Investing Well. If it's so simple, how come almost no one does it?

Easy recipe for investing success:

• Save 10% of your income.  
• Every once in a while buy the Vanguard product with the symbol VGRO.  
• Do this over and over again, every year for 40 years and there's a really good chance you won't have to worry about money when you stop working.

It seems so simple.  This is the sort of advice I've been dishing out to friends, family, students and casual acquaintances for years.  The problem is almost no one follows it.

I never really found out why it was almost universally ignored. I just assumed either it wasn't important enough for people to actually do it or they were so worried about messing things up, they were willing to pay a bank or financial advisor to do it for them.

Maybe they couldn't believe that investing for themselves would be a better bet than paying a financial advisor or perhaps they just needed reassurance from time to time from that advisor. 

Faced with a choice of learning something that is probably as interesting as watching paint dry or going to your bank and having it done for you by a smiling confident salesperson, most people are going to chose the smile. 

That's too bad (but maybe it's a first world problem anyway).  Does it really matter if you have $500,000 instead of $600,000 to retire on?  Maybe not, but it still does seem like a bit of a shame you couldn't have spent the extra $100,000 yourself instead of slowing dolling it over the bank decade after decade.

Fees you pay to the bank or advisor do matter.  The average mutual fund in Canada charges a yearly fee slightly over 2% per year.   This is not a one time fee.  You pay 2% ever year and if your mutual fund increases in value, you pay the 2% on the profit as well.   This never ends until you sell.

Contrast this with the fee for buying Vanguard VGRO (mentioned above) which has a yearly fee of 0.22% or about 10 times less than your bank's mutual fund.

When you're 24 years old and barely saving, the difference between 2% or 0.22% don't really add up to much. However, as you age and continue to invest, the difference between 2% and  0.22% becomes huge.  Hundreds of thousands of dollars huge for lots of people with middle class salaries.

And for what?  The annual sit down to tell you to keep on keeping on?  The Christmas cocktail party or gift basket.

Doing it yourself is not difficult.  Anyone who can hold down a job that will allow them to save some money for retirement can do this stuff.

Find someone who can sit down with you and show you how this works.  Or take a one day course at your local library or community centre.  Join a DIY investing club.  Read more blogs like mine to build your knowledge.   There are lots of ways to learn to DIY and you will never regret knowing more.

Last resort, I consult on DIY Investing with my fellow Canadians (under age 40 please).  $99 for up to 3 hours of one on one lessons that should be more than enough time to get you up and running.  If you're interested, contact me at investingbs1@gmail.com.

Larry

  

It's True. You Don't Always Make Money on Real Estate

Investing articles can be long and boring.  How about I read the article and provide you with the important information for DIY investing success.

Here it is:

For the past 20 years many Canadians, especially those who live in Toronto and Vancouver has come to be convinced that you can't lose money in real estate because houses always go up in value.
Well here's a story featuring everyone's favourite singer Michael Buble that shows this isn't the case.

Michael bought a home in West Vancouver for $4.55 million in 2007.  He spend an unknown amount of money putting in a pool and landscaping.  22 years later, the house was sold for $5.18 million. 

If instead of buying this home, Michael has invested his $4.55 million in a low cost S&P 500 fund, he would now have $11.14 million in his account.

You have to live somewhere but if Michael had instead bought a really nice home for $2 million and invested the remaining $2.55 million, he'd now have a home worth $2.5 million or more (the less expensive homes have done much better than expensive homes) and a stock portfolio worth $6.2 million.

The key takeaway for me is we all need a diversified group of investments with real estate being just one part of the mix.   Secondly, prices for any asset class (stocks, bonds, real estate, farm land, art, etc.) can change very quickly so don't be surprised when a sure thing becomes a money loser.


Here is the article (need subscription to Globe and Mail to read):


https://www.theglobeandmail.com/real-estate/the-market/article-michael-buble-sells-west-vancouver-mansion-for-18-million-below/

Let's Uncomplicate Things

Many professions have a bad habit of making what they do far more complicated than it has to be. When I write “bad” habit, I mean bad for you. Lawyers, doctors, accountants, real estate agents, teachers, financial planners all benefit because you are not an expert and will need them to help navigate their domain.

Unless you are willing to take the time to learn about the task at hand, you are forced to pay for guidance. Almost always, this is expensive for you and sometimes, you can be given advice that is not in your best interest. The solution, of course, is education. The focus here is saving for retirement. It is actually not that complicated, but you have to be willing to listen to a few people who will not profit from giving you good advice. Let’s get started!

Let’s start by considering rule #1.

RULE #1: Pay off all your debts (except mortgage debt).

In our quest to simplify, we are going to avoid the often debated, never resolved question about whether you should pay off your debts before your start saving for retirement. Instead of one or the other, let’s take a middle of the road approach:

Pay off all debts (student loans, credit card, line of credit) but not mortgage debt before you start. This ensures that you have paid off the high interest debt AND you are still young enough to build up a nest egg before retirement sneaks up on you.

Of course there is an exception. If your employer provides you will matching retirement contributions, usually in a R.R.S.P., take it even if you have lots of debt. This is free money that should never be refused. The return of this money will always be greater than the interest you are paying on your debt.

At some point in your life, you are going to have to put yourself in a position where you are no longer in debt. The longer your prolong this date, the less time and money you will have to save for retirement. Collectively, we spend too much money and therefore save too little. But how much spending is too much?

If you don’t know how much you need to save, it’s sort of impossible to figure out whether you are on target or not. Before we look at that, make sure you have set up an emergency fund.

LET’S UN-COMPLICATE THINGS.

LET’S UN-COMPLICATE THINGS.



Many professions have a bad habit of making what they do far more complicated than it has to be. When I write “bad” habit, I mean bad for you. Lawyers, doctors, accountants, real estate agents, teachers, financial planners all benefit because you are not an expert and will need them to help navigate their domain.

Unless you are willing to take the time to learn about the task at hand, you are forced to pay for guidance. Almost always, this is expensive for you and sometimes, you can be given advice that is not in your best interest. The solution, of course, is education. The focus here is saving for retirement. It is actually not that complicated, but you have to be willing to listen to a few people who will not profit from giving you good advice. Let’s get started!

Let's start by considering rule #1.

RULE #1: Pay off all your debts (except mortgage debt).

In our quest to simplify, we are going to avoid the often debated, never resolved question about whether you should pay off your debts before your start saving for retirement. Instead of one or the other, let’s take a middle of the road approach:

Pay off all debts (student loans, credit card, line of credit) but not mortgage debt before you start. This ensures that you have paid off the high interest debt AND you are still young enough to build up a nest egg before retirement sneaks up on you.

Of course there is an exception. If your employer provides you will matching retirement contributions, usually in a R.R.S.P., take it even if you have lots of debt. This is free money that should never be refused. The return of this money will always be greater than the interest you are paying on your debt.

At some point in your life, you are going to have to put yourself in a position where you are no longer in debt. The longer your prolong this date, the less time and money you will have to save for retirement. Collectively, we spend too much money and therefore save too little. But how much spending is too much?

If you don’t know how much you need to save, it’s sort of impossible to figure out whether you are on target or not. Before we look at that, make sure you have set up an emergency fund.

Is Trying to Time the Market Worth It?

Investing articles can be long and boring.  How about I read the article and provide you with the important information for DIY investing success.

Here it is.

Trying to time the market means trying to pick a time to buy your stocks, bond or etfs.  Typically investors want to buy stocks or etfs when the market has gone down thinking they are getting a bargain.  So instead of buying when they have cash available, they sit and hold their cash waiting for that opportunity to buy low.

Does this strategy work?  No, unless you are a super investor like Warren Buffett and trust me, you and me are not Warren Buffett.

Furthermore, this article in the Globe and Mail shows that even if you are good at timing the market, the benefits of doing so are modest and therefore not worth the risk.  And the risk is huge, namely missing out on stock market rallies because you're waiting for a better deal.

Here are some key points:  Note: Lucky means fantastic timing where you buy when the market is down and then starts to rise quickly afterwards (good luck getting that right every time).  Unlucky means buying at the yearly market high and then watching your investments go down shortly afterwards.

1.  "The difference between the lucky and unlucky cases is relatively small, with the unlucky portfolio worth 78 per cent of the lucky one at the end of 2018. The steady investor who bought at the start of each year wound up with a portfolio worth 89 per cent of the lucky one.

2.  Instead of trying to figure out the best day to buy each year – a virtually impossible task – investors might be better off looking for ways to reduce fees, taxes and other trading frictions.

3. Instead of worrying about market timing, most investors would be wise to contribute to their portfolios regularly"

If you'd like to read it, click below. 

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-dont-try-to-time-the-market-focus-on-fundamentals/

The Wealth Trap

I read an article last summer where a senior partner at a Wall Street law firm admitted that his firm encouraged young lawyers to go into debt to purchase fancy houses and cars and send their children to private school.  The firm even used their financial connections to get lower interest rates for these expensive purchases.  The reason, he admitted, was to get these young lawyers hooked on spending money so they'd be less likely to leave their high stress, high commitment jobs.  Apparently it's not that easy to replace high quality lawyers once they've become big contributors to the firm's bottom line.  The way to avoid the loss, was to make is real difficult to leave.  Of course, the lawyer could always decide to give it all up, but at a cost.   It could cost him his marriage, his friends and his children's future; how would they ever be able to make it in this world with a public school education?

I have a friend was faced with a similar decision.  He had settled into a high paying job at a prestigious law firm in Toronto.  He was making a lot of money, working incredibly long hours and not enjoying himself at all. He was in his early 30's, wasn't married yet and lived in a modest home.  He had a choice to make.  Lucky for him, the wife and kids were not an issue yet.  I don't think it was too hard for him to decide to get out while he could.  He dumped the high salary law firm and joined a non profit.  He took a huge drop in pay immediately and that cut would multiply many times over as the years passed.  When I asked him if he thinks he made the right decision, he didn't hesitate to say yes.  I agree with him.

When you're young, you really don't know what you want, and you don't know what will give your life satisfaction.  That's the whole point of being young; you're exploring, learning who you are and what turns you on.  The problem is you can get caught going down a path that gets real hard to veer off of later.  At some point, you'll probably realize that you're not happy with your career choice, but you don't have to time or energy to discover what would give you more satisfaction in life.  Then there are all the costs I talked about above to dropping the high paying job.  So most people just soldier on down that path, telling themselves that things aren't so bad.  They have wealth, prestige, and retirement is only 22 years away.    

When you get older it's nice to keep their options open.  You don't know how you'll change when you get married and have kids.  As you age, you may discover your like doing something that doesn't pay very well.  You need time to think and to discover what you like and what you're good at.  You can't do that if you're stressed from working so hard and you're worried about paying for the big house.  You just don't know.

You give up too much of yourself when you go for the money and the prestige.  I know there are a few people out there who truly love the long hours and stress, but I bet there are a lot more who dream of winning the lottery and getting out. 

The Wealth Trap

I read an article last summer where a senior partner at a Wall Street law firm admitted that his firm encouraged young lawyers to go into debt to purchase fancy houses and cars and send their children to private school.  The firm even used their financial connections to get lower interest rates for these expensive purchases.  The reason, he admitted, was to get these young lawyers hooked on spending money so they’d be less likely to leave their high stress, high commitment jobs.  Apparently it’s not that easy to replace high quality lawyers once they’ve become big contributors to the firm’s bottom line.  The way to avoid the loss, was to make is real difficult to leave.  Of course, the lawyer could always decide to give it all up, but at a cost.   It could cost him his marriage, his friends and his children’s future; how would they ever be able to make it in this world with a public school education?

I have a friend was faced with a similar decision.  He had settled into a high paying job at a prestigious law firm in Toronto.  He was making a lot of money, working incredibly long hours and not enjoying himself at all. He was in his early 30’s, wasn’t married yet and lived in a modest home.  He had a choice to make.  Lucky for him, the wife and kids were not an issue yet.  I don’t think it was too hard for him to decide to get out while he could.  He dumped the high salary law firm and joined a non profit.  He took a huge drop in pay immediately and that cut would multiply many times over as the years passed.  When I asked him if he thinks he made the right decision, he didn’t hesitate to say yes.  I agree with him.

When you’re young, you really don’t know what you want, and you don’t know what will give your life satisfaction.  That’s the whole point of being young; you’re exploring, learning who you are and what turns you on.  The problem is you can get caught going down a path that gets real hard to veer off of later.  At some point, you’ll probably realize that you’re not happy with your career choice, but you don’t have to time or energy to discover what would give you more satisfaction in life.  Then there are all the costs I talked about above to dropping the high paying job.  So most people just soldier on down that path, telling themselves that things aren’t so bad.  They have wealth, prestige, and retirement is only 22 years away.

When you get older it’s nice to keep their options open.  You don’t know how you’ll change when you get married and have kids.  As you age, you may discover your like doing something that doesn’t pay very well.  You need time to think and to discover what you like and what you’re good at.  You can’t do that if you’re stressed from working so hard and you’re worried about paying for the big house.  You just don’t know.

You give up too much of yourself when you go for the money and the prestige.  I know there are a few people out there who truly love the long hours and stress, but I bet there are a lot more who dream of winning the lottery and getting out.