Think rich

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Three days ago, before I became disgusted and quit writing until now, this blog compared investing in a house to putting your wealth in financial assets over the last seven years.

There was a reason I did so. To show that even with the worst stock market dump in 80 years, a balanced and diversified portfolio did just as well as a house. In almost all markets, it did better. Plus, it was liquid, flexible and provided income, while a house could be illiquid, immobile and costs a whack of money to own – interest, property tax, maintenance, insurance, closing fees, pressure-treated two-by-fours and a new kitchen with stone backsplash. The message was intended to be simple: don’t put all your eggs in one basket, especially when you need massive debt to do so.

So why was I too disgusted at carry on?

Because I was bombarded with messages like this: “You are a charlatan, Garth. Manipulating math, as always. Even you are not taking mortgage leverage into account (but everybody does when investing into housing.) Glad I didn’t listen to you.”

Sigh. I have concluded (it took me a while – I’m thick) that most people will never, ever understand what I yammer about. They don’t comprehend what risk is, so they jump in. The house culture that’s developed around us makes most middle-class couples think like those commenters over the last three days. There’s only one financial strategy for those people – real estate, and the borrowing required to get it.

In fact, have you noticed mortgages are now good debt? People speak of leverage like it’s a sure-fire tool for ratcheting up wealth. It’s the cult of the 5%-own condo buyer, who truly believes her ‘investment’ will only ever increase in value, despite overwhelming evidence to the contrary, and the fact home loans aren’t tax-deductible.

The real estate myth has also spawned a false belief house gains are tax-free while investment profits are taxed away by 50%. In truth, to buy a $500,000 house in Toronto, for example, costs $12,500 in tax just to sign the deed, and another $25,000 in property tax over five years, plus a further $25,000 in commission to sell, plus HST, and none of it is deductible from income. That means the house has to appreciate 12% to break even. Meanwhile most investors keep 85% of their gains from investment portfolios, after tax, and can deduct all costs incurred to own it.

But this is not my point today. Let’s go back to risk.

Because most Canadians live beyond their means, and yet feel entitled to a house with Moen taps and granite countertops, whatever the cost, they borrow from the future to finance today. This works so long as the future behaves. But you have no control over that. So the more you borrow, the greater the risk.

Americans did the same a few years back, bidding houses higher and swallowing big loans to get in on a sure thing – just like us. Then the market topped, slid lower over the course of a few years, and wiped out families who gambled on tomorrow. Because middle class Americans, just like us, had so much of their net worth in a single asset and too on so much leverage to get it, this was a killer.

A New York University prof, Edward Wolff, has done some interesting research for us. He found rich people (the top 1%) have just 9% of their net worth in their houses, while middle-class Americans have 63% there. Worse, rich people account for just 5% of outstanding consumer debt, while middle-class families hold 74% of it. So, it’s true. The rich own equity. The rest own debt.

In fact, rich people have 47% of their net worth in business assets and another 30% in financial stuff. They are as massively diversified as the average schmuck is not. Not surprisingly, the rich are getting a lot richer lately. The rest of us, not so much. Just more indebted.

So when this one asset that most people have hitched their star to falters, the consequences can be extreme. And that’s why we have such income disparity in American following the big housing blow-out of 2007-10.

Says Wolff (as summarized by The Wall Street Journal):

The research helps explain part of why the recent recession, which hinged on a housing bust, was so much more difficult for the middle class than a typical recession. It also helps explains why the recovery has been do disappointing to many. Housing has regained its ground only slowly while corporate profitability has boomed. In other words, we’ve seen slow growth in the major middle class asset, but substantial growth in the assets held by the wealthiest.

By the way, here’s how assets and debt shake out among Americans. I fully expect that if we had similar, current data for Canadians, you’d see the same pattern. Take a look at where the debt sits:

OWN THE DEBT

Well, there ya go. If our economy does great over the next decade, with sustained low rates, robust growth, lots of new jobs, revved-up commodity prices, real estate appreciation and steadily higher incomes, then all the house-lusty people have nothing to worry about.

But, in case not, ape the rich.

262 comments ↓

#1 North Burnaby on 12.28.14 at 1:57 pm

How was your boxing day shopping, Garth?

#2 DM in C on 12.28.14 at 2:02 pm

Sorry to hear you were disgusted – – thought you were taking a well deserved break.

It’s true, some people will never get it. Particularly if they’re the ones over-invested in one asset. They think they’re safe if they convince others to be as well.

Deniers. So what, someday they’ll learn. I believe in karma. And I love schadenfreude.

Thanks for the blog Garth. I love it, and have learned much.

#3 North Burnaby on 12.28.14 at 2:02 pm

The rich have a lot of money, hence they can afford to diversify their investments… Such a flawed statistic, Garth. Poor people cannot afford to have stock portfolio + rental properties + principle of residence.

#4 Hope on 12.28.14 at 2:05 pm

Please Mr. Turner keep writing and educating the ones who are willing to listen and take action accordingly. I just discovered your blog over the Summer and really, truly appreciate your expertise and insight. Thank you so very much.

#5 Meanwhile in the GTA on 12.28.14 at 2:12 pm

TWO DAYS OFF %$***#[email protected]
that’s enough, back to work Garth!

#6 Vancity D-Man on 12.28.14 at 2:15 pm

Thanks Garth for your message. Some people are still not getting it. Please don’t be discouraged. You have helped many others start on the path to a balanced and diversified portfolio.

#7 Tony Elliott on 12.28.14 at 2:17 pm

You’re the breast Garth

#8 robert on 12.28.14 at 2:19 pm

Thank you Garth for taking the time to help us invest wisely..we appreciate all your efforts…All the Best to you and your family in the New Year !

#9 mitzerboy aka queencity kid on 12.28.14 at 2:21 pm

The real estate myth is alive in Saskatchewan

most working people here have drunk the Kool-Aid
some have begun thinking about the price of oil now and how a house price is an emotional thing.

#10 JO on 12.28.14 at 2:22 pm

Great post Garth. Right on the money. All the stars are aligned for the RE bubble to burst in Canada. Given the extreme leverage and extreme optimism among a mostly financially illiterate population, the correction is likely to be more rapid and sharp than most expect.

A best case scenario is that prices eventually drop down to where they were more or less at the low in 2009.

What most forget is that their property taxes and utility bills will continue exploding. And the rates will be higher on renewal out 2020 onward. All in all the ingredients are there to make for an embarrassing debacle.

Also your not so friendly local govt will continue to use every excuse to siphon off money. Just ask any Torontonian who has had tree issues or one of the new water meters installed. Also if you are overdue on taxes or water, congrats and pay $16 for a statement and $45 admin fee

Balanced and liquid is the way to go. Just be very careful with bonds.

JO

#11 Zed in Geneva on 12.28.14 at 2:23 pm

Great to have you back. Keep up the good work.

#12 T.J.BONES on 12.28.14 at 2:28 pm

Sir Garth:
You can lead a horse to water, but you can’t make him drink!

#13 Cow Man on 12.28.14 at 2:29 pm

Or ape the Governments of Japan and Ontario. Just keep spending and forget about it.

#14 David McDonald on 12.28.14 at 2:32 pm

Risk is hard to comprehend. Taking on a half million dollar mortgage to buy real estate is an enormous gamble at this time. In the best case the asset will slowly increase in value and all is well. In the worst case there is a 20% correction and the borrower is unable to meet the conditions of the next mortgage renewal. That would be a life changing outcome.

We have lived through a 10 year period when the risk of the later outcome was practically zero. That’s no longer true. We are entering a period when the only way to make money with real estate is with a match.

#15 also thick on 12.28.14 at 2:32 pm

Not sure what u mean by “ape the rich”.

Thanks in advance for the explanation.

#16 armpit on 12.28.14 at 2:33 pm

Wow…a really early post!!!!

#17 Bailing in BC on 12.28.14 at 2:39 pm

Glad to see you back – and so bright and early! Surely this must be a record.

#18 Dean on 12.28.14 at 2:39 pm

Don’t give up Garth.

Human nature is a funny thing.People will deny the most terrible life decisions until they are forced down a different path by calamity or financial ruin.

Seen it in family, friends and clients.
Ego and a stubborn unwillingness to admit you may have made a bad choice and now have to change direction seems the exception,not the norm.

We have created a class where debt seems to have no consequences and I have a feeling that may be about to change.

#19 Randy on 12.28.14 at 2:40 pm

Canada is by and large a nation of fat, lazy, entitled socialists. They hate businesses and love big, fat, corrupt government. They perpetuate the same false economics for political purposes.

#20 wayne2yerGarth on 12.28.14 at 2:41 pm

Despair not Garthity Garth,

You’re engaged in a noble pursuit to educate the ignorant,

Some decent percentage of us are learning with every post,

Meery xmas and all the best ,

P.s. – please consider taking a shot at the conservative leadership should it ever be openly contested….

#21 TigerShark on 12.28.14 at 2:42 pm

If energy prices remain near current levels, Canada’s economy is in trouble:

http://soberlook.com/2014/12/if-energy-prices-remain-near-current.html

#22 dosouth on 12.28.14 at 2:44 pm

In the real world it works out to choice…not chance. But denial works its way in there as well.

#23 RealistvsExtremist on 12.28.14 at 2:47 pm

#129 M on 12.28.14 at 2:20 am
Good old canadian banks :)

https://www.youtube.com/watch?v=9K_N0uOXkQA

Can we laugh now ? :)
First to go: Scotia
+++++++++++++++++++++++++++++++++

I’m guessing that most of you are not surprised by this? One of many tidbits posted in places like this but blown off as BS. Welcome to fascist Canada. Where Govt and Corporations tell YOU how it is going to work all under the premiss of jobs jobs jobs. Fortunately technology will prevail. I use internet only. Not rip off cable. I have the lowest pay cell service. Then use wifi calling and hot spots from Shaw (my cable). I take my work home. And don’t drive as much. I use tax avoidance (with advice from pros like Garth) as much as possible.

In the 90s ATT actively tried to stop the internet build out cuz it was harming it’s long distance service. Now SKYPE rules that domain. Same goes with Kodak – RIP

Technology will prevail. Keep using it to fight against corporate giants and govt in a non-violent way and eventually we may have democracy and an honest society once again. But for now, its going to be World Civil War 1 with no bombs or bullets. Only hash tags and software. Good luck !!

#24 IVoteIndependent on 12.28.14 at 2:49 pm

I get it. Too bad I didn’t get it before I got SGR, WRN, and MBC. But that is history now, and since 2008 the ETFs have more than made up for the cost of that lesson. Happy New Year Mr. T.

#25 Marco on 12.28.14 at 2:54 pm

Garth;

I am glad you are writing again. While I do not necessarily agree with 100% of what you write all of the time, I do enjoy your perspective. I have always considered a house a place to live. Nothing more, nothing less. While, I may not be following your rule of 90, I have never considered my house in any financial plans. I also do not care if the housing market rises or falls, since if I decide to sell my house, I will have to buy a replacement one, most likely in the same market. (I have moved geographic regions a couple of time – in that case one just buys what one can afford.) It is all about needs and wants. Shelter is a need, granite counter tops are a want. Also for the leverage crowd – it is a double-edged sword. If the asset appreciates more than the carrying cost you win, if it does not, you are screwed.

#26 Marco from van on 12.28.14 at 2:54 pm

That response is no surprise Garth.

There is a whole industry making liquid wealth for the wealthy eg. developers, financiers, governments (wealthy in aggregate) and all the businesses that repackage their messages to get the dumb consumer to spend unearned future income on one asset.

All the marketeers such as banks (they spend more on marketing than you think), HGTV, Direct RE marketing companies, real estate agents etc. have done such a great job that people now put less diligence in signing away themselves and their future to a huge liability and risk (even try to outbid each other doing that) than they do buying a pair of jeans (would love to see bidding wars on Boxing Day sales at the bay ;-)

I mean just look at Mr. Lamb…

I understood the difference between true assets and “masked” assets, and how leveraged debt can work well in SOME cases but actually is far more risky than many imagine in most other.

I worked very hard for 6 years to have no debt and invest in liquid assets. I found that as my investment income grows to catch up to my employment income the overall tax burden reduced substantially.

Furthermore I’m also finding banks to try to push me away as I make them no money but for transaction fees.

Whenever I try to explain some of the principles to my lesser aware debt slave peers (usually as a response to their smug criticism that “Marco is a Renter”), I’m looked at like a six headed monster. Almost smug.

My wife are so on board with this plan as they know that if something were to happen to my “job” tomorrow, We have 16 years ahead of us at current burn rate where none of my family would notice anything but me being around more (poor them).

My kids future education, whichever way they go, is sorted out to give them a debt free start ( but they will have to earn it by proving they understand these principles from day 1).

If only that unregulated machine that misrepresented housing as a divine right and essence of status, all the sweetened ways to sign onto a lifetime of debt and interest payments had to become transparent and regulated, it would become so obvious how wealth is transferred from the future of those who haven’t earnt it yet to the present of those who are wealthy.

Go on, let “them” borrow like mad to buy “their” depreciating asset and pay huge amounts of “interest” so my investments in the companies that benefit from that cycle makes me more wealthy – when it turns, active rebalancing will look after the portfolio.

Until then it is making cash with no debt, no RE fees, low risk and more important total freedom and mobility to follow the opportunity.

Why would anyone swap that with the ease that it takes to buy a pair of jeans, even if one is looked upon as a six headed monster… priceless.

#27 Andrewski on 12.28.14 at 2:58 pm

Garth, you can lead a horse to H2O, but you can’t make it drink! Keep up the good fight, for those of us who not only read your blog, but also take your advice and put it in to action!

#28 David on 12.28.14 at 2:58 pm

The real wild card right now looks like energy prices for Canadians. Our entire economy became terribly focused on selling low quality bitumen from Alberta to refineries 1700 miles away in Port Arthur, Texas for tax free export. Warren Buffet was right when the tide goes out we get to see who swimming naked.

http://davidstockmanscontracorner.com/chilly-winds-blowing-up-north-oil-plunge-will-slam-canadian-economy/

#29 shawnG in TO on 12.28.14 at 3:03 pm

is a person still smart if the IQ of the whole population suddenly go up 20%?

see Mr T, you want to save everyone from the obvious coming financial disaster, but i don’t believe they want to be saved. We all know people like that — you can show them the numbers, pretty charts, put it in a song, or thru modern interpretive dance — but they just don’t care.

well, thanks to the debt hornys’ spending ways, i am becoming relatively wealthy in our society. That is, despite my so-so income and 3 dependencies.

no doubt your blog is stepping on a lot of toes. you know who they are. you know a lot of comments here are made up by “those” people. but you also know a lot of readers here appreciate your work. and you have enlightened quite a few, and saved them from financial calamity, and retirement in poverty down the road.

#30 WHY PAY MORE on 12.28.14 at 3:04 pm

Interminable, tedious bloviating about price-to-rent, price-to-income the irrationality of the market aside, it’s still incumbent upon you to address the objective reality of the world.

Canadians expect to leverage themselves into a bigger house and a 100k tax free gain every five years because that is exactly the way it has been working for millions of them for decades. Angry appeals to an inflationary epoch that ended 30 years ago have limited informative and explanatory power.

#31 ben on 12.28.14 at 3:08 pm

Garth, whilst i totally agree with your comments here is where leverage on real estate makes sense:

* you have a rubbish job
* you have no savings
* you have no prospects

How many people fit all three of the above? 50% I’d say. They either:

1. live on the breadline and then die
2. take a punt on the one thing the banks will let them leverage on

This is why they do it. They have no choice.

Sadly they are winning and are crowding out clever people with prospects and making more than them.

Your govt didn’t have the balls to the housing drop. Because of that the govt now needs balls bigger than a gorilla in mating season.

Total mess.

#32 Retired Boomer - WI on 12.28.14 at 3:12 pm

Garth-

Well said. Glad my numbers reflect much closer the 1% range than anything else.

Barrettt Strong said it well years ago, in his tune “Money that’s what I want.” Easy to get, tough to hold on to, even tougher to make it grow into something useful for later. Not impossible, but not easy!

2015 what a great time for the young smart to start!

Hope you had a good rest. The NEW YEAR Comes soon!

https://www.youtube.com/watch?feature=player_detailpage&v=yeVx1C73o8k#t=0

#33 bill on 12.28.14 at 3:15 pm

You have done your best Garth and we [me ,the wife and cats] really do appreciate it.
Thanks and a Happy New Year to you and yours !!

#34 Don on 12.28.14 at 3:19 pm

Garth…you really didn’t expect the delusional masses to listen. I know you didn’t. But the ones who do listen are here and spreading the knowledge (like a stepping stone, change always starts with the few).

No generational bashing just observations from encounters in life. The boomer generation by far the largest demographic for the last 50 years amplifies the herd mentality and when greed enters the picture consumption runs rampant and others join in and treat the new direction as gospel. Be damned all others, who are subject to school ground antics. (recent emails – sent to Garth) If you do not believe there is a need to settle the matter by calling you are a doomer, conspiracy theorist, nut job, and ah…yes wet behind the ears).

Another life lesson, growing older is not associated with reason, knowledge or wisdom. People peak at different ages 80…60..40..30 and unfortunately just after high school. What shame…as one of the joys in life is obtaining knowledge and using it to protect oneself, family and friends. If that is all that comes about then a life well spent.

Oh yah… but don’t take away my iPhone I need that to read while I am driving through a playground zone. (not just young folk most are older and who should know better – but reason is thrown out the window as desires take precedent). And another is don’t encroach on my entrenched beliefs as I have no capacity for common sense.

Some Life lessons worth mentioning here:

You cannot reason with an emotional person.
When it comes to stupidity the majority rules.
If you are different then the herd you will be mocked – one of the only defenses of a herd gone delusional.

One thing I have observed is that the herd has been quiet on real estate subject. Truly telling. The calm before the storm. No I am not happy about this as the ripple effects all. But returning to reason is much welcomed recalibration.

#35 Gary Halifax on 12.28.14 at 3:20 pm

Garth..I’m pretty sure there are thousands who have listened and continue to listen to your yammering which has been a godsend to many of us..A month ago a young nephew of mine told me that your column which he had just recently come across had saved his financial ass.
He was within days of buying in the Big Smoke and then took your writing serious and stopped in his tracks. He is a 30 something with a wife and they have careers and are happily renting and now investing as per your instructions..your columns mean a lot to thousands..cheers..

#36 RonB on 12.28.14 at 3:20 pm

Garth,

thanks for not giving up on us. I’m learning a lot from your blog and hope you carry on making me think and hopefully act.

#37 Sophia on 12.28.14 at 3:23 pm

And this proves what? replace ‘house’ with ‘food’ and you’ll conclude that the rich are rich because they spend a smaller percentage of their income on food.

#38 nubbers on 12.28.14 at 3:24 pm

Phew! I was getting worried.

I get constant **** from my other half, who is convinced that house prices are going to continue to rise. Given that is foolish to time the market, that is a surprisingly hard one to argue.

What keeps me going (and not just give in so that I can say ‘I told you so’ later) is that I have to make the right decisions for the sake of our children. That keeps me focused.

#39 CPG on 12.28.14 at 3:25 pm

“Demographic changes, notably the aging of the Canadian population, will have a major impact on the ratio of the number of people aged 20 to 64 to those aged 65 and over. This ratio is expected to fall from about 4.1 in 2013 to 2.2 in 2050.”

Actuarial Report (12th) on the Old Age Security Program

http://www.osfi-bsif.gc.ca/eng/oca-bac/ar-ra/oas-psv/Pages/oas12.aspx

#40 JB in BC on 12.28.14 at 3:26 pm

Garth, please don’t give up writing, you’ve provided me with a tremendous amount of good advice. For free, I might add.

#41 jimbo on 12.28.14 at 3:34 pm

first timer….been enjoying the timely financial tips on this blog also the varied and interesting comments,so important for the here and now.Can t help but think of another comment by a very famous person many years ago….what shall it profit a man if he gains the whole world but loses his own soul…wishing all the best in 2015.

#42 Smoking Man on 12.28.14 at 3:36 pm

Something else to note about the rich.

Years ago my son was retro fitting lights in the Palace Pier in Toronto’s West end.

He said not very many people had TV’s, lots of books and computers.

Something to think about.. I spend maybe 30min a day watching TV.

1.5 hours when True Detactive comes back on.

#43 Capt. Obvious on 12.28.14 at 3:36 pm

I am stoked for the roll over to 2015 — more TFSA room opens up.
As far as I can tell from people around me, people want what they want and will only defer obtaining it if it is too painful to get it presently. 2015 will be interesting.

#44 Hot Albertan Money on 12.28.14 at 3:38 pm

“In fact, have you noticed mortgages are now good debt?”

——-

Is there really such a thing as “good” debt? Mortgage or otherwise?

#45 CanadianOne on 12.28.14 at 3:41 pm

Good Afternoon Garth, (and the community of blogdogs)

With an aligned view that the attitudes towards housing in the US are not the same, as they were before the aforementioned plop, would it be safe to hypothesize that this particular asset class of the past is going the way of commodity of the future. In simpler terms would housing cease to be the “stable investment” (as this special national myth suggests) and turn into highly volatile debt, where it would take lot less in terms of events to wipe out all of the so called “forced savings”. Or am I just throwing away money by doing anything else but own a mortage?

Yes we all have to have a place to live, why would it matter it’s one over the other, so long the unit is functional vs. crumbling?

And as far as folks with their heads burried in sand while they yammer against the theme (which i too don’t think they understand, along with risk) of this blog I voice my support for your continuance.

Much Appreciated

#46 Karl hungus on 12.28.14 at 3:43 pm

Flawed argument. By definition the rich have a high net worth so, low debt. The middle class are the middle class because they have debt, not the other way around.

#47 DM in C on 12.28.14 at 3:47 pm

Thank you, Sophia, for proving my point. That didn’t take long.

#48 CanadianOne on 12.28.14 at 3:47 pm

#36 Sophia on 12.28.14 at 3:23 pm

And this proves what? replace ‘house’ with ‘food’ and you’ll conclude that the rich are rich because they spend a smaller percentage of their income on food.
____________________________________________

Did you just not read the entire post today or just the parts you din’t agree with?

I believe there is that part where Garth mentions Business Assets & Financial Assets. Maybe a little refresher on cost vs. price maybe a bit on risk and earned value? …. maybe?

#49 Fuzzy Camel on 12.28.14 at 4:01 pm

Whats driving the house price increase?
-Low interest rates
-Immigration

Only thing that will stop the housing market is interest rate hikes. The economy would grind down, immigrants would have a hard time finding work, many might leave. This would kill the construction industry, one of the last bastions of high paying jobs.

As long as our countries population is sky rocketing by jamming immigrants in, housing prices will go up. It all hinges on interest rates staying low. So predictable, so obvious.

#50 OttawaMike on 12.28.14 at 4:02 pm

#41 Smoking Man on 12.28.14 at 3:36 pm

Interesting comment.

I eschewed television the past 5-6 years and can tell you my brain functions differently and for the better without it.
Being bombarded by ads and formulaic weekly programs has the effect of programming you to comply with the status qua of consumer culture .

Commercial radio is similar. Around the same time I ditched the Telly a switch was made to satellite radio along with CBC and NPR. No ads blaring away and I still have managed to not become a Marxist/Stalinist/Communist from listening to public radio.

#51 Bob on 12.28.14 at 4:06 pm

Garth,

Keep the faith and carry on….

#52 Car on 12.28.14 at 4:07 pm

You should realize a lot of your readers don’t post, don’t let the negative comments get you down. You saved my financial future and I can never thank you enough for that, I would have been one of those unfortunates in calgary with a box in the sky for 5% down and an obscene amount of debt. Instead I have learned so much about investing and the best investing vehicles for me and I thank you from the bottom of my heart

#53 notagreaterfool on 12.28.14 at 4:12 pm

Garth – Have you been giving some thought to last year’s and next year’s predictions?

#54 Arfmooocat on 12.28.14 at 4:13 pm

We’ve all been waiting for that magical moment when the Canadian housing market will implode.

Maybe oil will be the catalyst, maybe it won’t.

Could it be mining? Nah… that’s been in the review mirror for two decades.

All the seniors cashing in they’re paid off $500,000 homes? Doubt it.

High interest rates would do it, but high isn’t going to happen again in my life time being closer to 60 then 50.

Oh well… keep renting.

#55 Andy on 12.28.14 at 4:22 pm

Keep up the good work for the (mostly) silent majority.

#56 fuddleduddle on 12.28.14 at 4:25 pm

Hi Garth, I also work in the financial world. Don’t take people’s crap, when they speak of leverage people can also leverage into financial assets too.

back to what you have been harping on…. Alll of my big investment clients.. and I live outside the GTA, all of my big investment clients live in simple paid off bungalows etc. With paid off cars…. and they have money to invest…. When I see people in big houses with two SUV’s brand new in the laneway, they usually have no money to invest…. Those are the ones who tell you how great real estate is because they own a monster home and have nothing left over.

#57 fuddleduddle on 12.28.14 at 4:28 pm

oh forgot to mention, speaking to my brother today. At church he was talking to a mutual acquaintance. he owns a farm and is selling off the house. He is getting 50,000 more than what he was asking for…. but get this……. He has to put brand new appliances etc into the house because the buyer has no money to buy those things on his own dime………. This guy doesn’t follow your blog…. but he and a few others think it’ a little frothy right now.. and think the correction of some sort is coming….

#58 Strathcona on 12.28.14 at 4:31 pm

Having arrived back in small-town Ontario for Christmas, I note big changes here from two years ago. Many for-sale signs on homes, some have been selling for a year.

Several more closed businesses, and no economy. A few sell trinkets, or haircuts to others, but mostly a town of retirees, without any major local resources or employment demand.

A sour taste or real estate lingers. A few local billboards for $550K homes. A great deal. Things have severerly softened here. The days of real estate investment appear behind us here.

Gone are the days when this was a branch-plant town, next to yet another branch-plant town. Many relatives live pay-to-pay, if they have even that much money.

The future is bleak for Ontario, and their condo economy.

#59 *NAKED APE* on 12.28.14 at 4:32 pm

Not surprising that you occasionally need a break from the RE hounds…. Been a long time follower of yours. Sat down last December with your recommendations for a balanced, diversified portfolio and totally revamped mine, (was heavily exposed to the stock market), to align with those suggestions – preferreds, ETFs, REITS and bonds. Happy to report that it’s up 13% so far this year. Thanks Garth for the advice!

#60 Arfmooocat on 12.28.14 at 4:34 pm

When you read or listen to U.S. financial news and try to find a moment they might talk about oil or oil stocks? Canada is never even mentioned in the oil price drop.

Russia, Venezuela, Nigeria… maybe Iraq or Syria might be the in the topic with oil.

You watch BNN and it’s 80% about oil or oil related stocks taking a shit kicking

#61 Waldo on 12.28.14 at 4:40 pm

Garth et al, what would you suggest to a 35 yo homeowner with a modest mortgage, should they pay off the mortgage asap through lump sum pre-payments, doubling up etc. or invest more aggressively? I already invest 600 per month but have additional money remaining at the end of the month.
I am leaning towards paying down the mortgage asap (and being down with borrowing) and then focus on investing aggressively for the next 20+ years. thoughts?

#62 A Yank in BC on 12.28.14 at 4:45 pm

Garth,
Don’t disparage. Simply accept that there aren’t enough lifeboats for all, and just save the ones that you can.

#63 pinstripe on 12.28.14 at 4:48 pm

garth, your life would be stress free if this blog would post ALL of the posts. The pros and cons of the posts would separate the noise from the facts.

Most of stress is self induced by controlling the message.

Loosen up and enjoy life.

I publish all contrary opinions, so long as they are respectful. Diss me and you’re toast. — Garth

#64 joe calgary on 12.28.14 at 4:52 pm

#36 Sophie – I think what Garth is trying to say is that the simpletons should be making an effort to diversify their financial strategy rather than steep themselves in debt with a one asset strategy. The graph is in percentages, not actual values.

I’ll dumb it down for you. If you can’t afford to buy a house and I don’t mean buy a 95% mortgage, I mean buy a house with a sensible amount of debt. You shouldn’t buy one if it takes more than 25% of your income than rent instead so you have extra funds to invest towards generating future wealth rather than future debt.

#65 Mukadi on 12.28.14 at 4:55 pm

I was the witness of the 2008 RE tsunami ground zero devastation in San Francisco. Fortunately for me I had no mortgage but my friends got the full force of the first shock wave in their face. I can understand why some people in Canada still believe in the RE Santa Klaus – they haven’t faced the type of reality that I witnessed in 2008…

One of my friends had a home worth $500K and he had only 24 months of payment left. After losing his job for in the first hours of the Tsunami, he started missing mortgage payments just after 30 days -Garth usually talks about living from paycheck to paycheck and some people think he’s kidding.

Guess what happened to the guy? The bank foreclosed his home and refused the payments he was trying to make after 90 days. He lost all his live savings like that and had to file for bankruptcy. Why? because if he didn’t the IRS was going to ask him to pay taxes on the money that he made on a property that had being foreclosed….
I hope somebody can make sense of this type of stupidity in the US but it’s the RE reality…

Garth, there is no reason to be discouraged – some people behave like sheep but are still part of our society. Let them commit financial suicide, it’s still their choice and their rights.

#66 Think rich | Realties.ca on 12.28.14 at 4:59 pm

[…] Source: http://www.greaterfool.ca/2014/12/28/think-rich/ […]

#67 Retired Boomer - WI on 12.28.14 at 5:00 pm

Predictions!! Forgot about the 2015 Prognosticators.

That should prove interesting to everyone. Let me think, those who listen and follow Garth will do better over time than those who follow the ReMax man, or the beer truck.

Ok, let’s see in a few years who is most right here.

#68 saskatoon on 12.28.14 at 5:10 pm

#49 OttawaMike

oh, there are ads, dude.

lots of ’em.

#69 Retired Boomer - WI on 12.28.14 at 5:13 pm

#36 Sophia

What % might be spent on stupidity between the classes?

#70 West Coast on 12.28.14 at 5:14 pm

…..nothing new under the sun…..
http://www.theguardian.com/housing-network/2013/apr/17/margaret-thatcher-legacy-housing-crisis
….as we follow the Brits’ conservative policy of economic neo-liberalism and social conservatism………..
“polarization and growing inequality, worsening housing market affordability, housing supply shortfalls and a deepening housing crisis”

#71 Vancouver Dude on 12.28.14 at 5:18 pm

Happy holidays Garth! Thanks so much for all the insightful and top notch blogging over the years. I’m very grateful for all the knowledge and wisdom you share with us.

Those who fail to understand risk still don’t realize a mere 4% drop on their 5% down leveraged mortgage value means a total loss. Worse, a 10% drop means they owe their entire downpayment *again*, plus closing costs! Sadly they’ll understand soon and we’ll experience a wave of bankruptcies across the country. CMHC should be dismantled, 20x leverage is irresponsibly short-sighted.

I’d rather have 5x leverage max with cheaper property values, which would also reduce the insane taxes we have to pay. But what do I know? I’m just a young dude who’s been renting for years in Vancouver. My TFSA and RRSP are maxed out and my margin account crossed the million mark last year. While my landlord is earning less than 2% on my rent I’m happily making 10% year after year. I could easily retire with that kind of money, or blow it all on a house… Buy a house and keep working forever, really?

#72 Pooh on 12.28.14 at 5:21 pm

Good post today Garth, same theme but had a different vibe. Maybe you should get disgusted more often.

#73 dogman01 on 12.28.14 at 5:22 pm

ben on 12.28.14 at 3:08 pm

Garth, whilst i totally agree with your comments here is where leverage on real estate makes sense:

* you have a rubbish job
* you have no savings
* you have no prospects

How many people fit all three of the above? 50% I’d say. They either:

1. live on the breadline and then die
2. take a punt on the one thing the banks will let them leverage on

This is why they do it. They have no choice.

—————————————————

Agreed – that is one of the prime drivers along with:
~ parents knew nothing about investing so no hand me down experience
~ I may think it is risky but everyone is doing it so what do I know – herd mentality.

#74 Tony on 12.28.14 at 5:24 pm

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#75 rainclouds on 12.28.14 at 5:32 pm

N burnaby

Sold a bung 2 yes ago in…….North burnaby.capital hill to be specific.

Checked assessments a few weeks back. Old house hasn’t budged. . Meanwhile am up 250 k on the balanced portfolio. Take out 24k in rent And myretirement is swell.

You are full of it

#76 Sophia on 12.28.14 at 5:40 pm

#47 CanadianOne on 12.28.14 at 3:47 pm

The point is that if you’ve 1 billion dollars in asset, you are very unlikely to have a $590M principal residence (even in Vancouver); however, if your net worth is $1M, the 59% allocation to your house is not totally crazy (unless you’re about to retire).

The % allocated to your residence gets lower as you get richer. The opposite is also true, but to a lesser extent.

This diagram proves nothing.

#77 not 1st on 12.28.14 at 5:41 pm

Garth, 25% of the population don’t even have a bank account. How on earth could they comprehend investing?

#78 Mike M on 12.28.14 at 5:58 pm

The only way now that politicians can manage national dept (and still stay elected) is by using inflation to make it (and your savings) worth less over time. Which cohorts do you think will get screwed the most with that one? Tangible assets like investment real-estate (NOT recreational crap) is still the best protection from this. If you subtract all the past TSX bankruptcies and RRSP management fees, inflation, inevitable income tax increases to pay for retired baby boomers all cleverly hidden with tax creep and Non-GAP cosmetic accounting, then in the end your portfolio will most likely be a flat line. Investment real estate is not the easiest investment, its just the only investment.

#79 Uh Oh Canada on 12.28.14 at 6:01 pm

Garth- 3 days is the longest time you’ve taken off in the last few years of blogging. I can understand why you’re disgusted- personally, I would have quit a long time ago.

I suggest that you save your sanity by closing off comments. Why? This is your blog and your say. All the deniers and co. can go start their own blogs. How about a compromise? Allow comments on one day, like Wednesday. You can call it Wacky Wednesday’s.

#80 Brian Ripley on 12.28.14 at 6:08 pm

Garth said: “They don’t comprehend what risk is, so they jump in.”

One difficult risk to quantify is sentiment, but opinions will change.

On my 6 city Canadian housing chart I plot the combined average price of Vancouver, Calgary & Toronto condos since the .com blowout.

http://www.chpc.biz/6-canadian-metros.html

There have been 2 noticeable condo price spikes (2002 and 2006) which occurred post Nasdaq blowout as the Canadian National MLS sales numbers soared (also plotted) and peaked at the end of 2007.

Looking at the Vancouver vs Toronto housing chart:
http://www.chpc.biz/compare-toronto–vancouver.html

…one can see that opinion (sentiment) does change. Toronto (GTA) condo prices are now only 2% below Vancouver’s BUT while GTA condo prices have been on the rise, Vancouver condo prices since 2011 (the end of the commodity bull) have been flat or falling.
Condos have changed hands in Vancouver since 2011 but clearly not because prices are guaranteed to rise.

I would say that fundamentals like a return ON investment in the Vancouver condo trade is again part of the rationale of the buyer.

ROI is risk management when a return OF investment is dubious as it must be in the GTA and of course Calgary.

#81 Mike T. on 12.28.14 at 6:10 pm

Folks,

Every truth passes through 3 phases. First it is ridiculed. Second it is violently opposed. Third it is accepted as self evident.

Where are you on the truth curve?

When people want 850K for a normal house in Fort Mac this situation SHOULD be self evident.

It’s probably time for some of us to update the belief codes we hold dear.

#82 West Coast on 12.28.14 at 6:10 pm

Getting out of town.
http://www.cbc.ca/news/canada/british-columbia/vancouver-home-prices-worry-businesses-as-they-seek-to-hire-staff-1.2885057

#83 S. Burnaby on 12.28.14 at 6:12 pm

Real Estate is the biggest scam to ever come down the pipe. Keep prices rising by fooling the masses that prices will keep going up forever; you just can’t lose. You think if people thought R/E prices could decline they’d still be in a rush to buy? No way. This is a classic ponzi scheme mentality brought to you by the Feds and the R/E industry. And keep the ‘marks’ in the dark with mashed-up stats that hide the truth about the markets and add in the bought-off media reporting the ‘news’ that the R/E floggers want the suckers to know.
.
I did the opposite because I saw the truth; I sold my paid off house and am receiving a good income generated by solid investments that pay me each month. No more debt slavery for me and I am free of the delusion that is Real Estate.
.
Buy now or be priced out forever? What a pathetic joke.

#84 Kalergie on 12.28.14 at 6:13 pm

http://blogs.wsj.com/economics/2014/12/26/how-to-save-like-the-rich-and-the-upper-middle-class-hint-its-not-with-your-house/

This is the article, Garth is referring to.

#85 Our Robot Overlords are Coming on 12.28.14 at 6:13 pm

I believe that Garth wrote about the decoupling of capital from labour earlier this year. It was also covered in The Economist and it is covered in a book called The Second Machine Age (Brynjolfssun and McAfee). In a nutshell, the fundamental change to how our economy has behaved in the past can be summarized as follows: More of the profit from industry is going to the owners (those who hold the capital) and less of the money is going to the labour. The authors also mention that average wages for many have been essentially stagnant since the early 1990s.

This re-allocation is happening because there is a fundamental change in how businesses are organizing themselves: they are using more automation, making greater use of new technologies, and shedding bodies. Evidence of this can be seen in the trend in the US towards manufacturing using more automation and fewer people. Not to be outdone, Foxconn in China is using thousands of robots to replace its assembly line workers. And Amazon is using robots in its warehouses to increase productivity and do so with fewer workers.

The authors cover a great deal more in their book including the emergence of a new structure emerging in society. While the rich will remain so (and as Garth clearly shows, they are the owners of the capital to a large extent), there are a few new classes that will become stronger: the first includes the creatives, every know-it-all self-help guru, and others who are able to prosper and benefit from what they do by appealing to a vast audience of consumers; the second consists of those who are proficient and capable in using new technologies.

Think of this second group as the people whose efforts complement the ever increasing array of tools that are becoming available. For example, while a computer may have beaten the greatest chess masters, it now turns out that the most effective chess players are actually teams – a chess computer and its human handlers. Yes, the nerds are coming and they are armed, dangerous, and getting stronger particularly if they are piloting drones.

These two groups are much smaller than the large, stolid and, up until now, peaceful ranks of the middle class workers such as, on the one hand the blue collar workers who toiled in factories and on the other, the middle managers, accountants, and many other white collar workers. In short, anyone who has a job that can either be replaced by a robot, or that consists of the analysis and processing of large amounts of data will find that they will be less and less employable. Of note, Watson, the IBM computer that won Jeopardy is now hard at work becoming a medical diagnostician. Artificial Intelligence applications can now write sports articles. Methinks that even the pond scum otherwise known as purveyors of houses will soon be displaced by a machine and that is one change that could not come soon enough.

Many more people will be cast out from formerly well-paid employment and forced to slug it out for subsistence-level employment assuming that such work exists for them. Governments at all levels will be faced with a massive problem of what to do with all of these displaced people, many of whom are able to vote, although, it must be asked what happens if these dispossesed conclude that neither voting nor the rule of law are worthwhile?

If government can do nothing, what then? How will this play out? Will there be greater unrest? Will the G20 protests in Toronto or the actions of the Occupy movement be simply a prologue to a turbulent, prolonged, and dangerous period of unrest?

Reality is biting hard and it will bite harder. As Garth so clearly states, it is not a good time, as if there ever was, to be mired in debt and perhaps to face ruin by the failure of a single asset class. While I do not hope for the worst, imagine a future in which few can afford to keep their properties (much less maintain them) and few have the financial means to qualify for a mortgage to buy a property. Prices will drop like lemmings off a cliff, yet another of Garth’s predictions.

#86 Freedom First on 12.28.14 at 6:15 pm

Your Post today on Your Free Blog is like music to my ears Garth. The top 10% for sure have no argument with what you write. The brainwashed leveraged to the nutz house & consumer worshiping financially insane can only be silenced, when, like the Americans, the Europeans, and the Japanese, they have their very own personal nut busting financial bankruptcy forced upon them. Yes, truth and consequences have been and will continue to be severe and brutal for many of the 90%. For myself, always being liquid, diversified, balanced, and debt free gives me an ongoing priceless financial peace of mind. I believe the interest I never paid has gone far in paying for me driving new vehicles, and taking many skiing, golfing, and tropical vacations over the years. Perhaps I could have been one of the 1%, but believe me, life is, and has been very kind to me, for I have always put my personal freedom first. Thanks for all you do in keeping me on an even keel Garth. Life should not be lived as a financial debt slave. No exception.

#87 Anne on 12.28.14 at 6:17 pm

I’m interested in the life insurance aspect of the chart. I understand wealthy families have life insurance and the beneficiaries are mostly the grand children, so they then have tax free money to get a “good” start in their own investing when they receive it. Could you elaborate on that somewhat. “We” need to know what the rich teach their kids, that the middle class do not teach their kids… more of what Robert Kyasaki, author of the Rich Dad, Poor Dad, books teaches. MY DAD refused to discuss anything about money. THAT was more private than sex!

#88 Obvious Truth on 12.28.14 at 6:17 pm

It’s just a small proportion that consider themselves smart for buying homes and calling them a financial strategy. But they are the dumbest ones.

Everyone else is just caught up in the stupidity that the few preach. They just think that they are so lucky to own(a huge mortgage).

They have no money to invest cause it’s all pre spent and aren’t even close to smart or brave enough to do it.
See. It’s societal, it’s herd, it’s bankers, the RE industry and people who don’t understand risk and can’t think for themselves. It’s too hard.

You can’t take anyone seriously about money if they can’t do simple math.

#89 dienekes on 12.28.14 at 6:21 pm

@ #3 North Burnaby on 12.28.14 at 2:02 pm

Yes, the rich are dropped from the birth canel into the world with a bundle of cash with which to buy a residence and invest. Sheesh
You must be a poor person with a slaves mentality.

You missed the complete point of Garths article. Most of the rich are self made, because they did what you failed to do.

#90 RealistvsExtremist on 12.28.14 at 6:23 pm

In other news the Polar Bears are enjoying the most sea ice in 40 years.

Errrr…….global warming? I mean climate change? I mean all this melting…..

Whoops !!

I suspect the scam of global warming is going to get bigger and bigger as time goes on. I wonder if Crusty Clark will give back any of the Carbon Scam Tax the govt has been stealing from us for the last ten years. With all those public sector pensions and salaries to fund? Not likely…..

http://polarbearscience.com/2014/12/26/polar-bear-habitat-more-arctic-sea-ice-in-canada-this-week-than-in-early-1970s/

#91 CANADAH...A ONE TRICK PONY on 12.28.14 at 6:30 pm

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#92 wally wanker on 12.28.14 at 6:33 pm

There does seem to be a digression into troll land in all too many faucets of society. I am amazed at how many think they are special or smarter than others. While we all have opinions, the need to attack that which doesn’t match that reflection is a sad commentary. Having an open mind is as rare as common sense it would seem. For what it is worth, I appreciate the comments sections of the pathetic blog when contrarian opinions are posted using respect with some bases in facts. The aggregate of projected personal, social economic and general snowflake specialty would have had me running a long time ago if I dared run a blog. A salute to the author.

#93 Box-in-Sky Renter on 12.28.14 at 6:39 pm

I have yet to see Garth’s ‘Rule of 90’ clearly explained, with respect to calculating %housing of net worth. So Garth, maybe you could select from samples below which calculation is the TRUE %housing for the ‘rule of 90’…(I would assume it is #2)

Calculation #1)
Assets: $300K (financials) + $300K (House Value) = $600K
Debt: $300K (mortgage remaining – assume $0 paid yet for sake of comparison) + $0 (other) = $300K
Total Net Worth = $600k – $300k = $300k
% net worth (housing) = $300k/$300k = 100%

OR…..Calculation #2)
Assets: $300K (financials) + $300K (House Value) = $600K
Debt: $100K (mortgage remaining) + $0 (other) = $100K
Total Net Worth = $600k – $100k = $500k
% net worth (housing) = $300k/$500k = 60%

OR…..Calculation #3) ????
Assets: $300K (financials) + $300K (House Value) = $600K
Debt: $100K (mortgage remaining) + $0 (other) = $100K
Total Net Worth = $600k – $100k = $500k
% TOTAL ASSETS (housing) = $300k/$600k = 50%

#94 Mr. Frugal on 12.28.14 at 6:42 pm

In order to get ahead, you have to live below your means. It’s easier to consume than to save and invest. Housing is consumption not investing. I’ll take the S&P 500 over a showoff house any day.

#95 Box-in-Sky Renter on 12.28.14 at 6:43 pm

My bad…I guess #1 & #2 is actually the same, but with different totals.

#96 NOW WHAT? on 12.28.14 at 6:49 pm

Since when has owing something to somebody been any good? How is any kind of debt good? …house or not?

#97 Chinese monkey on 12.28.14 at 6:50 pm

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#98 Rolling stone on 12.28.14 at 6:55 pm

Hey Garth , please continue with your blog. Some of us are listening and acting on your advise. As for the non believers , they will soon realize (too late!!)they are pooched, so sad. Happy New Year to you and yours.

#99 dienekes on 12.28.14 at 6:56 pm

After reading further comments, I can see many people using the idiotic excuse “the rich have small net worth in housing, because they are rich”.
See Garth, your preaching to the forever impoverished.

The comments show why the rich don’t care about the poor. There will always be poor people, because they think like poor people.
How do you fix that? Obviously no one can.

The more you tell them how to get rich, the more they will say “i will always be poor”

#100 Cici on 12.28.14 at 6:57 pm

Doubt I’ll ever be rich, but that’s not really a priority for me…However, I do want to manage my money as well as possible, not overly leverage myself in any asset category, and definitely not take on the risk of massive debt. And if I do ever jump on the leverage wagon, I’ll make sure that I don’t take on anything I can’t chew in the event of a market downturn.

In the meantime, grateful for everything you do, and if you ever get tired of hateful e-mails from schmucks, some of us would pay a yearly fee for access to your opinions, observations and continuing education through this here blog.

In any case, I think you will soon be attracting more fans; over the holidays I noticed a lot of young boomers with millenials living in their basements over the holidays. In almost all of the cases, the Gen Yers were working at decent jobs, yet overspending on useless shit (like cars and clothes, restaurants and holidays) while basking in the radon at Chateau Mom&Dad, because they feel squeezed out of the rental market. So, forget about condos and houses…for many, housing’s becoming an increasingly elusive and far-off dream.

#101 HATE RENTING IN CANADA on 12.28.14 at 6:58 pm

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#102 HATE RENTING IN CANADA on 12.28.14 at 7:00 pm

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#103 CJ on 12.28.14 at 7:01 pm

For lack of a better way to put this…

There are the people who can be saved and would find help on their own regardless.

The people who can’t be saved, regardless of how much people try to help them.

There’s a another group who need to hear from people like you, Garth, to prevent them from making financial blunders like buying a home when it makes more sense to rent, save and diversify.

As a member of that last group, you have my thanks, Garth, for fighting the good fight. I read your book “Greater Fool” years ago and your blog has been perfect reinforcement.

#104 Rexx Rock on 12.28.14 at 7:11 pm

Garth is trying to help Canadians from financial ruin with to much house debt and buying in at the top.Its sad but most Canadians are so gullible and naive to believe all the media type.The Americans experienced a housing correction and so will Canada in time.For years everyone in Victoria was so giddy including myself about house prices going up year after year.I knew it couldn’t last forever.

#105 HATE RENTING IN CANADA on 12.28.14 at 7:15 pm

#25 Marco from van on 12.28.14 at 2:54 pm
That response is no surprise Garth.

There is a whole industry making liquid wealth for the wealthy eg. developers, financiers, governments (wealthy in aggregate) and all the businesses that repackage their messages to get the dumb consumer to spend unearned future income on one asset.

All the marketeers such as banks (they spend more on marketing than you think), HGTV, Direct RE marketing companies, real estate agents etc. have done such a great job that people now put less diligence in signing away themselves and their future to a huge liability and risk (even try to outbid each other doing that) than they do buying a pair of jeans (would love to see bidding wars on Boxing Day sales at the bay ;-)

I mean just look at Mr. Lamb…

I understood the difference between true assets and “masked” assets, and how leveraged debt can work well in SOME cases but actually is far more risky than many imagine in most other.

I worked very hard for 6 years to have no debt and invest in liquid assets. I found that as my investment income grows to catch up to my employment income the overall tax burden reduced substantially.

Furthermore I’m also finding banks to try to push me away as I make them no money but for transaction fees.

Whenever I try to explain some of the principles to my lesser aware debt slave peers (usually as a response to their smug criticism that “Marco is a Renter”), I’m looked at like a six headed monster. Almost smug.

My wife are so on board with this plan as they know that if something were to happen to my “job” tomorrow, We have 16 years ahead of us at current burn rate where none of my family would notice anything but me being around more (poor them).

My kids future education, whichever way they go, is sorted out to give them a debt free start ( but they will have to earn it by proving they understand these principles from day 1).

If only that unregulated machine that misrepresented housing as a divine right and essence of status, all the sweetened ways to sign onto a lifetime of debt and interest payments had to become transparent and regulated, it would become so obvious how wealth is transferred from the future of those who haven’t earnt it yet to the present of those who are wealthy.

Go on, let “them” borrow like mad to buy “their” depreciating asset and pay huge amounts of “interest” so my investments in the companies that benefit from that cycle makes me more wealthy – when it turns, active rebalancing will look after the portfolio.

Until then it is making cash with no debt, no RE fees, low risk and more important total freedom and mobility to follow the opportunity.

Why would anyone swap that with the ease that it takes to buy a pair of jeans, even if one is looked upon as a six headed monster… priceless.

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

Nicely said bro.
That pretty much proves our neonazzi government is complicit in this national/international fraud!

#106 NigelM on 12.28.14 at 7:16 pm

Love the blog! Keep up the good work. It’s a must read for me every day. Just signed another lease and I’m comfortable with my decision after your education. Thanks!

#107 HATE RENTING IN CANADA on 12.28.14 at 7:18 pm

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#108 RayofLight on 12.28.14 at 7:20 pm

#3 North Burnaby: “The rich have a lot of money, hence they can afford to diversify their investments… Such a flawed statistic, Garth. Poor people cannot afford to have stock portfolio + rental properties + principle of residence.”

I think you are still missing the point. Risk aversion is about not being overly dependent on any one asset. If you do not have a lot of wealth, conserve your cash flow, and diversify your assets through a mixed choice of ETFs over different markets. Don’t allow the collapse of any one holding the ability “take you out”

#109 Frank me skank on 12.28.14 at 7:29 pm

Halifax is ground zero for a housing collapse, the ball is already rolling.

#110 HATE RENTING IN CANADA on 12.28.14 at 7:29 pm

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#111 Pulp Faction on 12.28.14 at 7:31 pm

“You are a charlatan, Garth. Manipulating math, as always. Even you are not taking mortgage leverage into account (but everybody does when investing into housing.) Glad I didn’t listen to you.”

I love people who insist their every decision is right, in spite of a lack of compelling evidence to back it up.

The truth is, they never knew anything, they didn’t research anything, they didn’t ask any questions, they didn’t get educated about it first……they made a purely emotional decision based on how they were feeling at the time, and now they try to back it up like it was a carefully thought out plan. Now that they look like they screwed up, they get angry and blame everyone else for criticizing their decision. They still stand firm that they made the right decision, and everybody else is wrong. They deny any evidence to the contrary.

This guy is perfectly suited to marry my ex-wife. She is his twin sister. They will be very happy together with their leaky pockets, dumping all their earnings all over everybody else’s front doorstep, everywhere they go.

I am a very smart guy, with a B+ in Math all the way through Grade 12.
If your decision made any sense, you would be able to flowchart it for me, and I would arrive at the same conclusion you did. You wouldn’t need to convince me.

If you are arguing, it is because you already know you are wrong and can’t stand the thought of it. You don’t argue about math or computer code. It is either completely accurate and true, or it is nothing but garbage. There is no gray.

#112 My Life is a Pile of Shit on 12.28.14 at 7:34 pm

What those statistics really mean: A rich American owns a million-dollar house and has a net worth of 10 million. A middle-class American owns a $300k house and has a net worth of half a million. The rich American can live comfortably in a $500k house, but chooses a $1M house. The rich American is not putting less money into home ownership.

Garth’s rent-and-invest approach is a shotgun marriage to ETFs, and mostly equity ETFs at that. (Garth does not recommend anything else because he would not recommend anything that can go to zero.) Look at what markets do when they are not going up. They can be in free fall, and make you feel like the biggest idiot. They can turn a good day into a bad day. Garth’s strategy of putting all your wealth into one asset class, ETFs, is like having a crazy girlfriend. There are a lot of ups and downs, but you can stay in the relationship as long as you tolerate the volatility and she doesn’t ruin your life. Home ownership is like a stable wife; she’s a commitment and she costs more, but she doesn’t give you bad days.

I have never suggested having all of one’s net worth in ETFs. Read harder. — Garth

#113 Pulp Faction on 12.28.14 at 7:36 pm

I bought a mobile home for under $10,000 in fairly good shape, but older. It looks nice and is very homey.

Net income: $5,000.00 per month.

Pad rent: $340 / mo.
Hydro: $65 / mo.
Gas: $75 / mo.
Internet: $70 /mo.
Cell: $65 / mo.

Fuel, food, other consumables, outings and entertainment…..who cares how much ?

This is living. No debt, no stress, lots of fun.
My tools, musical equipment, and other stuff is valued at about $55,000. and I own all of it outright.

Make the banks rich, see if I care.

#114 markymark on 12.28.14 at 7:42 pm

#63 joe Calgary.

Maybe someone should dumb it down for you also?
Your dreaming if you think rent costs only 25 percent of your income. Buying a house is worst. Sure some rental markets are soft, but I for example pay 33% of my take home pay on rent!!
And I can not buy much with a 1000 dollar month mortgage!
This is all in a hick town in northern b.c. with 10k people.

#115 Questions on 12.28.14 at 7:48 pm

Why would BoC rates rise in Canada any time soon? For that matter, why would the 5yr Canadian bond rise in the near future.

We’re told that Canada would follow the US, maybe with some lag. I can kinda see why this happened in the past, but I’m having trouble seeing why this is an assumed correlation in 2015.

#116 Victor V on 12.28.14 at 7:52 pm

#43

Yes.

Tax deductible debt. Borrow at 3% then invest to earn 7%+ and deduct the interest against your taxable income.

#117 nonplused on 12.28.14 at 8:01 pm

Well Garth, I can understand how you could be frustrated. But look on the other hand at all the people you’ve helped!

I’ve read 2 of your books (Greater Fool and Money Road, wasn’t too interested in the political one) and followed much of your advice, particularly the rule of 90. Heck I even have a fee based financial advisor now. My wife’s TFSA is all topped out, and I have one but all my free money is stuck in my corporation for now (should be able to fix that next year).

The main piece of advice I haven’t followed was to borrow against the house to invest. But since I am exposed to the Calgary job market I don’t feel very uncomfortable with that decision at this point. I’ve been doing fairly well as a consultant since getting laid off a year ago, but no full time leads so far. The last thing I’d want is a big mortgage payment and possible rate increases next year. Maybe if my new financial advisor works out and the returns are good I’ll think about it. For now I’m happy I only have to cover the taxes and utilities. That alone is good for nearly $2,000 a month once you count cable and all the cell phones. I suppose I could shut off the hot tub and save $30 a month right there. Probably $60 when you count the chemicals they aren’t cheap anymore. But the whole family loves it.

I have one of those automatic thermostats but I don’t know that it makes a difference. The in-slab heating just picks up the difference and you can’t really have slab heating that goes up and down during the day. It has a timer on it but I think that’s only so the system doesn’t drain the hot water when people normally want to shower.

Saving money by cutting expenses is hard. I can see why so many people have trouble with it.

I’ve also considered getting more fuel efficient vehicles but I don’t think the math works there either unless you need a new car anyway. Ours are all still in pretty good shape even the 99 Jeep my kids bomb around in. For the amount they drive it just doesn’t seem I’d save enough on gas to make the monthly. When they are in town they spend maybe $120/month on gas, and that’s only 4 months a year right now they are in university in other cities. Fuel efficient vehicles still cost something to run, so there is no way I would recover the capital. So instead I’ve decided to just hope it lasts until they have jobs and buy their own cars. It’s tough though. Do I put $1200 worth of tires on a $4000 vehicle? Oh well I guess if it dies I can always sell the tires for something. And new cars need new tires occasionally too.

#118 MGTOW on 12.28.14 at 8:02 pm

Think Rich? === I’ve got a better one: ‘BE RICH !’
Now that is WAY better.

How does a person ‘be rich’? Easy; DON’T SPEND too much, especially on over-priced houses and posh cars that you cannot afford.

Second way = AVOID The main cause of divorce to men these days = avoid marriage (more on that later).

————–
For houses, there is a simple formula that works wonders, and it can be found here:
http://patrick.net/housing/crash1.html

QUOTE:
(( – annual rent / purchase price = 3% means do not buy, prices are too high
– annual rent / purchase price = 6% means borderline
– annual rent / purchase price = 9% means ok to buy, prices are reasonable

So for example, it’s borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. ))

On the other hand, if you go through renting for 30 years and you end up with no house, while your neighbor has his house paid off, then who is better off in the end?

So think about it carefully; If you can rent a place which is far cheaper than the expense of a house, so that you can invest those savings in a mixed portfolio, and at the end of 30 years have enough saved up so that you can buy a house OUTRIGHT in cash 30 years from now, then you will be in the same position as that of a home owner these days.

With the rate of home price appreciation
(we can expect around a 2.5% rise in home prices per year for the next 30 years, vs an annual return on stock investments of about 7% per year),
the home that you will buy in 30 years time will be approximately 2.5 times the prices that you see today, so take that in consideration in your calculations.

If you can save in mortgage payments, maintenance, property taxes, insurance, and other things, and invest that amount each year in a balanced portfolio that give you 7% annual return, and in 30 years you will have MORE than 2.5 times what houses cost today, then it is more wise to go and rent.

If you find that your ending investment amount is LESS than 2.5 times what houses cost today, then it is more wise to go and buy a house instead of renting, – – – BUT that is ONLY if you plan to never move, (or move less than once over the next 30 years) since the real estate transaction costs of moving are just huge and will eat up a large chunk of your future finances.

So do careful calculations, find out which one makes more financial sense and act accordingly.

For people who live in Toronto; add in a 20% decline from current prices, and in Vancouver add in a 30% decline in current prices, because those places truly are in bubble territory right now and will probably fall a little bit. Not much, but a bit, 20% to 30%, then continue on up after that by 3% per year for next 30 years.

PLEASE REMEMBER:
– DEBT is not wealth.
– Debt does not bring you freedom.
– If you buy a house, you cannot follow the job market without taking a huge hit when you sell.
————————–

For cars, a really great rule for anyone to follow is found here: http://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/

QUOTE:
(( The 1/10th rule for car buying is simple. Spend no more than 1/10th your gross annual income on the purchase price of a car. If you make the median per capita income of ~$42,000 a year, limit your vehicle purchase price to $4,200 if you must buy one. Absolutely do not go and spend the median car price of $24,000! ))

Please remember; a car is just a metal box with 4 wheels, it is not an investment.
– If you want a nice NEW car at a very low price, but the new Nissan Micra for only $10,000 , it is the lowest priced new car now in Canada. However, a used car at a low price is also a good alternative if you can find one at a low price, since not very many people were buying new cars during the recession so not many used cars are being sold today.

Don’t just take my word for it, listen to the Financial Post, they explain it much better than I ever can:

“Here’s why you want a new car and not a used one”
http://business.financialpost.com/2014/11/01/heres-why-you-want-a-new-car-and-not-a-used-one/
—————————–

For marriage: OH GOD, EVEN TALKING about avoiding marriage is going to get me stoned and burned at the stake, but the truth is that no matter how well you do to save money, invest wisely in the markets, a nasty divorce will destroy you like an Atomic Bomb.

Guys, if you are already married then just ignore this part, you have a 50% chance of getting divorced over the next 10 years, lets hope you are not one of them, that’s all we can do here.

But if you are a guy who is not already married then PLEASE think about the institution of marriage very carefully and watch these videos of wise MGTOW advice and ask yourself if the risks to your financial well-being in a potential divorce are worth getting married these days?
That’s all I’ve got to say about this, these guys can give financial advice far better than I can. Please watch:

‘Relationship Advice’
https://www.youtube.com/watch?v=GI98VeWeYzw

‘A Zero-Sum Game’
https://www.youtube.com/watch?v=4TGdFc5POMo

Merry Christmas and a Happy New Year to everyone.

And keep listening to GARTH’S ADVICE, he is a God amongst men !

#119 Steve French on 12.28.14 at 8:05 pm

Pulled back into southern Ontario from Australia via Indonesia, Malaysia, Thailand and Vietnam.

Canada still has a lot going for it. For the most part, there are good people here. Very good people. And we have a more diversified economy than Australia so can weather the end of the commodty supercycle a bit better.

With the Canadian currency rebalancing away from Alberta oil, and some softening in the Dutch disease/ resource curse economy, it’s morning again in the manufacturing heartlands of Ontario and Quebec.

#120 Victoria Real Estate Update on 12.28.14 at 8:09 pm

Extreme mortgage debt is always risky, especially when it is leveraged 20:1 at or near the peak of one of the biggest housing bubbles in the history of the world (yes, that’s Canada’s housing bubble).

There have been many housing bubbles throughout the world over the last 100 years. No two housing bubbles are exactly the same, however, out of control, leveraged mortgage debt is definitely a common characteristic.

Prices in Victoria are already down approximately 15% from peak and falling. Markets across the rest of Canada will soon join the price decline parade and Canada’s price decline will last for years.

Once prices in Canada are down 10-15% across the board the attitude toward debt in Canada will change dramatically just as it did in the US and dozens of other countries around the world.

It’s only a matter of time and the clock is ticking…

#121 Self Righteous Loser on 12.28.14 at 8:19 pm

Garth, I know you are not a fan of mutual funds, but what do you think about corporate class funds? Do the tax advantages outweigh the high fees? Could you devote some blog space the question?

#122 Diversified in Oakville on 12.28.14 at 8:25 pm

Good evening Garth,

Thank-you so much for your blog, which I am hopelessly (or pathetically) addicted to.

Reading your blog for the last year has helped me realize that my “Financial Advisor” was more like a “Service Charge Generator” for himself, by having me in high M.E.R. Mutual Funds with DSC’s out the wazoo.
He has been fired, replaced by a advisor who has built a very diversified and balanced portfolio using a combination of Canadian and U.S. dollar ETF’s and rebalanced quarterly.

Don’t be fooled like us, hold your advisors accountable!

#123 East Van on 12.28.14 at 8:26 pm

Another American Professor of Economics named Wolff on the wealth gap:

http://www.theguardian.com/commentisfree/cifamerica/2011/oct/26/how-1-got-richer-99-poorer

#124 Linda on 12.28.14 at 8:29 pm

Garth, thanks for the education & the insight. However, I would point out that given the sheer financial weight of the top 1%, it is far easier for them to have only 9% of their net worth tied up in a house or housing in general. Sad but true – the lower income you have, the more of it is used for essentials (food, shelter, clothing). And the less you have to put away for a rainy day. Yes, it does matter if you know how to budget but even the most diligent budgeter will have difficulty finding extra cash when their household income is less than $25,000 (gross, not net) per annum. Plenty of seniors out there who rely on CPP/OAS/GIS & the sum total of those 3 things is less than $25,000 gross per annum, even presuming they get the maximum CPP which not too many people ever do. Taking that putative $25,000 gross, 9% would be $2,250 per year for shelter/housing. Good luck with finding accommodation for just $2,250 per year in North America. But if you earn $250,000 per annum then you have a much more reasonable $22,500 to put towards shelter & your options are much more appealing, too. Heck, even in Calgary where the average monthly rent for a decent 2 bedroom is $1,300 per month you can cover your rent for a mere $15,600 per annum. Plus your ‘left over’ income is more than enough to set some aside for investments or it should be. But IF you are poor $25,000 or less, you had best hope you can score subsidized housing of some sort & even then, you can probably expect to pay at least $600 per month. Which is close to 30% of that putative $25,000 per annum & hey, you pay rent in after tax dollars so your percentage spent on shelter is even higher.

That having been said, too many people want the goodie & want it now, damn the outrageous cost of it or whether they actually need that goodie. You are quite correct, it would be better for people to put money in assets that really pay dividends & not expect their house/condo to be the nest egg that will let them live a life of luxury until the day they die. Or at least have more than one asset to rely upon.

#125 Herb on 12.28.14 at 8:31 pm

Sophia @ #36 and 75,

well said! The rich are richer because they have more money to distribute, not because of how their money is distributed. If you have a pile, it’s easy to invest only a small portion in housing and put the rest to work profitably.

A good example of economics as ‘the art of reading entrails after the event’.

I think it’s more like this: if the rich believed they could build more wealth owning more houses, they would. But they don’t. — Garth

#126 Bobby on 12.28.14 at 8:34 pm

For # 111 D in O, I’m always left wondering why people end up with such poor, so called, financial advisers. You are not the first and certainly won’t be the last. One of my colleagues, a well educated individual, once asked me how his financial adviser got paid when she spends time with them and has asked for no money. I was gob smacked. Just open any personal story in Moneysense magazine and the first suggestion is to fire the financial adviser. The lack of financial literacy among Canadians is amazing.

#127 HATE RENTING IN CANADA on 12.28.14 at 8:48 pm

DELETED

#128 JCF on 12.28.14 at 8:51 pm

I understand that it can be difficult to read apathetic and negative remarks. We are all human – even journalists…..
I am part of the 1% in this country and read your pathetic blog as it’s published. Please continue – it reminds me why I am renting and not owning at the moment. Try not to let them get to you – jealously spurs resentment.
Quite frankly, a friend turned me onto your blog 2 years ago – we are both military members – and – b/c we move every 2 years, it makes absolutely no sense to purchase. I am trying to hold fast to renting while my wife is trying to get us to purchase a home this spring. Please give me the strength to resist and not become divorced and even more poor!

#129 Kenchie on 12.28.14 at 9:10 pm

“They don’t comprehend what risk is, so they jump in. The house culture that’s developed around us makes most middle-class couples think like those commenters over the last three days. There’s only one financial strategy for those people – real estate, and the borrowing required to get it.”

Let them all burn… Garth, people need to take responsibility for their own decisions. If they choose to ignore warnings from across the various media outlets (yours included), they deserve to lose their shirts/houses/cars, etc.

I have zero sympathy for the majority of people’s future financial well-being since so many people deliberately live beyond their means. They need to be humbled.

#130 Setting the Record Straight on 12.28.14 at 9:15 pm

@22
” eventually we may have democracy and an honest society once again.”

Lets correct that. Eventually we may have liberty and an honest society once again.

#131 joblo on 12.28.14 at 9:28 pm

Only 4 more sleeps till

TFSA room time!

#132 Hamish42 on 12.28.14 at 9:30 pm

I think the tide is turning. More folk in the GTA are aware of the hazards of buying condos and think that house prices are due a correction. Not sure how garth will handle becoming part of the mainstream….
After you have said I told you so once what is left to say??

#133 Mama Bear on 12.28.14 at 9:37 pm

Garth, your advice and help over the last two and a half years, since selling my home and now renting, has worked out very well for me. I feel that my friends are starting to understand and may soon change their ways too. Thank you. Happy New Year everyone!

#134 maxx on 12.28.14 at 9:44 pm

Cash buyers have become quite insignificant, given these long-term, destructive, idiotic rates. They are quite often considered “non-grata”, as they nearly always understand value and more importantly, keep their heads- which is what happens when people have actually EARNED the money. This chaps floggers’ behinds. A lot.
What matters to floggers of any stripe is not that a buyer HAS the cash to buy, it’s whether the buyer is able to borrow.
Floggers don’t care where money comes from- only that there are enough fools around who can borrow with near abandon to keep inflating prices.
Borrowing rarely confers a sense of gravity as to the actual consequences of what is owed.

#135 My Life is a Pile of Shit on 12.28.14 at 9:46 pm

I have never suggested having all of one’s net worth in ETFs. Read harder. — Garth

A renter has to put all his wealth to work in ETFs to make renting cheaper than owning. If even half of his money isn’t invested, he’s better off owning and not have to pay rent. This is about those who can own without financing. If home ownership implies debt, renting is vastly better than owning.

Actually renting is cheaper than owning in almost all markets. Love your name, though. — Garth

#136 Panhead on 12.28.14 at 9:48 pm

I guess even Garth is allowed an occasional hissy fit. Just pour a double on the rocks and carry on for us heathans … we won’t let you down again …

#137 Washed Up Lawyer on 12.28.14 at 9:51 pm

Garth:

I am sorry that scurrilous comment you received dampened your spirits. I offer the following to buck you up and reinvigorate yourself. We need you to guide us through the times ahead and to continue to fight the good fight. You are “The Man In The Arena”.

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

Theodore Roosevelt

#138 Country Girl on 12.28.14 at 10:02 pm

Garth, Next time the comments disgust you, just remember all of your other followers who enjoy, appreciate and “get” your message but don’t comment regularly. Thanks for your persistence.

#139 JacqueShellacque on 12.28.14 at 10:02 pm

Wealth/financial independence as most people would recognize it not being the norm, it’s essentially contrarian. That is, you won’t get wealthy/financially independent doing what most other people do. This is the single biggest misunderstanding that people have about money. And the single biggest journey one has to make when deciding to make acquisition of wealth / financial independence an important life goal. Garth, you’ve facilitated this journey for countless people, many of whom don’t post, and it’s my hope that you will continue to do so.

#140 Herb on 12.28.14 at 10:05 pm

… if the rich believed they could build more wealth owning more houses, they would. But they don’t.

— Garth @ #125

Of course, Garth. As you have shown convincingly, the time of residential real estate as a wealth builder has run out. But houses did have a good run. It’s how non-rich schmucks like me managed to build nest eggs.

#141 John in Mtl on 12.28.14 at 10:07 pm

#92 Box-in-Sky Renter on 12.28.14 at 6:39 pm

I have yet to see Garth’s ‘Rule of 90′ clearly explained, with respect to calculating %housing of net worth. So Garth, maybe you could select from samples below which calculation is the TRUE %housing for the ‘rule of 90’…(I would assume it is #2)

Box, You are either new here, or haven’t been paying attention. I’ll give you a hint: the rule has to do with your age…

#142 AACI Home-Dog on 12.28.14 at 10:08 pm

As far as small town markets in rural BC go…yes…stock market has done far better. An approx average +$100k value increase occurred 8 years ago…otherwise near flat line values prevail. So avg went from $150 to $250k or so, and little fluctuations since. Happy New Year !

#143 Keen Reader on 12.28.14 at 10:09 pm

The great advice found on this blog goes well beyond direct readership. No doubt many readers then go on to advise friends and relatives to eschew debt and diversify, if not directly recommend against gambling in RE when so risky to do so.

Please don’t despair, you are likely making a bigger difference than you may think. Thanks for filtering some of the crap trying to get attention here; this is definitely a lot of work and apologies for adding to it right now!

As a side note, putting “rental” theory into practice is not always easy, especially outside the bigger cities. After retiring (at 48, in large part due to the valuable advice and wisdom learnt here!), we had to compromise somewhat to find a rental, compared to buying the “perfect house”. Fortunately my wife gets the overall picture and remained firmly in favour of renting, when I started wavering. Minor inconveniences will therefore not derail our solid financial plan, allowing us to keep enjoying the many years ahead to their fullest. Thanks again Garth!

#144 Scully on 12.28.14 at 10:12 pm

Garth, I think the majority of people fall into two camps. I’ve seen greed and speculation first hand. You cannot tell them about risk as they are blind to it. But then there are the ignert followers who watch hgtv, are house horny and associate home ownership with their life purpose. Example: my friend knows my husband and I rent and her eyes glaze over when I talk to her about risk and a balanced portolio. When I told her we were looking for a bigger place she said it was about time we bought! Just rolled my eyes. What can I do. However, Two people I recommended your blog to have taken your advice and have turned their financial situation around. Thank you for that Garth. The rest just don’t want to think about it.

#145 Spectacle on 12.28.14 at 10:13 pm

Happy New Years .

2015 has every potential for an amazing beginning to several Years of great performance on a TURNER reg.TM portfolio !

Re:
nubbers on 12.28.14 at 3:24 pm
Phew! I was getting worried.

I get constant **** from my other half, who is convinced that house prices are going to continue to rise…….. surprisingly hard one to argue (against).

What keeps me going (and not just give in……. is that I have to make the right decisions for the sake of our children….
*************
Nubbers, my friend, keep your focus…it is essential.

Many of us have had amazing success with family, spouses based on the same North american social myth of buying a single asset to prosperity, such as a house, and such B.S blah-yak-yak related to it.

Garth Turner discusses the abilities we have to “plan our work and work our plan”. My wife now shares that clarity. She just returned from Florida , where some close relatives purchased $170,000 residence some years ago, which is now worth only $40,000 ! If it sells at all. These are the painful averages people do not like to share! We only hear of “some guy “, rarely do we hear the devastating reality experienced by those trapped.

Those who ignore the anecdotes, stories, details and facts, are truly the “greatest fools”. Like investing, changing minds to see the reality takes time and a steady consistency. It works.

#146 Montellino on 12.28.14 at 10:13 pm

This is a true story.

Went to visit friends who just had a baby. I asked about an resp, this being year end and all, and their response was [email protected] told us we are better off holding off a few years to save up some $$$ and then buying a condo as an income property.. This was at TD.. FML!!!

Keep fighting the good fight Garth. We love you.

#147 Habs76-79 on 12.28.14 at 10:15 pm

Garth, I sure sense your points of view and struggle getting it all into people’s heads.

I have found that most people just don’t listen. I use to get into discussions and sometimes including unasked for details on all sorts of things I’ve read and learned here from your blog posts and comments by others here as well as other websites. Discussions would come up on house buying, mortgages, home equity loans, credit, debt, buying all sorts of crap etc. and at rare times even talks of other investing. I’d hear all the same crap that you point out as so on your site spoken by others in my presense. Them overbuying into housing, over borrowing to by crap that they often don’t need nor really want but because they just can. Over paying for cars and then financing such into mortgages or consolidation loans etc.

I tried to explain the faults of these things. I tried to keep my jargon to layman’s terms and not be so full of myself, including using some examples I made as my own mistakes. None of my mistakes have been catastrophic though. People I often talk to about this will often shake their heads up and down as if they see my points and even agree…. All that to find out weeks, months or a year or so later they are DOING ALL THE SAME BUYING, BORROWING CRAP I TRIED TO INFORM THEM ABOUT AS BEING UNWISE!

I GAVE UP GARTH!

I no longer really bring up such stuff and only if talk comes to me and people ASK me for my thoughts may I bother to tell them what I believe is good info and helpful. Short of that I am finding as time passes by that most people JUST DO NOT WANT TO LEARN! Oh some do, some are bright enough to see the bigger picture, but IMO most every day folks are not so bright and quite easily buy into the crap peddled to them. As such and as spoken by others here, I feel more that they just need to proverbially crash and burn. SAD BUT IMO TRUE!

#148 dontcallmeshirley on 12.28.14 at 10:34 pm

Garth, they curse you as “charlatan” because you say you “cover” the issue of rent saved, but you don’t explain why the $20k-$30k in annual rent recovered when selling a principle residence is a negative.

Give it a shot.

#149 Ryan the Thirtysomething on 12.28.14 at 10:35 pm

Sorry about the trolls. I suspect that those of us who appreciate and heed your advice don’t comment often enough to say thanks and help offset the signal-to-noise ratio.

#150 Retired Boomer - WI on 12.28.14 at 10:36 pm

The last 2 columns of the graph on the far right tell the tale

too much house, too much debt!

This represents the ‘bottom 90%”…… that’s you and me.

Well, maybe you. My home represents 18% of net worth.

Those who invest their $$ into a home AND equities do endue with more equities and less home debt over time.
It is the long mortgage that destroys.

#151 YOU ARE LIVING THE DREAM on 12.28.14 at 10:39 pm

Garth, I have read you blog for years, said very little but once, this is my second. I am an ex realtor from Sask, the province with no potash sales and slumping oil prices… lol and a new stadium with no umbrella over it. A place where $20,000 properties are selling for almost $200,000. Yes, this is where the West really begins say ou premier.. Only a few days after a Chamber of commerce meeting where he ranted about Sasks economy, he announced a hiring freeze.. after the the speech!!! “COME HOME” lol, “HOPE”
Where I come from the market will fall and fall it will.
You mentioned in your blog” LOOK SOUTH OF THE BORDER” not south Sask or South of the Yukon over alberta ( ok fort mac for those who don’t get it..

I think Canada is heading into a recession, as we always do after the US pick up… So, with Stevie at the helm and the tax payers as risk and the continuous buyers of overvalued real estate in Canada,,, no pensions… but dream of ( the late clown’ s words..) prosperity.. no future other than loss and debt.. where are we going?? where will end???

Garth, you were never meant to be in Harpers regime.. you were better than that and that’s why you are here.
It’s not out hope, it’s not out of prosperity,,, it’s outlining that we all have chance in Canada, if we pay attention and listen to reason.

Thanks Garth, my kids and Grandkids will be fine.. That’s a long haul and goal a made after couple of sweaty nights years ago. Mine are lucky!!!

#152 D.D. Corkum on 12.28.14 at 10:41 pm

#3 North Burnaby on 12.28.14 at 2:02 pm

“… Such a flawed statistic, Garth. Poor people cannot afford to have stock portfolio + rental properties + principle of residence.”

———

Its not the statistics that is flawed, its the hidden assumption that poor people need to own their principle residence.

#153 Kenchie on 12.28.14 at 10:47 pm

Garth,

I forgot to wish you a belated merry Christmas and a happy new year!

#147 Habs76-79:

“As such and as spoken by others here, I feel more that they just need to proverbially crash and burn. SAD BUT IMO TRUE!”

At the end of the day, it is a “market”. So it’s healthy that some people crash and burn so stronger owners can come in and pick up the assets for cheap. It’s a beautiful thing in some respects…

#154 Mishuko on 12.28.14 at 10:50 pm

You have given many wise words… I was skeptical at first but now I have seen the light.

Heck when you wrote ‘debt is voluntary’ I almost turned my back… now I laugh at my closed-minded attitude back then.

Lots of respect to you though for being able to do this for so long and helping to educate me!

#155 Chickenlittle on 12.28.14 at 10:51 pm

Ok, so let’s get this straight:

I have been reading Garth ‘s blog for 2 1/2 years and have learned the following:

Don’t put your eggs in one basket. Someone making 10 million a year with a million dollar mortgage and a diversified portfolio is better off than someone with a $75k income and a $750k mortgage. I didn’t have to read this blog to figure that one out…

A non cowboy portfolio should be a 60/40 mix of growth and fixed income assets and should be rebalanced over time. A portfolio is not about buying stocks. Garth does not pump individual stocks or metals. He is not a gold bug. He likes REITs, preferred, etc.

RRSPs are good for tax shifting and funding a maternity leave, etc.

Most people do not max out their TFSA but they should.

A TFSA shoukd not be a bank account at the clementine guy’s bank. It should be used as a tax shelter for your portfolio. (If I remember correctly)

Renting is cheaper right now than owning.

If you are going to sell use an agent.

Even a small correction could wipe out the equity of many who have highly leveraged mortgages.

Current housing prices are unsustainable.

There’s more but I cant think of anything else.

Honestly. ..I have a diploma in ECE. ..I am a glorified babysitter and even I can understand Garth. I did not know any of this until I read Garth.
Mind you, I did not go to a public school so maybe that has helped me in the long run.

I did over simplify my list for times sake.

Garth, I hope I did ok ….

#156 Smoking Man on 12.28.14 at 10:56 pm

#50 OttawaMike on 12.28.14 at 4:02 pm
#41 Smoking Man on 12.28.14 at 3:36 pm

Interesting comment.

I eschewed television the past 5-6 years and can tell you my brain functions differently and for the better without it.
Being bombarded by ads and formulaic weekly programs has the effect of programming you to comply with the status qua of consumer culture .

Commercial radio is similar. Around the same time I ditched the Telly a switch was made to satellite radio along with CBC and NPR. No ads blaring away and I still have managed to not become a Marxist/Stalinist/Communist from listening to public radio.
……….

I have a theory based on my son’s observations and my own experience.

There are those that consume content. Those that create it. Only about 1% of people who read this pathetic blog post in the comments section, I’ve observed about the same ration on my shit blog.

Vast majority of posters on hear have money, and plenty. Ok maybe not the young ones yet, but they will.

Creativity, contribution pays off eventually. Consuming never does.

Hence the 1%….. You dogs are all going to make it, posting is risk. Baby steps.

The ones that just surf, go see movies.

#157 John in mtl on 12.28.14 at 11:00 pm

Has anyone read the “Actuarial Report (12th) on the Old Age Security Program” from the govt of Canada and would care to comment on it as regards to the TFSA?

(http://www.osfi-bsif.gc.ca/eng/oca-bac/ar-ra/oas-psv/Pages/oas12.aspx)

I’ve just started quickly reading here & there and have gone to section IV (Results). I see a lot of reference to the TFSA there, talked about as “mitigating factor”, “impact of investments on benefits”, etc…

Am I jumping to early conclusions by thinking that what your TFSA will be worth in, say, 2020-2030, **might** be used to lower benefits? If that’s the case, we are; once again, being screwed by our government… proving that there’s never an equitable “free lunch” for those not in the “1%”.

I’ve downloaded the document and will read it in full over the next few days.

OAS is a gift. You contribute nothing to it, and it’s intended to supplement the incomes of people who have little other resources. You should not expect it to exist 20 years from now, in any case. — Garth

#158 LuckyRenter on 12.28.14 at 11:00 pm

Garth , can you make a comment about this information ?! Is this true that houses over 500,000 are taxed an additional 8 percent .

http://scarletthomes.com/priceguarantee.html

LIBERAL GOVERNMENT TRYS TO KILL HOME OWNERSHIP

In the recent budget, the Liberal government has decided to add a new tax all new homes over $500,000 at a rate of 8%. Since builders sell homes including tax, this will hide approximately an additional $30,500 of tax in the price. Since most buyers will add this to their mortgage, this will add over $53,500 including interest, assuming 5% over 25 years. WHAT RIGHT DOES THE GOVERNMENT HAVE TO TAKE YOUR MONEY? WHAT DID THEY DO TO TAKE YOUR HARD EARNED MONEY? Even though you may not be buying a $500,000 home, eventually, over time, modest homes will cost this amount. This is not fair to our children, and grandchildren. Tax income, not home ownership!

#159 Yuus bin Haad on 12.28.14 at 11:03 pm

People don’t understand? I don’t debate – no stress.

#160 stop lying on 12.28.14 at 11:10 pm

#108 Mister Obvious on 12.27.14 at 12:46 pm
Not quite.

You’d also have to sell and pay all fees. Your next task would be to do something wise with the proceeds. At this point in history that would probably not include buying another house in the GTA.
———–
Probably not, but that’s what I’m going to do anyways :) The fact is, I agree with Garth on diversification… but I also believe in buying a home and building equity in it. The challenge is finding a job you love (or can tolerate) that can afford them both.

But the numbers don’t lie, the gain in housing has been extraordinary, much more than 32% from 2008…

#161 My Life is a Pile of Shit on 12.28.14 at 11:11 pm

Actually renting is cheaper than owning in almost all markets. Love your name, though. — Garth

Renting IS cheaper than owning. And owning only comes close to renting if you own without debt and not pay bubble prices. Servicing debt is too high a price to pay for the joys of owning (if any). But ownership costs are a reasonable price to pay if you hate ETFs. By adopting Garth’s strategy of rent and invest, there is no holding cash. It is rent and hold index ETFs and nothing else. There will be times when the markets are a sea of red week after week, and it won’t be some nameless schmuck left holding the bag — it will be you. Garth’s strategy will then call for you to step up and double down, if you still have cash to spare, or borrow from your LOC if you don’t (borrowing from LOC to invest is Garth’s “good debt”). It’s easy to invest in bull markets. And speaking of bull markets, North America now stands alone. Bull markets always end.

Now you are embarrassing yourself. — Garth

#162 KELOWNA IS GROUND ZERO on 12.28.14 at 11:11 pm

#112 – “They can turn a good day into a bad day. Garth’s strategy of putting all your wealth into one asset class, ETFs, is like having a crazy girlfriend.”

Have you ever read a thing that has been written here?

ETF stands for an exchange traded fund. It is a financial vehicle not an investment. ETF’s can be comprised of everything from 100% guaranteed Gov’t bonds to a basket of 3D printing companies. Some even go up in value when the market goes down. There is no limit to the types and mandates that exist.

Please don’t waste our time posting if you clearly do not have the any knowledge or anything to offer.

#163 Gmac on 12.28.14 at 11:11 pm

Garth,

I totally get it. Cut the bums who argue loose. You are too heavily invested in having them agree with you. You are no longer in politics. You are free to invest in being right.

God bless. Keep the advice coming for 2015.

#164 Setting the Record Straight on 12.28.14 at 11:12 pm

@84
“These two groups are much smaller than the large, stolid and, up until now, peaceful ranks of the middle class workers such as, on the one hand the blue collar workers who toiled in factories and on the other, the middle managers, accountants, and many other white collar workers.”

******
Middle class worker is an oxymoron.

#165 KELOWNA IS GROUND ZERO on 12.28.14 at 11:14 pm

Typo- ETF is a finacial vehicle not an asset class.

#166 Setting the Record Straight on 12.28.14 at 11:18 pm

@86
” For myself, always being liquid, diversified, balanced, and debt free gives me an ongoing priceless financial peace of mind.”

****
You are assuming, like Mr. Turner, that the central banks in the West have not set us on course for a crack up boom.

Being liquid diversified debt free is all good but not good enough for peace of mind.

#167 AfterTheHouseSold on 12.28.14 at 11:24 pm

#112 My Life is a Pile of Shit
“ETFs is like having a crazy girlfriend. Home ownership is like a stable wife”.

Wow! No wonder your life is a pile of shit.

#168 stop lying on 12.28.14 at 11:25 pm

#131 Mark on 12.28.14 at 2:43 am

Well there’s your problem…believing a word that the TREB says.

But anyways, the point made was that houses have significantly outrun inflation in a significant and rather unsustainable way.
——
I know TREB plays with numbers with regards to number of houses sold by comparing unadjusted to adjusted stats, but I’m not sure how that would affect the average sale price. It may, but my experience has been even better than TREBs numbers so there must be something to them.

I do agree that the numbers are extremely high compared to the norm. The only question is how they will slow down and when. I’m not convinced 2015 will be that bad for GTA real estate to be honest. Not until rates start moving up and it looks like that won’t happen until at least Q3.

#169 AfterTheHouseSold on 12.28.14 at 11:26 pm

#137 Washed Up Lawyer

Thank you!

#170 Retired Boomer - WI on 12.28.14 at 11:35 pm

#112 #161 MY LIFE IS A PILE OF SHIT

Yes, Bull Markets always end. Quite true. When is the question, and will it a 50% drop or a slow melting down 30% over 2-3-5 years? Then a growth spurt to ever higher highs? No one can ever answer that with certainty.

One thing that HAS some certainty. Dividend payments, regardless of where prices might be today, or tomorrow, or the next year. They’re not guaranteed, but highly stable.

Once you get earnings to a meaningful point who cares what the price fluctuations might be on a daily, monthly yearly basis? I’m getting “PAID” to wait for the market to resume it’s upward trend. Take a look at 100 years of broad market charts see if this is in error.

Whether ETF or mutual funds, I don’t care, as long as the annual costs are minimal.

#171 JSS on 12.28.14 at 11:40 pm

Garth,
I think you’re doing a great service to Canadians of all ages that are interested in increasing their wealth, and are willing to LISTEN to what you have to say.
Your advice is golden, the type that is usually given to those who are already wealthy and pay for advice. Best of all – it’s free.

I’ve followed pieces of your advice, and feel that it’s been of great help to me. I’m a guy who’s 40 years old, single income, married, and two toddler kids. So your advice is really beneficial.

The only thing I’d respectfully add to your comments regarding diversification is that diversification doesn’t only refer to financial investments, but where the income is coming from and its reliability. For example, I work for a living, and get a salary. There are rumours that my employer will be cutting pay, along with layoffs. I hate the fact that my income stream is currently not diversified enough that a pay cut of say 5% won’t affect me. But it will. I wish I had more ETF’s, dividend income, perhaps some rental income along with my day job income. Maybe a small business. It’s just getting harder and harder each year to build such diverse income streams.

#172 John in mtl on 12.28.14 at 11:43 pm

OAS is a gift. You contribute nothing to it, and it’s intended to supplement the incomes of people who have little other resources. You should not expect it to exist 20 years from now, in any case. — Garth

Yes, it is, sort of… I consider it a modest return from all the govt waste and actions posed by the gov’t that I didn’t agree to like wars & buying war machines not necessarily used to defend the country, extravagant and lavish expenses that profited lobbyists and govt “friends”, utter failures like the arms registry; things like that…

#173 omg the original on 12.28.14 at 11:47 pm

SAW THE FACE OF THE COMING CALGARY MELTDOWN

Met a young guy out visiting his parents over Christmas.

He’s from Calgary – worked on contract designing gather facilities for oil and gas wells.

Just found out his contract will not be renewed come February.

Has a wife and two young kids at home in a nice new 3200 square foot house in a bedroom community just outside Calgary.

He’s not sure what he will do, likely hang tight and hope things turn around. He’s an engineer but his design skills are pretty specific to oil and gas so he would be starting over in another field, plus likely have to move to another city. But he’s lucky at least he has an education in something that is still in demand elsewhere.

There will be thousands of these stories in Alberta over the next few months.

Lets see where AB prices go.

#174 Ian on 12.28.14 at 11:47 pm

It is partly attributable to media B.S

We came home to the Calgary Herald on on doorstep. As an aside, this is without doubt the worst daily newspaper in the five major cities that we have lived.

So guess what the headline was in the New alone section?

It was “Housing Market Booms”

Clearly written for the benefit of the advertisers and not the readers…poor saps that we all are. We started to laugh until it struck us that some people might actually believe everything that they read in the newspapers or hear on the news.

#175 Rich from Hamilton on 12.29.14 at 12:03 am

Garth.

Glad to have you back. Leadership is difficult. Yeah, I just have started to read to comments over the past weeks on your posts. The best way to look at over the past decade is Belichick and Brady — they just keep on posting “W”‘s……keep on with the great work for the somewhat silent majority!

Rich from Hamilton

#176 Jon B on 12.29.14 at 12:10 am

Just a suggestion, when you reference Moen taps and granite I believe you are attempting to suggest items in a home considered luxuries. Moen is a poor example and doesn’t operate in the high end space. Instead substitute KWC or Grohe for better effect.

#177 earlybird on 12.29.14 at 12:11 am

People don’t know what they don’t know….I realized I was financially illiterate about 15yrs ago, after hearing the term coined. After years of studying, I was shocked how I could never have learnt anything about money. We have taken the insane tax free gains from our home and we now make renting a Sport, its a frame of mind with a tonne of our stored labor in the bank working for us! I cant believe prices got so high…why people don’t take the money and run is beyond me. I wont pay what the market is asking for shelter, its crazy! 15% of income total to live in a decent rental…why would I buy? Caveat is no children. I keep my mouth shut when talking about house prices now because I have given up as well…its the only “investment” people know…plain ignorance. Have fun with your debt slavery. It only takes a small amount of people to start the slide…when it becomes cheaper to buy, we may reconsider….thank god for this blog…keeps me sane too, cant thank you enough.

#178 stop lying on 12.29.14 at 12:21 am

#158 LuckyRenter on 12.28.14 at 11:00 pm
Garth , can you make a comment about this information ?! Is this true that houses over 500,000 are taxed an additional 8 percent .
—–
Dude welcome to 2010. HST was slapped on new homes (and gutted homes). You get back 75% of the tax up to a max of 24000. So if you bought a new home for 800k, Ontario took 40k, thanks for coming.

Who gave them the right? Every POS who voted for Dalton. Someone has to pay for their mismanagement.

#179 Andrew Woburn on 12.29.14 at 12:21 am

Garth, the rage that is being heaped on you is directly proportional to the fear that you are right. There is a lot more to come. It will be succeeded by a deep, agonized silence.

Happy New Year and thanks for everything you do.

#180 My Life is a Pile of Shit on 12.29.14 at 12:31 am

#170 Retired Boomer

Once you get earnings to a meaningful point who cares what the price fluctuations might be on a daily, monthly yearly basis? I’m getting “PAID” to wait for the market to resume it’s [sic] upward trend.

In a bear market, dividends aren’t nearly enough to offset the drop in price. Collecting dividends with a falling price is what I call a yield trap. Waiting for recovery requires faith and patience, and I’ve always been short on both.

I can teach you how to remember that it’s = it is. Think of the apostrophe in it’s as the dot in i: it’s –> itis –> it is. You’re welcome.

#181 Fortune500 on 12.29.14 at 12:56 am

Thomas Stanley, who has probably done the most academic research on what makes a millionaire a millionaire, has discovered an interesting fact about what makes them financially successful in the long term. He calls this the rule of 1.49. It goes along with what Garth is saying here today

http://www.thomasjstanley.com/blog-articles/347/Millionaire_Rule_1.49.html

Garth, it sounds like you need a vacation. Maybe go somewhere outside of Canada where people have some perspective on all of this. I suggest the US, Spain, Ireland, Dubai, maybe Greece. Ask them about there thoughts on real estate …

#182 Happy Renting on 12.29.14 at 1:01 am

Garth, I’m sorry some of the commenters got you down. You are right: some (okay, most) just won’t get it and won’t even try. Conventional wisdom (even when wrong) exerts a very strong pull and many like the false security of doing what everyone else is doing.

Please keep writing. :) You give encouragement and a place of refuge to those of us who have no one in our face-to-face lives to talk to about this stuff. Proper stewardship of one’s finances is a vitally important part of life and most people just aren’t interested. Thank you for educating us and allowing discussion in the comments section (I acknowledge that the quality varies!)

#183 Joseph on 12.29.14 at 1:05 am

I’m not sure you fully comprehend what you are conveying Garth. Even Warren Buffet said his first priority was to pay off his house (or a substantial part of it) and then move onto building his financial instruments. Once your house is paid off, building your wealth is easy and in a bull market one can do quite nicely. Its not hard to see why the top one percent have only 9 percent of their net worth in real estate given their annual income. The top one percent in the USA made $761,000 (2012 figures). Give me 5 years of that kind of salary and I will have the same percentage of my net worth in real estate as well (even if I put all my savings in the bank). Not much risk with that kind of money coming in. The figure for middle class earners for 2012 was $51,000, so do you make the decision to start your future by rolling your dice on Wall Street’s terms with your first $50K, or do you follow Warren Buffet’s example. Nobody can take your house from you once it is paid for while the bulk of your investments can be lost in seconds on a bad call. If you are patient, you can have both; if you want to get rich quick, you can end up with nothing.

#184 takla on 12.29.14 at 1:11 am

so Garth is human after all,reading between the lines this slow motion realestate train wreck is just takeing tooo long and takein its toll on the garthman.Chin up old fellow its a done deal,the forecloseures will be in full blossom come spring starting in the oil patch then spending to someplace near us all.

#185 Hammer Toe Bob on 12.29.14 at 1:28 am

You’re preaching to the choir. But you’re up against some pretty big interests that wouldn’t agree with you if the sky was on fire.

As they say in Texas..”You can put your boots in the oven…but that don’t make ’em biscuits”. Garth…some people simply will not listen to you…ever…out of fear, greed and natural ignorance. Why bang your head against the wall?

2015 should be your inflection point…the lexus/nexus of realization that you can guide a horse to water…but you can’t make ’em drink…..a year where you write exclusively for ‘us’…the people who get it….and spend time less time with the ‘greater fools’.

Try expanding on your theme. There are good companies worth investing as opposed to your strictly ETF track. Honestly…I make out like a bandit picking stocks….they could be an accelerator to your building blocks of ‘balance’.

Buddha said ” As you walk down the road of life you’ll meet many men. If they are not your better or equal, leave them…You have no time for fools. I’m not a Buddhist….but that sounds like good advice to me.

#186 LS in Arbutus on 12.29.14 at 1:57 am

People simply do not understand risk. They don’t get that in a down market there’s huge upside and in an up market there’s huge downside.

Where I work I also see little understanding by the day to day worker on how to evaluate risk. Some people spend their day on things where if they went sideways there would be minimal loss or NOTHING would happen. On the other hand they spend the same amount of time (or none at all) on something where if the SHTF there would be huge issues and losses. It just all gets ranked the same.

I don’t think people think very analytically at all. Anyone buying a home at more than 3x-4x their annual income simply should NOT be allowed to. This is where the banks/regulators should be stepping in.

They aren’t qualified to make that decision. Even those that can afford $1 million home, most of them aren’t qualified to make that decision either.

#187 Freedom ?5 on 12.29.14 at 1:58 am

Garth, thanks for your blog. Don’t get discouraged, you’re making a difference. Hope you continue the blog in 2015.

#188 Victor V on 12.29.14 at 2:02 am

http://m.theglobeandmail.com/news/alberta/success-eludes-recent-migrants-as-fort-mcmurray-braces-for-tfw-fallout/article22223446/?service=mobile

In 2004, she says she was an overworked nanny in Hong Kong. Then she snuck into a Canadian consulate while on a grocery run.

In 2008, she got her Class 5 Alberta driver’s licence and brokered a deal with her employers – she would care for their children for a few extra months if they could open doors for her in the oil sands.

Now she’s a homeowner – she bought a two-storey house for $799,000 a few years back, where she lives with her Canadian boyfriend and her teenage son.

People in her community often ask her how she secured the good life.

“I tell them all you have to do is work hard and be patient and always wear a smile,” she says.

“We don’t want to get fired … So we have to be nice.”

#189 tf on 12.29.14 at 2:06 am

One negative comment needs 10 to balance it.
Here’s one positive towards the balance of a negative.
Many of us know you’re onto the reality of the situation; happy new year!

#190 Karl hungus on 12.29.14 at 2:08 am

If you were rich, why would you own rental properties? You don’t need the headaches. Capital preservation through stocks/bonds etc. But you own lots of real estate to become rich.

The stats you provided show nothing about becoming wealthy.

#191 Corduroy cowboy on 12.29.14 at 2:27 am

Garth, I’ve been reading this blog since 2008 and in doing so I’ve been duly educated, roundly entertained and once in a while even gobsmacked…mainly by the sometimes outright obtuseness of some of the commenters. But, as well, almost daily I’ve also been given food for thought by some of the other commenters and I enjoy both the diversity and economic disparity of your readership and the sometimes almost perverse feeling of camaraderie with the rest of the dogs. Your blog has become a touchstone for me in that time and I just want you to know that your intelligence and searing wit has warmed my heart many times over the years. Hope you keep writing till the lights dim and you are in your dotage. Not to be maudlin, but I think you are a national treasure.

Okay enough….as you were sir.

#192 pravchaw on 12.29.14 at 2:30 am

OAS is a gift. You contribute nothing to it, and it’s intended to supplement the incomes of people who have little other resources. You should not expect it to exist 20 years from now, in any case. — Garth.

We “contribute” taxes and I have contributed for the last 30 years but get it that this is another thing to taken away. Harpo giveth a little with one hand (tfsa) and taketh more with the other.

#193 Box-in-Sky Renter on 12.29.14 at 2:44 am

#141 John in Mtl on 12.28.14 at 10:07 pm

#92 Box-in-Sky Renter on 12.28.14 at 6:39 pm

I have yet to see Garth’s ‘Rule of 90′ clearly explained, with respect to calculating %housing of net worth. So Garth, maybe you could select from samples below which calculation is the TRUE %housing for the ‘rule of 90’…(I would assume it is #2)

Box, You are either new here, or haven’t been paying attention. I’ll give you a hint: the rule has to do with your age…

…Yes I know, ’90 minus your age’ should be what housing represents as a %of net worth, but I was referring to the calculation to get this percentage.

Calculation #2 above factors in house equity in your total net worth, but shows how the house VALUE doesn’t change (we are assuming no change in value for the sake of easy figuring). Therefore, as equity increases, the %housing of net worth will decrease (assuming investment total remains the same, of course).

As opposed to using house EQUITY as a percentage of net worth, which would make no sense at all. For example…a person could have a $1M house with a $950k mortgage ($50k equity) + lets say $200K in financials, and think his HOUSE only makes up 25% of his net worth, when it is in fact many multiples of his net worth (not good).

#194 tkid on 12.29.14 at 3:21 am

Garth,

re: http://www.nytimes.com/2014/12/28/world/that-debt-from-1720-britains-payment-is-coming.html

What is the oldest debt on Canada’s books?

#195 Spectacle on 12.29.14 at 3:34 am

#167 AfterTheHouseSold on 12.28.14 at 11:24 pm
#112 My Life is a Pile of Shit
“ETFs is like having a crazy girlfriend. Home ownership is like a stable wife”.

Wow! No wonder your life is a pile of shit.
**********************************
Thank You for that !
M

#168 stop lying on 12.28.14 at 11:25 pm

#196 jane24 on 12.29.14 at 3:39 am

The problem Garth is that many folk think of themselves as millionaires in their heads even through most of their home is actually owned by Scotiabank. There is a total disconnect between their real financial position and what they deem it to be.

Shame as they will indeed learn the hard wa that there is no good debt.

#197 Derek R on 12.29.14 at 3:42 am

#155 Chickenlittle on 12.28.14 at 10:51 pm wrote:
Ok, so let’s get this straight:

I have been reading Garth ‘s blog for 2 1/2 years and have learned the following:

Yay! Well done, Chickenlittle! You have been paying attention. I hereby declare you a graduate of the University of Garth.

#198 NoName on 12.29.14 at 3:51 am

@#90 RealistvsExtremist
How about record drought, is that worm enough for you?
http://goo.gl/n1WxMb

@#87 Anne
some rich people are rich because they born into money, but rest of them pay attention in school so they get to sit in front of the class?
http://goo.gl/xghypb

@#61 Waldo
this is interesting read about delaying of paying a school debt aggressively and using excess funds to invest, this article could answer your question.
http://goo.gl/6eeAMR

@#152 D.D. Corkum
IMO, what poor people need in this country is reliable transportation, i know that sounds very naive, but from my own experience car gave me opportunity and ability to look for better job where no bus has gone before.

@#156 Smoking Man
http://goo.gl/Ert13A

@#158 LuckyRenter
privatize profits and socialize losses, what’s wrong with that

#199 Freedom First on 12.29.14 at 4:12 am

#166 Setting the Record Straight

You have no idea what diversified assets I hold.

I do have peace of mind, while you are clearly out of your mind, and you just proved it.

#200 juno on 12.29.14 at 4:37 am

Garth loves this site too much to give it up!

Especially now when the tides are actually beginning to turn.

As for old saying goes “buyer beware”.

#28 by david makes many good points in the article.
As for people who thinks oil will recover anytime soon. your the biggest greater fools ever!

Look the us tried QE 1, 2 and a bunch of other crap none worked. But take a lookie now. Cheap oil! Who would of thought this would spark the dying economies.

Obama, and his buddies see this as a good thing going into an election year. And this may save the Democrats butts! There is no freakin way they will allow the taps to be turned down, if anything, the taps will remain open and oil will flow. Not only for the US, but for germany, england and etc.

I say it will take at least 3 years before the economies can digest the output and rebalance. In the meantime, Canada will have re-invent itself and change it current model which is based on oil and real estate.

#201 brydle604 on 12.29.14 at 5:08 am

Garth stay the Course!
As we go down the road your truths will become self evident.
Merry New Years.

#202 Steve on 12.29.14 at 5:33 am

Confused? Assets = things that pay you $. Liabilities = things that cost you $.
So a house cost you $, it only pays if you rent it out. That only make sense if rent covers all the cost, so cash flow if positive. Same for car, boat,etc.
Now stocks cost nothing to own, and pay you.
Keep it simply, buy assets avoid liabilities.

#203 nubbers on 12.29.14 at 7:28 am

Spectacle @145, thanks for the boost.

Regarding your wife’s relatives’ experience – wow. I make that a 76% drop. If that is before inflation, then that could be up to an 80% drop.

I propose a future post – a few house price crash horror stories, ideally taken from the developed world and not from areas that depend on a single industry that has taken a hit. That way, there is less ‘can’t happen here’ wriggle room for the nay-sayers.

#204 Mark on 12.29.14 at 10:38 am

“He’s an engineer but his design skills are pretty specific to oil and gas so he would be starting over in another field, plus likely have to move to another city. But he’s lucky at least he has an education in something that is still in demand elsewhere.”

If what happened to the ex-Nortel engineers is any indication, ex-Oil and Gas engineers will be told, “you’re overqualified for this job”, or “you’ll want too much money”, when they try and move to another field/profession or even sub-field within engineering. Employers, especially employers in fields that have been out-of-favour and eclipsed by O&G, are really reluctant to hire former O&G employees for fear that they will just leave the minute the high-paying O&G industry revives itself.

And really, do you really blame them? Many such employers had their employee base strip-mined by the O&G sector over the past decade, and have seen their costs rise substantially because of the O&G. I know every time I speak to business people and engineering companies in Calgary not involved in the O&G business, they often harbour resentment towards the extravagances of the O&G sector that they are not able to provide for their own employees.

#205 Nomad on 12.29.14 at 10:51 am

Over the holidays, talking to family members, from students to doctors, I learned some of the reasons why people are not interested in stocks and ETFs.

1- Investing is boring. Lack of interest in economy.
2- People don’t feel proud of a stock portfolio, but feel proud about owning a house.
3- Setting up a self-directed account is big enough of a bother to cause procrastination.
4- No trust in financial advisors. That means, more work for them to do.
5- Stocks is an abstract concept. Stock valuation appears arbitrary.
6- Not willing to learn about companies they could invest in.
7- Difficulty understanding the point of an ETF.
8- Don’t like the idea of loosing capital. Life is stressful enough as it is. Prefer working longer than loosing sleep over stocks.
9- Constantly see scary news about stocks.

The one aspect of investing they like is the concept of DIVIDENDS. That makes sense to them. That even let me convince my 28 year old sister-in-law to open a TFSA account with Questrade.

#206 Retired Boomer - WI on 12.29.14 at 11:09 am

#180 My Life Is A Pile of Shit

Whether the price drops 10% or 50% I am not selling a portfolio built of the best businesses in the world.

I am an ‘investor’ not a ‘speculator.’ This endeavor has been designed for the long haul (defined as when I started mid 30’s until I croak).

I am currently letting the dividends re-invest. I take what I need, when I need it. So far, so good. Whether that plan fits into what you feel is best is unimportant, it is working currently for this family.

I don’t much give a dam if the market falls 1,000 points today, or has a rally the same size.

After all Shit, it’s only money, and that in itself have scant value. Just for Freedom if you have some laying around when you need it.

#207 Mark on 12.29.14 at 11:14 am

“What is the oldest debt on Canada’s books?”

An interesting article:

http://www.theglobeandmail.com/globe-investor/why-cps-old-time-bondholders-have-a-big-say-in-the-future/article4105862/

And to answer your question quite specifically:

http://www.bankofcanada.ca/stats/goc/results/27219

#208 Ontario's Left Coast on 12.29.14 at 11:51 am

#15 also thick on 12.28.14 at 2:32 pm
Not sure what u mean by “ape the rich”.

Thanks in advance for the explanation.

Imitate, mimic, act like etc.

Not boasting, but this is what I did. Bought my home in 1996 and paid it off the same year I turned 30. I’m 47 now and have the best of both worlds: Balanced, diversified portfolio delivering solid growth and a comfortable place that carries for much less than most people pay in rent. The key is tricking your mind into not believing that your home is an asset. It’s a place to live and my preference is not having an idiot landlord to deal with.

Good luck to all in 2015!

#209 JSS on 12.29.14 at 11:54 am

#204 Mark on 12.29.14 at 10:38 am

During the last Alberta boom, I tried to get a Project Engineer/Facility Engineer job with the oil majors in Calgary – Shell, Suncor, Imperial, etc. Had years of experience in preparing AFE’s, project management, contractor management, etc. Couldn’t get in. Finally got a hold of a reputable oil company recruiter in Calgary. His response? “Yes – you have plant/project/facilities engineering experience, but not in O&G. Oil companies only hire either recent engineering grads, or 15-25 years experience poached from another oil company. If you’re not in any of these categories, you can head back to automotive, food processing, logistics and be a project engineer there.”

And this was at the height of the boom. Wow. So sorry if I don’t have much sympathy for an engineer in the O&G industry.

#210 Luc on 12.29.14 at 11:56 am

Can TFSA be taxed or considered a business ? read at…
http://lsminsurance.ca/life-insurance-canada/2014/12/can-your-tax-free-savings-account-be-too-profitable

#211 Julia on 12.29.14 at 12:00 pm

Garth understands that poor people need to spend more money on housing and have nothing left for investing. That’s not his point. His point is that if real estate was the best investment then rich people would be all in in real estate and not waste their money on a diversified financial portfolio.

#212 Smoking Man on 12.29.14 at 12:17 pm

The UN Schooled

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/2014/12/29/16-billionaires-who-were-once-dirt-poor&pubdate=2014-12-29

#213 fancy_pants on 12.29.14 at 12:32 pm

your message hasn’t changed for 5 years… sorry, but unless rates go up, it will be the same message 5 years from now, people clinging to this blog waiting for falling prices. I am out huge b/c I sold an investment condo back in 2008. Lesson learned. Never bet against the gov’t + the masses.

I dare the BofC to increase the key lending rate. oil will rebound and they won’t raise rates, too costly for too many players. buying a bigger home now, I for one don’t care if RE falls 30% – will have little to no impact on us. done living below my means.

#214 Don Derc on 12.29.14 at 12:45 pm

I remember the 99% marches and all the heroin overdoses here at the Vcr Art Gallery camp out. The 1% aren’t the bad guys – it’s the 99% who have little financial intelligence, and aren’t interested in finding it.

I may disagree with Garth and his support for the Yanks and their false economy but I can contrary the contrarian – it should be our calling.

However you see some of the abuse here, that you also see on youtube and other chat rooms – bullying is alive and well on the blogs.

Garth, I say a Friday only column – this blog should be printed off as a book – i’ll be the first to check it out at the library ha ha.

The chart should be explained in every high school class across the country – it’s almost explains the secret to wealth.

I love real estate – it has done well for me – calculated risk…look for the dips and the rises, and pay attention to my business – but Garth’s info makes me pay attention – I won’t camp with the 99 per centers (I don’t do heroin) – but i’ll camp with Garth – carry on my wayward son.

#215 Bottoms_Up on 12.29.14 at 12:48 pm

The “leverage” comment is an interesting one….someone with no money can be given $500,000 to buy a house, but a bank wouldn’t lend them a tenth of that amount to invest in equities. So in that sense housing does offer a spectacular chance to earn money through appreciation (as many have over the past dozen years). However, any discussion of ‘leverage’ has to include risk….and that’s where people’s eyes glaze over.

Garth is right on many fronts including the need to be diversified to reduce risk, and that if you had cold hard cash to either buy a house or invest in equities, equities wins hands-down.

Unfortunately many of us don’t have the means to invest great sums of money in the stock market. It’s either ‘do nothing’ (ie, rent, and do the best you can to save some money) or ‘buy a house’.

This is the actual choice faced by many in the middle class.

#216 Mark on 12.29.14 at 12:51 pm

Garth understands that poor people need to spend more money on housing and have nothing left for investing. That’s not his point. His point is that if real estate was the best investment then rich people would be all in in real estate and not waste their money on a diversified financial portfolio.

Or maybe the rich become rich by gravitating to investments that actually have high returns, rather than low-returning “investments” held by the masses.

After all, you can buy the TSX at what, a P/E of 12-15 today, and earnings growth of 3-5%/annum over the long term exclusive of retained earnings. While an average Canadian house has a P/E of 35, and grows at a long-term rate of approximately 2%. The valuation gap is wide enough to drive a bus through, and even a modest 20% downpayment invested today in a diversified Canadian equity index fund, instead of in a house is likely to grow, in not too many years, to be enough to pay for the house entirely in cash.

#217 Republic_of_Western_Canada on 12.29.14 at 1:08 pm

#183 Joseph on 12.29.14 at 1:05 am

I’m not sure you fully comprehend what you are conveying Garth. Even Warren Buffet said his first priority was to pay off his house (or a substantial part of it) and then move onto building his financial instruments. Once your house is paid off, building your wealth is easy and in a bull market one can do quite nicely. Its not hard to see why the top one percent have only 9 percent of their net worth in real estate given their annual income. The top one percent in the USA made $761,000 (2012 figures). Give me 5 years of that kind of salary and I will have the same percentage of my net worth in real estate as well (even if I put all my savings in the bank). Not much risk with that kind of money coming in. The figure for middle class earners for 2012 was $51,000, so do you make the decision to start your future by rolling your dice on Wall Street’s terms with your first $50K, or do you follow Warren Buffet’s example. Nobody can take your house from you once it is paid for while the bulk of your investments can be lost in seconds on a bad call. If you are patient, you can have both; if you want to get rich quick, you can end up with nothing.

Joe, I doubt you realize how empty your comments are.

First off, Warren B got a house way back before the huge inflation and industrial expansion of the last half century. Prices were relatively cheap, and global post-war production was just taking off. Trying the same approach with buying a big house today, he wouldn’t make it to first base.

Remember that commodities revert to the mean – unless they’re absolutely limited to start with like oil & gas. Housing is a renewable commodity, and right now its prices are up in nosebleed territory due to stupid policy decisions and to ignorant people. Resale prices can only come down at this point, and much higher proportions of flat-lining salary have to dumped into excessive mortgage payments for most people’s lives.

Today, it’s best to start building your financial investments first to build up compound interest, with a little salary allocated off to the side to pay some rent. Instead of losing nearly all salary to mortgage interest for the rest of your working life, with nothing to show but a worn-out building.

Second, try not paying your property tax for a while and see just how secure your pile of sticks is. Or, if you have to move to a new area to get out of a dying industry or town, you’ll have to drop your asking price so low to get any buyers you’ll never be able to start over somewhere else.

Third, ‘rolling the dice’ applies to massively overpriced real estate at any time. Especially if you’re trying to get rich quick on HELOCs. But not to a properly planned and executed investment strategy. The side benefit of an investment portfolio is that it also provides a big safety cushion if you ever need get out from between a rock and a hard place.

#218 Chickenlittle on 12.29.14 at 1:13 pm

Derek R:

I’m glad I passed! Whew!

If I can get it, anyone else should be able to as well.

#219 Vermithrax on 12.29.14 at 1:17 pm

“Glad I didn’t listen to you.”?!! Bloody glad I did! Renter here who has invested like hell according to your advice and done insanely well compared to my homeowner brethren. Thanks a million, G! When I retire early at 50 while others are still slugging down $500K left on their mortgages, I’ll be sending you a massive gift basket of whiskey, fireworks, and massage oil.

#220 Mike L on 12.29.14 at 1:31 pm

Risk for me: I’m fine with the risk of a balanced portfolio and set of ETFs but owning real estate in Calgary is above my risk tolerance, even if I can pay cash for it.

#221 oceanside on 12.29.14 at 1:43 pm

Have been away for a couple of months as have purchased a house, 200 days on market and got for $84,000 off asking. Feels good but miss the blog. Mid Vancouver Island markets are having the best November and December in a long time, hardly any inventory…That being said, the homes selling are in the $375,000 to $475,000 and being purchased by a lot of Prairie folk. Over the Christmas holidays we are seeing a lot of cars cruising the neighbourhood with out of province plates.

#222 Nomad on 12.29.14 at 1:51 pm

For a year I read a few portfolio managers highlight that the TSX is heavily weighted to energy and financials. I understood the information, but didn’t act upon it seriously enough, only putting 25% of my portfolio in the US. It’s pretty bad when you start counting how many stocks make up some sectors here:

1) Technology
OpenText, CGI, Constellation, Avigilon, Enghouse

2) Staples and retail
Loblaws, Saputo, Metro, Jean-Coutu, Couche-Tard, Canadian Tire

Really, that’s all Canada has to offer. In the US, each of those sectors have at least 4-6 times the number of companies.

On each future dip in the US markets, I’m buying a US SP500 ETF. $HXS, $ZUE, $SPY. Enough of Canadian stocks. If you think the SP500 is too expensive, then consider a financials only ETF like $ZUB or $VFH depending if you have CAD dollars or US dollars.

#223 Nomad on 12.29.14 at 1:58 pm

Oil lost its gain. Down 2.5% at 53$.

Carefully buying the oil stocks rally.
A bear market doesn’t go straight down…

#224 mishuko on 12.29.14 at 2:01 pm

after looking over the chart and trying to see if anyone asked this question no luck…

Not sure if you have the answer Garth but I am curious to know if REITS are counted as financial securities, stocks/mf’s or non-home real estates. From my understanding it would fall under all three categories and all 3 have relatively different distributions (especially for the 90%).

#225 Mark on 12.29.14 at 2:02 pm

“Really, that’s all Canada has to offer. In the US, each of those sectors have at least 4-6 times the number of companies.”

Big deal, Canada’s stock market isn’t full of participants in two of the most overvalued sectors. If you can buy the US market on sale, great, but it hasn’t been on sale for decades now, especially when priced in Canadian dollars.

Having said that, some exposure to the US, just like exposure to the rest of the world, is prudent in terms of asset allocation. But I wouldn’t run around thinking that the US way of doing business inherently leads to higher economic growth rates over the long term than Canadian firms achieve.

#226 Republic_of_Western_Canada on 12.29.14 at 2:02 pm

#209 JSS on 12.29.14 at 11:54 am

#204 Mark on 12.29.14 at 10:38 am

During the last Alberta boom, I tried to get a Project Engineer/Facility Engineer job with the oil majors in Calgary – Shell, Suncor, Imperial, etc. Had years of experience in preparing AFE’s, project management, contractor management, etc. Couldn’t get in. Finally got a hold of a reputable oil company recruiter in Calgary. His response? “Yes – you have plant/project/facilities engineering experience, but not in O&G. Oil companies only hire either recent engineering grads, or 15-25 years experience poached from another oil company. If you’re not in any of these categories, you can head back to automotive, food processing, logistics and be a project engineer there.”

JSS, the reason they want O&G experience first is because there is a lot of bona-fide contextual knowledge needed and associated with engineering for it. You won’t get that by fixing robots or reconfiguring assembly lines for next years model in a car plant, or making ketchup, or moulding plastic household buckets. Substantial industry indoctrination is also expected, sort of like the military, so that everyone knows the procedure. And it sounds like you were more on the administrative end of things anyway, with little real hands-on engineering design.

It’s true the majors discriminate to youngish grads which are much cheaper, easier to slot into simpler engineering tasks, easier to intimidate, and easier to punt out the back door when the next downturn cycle comes. Even though most don’t have a lick of field experience and are dumber than a sack of hammers on large real world projects.

The handful of those grads which happen to outlast any downturns are expected to be indoctrinated/twisted so thoroughly that they continue to maintain the conservative slow-moving ‘culture’ as old workers are packaged off. Most of the higher-IQ grads hired will have their sharp motivational and productive edge dulled by design, so whatever is left is completely predictable but generally slightly more competent than the average person.

Specialty consultants or vendors are generally used if any particularly challenging technical problems come up, or unusually large amounts of detailed design work need to get done.

#227 Mark on 12.29.14 at 2:04 pm

” Mid Vancouver Island markets are having the best November and December in a long time, hardly any inventory…”

Are you kidding? I hear Nanaimo is a disaster. What else is really “mid Vancouver island?”

#228 Shawn Allen on 12.29.14 at 2:20 pm

What Warren Buffett said about house ownership and investing

183 Joseph claimed:

Even Warren Buffet said his first priority was to pay off his house (or a substantial part of it) and then move onto building his financial instruments.

*******************************************
I doubt that Buffett said that since in reality he built up his wealth from a very early age and had wealth before he ever bought a house. The following is all from memory but I know it to be very substantially correct.

He was born in 1930, August 30. He bought his first stock (something called City Services, I recollect) at age 11.

In high school living temporarily in Washington (his father Howard was a congressman for several terms) he had several MASSIVE paper routes and earned amounts that rivaled what his teachers made.

He saved like no body’s business.

He went to college then returned to Omaha and worked as a stockbroker with his father. At this time he had something over 40% (may have been higher) of his funds invested in GEICO a company he discovered while in college.

Around this time (about 1953) he got married. Next he went to New York when Ben Graham relented and gave him a job. He rented there and invested.

He returned to Omaha in 1956 and first rented but then bought a house for about $35k. A large house which he still lives in to this day. His net worth at the time was about $200k (About $2 million in today’s money and he was 25 or 26 years old).

I don’t recall it ever being mentioned if the house was bought for cash or had a mortgage. My understanding is that it was bought for cash.

He then started his investment partnerships (hedge funds).

He has said that buying a house was his third best investment ever, the first two were wedding rings. His first wife passed away around 2005.

After he was already a multi-millionaire he bought a house in California and the family used to vacation there. I am pretty sure it was his wife who wanted that house.

For many decades over 99% of his wealth was in Berkshire. The remaining tiny bit eventually grew into something over a half a billion and he apparently lived, in recent decades, on the dividends and income from that. His salary at Berkshire has been just $100k per year for decades. In the early years of Berkshire he may have managed on that salary.

He has recently (in the past year or two) said that young Americans with down payments and jobs should buy a house and take one of those 30 year locked in rate mortgages that Americans can get. He calls that being short the dollar because he has long said that the American dollar could devalue through inflation.

Around 2009 he said that he would buy up thousands of houses (they were so cheap) if he had a way to manage them.

In Buffett’s case it was something like: 1. Make money, 2. Save like crazy, 3. Invest in the very best opportunities 4. Become rich, 5. Buy a house. But he has not advocated that everyone follow that path.

He has been flexible, bought bonds when those were the best investments, stocks when those were best (which was most of the time). Lower risk by staying with investments you understand well. For those without the tools and temperament to do well as active managers (the great majority of people), buy the index, heavily favor equities, the S&P 500 for Americans.

#229 Renter's Revenge! on 12.29.14 at 2:25 pm

#183 Joseph on 12.29.14 at 1:05 am

“Even Warren Buffet said his first priority was to pay off his house (or a substantial part of it) and then move onto building his financial instruments.”

Nope. A quick read on Wikipedia shows that:

“In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett’s personal savings were over $174,000 ($1.47 million 2012 USD) and he started Buffett Partnership Ltd.

In 1957, Buffett operated three partnerships. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500.”

Looks like even Warren Buffett followed Garth’s Rule of 90 (with a margin of safety to boot).

Where’s Shawn Allen? You’d think he’d be all over this one.

#230 SWL1976 on 12.29.14 at 2:55 pm

Sir Garth,

This blog is a great service to many many people who care enough to take the time to educate themselves about the financial world and beyond. I understand you take a lot of peoples s**t from it and I sometimes wonder how you do it.

I have spent a great part of my life trying to educate people about problems on the horizon, and have been laughed at, called names, and ridiculed often. Yes it can get frustrating and exhausting.

Simple fact is that people who are set in their ways and don’t want to listen simply will not. You’re a smart man and I don’t think you need me to tell you that. As Mark Twain said ‘never argue with a fool, for onlookers may not be able to tell the difference’

Anyways I just wanted to say I appreciate the work you do and would be sad to see this blog abruptly ended. Remember sometimes the internet brings out the worst in people, and people can type some nasty things with the immunity of being hidden behind a computer screen. Just another form of human socialization or lack there of. When I read nasty comments I always think to myself. Really would they say that in a face to face conversation?

Keep up the good work Garth so long as you want to, just be sure to take enough time off that you don’t get disgusted with it all. Filtering this comments section alone is enough to make ones head spin. Lots of good information here though for those willing to sift through the rubble

#231 Mark on 12.29.14 at 3:03 pm

“JSS, the reason they want O&G experience first is because there is a lot of bona-fide contextual knowledge needed and associated with engineering for it. You won’t get that by fixing robots or reconfiguring assembly lines for next years model in a car plant, or making ketchup, or moulding plastic household buckets.”

There should be no doubt that O&G firms and their contractors, of course, want people with O&G experience. However, it is disingenuous, if not dishonest, for such firms to be claiming labour shortages (of the sort that requires TFW use) when there is a large pool of temporally qualified Canadians waiting to take those jobs. If only the HR people would deal with the applications in good faith, rather than “insist” on vast industry-specific experience when a substantial portion of the skillset is transferrable from other industries.

When the tech sector was hot, engineers from all disciplines were welcomed into the fold. There wasn’t a significant TFW culture in Canada. Even civil engineers could find jobs writing computer code and doing project management. But with this O&G boom, there wasn’t anything resembling vigorous demand. Which is why the previous poster, with experience in engineering project management, wasn’t granted the “time of day” from those named Alberta oil and gas firms.

#232 Mike in Toronto on 12.29.14 at 3:10 pm

#140 Herb

It’s been a 20 year run with barely a bump along the way.

10-30% overvalued now, with potential for “overcorrection”.

#233 Randy on 12.29.14 at 3:14 pm

Garth, many (or even most) people may not understand what you’re writing about, but there are a lot of us who do. I think I speak for a lot of people when I say THANK YOU for being a beacon of truth in this sea of misinformation and spin. Your blog has taught me so much! Now if only I could get more of my friends to wake up and listen…

#234 happity on 12.29.14 at 3:20 pm

A recent newspaper article showed Canadians are more in debt than ever with houses.

But Kenneth galbraith proved long ago the rich don’t get richer because they are smarter or better.

“they borrow from the future to finance today. This works so long as the future behaves.”

That explains the central banks and government perfectly, so like real estate it applies to all that they touch – ultimately all financial instruments.

#235 Shawn Allen on 12.29.14 at 3:38 pm

Valuation of the S&P 500 for Canadian investors does not depend on the Canadian dollar level

Mark said:

If you can buy the US market on sale, great, but it hasn’t been on sale for decades now, especially when priced in Canadian dollars.

*****************************************
I would take issue with the “especially when priced in Canadian dollars” part.

The S&P 500 is bought in U.S. dollars and valued in U.S. dollars. It does not matter what currency you convert over to buy it. If it is cheap it is cheap. Period.

Now if you want to bet that the Canadian dollar is going to rise against the U.S. that is a separate bet and has nothing to do with the value of the S&P 500. (And the currency risk can be hedged if you wish by buying a hedged S&P 500 ETF in Canada)

In any case most Canadians will need U.S. dollars at some point and might want to think about their U.S. allocation as being permanently in U.S. dollars and might want to ignore currency impacts.

As to the first point that the S&P 500 has not been on sales for decades,. That is wrong. It was on sale as recently as the Spring of 2009. Buffett said so in an op-ed in late 2008. He was criticized (by idiots) for being early. In fact he never makes short-term calls but just pointed out that stocks were on sale.

Also I believe the S%P 500 was on sale in August 2011 with the debt funding crisis. Remember that? It felt like a panic back then but is now hardly a footnote in the history of markets.

#236 Shawn Allen on 12.29.14 at 3:44 pm

Renter Revenge at 229 on Buffett

Thanks for the figures, I was a bit off on the house price from memory but your figures confirm I was substantially correct on the dollars and years I mentioned.

Those destined to be Rich will often learn what they can from Buffett and pay attention whenever they come across his advice or how he did things.

Those destined to remain poor will more often quote various excuses why they can’t copy anything that Buffett did and will often sling some mud at him.

Such is life, we make our own paths. We choose the roads we will follow.

#237 Forgot the Name on 12.29.14 at 4:49 pm

#208,

You are 47 now. Paid off the house when you turned 30..that was 1997 (so it only took you 1 year to pay off the house) that’s impressive!

#238 Forgot the Name on 12.29.14 at 4:52 pm

Garth – Even if you don’t blog..please open the Comment section! it’s actually pretty fun to read!

So many rich people in Canada..

#239 Ollie Danson on 12.29.14 at 4:53 pm

My father-in-law and mother-in-law who are family gets along immensely has never owned ant stocks, stock mutual funds, shares in a company or group of companies like an index fund of index ETF or even real estate investments directly or indirectly through REIT’s or real estate partnerships.

One thing he did right but many would say they could of done much better is saving 25%+ a year of their gross income by using their maximum annual RRSP contributions, TFSA’s from 2009 and being debt free with no big mortgage, line of credit, auto loans etc.

They paid cash for about 85% of everything they own and got a mortgage that they paid off in 6 years.

They now have a $500,000 house in Toronto all paid off since 1981, 2 fully paid off cars that are only 3 and 5 years old, $650,000 in RRSP’s and RRIF’s, $67,000 in TFSA’s and putting another $11,000 in cash for next year 2015 in a about a week, a total of $ 1,150,000 in non-registered accounts, $900,000 in joint bonds and $175,000 in joint GIC’s, $250,000 in zero coupon bonds.

They were smart because they have longer term bonds that mature in 2024, 2025, 2026, 2029 to 2031 at 6.41% to 9.75%.

Basically, their total RRSP’s, TFSA’s, GIC’s, bonds, zero coupon bonds etc. has an average maturity of 21 years and earns on average 7.15%.

Basically, they have after all their C.P.P, OAS, income, investment income, income splitting, expenses etc., they have $7,000 a month that they keep reinvesting.

However, they are now giving their 2 daughters and 1 son annual $5,500 TFSA’s so that money will grow tax free staying in the family.

#240 Oceanside on 12.29.14 at 5:02 pm

#227 Mark on 12.29.14 at 2:04 pm
” Mid Vancouver Island markets are having the best November and December in a long time, hardly any inventory…”

Are you kidding? I hear Nanaimo is a disaster. What else is really “mid Vancouver island?”

Parksville, French Creek and Qualicum Beach are mowing down green space and building hundreds of 1,600 Sq. ft. Houses which seem to be selling quickly, new Save-On Foods store in French Creek followed by new Canada Tire. If you are on the Island a quick drive will make things obvious. Most appear to be young retired buyers from the lower mainland, Calgary, Manitoba and Saskatchewan . Of the 5 houses on our cul de sac (5 years old) 3 homes have sold since the summer.

#241 Bby604 on 12.29.14 at 5:09 pm

Garth , lease a new car, or buy a new car?
Upcoming post? This blog needs diversification

Done. Lease. — Garth

#242 Setting the Record Straight on 12.29.14 at 5:15 pm

@183
“Nobody can take your house from you once it is paid for”

Try not paying your property taxes. Property taxes are particularly egregious. If you don’t licence your car, you can’t drive it, but its not seized by the State.

#243 jess on 12.29.14 at 5:29 pm

see- Financial Instability Hypothesis

Minsky’s theory 3 kinds of debtors
http://boombustclick.com/endogenous%20instability.incl.coversm.pdf

This booklet comprises the core of the speech made by Theo Kocken at his inauguration as
professor of Risk Management for Institutional Investors at the VU University Amsterdam on
15 March 2012

#244 Setting the Record Straight on 12.29.14 at 5:30 pm

#198 NoName on 12.29.14 at 3:51 am
@#90 RealistvsExtremist
How about record drought, is that worm enough for you?
http://goo.gl/n1WxMb

Why is this a record drought?

#245 Obvious Truth on 12.29.14 at 5:36 pm

People are really saying they can only buy a massively overleveraged home or invest. But can’t do both.

They are saying either I bury myself under a massive debt load of way overvalued bricks that cost money every day. Or I make money.

Remarkable. But that’s people for you. And most of them.

Choices.

#246 Garth-olyte on 12.29.14 at 6:03 pm

Dont let the damm basterds get you down!

A friend sent me this last month:

10 Lessons You Learn From the A**holes in Your Life
http://www.huffingtonpost.com/madeline-wahl/10-lessons-you-learn-from-assholes-in-your-life_b_5891250.html

Items 4 & 5 are essential to remember when blogging a concept that some people refuse to learn.
Their losses, not yours.

#247 AACI Home-Dog on 12.29.14 at 6:19 pm

ps…I could make a few comments about the photo…but…maybe not…

#248 Republic_of_Western_Canada on 12.29.14 at 6:20 pm

#231 Mark on 12.29.14 at 3:03 pm
[…]
However, it is disingenuous, if not dishonest, for such firms to be claiming labour shortages (of the sort that requires TFW use) when there is a large pool of temporally qualified Canadians waiting to take those jobs.

Absolutely correct. TFW hiring is to screw down wages as far as possible, and temporarily bring on individuals desperate for work who won’t make a peep working under sweatshop conditions. Stupidly, corporate policy finds that is more important than quality of work, culture or development of careers.

Keep in mind, there are varying levels of ‘foreign’. Bringing in some displaced nickle mining geological engineer from Sudbury and then expecting him to set up the power circuit schematics for a VFD MCC in an upgrader is as bad as bringing in some character from Pakistan who can’t put a coherent sentence together.

I doubt there is ever a really significant shortage of regional capacity in the Oil/Gas sector to warrant dragging in technical ‘resources’ from the other side of the planet or union halls of eastern Ontario or maintenance engineers from east coast fish processing plants. Same goes for global conglomerate project managers from Houston.

There’s just a lack of willingness or consensus to look after our own people first; to develop their skills and careers, and develop upgraders and refineries to add value locally instead of shipping out raw materials wholesale.

That’s exacerbated by a residual attitude that somehow the Canadian west is only there to serve entrenched Ontario industry (what little there is left) and its paper-shuffling financial establishment. Not to mention the U.S. penchant for rolling tanks or rhetoric into any region they’d like to remove resources from, or individuals from overpopulated ex-British colonies that want to move to somewhere less overpopulated to create more overpopulation in. It’s all the same noise, and at some point we have to say enough is enough. Sort of like putting the brakes on the fascination with buying overpriced housing at the expense of all else.


When the tech sector was hot, engineers from all disciplines were welcomed into the fold. There wasn’t a significant TFW culture in Canada. Even civil engineers could find jobs writing computer code and doing project management. But with this O&G boom, there wasn’t anything resembling vigorous demand. Which is why the previous poster, with experience in engineering project management, wasn’t granted the “time of day” from those named Alberta oil and gas firms.

Ever see computer code written by someone without the proper education and training? It’s a bad (as about as safe) as having a handful of welders arbitrarily throw together several hundred tons of structural steel to build a railroad bridge.

That’s what microsoft product was all about. Just get the junk out there by some marketer-specified release date to grab market share away from competing organizations that actually had some ethics.

Sure, you can always get a halfways intelligent person to slam together some small well-defined code modules. But soon enough the bean-counters will figure out if you can do that with laid-off civil engineers from Bloor and Young, you can do it in some Bangalore sweatshop at a nickle on the dollar. When that gets established, more complex stuff follows, and bye-bye goes your critical mass. Everyone in the industry has been there, seen that.

The massive H1B TFW catastrophe in the states in the dot-com years directly contributed to the dot-com crash, and global reverberations of it like the 2007 housing crash. That’s because the natural braking function of actually having to develop careers and lives of locals by paying a little more and moving a little slower was bypassed.

#249 Mark on 12.29.14 at 6:28 pm

“Valuation of the S&P 500 for Canadian investors does not depend on the Canadian dollar level”

I disagree. The S&P500, when priced in Canadian dollars, may be expensive, not only by virtue of the its valuation, but also by virtue of the valuation of the USD$ from which it derives an overwhelming quantum of its financing and revenues.

Of course, if the USD$ is overvalued based, USD$ financing is likely to be unduly cheap, and the S&P500 is likely to be unduly expensive, even if such isn’t apparent from its P/E ratio.

Cyclicality, and the relative position of each currency in its long-term cycle is another key consideration.

Your other comments, in quoting Buffett, etc., are reflective of short-term trading. Not terribly relevant for the long-term buy and hold investor.

#250 Herb on 12.29.14 at 6:31 pm

#232 Mike in TO,

bought our first house in 1982, a second in 1985. Sold both and bought a bigger one in 1989, which then dropped 25% in value by 1994 and did not climb out of that “bump” until 2004. So there have been significant bumps along the way.

The difference now is that 0/40 and emergency interest rates have pushed RE to a market level that is unsustainable. No one not well-endowed can afford a million dollar home should 5/30 mortgages get hit, emergency interest rates return to normal, or prices climb even higher. So where will the increase in value that has built residential capital, or at least covered carrying costs, come from?

That’s why I think that the time of residential real estate as a wealth builder has run out, and I’m governing myself accordingly. No point playing Russian roulette with several chambers loaded.

#251 Mark on 12.29.14 at 6:32 pm

“People are really saying they can only buy a massively overleveraged home or invest. But can’t do both. “

That’s reality at current prices. And I think the tendency is to view mortgage debt and interest rates as being static, instead of being dynamic. Most greaterfool participants (except the insane) seem to be perfectly willing to accept that a $400k house might go down to $250k or less before everything is said and done. However, they don’t seem to realize that the cost of servicing the debt on that house is likely to rise as well. A double-whammy of reduced asset prices and higher carrying costs.

If one is actually an investor that has any semblance of value, and sees the P/E of Canadian houses at 35 (with a much higher number in Vancouver/Toronto), and sees the P/E of the stock markets in the 12-15 range — why would anyone buy a house? Its such a slam dunk to avoid housing for someone who knows how to invest that the sort of return achieved, just by sitting in cash or an un-leveraged index fund, would be expected to eclipse housing substantially.

#252 Mark on 12.29.14 at 6:41 pm

“They were smart because they have longer term bonds that mature in 2024, 2025, 2026, 2029 to 2031 at 6.41% to 9.75%.”

Good for them, they bought the hottest asset class of the past 30 years. But will they be smart enough to shift their strategy in the future, or will their children, with the TFSA’s, be buying bonds at 2%-3%, hoping for the same level of (excess) return?

Its sort of like the people who bought gold in 1970 @ $32. They made out like bandits for the decade when it went up to $800. But in real terms, they still haven’t come anywhere near recovering the $800 1979 peak price. This is the sort of fate that likely faces long-term bond holders and RE owners going forward, especially as policy makers have to engage in increasingly extreme measures to liquefy an economy with most of its wealth concentrated amongst fixed income pensioners, real estate owners, etc.

Someone once told me as a young man that you can’t get really rich doing exactly what others have done. This is usually the long-term fatal flaw of the ‘rich’, and why family wealth rarely lasts more than 2 generations — they get so comfortable in their concentrated long-term positions that they are blinded to the deterioration of the fundamentals.

#253 Doug in London on 12.29.14 at 6:48 pm

@Nomad, post #223;
Yup, that’s the right idea. In order for the strategy of buy low, sell high to actually work its magic you have to first buy low.

#254 gtrz4peace on 12.29.14 at 6:56 pm

Here is where renting can be a problem – if you want to “age in place” and in peace, because you like where you are, and don’t want to worry about being forced out when your house is sold or your condo building gentrified to make room for hipster tech employees half your age…

http://www.bcnpha.ca/media/Conference_2013/Presentations/M10_BP_Economic_displacement_of_Seniors__FINAL_Nov_18_11am.pdf

As far as we can see, there need to be protections in place for renters, and more affordable housing in some of the most in-demand urban markets, and then renting for all makes sense for all.

#255 Matt in Ottawa on 12.29.14 at 7:07 pm

Garth,

I look forward to reading your blog posts with breakfast every morning, I love hearing your perspective and insight.

As someone in his mid-20’s I owe a lot to you, since I’ve begun reading your blog I’ve gone from wasting all my money on garbage to slowly building a balanced and diversified portfolio inside of a tfsa.

I wanted to say thank you for all the work you put into this blog and that I hope you continue writing here. The knowledge is priceless.

I think the people who send you hatemail are delusional and looking for ways to justify being hundreds of thousands of dollars in debt with only “The Joy of Homeownership” to show for it.

Keep up the great work and take some time off to enjoy the holidays.

-Matt

P.S: If you happen to glance over this comment, are there any finance books you’d recommend to someone who is learning all of this as he goes?

#256 TRT on 12.29.14 at 7:42 pm

@Mark
“If one is actually an investor that has any semblance of value, and sees the P/E of Canadian houses at 35 (with a much higher number in Vancouver/Toronto), and sees the P/E of the stock markets in the 12-15 range — why would anyone buy a house?”

Because you can’t live in a stock and raise a family. Couple that with the fact that in Vancouver and Toronto there is a population explosion. BC just announced its doubling the number of international students. Demand just exceeds supply.

PS. These students drive 6 figure cars.

#257 Sparky on 12.29.14 at 8:12 pm

#115 Questions on 12.28.14 at 7:48 pm
Why would BoC rates rise in Canada any time soon? For that matter, why would the 5yr Canadian bond rise in the near future.

We’re told that Canada would follow the US, maybe with some lag. I can kinda see why this happened in the past, but I’m having trouble seeing why this is an assumed correlation in 2015.

If I understand this correctly, and Garth feel free to correct me, due to recovery in the US, when they start raising rates, if Canada does not raise their rates investment money will leave.

If Investment money leaves, the $C will lose value and will have to be propped up with raising rates. If a large sector of our economy takes a hit, such as energy, investment, money will be looking to move anyway, and if the US is attractive, and raising rates will help make it look attractive, Canada will be in a bad spot in relation to monetary policy.

#258 A Yank in BC on 12.29.14 at 8:31 pm

Garth,

re: #241

You say a new vehicle should be leased, not purchased. But why? Doesn’t it depend on how long one plans to keep it?

#259 sophia on 12.29.14 at 8:38 pm

“I think it’s more like this: if the rich believed they could build more wealth owning more houses, they would. But they don’t. — Garth”

Nope. The top 1% owns more real estate than the bottom 90% (34% vs. 22%).

The only thing this diagram could tell you is that a member of the top 1% owns a house that is ten times more expensive than the house a member of the bottom 90% would own.
So you could interpret this as: the rich spend more money on their houses – that’s how they got rich.

Again, my point is that -in itself- this chart does not prove your point. The information it presents is interesting, but does not lead to the conclusion that owning a house is not necessarily a good strategy.

#260 John Dickson on 12.30.14 at 6:59 am

To Mark #252

This can be said even with stocks, equities, stock markets since early 1980’s when the Dow Jones was 780 and now is 18,038.

A 2312% rate of return plus dividends which would easily bring this to a straight annual rate of return of 14% per year. Taking Compounding into account, is a much higher number.

Even Garth is using 7% rates of return which is half of this. Yes, we all know that the smashing good times of the past are over.

That Ollie fellow is not wealthy with a 2.5 million net worth. I wish I had 100 million at 3%.

Getting $3,000,000 a year, yahooooooo!!!!!!!!!!!!!!!!!

#261 steelman on 12.30.14 at 2:54 pm

I thought this was interesting..

http://www.jamesaltucher.com/2011/03/why-i-am-never-going-to-own-a-home-again/

#262 Doug in London on 12.30.14 at 4:18 pm

@steelman, post#261;
That site MUST be American. It’s typical of the capitulation mentality that exists after some asset has dropped in price. It reminds me of 2 things I read in the past. The first was an article (similar to this one) I read in 1994 titled: A man’s home is his hassle. The second was a book titled: The Golden Fleece, why the stock market costs you money I saw in 2002. Why 2002? It was during the 2001 to 2003 bear market. When you see the same kind of negative sentiment about houses in Canada (still a long way off) it will be time to buy.