a feeling like no other. None.

Great post.

#129 maxx on 06.26.14 at 7:02 pm

#8 4 AM Sunrise on 06.25.14 at 6:17 pm

“Back when I worked at a bank, I helped a 17-year-old customer once. He had $30k that was earning 1.2%.

– So how much will I get at the end of the year?
– $360.
– WHOA! That’s like, SO much money!
– No, it’s not…”

Spoken like a true bank employee. With all due respect, it IS a lot of money and that perception or mindset should endure throughout life. No exceptions.

Would the young learn that every single nickel counts towards their wealth and that every single nickel saved on all line items goes directly to growing their net worth, they could not but become rich. It is an inevitability.

Very, very few are richer than they think. The irony is that many wealthy people think they are poorer than they are.

Those with almost zero assets believe such drivel.

#130 Whichway on 06.27.14 at 3:48 pm

Hey Garth, how much of below do you think is true ?

http://www.vancitybuzz.com/2014/06/brentwood-tower-sells-out-buyers-camp-three-days/

Just curious on your thoughts, as I think it is insane

cheers