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.

Rent vs. Buy a Home. What's the best choice?

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

Here it is.

From the National Bank of Canada:

"In the long run, homeowners often fare financially better than renters because homeownership enables forced savings that accumulate over the years, growing into a sizeable nest egg."

"homeowners were “distinctly better off financially compared to tenants” with similar age and income profiles."

"when the principal repayment is netted out, the cost of ownership is less than renting in most combinations of housing types and locations."

 "owning enables households to select more desirable neighbourhoods, for example superior-quality school districts, where rental units may be few or non-existent."

Think you can rent and save the leftover?  Maybe you can today and next month, but your life changes and you may slip up 5 years from now.  It's probably too difficult to have extra cash in your wallet at the end of every month and force yourself to invest that money instead of spending it.

I will be encouraging my children to buy their own homes as soon as they are settled and have decided they will probably not be moving great distances to pursue job opportunities.


Read it here, if you'd like (but I've explained or highlighted all the important stuff).

https://business.financialpost.com/personal-finance/the-haider-moranis-bulletin-no-right-answer-to-rent-or-buy-debate-but-theres-no-question-who-ends-up-ahead

How Paying 1% In Fees Can Cost You A Fortune - Advice From Warren Buffett

Mr. Buffett’s annual letter to shareholders is out.  I’ve read the letter for you and am highlighting the most important point.

Here it is:

1.  Buying a low cost index fund that tracks the whole market would have returned an annual return of 11.8%(pre-tax) over the past 77 years.
2. Paying a 1% annual fee to an investment manager over this 77 years period would have cut your final cash balance by 50%!

(Background information:  Mr. Buffett’s first stock purchase was 77 years ago for $114.75)

If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019.  That is a gain of 5,288 for 1.

Meanwhile, a $1 million investment by a tax-free institution of that time – say, a pension fund or college endowment – would have grown to about $5.3 billion.

Let me add one additional calculation that I believe will shock you: If that hypothetical institution had paid only 1% of assets annually to investment managers, its gain would have been cut in half, to $2.65 billion. That’s what happens over 77 years when the 11.8% annual return actually achieved by the S&P 500 is recalculated at a 10.8% rate.

Click below to read the letter.

http://www.berkshirehathaway.com/letters/2018ltr.pdf

WHY THE 70% RULE DOESN’T MAKE SENSE

WHY THE 70% RULE DOESN’T MAKE SENSE


If you listen to mutual fund sales people and most of the mainstream media, you will often hear that people need to replace 70% of their income when they retire. We’ve already discussed why that number is not accurate. The point of this post is to show you exactly why saving to make up 70% of your working income is not necessary.

Let consider the following example.

For a family making $110,000 per year. If they want to live on the same amount of money as when they were working , they will need to save 6% of their income from ages 30 to 65. That would work out to retirement income at 50% of their working income.

If, instead they strive for 70% of their income, they would need to increase their savings from 6% of annual income to 12%, or $13,000 per year. That would mean a significant reduction in spending in their working years (roughly $7800 a year for 35 years).

So during their working and child raising years, they would have only $40,200 a year to spend, after taxes, mortgage, childcare costs instead of $47,000.

When they retire, they would have $65,000 per year to spend, after paying 15% in taxes. That represents 62% more money per year available to them for spending after retirement.

But at what cost? For 35 years, they scrimped and saved, probably not spending on meaningful experiences so they could spend more in retirement. Does this make sense to anyone? Does someone really need to boost spending by 62% at retirement. I know retirees like to travel more, but you can end up saving too much and perhaps missing out on the pleasures that money can sometimes buy.

3% Withdrawal rate appears almost bulletproof to avoid running out of money

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.

If you have the misfortune of retiring when the stock market peaks and you see a big decline in your first few years of retirement, the safest way to ensure your money doesn't run out before you die is to reduce your withdrawals to 3% of your total portfolio value.  So if you have saved $500,000, you withdraw $15,000 to spend this year.  Keep doing the same thing every year growing only for inflation each year.  You will continue to collect and spend your CPP and OAS and any other work or government pension you are entitled to.

Turns out the 3% withdrawal rate is fairly bulletproof to last for your entire life.

Click below to read the full article (you must have a Globe and Mail subscription)

"If you’re nervous about how long your money will last in retirement, you might adopt a withdrawal rate near 3 per cent to include a margin of safety while sticking with low-fee funds. Similarly, being able to tighten one’s belt in hard times or having a part-time job can really help portfolio longevity."