WHAT WARREN BUFFETT WILL DO WITH HIS FAMILY MONEY WHEN HE DIES
Warren Buffett is widely regarded as the best stock picker in the world. For over 50 years he has very successfully operated Berkshire Hathaway as a holding company purchasing companies trading primarily on the New York Stock Exchange.
When Warren is no longer buying and selling, he will place all his family money into only 2 investments: 90% will go into a index fund that tracks the 500 largest companies in America (S&P 500 ETF) and 10% will go into cash. That’s it. The world’s best investor knows how it is virtually impossible for normal folks who are not experts to beat the market.
You and I are not Warren Buffett. When I was a kid, I thought I was good enough to become a major league baseball player. Soon enough, I realized that would never happen. Thinking you can buy and sell stocks when your competition are guys like Warren Buffett is almost as crazy as my dream of playing for the Blue Jays.
Most professional money managers can’t do it. There is a lot of research that shows the vast majority of “professionals” can’t beat the performance of a low cost exchange traded fund like the Vanguard All World Index ETF.
So why even try? Is you mess up with your buying and selling, and there is a very good chance you will, you risk not having enough money for retirement.
By buying the whole index and following the set it and forget it investing plan, you will outperform 75% of mutual funds consistently.
One last point: You know that hot mutual fund that has beaten the market the past 5 years that financial press keeps talking about? Chances are it will under perform the broad market during the next 5 years. It’s called reverting to the mean and it’ll happen as soon as you give them your money.
Monday, October 29, 2018
Monday, October 15, 2018
WHAT KIND OF RETURNS CAN YOU EXPECT GOING FORWARD?
WHAT KIND OF RETURNS CAN YOU EXPECT GOING FORWARD?
In a nutshell, some stocks and all government bonds are expensive today, probably because interest rates are so low. That pushes investors to buy stocks and bonds which means that future returns will probably be lower than they were in the past 25 years.
Canadian and European stocks are actually not too over valued especially compared to US stocks. Canadian goverment bonds however are really where we should expect reduced returns in the future. So if you are investing your retirement savings in our recommended way (1/3 Canadian stocks, 1/3 World stocks, 1/3 Canada governement bonds), what kind of returns should you expect? Look at the chart below and you see a 60% equity, 40% bond mix should return about 5.5% before inflation. Since our preferred portfolio includes 66% stocks vs. 33% bonds, somewhere around 5.8% is a reasonable expectation.
Canadian Couch Potato just released their view on future returns. Here are their expectations and I think they make a lot of sense.
To summarize, here are some highlights.
Estimated long-term returns
Asset class Expected return
Inflation 1.80%
Canadian bonds 3.30%
Canadian equities 7.10%
U.S. equities 6.30%
International developed equities 7.20%
Emerging markets equities 9.80%
Equities/Bonds Expected Total Return (before inflation)
0% / 100% 3.30%
10% / 90% 3.60%
20% / 80% 4.00%
30% / 70% 4.40%
40% / 60% 4.80%
50% / 50% 5.10%
60% / 40% 5.50%
70% / 30% 5.90%
80% / 20% 6.30%
90% / 10% 6.70%
100% / 0% 7.00%
Source: PWL Capital
In a nutshell, some stocks and all government bonds are expensive today, probably because interest rates are so low. That pushes investors to buy stocks and bonds which means that future returns will probably be lower than they were in the past 25 years.
Canadian and European stocks are actually not too over valued especially compared to US stocks. Canadian goverment bonds however are really where we should expect reduced returns in the future. So if you are investing your retirement savings in our recommended way (1/3 Canadian stocks, 1/3 World stocks, 1/3 Canada governement bonds), what kind of returns should you expect? Look at the chart below and you see a 60% equity, 40% bond mix should return about 5.5% before inflation. Since our preferred portfolio includes 66% stocks vs. 33% bonds, somewhere around 5.8% is a reasonable expectation.
Canadian Couch Potato just released their view on future returns. Here are their expectations and I think they make a lot of sense.
To summarize, here are some highlights.
Estimated long-term returns
Asset class Expected return
Inflation 1.80%
Canadian bonds 3.30%
Canadian equities 7.10%
U.S. equities 6.30%
International developed equities 7.20%
Emerging markets equities 9.80%
Equities/Bonds Expected Total Return (before inflation)
0% / 100% 3.30%
10% / 90% 3.60%
20% / 80% 4.00%
30% / 70% 4.40%
40% / 60% 4.80%
50% / 50% 5.10%
60% / 40% 5.50%
70% / 30% 5.90%
80% / 20% 6.30%
90% / 10% 6.70%
100% / 0% 7.00%
Source: PWL Capital
Monday, October 8, 2018
WHAT HAPPENS TO MY RETIREMENT GOALS IF I LOSE MY JOB
WHAT HAPPENS TO MY RETIREMENT GOALS IF I LOSE MY JOB
A few commentators have criticized the idea of saving less than the usual 15% recommended by the financial services industry. I’ve already explained how saving so much means you will need to make big sacrifices when you are young and raising a family. In fact, you will have more money available to spend when you are retired at 65 years old than you had when you were working.
This doesn’t make sense to me. Instead you should strive to have a similar income throughout your working and retired life. Fred Vettese, one of my investingbs.com hall of fame members calls this your Neutral Retirement Income Target. For most families this can be achieved by saving 6-10% of your pay while you are working.
Research shows that people maintain the same spending habits as they age. So increasing your disposable income by 50+% in retirement means you probably could have done other things with your money in your 30’s, 40’s and 50’s without jeopardizing your golden years.
The most common criticism I’ve heard deals with job loss over the 35 year period that you will be working and saving for retirement. The argument is if you become unemployed and are unable to set aside money for retirement while looking for a new job, you may end up not having enough money to retire on and maintain your lifestyle.
My response is:
1. An event like job loss is exactly why the emergency fund is so important. Setting aside 6 months worth of expenses in a plain bank account means you will not fall into debt as you search for a new job.
2. The concern of job loss is exactly why you need to make sure that you keep up your employment skills. This is the best way to avoid an extended stretch of unemployment. Even the most valuable employees can be let go by a company facing difficulties, but the ones who have kept up their skills and value will find work quickly somewhere else.
3. North America will soon face a demographically driven worker shortage that will last decades. We are aging quickly and we will need more workers than we have available to us. Immigration to North America will help, but there is not one demographer that I have researched who believes that will be enough to fill the gap. The result is high quality workers will become more valuable and should experience lower levels of unemployment.
If a person is still unemployed for a extended period of time, then their living standard would need to be lowered and this would mean less money available now and into retirement. The person would have to become accustomed to this lower standard.
The possibility of the worst case scenario is still not a sufficient reason to over save for 35 years.
There are ways to mitigate the risk.
WHAT HAPPENS TO MY RETIREMENT GOALS IF I LOSE MY JOB
WHAT HAPPENS TO MY RETIREMENT GOALS IF I LOSE MY JOB
A few commentators have criticized the idea of saving less than the usual 15% recommended by the financial services industry. I’ve already explained how saving so much means you will need to make big sacrifices when you are young and raising a family. In fact, you will have more money available to spend when you are retired at 65 years old than you had when you were working.
This doesn’t make sense to me. Instead you should strive to have a similar income throughout your working and retired life. Fred Vettese, one of my investingbs.com hall of fame members calls this your Neutral Retirement Income Target. For most families this can be achieved by saving 6-10% of your pay while you are working.
Research shows that people maintain the same spending habits as they age. So increasing your disposable income by 50+% in retirement means you probably could have done other things with your money in your 30’s, 40’s and 50’s without jeopardizing your golden years.
The most common criticism I’ve heard deals with job loss over the 35 year period that you will be working and saving for retirement. The argument is if you become unemployed and are unable to set aside money for retirement while looking for a new job, you may end up not having enough money to retire on and maintain your lifestyle.
My response is:
1. An event like job loss is exactly why the emergency fund is so important. Setting aside 6 months worth of expenses in a plain bank account means you will not fall into debt as you search for a new job.
2. The concern of job loss is exactly why you need to make sure that you keep up your employment skills. This is the best way to avoid an extended stretch of unemployment. Even the most valuable employees can be let go by a company facing difficulties, but the ones who have kept up their skills and value will find work quickly somewhere else.
3. North America will soon face a demographically driven worker shortage that will last decades. We are aging quickly and we will need more workers than we have available to us. Immigration to North America will help, but there is not one demographer that I have researched who believes that will be enough to fill the gap. The result is high quality workers will become more valuable and should experience lower levels of unemployment.
If a person is still unemployed for a extended period of time, then their living standard would need to be lowered and this would mean less money available now and into retirement. The person would have to become accustomed to this lower standard.
The possibility of the worst case scenario is still not a sufficient reason to over save for 35 years.
There are ways to mitigate the risk.
A few commentators have criticized the idea of saving less than the usual 15% recommended by the financial services industry. I’ve already explained how saving so much means you will need to make big sacrifices when you are young and raising a family. In fact, you will have more money available to spend when you are retired at 65 years old than you had when you were working.
This doesn’t make sense to me. Instead you should strive to have a similar income throughout your working and retired life. Fred Vettese, one of my investingbs.com hall of fame members calls this your Neutral Retirement Income Target. For most families this can be achieved by saving 6-10% of your pay while you are working.
Research shows that people maintain the same spending habits as they age. So increasing your disposable income by 50+% in retirement means you probably could have done other things with your money in your 30’s, 40’s and 50’s without jeopardizing your golden years.
The most common criticism I’ve heard deals with job loss over the 35 year period that you will be working and saving for retirement. The argument is if you become unemployed and are unable to set aside money for retirement while looking for a new job, you may end up not having enough money to retire on and maintain your lifestyle.
My response is:
1. An event like job loss is exactly why the emergency fund is so important. Setting aside 6 months worth of expenses in a plain bank account means you will not fall into debt as you search for a new job.
2. The concern of job loss is exactly why you need to make sure that you keep up your employment skills. This is the best way to avoid an extended stretch of unemployment. Even the most valuable employees can be let go by a company facing difficulties, but the ones who have kept up their skills and value will find work quickly somewhere else.
3. North America will soon face a demographically driven worker shortage that will last decades. We are aging quickly and we will need more workers than we have available to us. Immigration to North America will help, but there is not one demographer that I have researched who believes that will be enough to fill the gap. The result is high quality workers will become more valuable and should experience lower levels of unemployment.
If a person is still unemployed for a extended period of time, then their living standard would need to be lowered and this would mean less money available now and into retirement. The person would have to become accustomed to this lower standard.
The possibility of the worst case scenario is still not a sufficient reason to over save for 35 years.
There are ways to mitigate the risk.
Monday, October 1, 2018
WHAT HAPPENS IF WE THINK WE CAN’T SAVE ENOUGH FOR RETIREMENT AND STILL HAVE A LIFE?
WHAT HAPPENS IF WE THINK WE CAN’T SAVE ENOUGH FOR RETIREMENT AND STILL HAVE A LIFE?
What’s the harm in saving 15% of your income for retirement? Many will argue, especially those who work in the financial services industry, that just to be sure, you can never save too much. Having too much money saved when you are 90 years old is a much better problem than not having enough money.
However, when we scare young people into believing they won’t be able to retire because they are not saving 15%, they sometimes make irrational, fear based decisions. The most dangerous of these decisions could be not to have any children, or have only 1 child instead of 2 or 3.
If the financial press and marketers convince enough young people that they can’t afford to be a parent, have a life AND retire in comfort at a reasonable age, then our whole country is doomed. We absolutely need to have at least enough children to keep the population of Canada from shrinking. Immigration can help a little bit, but it cannot save us if people stop having children.
Without enough young people to keep Canada working, our economy starts to flat line and eventually may collapse. Before you say this will never happen, it’s already started to cause economic problems in countries like Korea, Japan, and Italy.
We need young people to work, to build, to innovate, to start new businesses all to support seniors. Working and raising a family is already a challenge. We need to encourage this choice and reward those young people who are helping to keep Canada vibrant and economically strong into the future.
Young people need help to make good financial decisions and this can happen by providing them with unbiased information about retirement saving that proves to them they can have all the joy and challenge or raising a family and still afford a comfortable retirement at age 65.
WHAT HAPPENS IF WE THINK WE CAN’T SAVE ENOUGH FOR RETIREMENT AND STILL HAVE A LIFE?
WHAT HAPPENS IF WE THINK WE CAN’T SAVE ENOUGH FOR RETIREMENT AND STILL HAVE A LIFE?
What’s the harm in saving 15% of your income for retirement? Many will argue, especially those who work in the financial services industry, that just to be sure, you can never save too much. Having too much money saved when you are 90 years old is a much better problem than not having enough money.
However, when we scare young people into believing they won’t be able to retire because they are not saving 15%, they sometimes make irrational, fear based decisions. The most dangerous of these decisions could be not to have any children, or have only 1 child instead of 2 or 3.
If the financial press and marketers convince enough young people that they can’t afford to be a parent, have a life AND retire in comfort at a reasonable age, then our whole country is doomed. We absolutely need to have at least enough children to keep the population of Canada from shrinking. Immigration can help a little bit, but it cannot save us if people stop having children.
Without enough young people to keep Canada working, our economy starts to flat line and eventually may collapse. Before you say this will never happen, it’s already started to cause economic problems in countries like Korea, Japan, and Italy.
We need young people to work, to build, to innovate, to start new businesses all to support seniors. Working and raising a family is already a challenge. We need to encourage this choice and reward those young people who are helping to keep Canada vibrant and economically strong into the future.
Young people need help to make good financial decisions and this can happen by providing them with unbiased information about retirement saving that proves to them they can have all the joy and challenge or raising a family and still afford a comfortable retirement at age 65.
What’s the harm in saving 15% of your income for retirement? Many will argue, especially those who work in the financial services industry, that just to be sure, you can never save too much. Having too much money saved when you are 90 years old is a much better problem than not having enough money.
However, when we scare young people into believing they won’t be able to retire because they are not saving 15%, they sometimes make irrational, fear based decisions. The most dangerous of these decisions could be not to have any children, or have only 1 child instead of 2 or 3.
If the financial press and marketers convince enough young people that they can’t afford to be a parent, have a life AND retire in comfort at a reasonable age, then our whole country is doomed. We absolutely need to have at least enough children to keep the population of Canada from shrinking. Immigration can help a little bit, but it cannot save us if people stop having children.
Without enough young people to keep Canada working, our economy starts to flat line and eventually may collapse. Before you say this will never happen, it’s already started to cause economic problems in countries like Korea, Japan, and Italy.
We need young people to work, to build, to innovate, to start new businesses all to support seniors. Working and raising a family is already a challenge. We need to encourage this choice and reward those young people who are helping to keep Canada vibrant and economically strong into the future.
Young people need help to make good financial decisions and this can happen by providing them with unbiased information about retirement saving that proves to them they can have all the joy and challenge or raising a family and still afford a comfortable retirement at age 65.
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