Tag Archives: investing

Reviewing the Investment Predictions From Six Months Ago

The first week in March, the markets plummeted. When we talked on March 6th I indicated not to worry, they’d be up 15% again within six months.

In fact, the week after that brought Black Monday, as traders have termed it. The markets tanked again – and a lot worse – with the Dow having its largest one-day drop in history (1,800 points).

Fast forward to yesterday (September 1st) since the over-reaction is behind us and last week all markets have recovered their losses for the year, and have all set new all-time highs. I only talk about investing twice a year and in broad terms. That’s not my degree. But I am an interested spectator because I manage a seven-figure investment for a relative. It’s up 15% for the year so far, because 70% is invested in tech related mutual funds. One thing I can’t tell you about is the Canadian market. The investment firm handling the account has not invested in commodity heavy Canada for over six years.

March 3rd: Dow 25917  S&P500 3023  NASDAQ 8738

March 9th: Dow 18200  S&P500 2191  NASDAQ 6631

Sept. 1st:  Dow 28645 (up 57%)  S&P 500 3526 (up 61%) and the tech-heavy NASDAQ 11939 (up 80%)

Yes, the 75% NASDAQ rally in August was Apple, Facebook and Amazon while other companies were getting wiped out…but that’s the reason I would never manage my own investments and you always need to have a diversified portfolio. The flavour of the month might not be the same one as next month or next year!

History will always repeat itself. When we see such massive drops in our investments, our mind tends to think it’ll go on forever. Now, with 20-20 hindsight, just as every market correction ever, we can look back at our March investments with a different mindset: The market always bounces back – especially when it overreacts.

The people who have not recovered – and may never recover are those who gave up and cashed out. It guaranteed that they locked in their losses. It’s done by millions of small investors in every major meltdown. They were there for the down rollercoaster and got off at the bottom, forgetting that the investment roller coaster always goes up – way higher than the bottom at which they cashed out.

Do remember that investing is a time horizon of five years or more. If you need the money in less time, you need to save and not invest – that’s a basic savings account or GIC and not the market.

The investments I oversee are in a managed portfolio with a national firm. There have been some hits and certainly some misses:

Pimco monthly income fund has been a horrific underperformer for years. Yet, the firm is adding more of it. Conservative portfolios need a fixed income percentage – I’m guessing Pimco is the best of the worst at these historically low rates.

The firm purchased a gold ETF on May 1st (Ishare SP/TSX GL GLD ETF) but sold it a month later at a $16,000 loss! Six weeks later, with Gold setting new highs week after week it would have been a $26,000 gain! That’s a difference of $42,000. The firm didn’t respond to questions from me. NOT happy at all!

In 2019 the market went nuts in the first quarter of the year. Yet the investment firm sat on the sidelines and did nothing. They’ve since admitted that they “missed” that huge wave…not good, but at least they owned up to it…

On the “win” side, Dynamic ACTV GLB DIV ETF is up over 28% for the year and it’s been a holding for some time, along with a NASDAQ index fund (there are many of them in either Canadian or US dollars)

Those examples show, once again, that even the professionals don’t have all the answers and don’t always get it right.

Next week we’ll wrap it up with some basic ideas on what’s next for the markets and if you should get out…(you shouldn’t…)

How to Gift Money To Your Adult Kids

Hi George: I sure do enjoy listening to you and Phil. I have 2 sons in their 20s, they have TFSA’s but my husband & I would like to put some money away for them. If we set them up with $10,000 each, what would you suggest we do? Thanks, B

Thanks for listening, B! Good question. But I only ever answer what I would do, so here’s some feedback that may or may not apply:

Most people in their 20s have a constant need for more money – for a car, bike, holiday, running a little short each month, etc. If you gift it to them for a TFSA they can take it out with 10 minutes notice and no penalties. It may be the equivalent of just giving it to them to put into their bank account. If you’re fine with them spending it on ‘whatever’ go ahead. Just keep in mind it’s a max of $5,500 a year – so you’d have to spread it out over 2 years.

If your intent is to have them save it and put it away to grow for retirement – it should be into an RRSP. Assuming they won’t have a defined pension (that they don’t work in healthcare, civil service, etc.) an RRSP is better anyway due to the tax refund it triggers with the contribution. And it’ll cause a tax penalty if they take it out in a few years and that may make them think twice before doing it.

Have them read the Money Tools chapter of Making your teenager a millionaire. No, they’re not teens but the logic is the same. Make sure they understand that money doubles every seven years. That they understand you are not gifting them $10,000 but $20k seven years out, $40k 14 years out, $80k 21 years out, $160k 28 years out, $320k 35 years out. So your $10k today is $320,000 when they’re barely 60!!!!

I’d also do it on a matching basis so they feel they’re earning it. IE: You (kid) save into your TFSA and show us  your receipts for 2020 and before December 31st this  year we will give you the same amount (to a max of $5500) into your RRSP. You will then have DOUBLE the money AND April 2021 a tax refund of around $1,500 because of it. We will do the SAME in 2021 for part 2.

Hope that gives you some feedback and ideas to make it a win-win and not a give-spend plan.

The Ongoing Financial Correction In Perspective

After three emails from listeners and two from relatives, it’s probably worth the time to put things in perspective. I only do about two segments on investing a year, because that’s not my degree or expertise, but these are just common sense…that we forget in the heat of the supposed “meltdown.”

First: These were the market returns last year:

Dow +22.3

S&P +28.5

NASDAQ +35.2

TSX +22.8

Markets do not go up by over 22% each year and every year. When it’s a huge year, there will be a pullback. That’s not a “meltdown” that is a correction to historical averages. And those are 10 to 12% a year on average. You can google that in 10 seconds or pull it up on my website under radio stories.

Second: When our investments go down in value we tend to think that we have lost money. Nope – that’s not correct. We are down but not out. We have lost money if we sell the investments and get out of investing. Then we have taken the cash out and have locked in the losses. If we stay invested, the market will bounce back. Always has and always will. Since World War 2 there have been 26 corrections for an average of over 13%. This isn’t breaking news, it’s part of the normal cycle of the market. I’ve attached a chart of it from CNBC. 

Third: The so-called losses are mostly giving back the massive gains of last year and this February. It is not a loss of huge amounts last year on top of another wave of market drops this past week.

Fourth: Take your next six statements and put them away. Don’t open them and don’t watch BNN or any investment shows. I’m not an expert but I will bet a lot that you’ll have at least a 15% return by September. (From the March 3rd Dow close of 25,917 and S&P 500 close of 16,423) Markets always overreact and then have a massive bounce back as we saw on Monday. Ignore the wild fluctuations. If you are investing, that definition is a time horizon of five years or longer. Anything shorter than that should be in a savings account or under your mattress.

Lessons From Last Week’s Book Signing

Every time I do one of my (rare) book signing, I learn a lot. If it isn’t an insight, it’s what I need to explain better, more or differently. From last week at Mosaic Books, it was:

Making your teenager a millionaire: Your teenage relative won’t do it because you tell them and YOU know it’s guaranteed to work. They won’t listen to you and you can’t want it more for them than they want it for themselves.

A teenager isn’t likely to even listen to you. But maybe they’ll “get it” from the two page Money Tools book chapter. They have to read it and understand compounding works better the younger the person investing. You also have to remember that saving $9,300 is like asking you to come up with a few million bucks. Teenagers dream of $300 bucks and a BIG shopping trip to the mall next week. They don’t dream of $9,300 or anything past next month.

That’s where you come in: The chapter is two pages. When they ‘get it’ and work through the compounding math on their own where $9,300 becomes $18,600 in 7 years and $37,200 in 14 years without them doing anything at all – they’ll get committed. At that point you can also help. Maybe you can match what they save, maybe you can add 10 or 20% to what they save or whatever you can afford to boost the odds it’ll happen.

If you contribute anything at all, the deal should be that the investment account is in joint names. Your money is in there and then it’ll assure they don’t take out anything.

Not knowing this or doing this when I was early 20s or so is now one of the top 5 lifetime regrets of mine – for obvious reasons. And I’ll post the more detailed “how to and where to” invest again.

Spend the $20 on the book – at least make them read it and understand it – think about some seed money to get started or to keep going. THAT is starting a family legacy in ways nobody else does…

Three New Year’s Suggestions

Happy New Year! I’m not going to urge you to make a bunch of resolutions, because most of them go by the wayside in the first month. They’re just as valid when you make then in March. In fact, they’re more likely to be successful when they’re not made January 1st based on societal pressure. But do remember to never set any goals that have an expiry date!

There’s an older book called Simplify Your Life. I loved it, and still re-read it every couple of years. Keep an eye out for it in any Thrift store for a couple of bucks – it’s worth the read. In that same spirit, look around your place at all the stuff you’ve accumulated. In the Money Tools book (page 216) is our family story when we had to throw out 14,000 pounds of this stuff when our parents had to sell their family home. I’ve done this a number of times, and want you to think about this for January. Walk around your place a few times this month and throw out, give-away, or donate 100 things. Do you need 26 coffee mugs for the two of you? How many sweaters are in your closet you haven’t worn in years? It won’t take long to get 100 things out of your place and you’ll never miss them! It’ll remind you that all this stuff cost big money and may get you to slow down buying even more stuff this year that just gets stashed away somewhere!

Change your thinking about getting out of debt just as much as your savings.

“Only rich people can save enough money.” If that’s your thinking, you can spend a lifetime proving that you’re right, and staying broke, but it’s just not true. The Royal Gazette recently had a story of a 92-year-old man who died after having worked as a gas station attendant and janitor his entire life. He had a pretty modest lifestyle, so his friends were stunned to find out that his estate was worth over $8 million! He just paid himself first every month, invested a small amount of money each and every month, and reinvested the dividends (which mutual funds do automatically through additional shares). If a minimum wage earner did it – you can, too. But first you need to change your thinking.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

The Huge Payday of Today Savings

Trying to save money for the long-term when you’re in your 20s is kind of like the challenge with climate change. We know we need to, or should, do something, but we’re not really willing to pay a price to do it. Why? Because the payoff is so incredibly far down the road, and most people don’t want to make many today sacrifices in order to achieve it.

Yes, there’s a price to pay to set aside savings. It’s the stuff you’ll need to give up right now in order to have the investments way down the road. And that’s a value judgment where the long-term typically loses out to the “today” spending.

That’s the reason it almost has to be savings that come directly out of your bank account automatically. You can’t spend it if you don’t have it. My biggest financial regret is definitely not saving a few bucks every payday into an S&P ETF (electronically traded funds) index fund. Set it and forget it, because it’s a basket of the top 500 companies where you now own a tiny piece of each of them. That’s great diversification and it’ll take you less than 30 seconds to search that the S&P historical returns over the past 50 years are over 10%.

One more way to save, or likely to pay off about half your student loans in a year is also in the Money Tools book chapter called: Broke is the new rich.

If you’re graduating from university, you’ve had two or four years of living on mac and cheese. Now going into the work force with a paycheque, you have an incredible pent up demand for spending and buying stuff that you really couldn’t and didn’t for all those years.

However, if you just live like a poor student for one more year, you’re not really make any lifestyle adjustments. You’re just living on very little money for one more year. If you can do that, you’ll be able to pay off a ton of your student loans in the coming year. Only one problem: Stay on your tiny student spending plan. Once you have a credit card, bought a vehicle, stepped up for some nicer furniture, or moved to a nicer place, it’s next to impossible to give all that up again.

Maybe two or three people in your entire grad class will do what we talked about the last four weeks. I hope you’re in touch with one of them for the next couple of decades as you watch them become incredibly successful financially…

Doing the RRSP Deadline Money Dump?

It’s getting close to the end of the month RRSP deadline and lots of people are now thinking about doing their annual RRSP investment money dump.

But you shouldn’t do it. Not just because of the insanity of the market in the last few days: The Down was down 500 points or so Friday, down almost 1200 on Monday, then a 1000 point swing on Tuesday from opening down 500 to being up almost 600 at the close.

If you’re trying to time the market, you’ll never be successful. And if you’re just dumping money into your investments once a year, you’re also going to be disappointed over the next few decades.

THE best way to invest is dollar cost averaging. We’ve talked about it before, just search here for that term and you can read some of the research.   https://www.yourmoneybook.com/dollar-cost-averaging-your-investments/

Dollar cost averaging is putting the same amount of money into your investments each and every month. No matter what the market is doing, put your monthly amount into the same investments you’ve chosen. That way, you’re averaging out the market. Some months, when it’s down, you’ll get more mutual fund shares. Other months, when the market is up, you’ll get fewer – but it’ll average itself out over the years. In other words: Set it and forget it, because you’re not retiring this month, year, or decade.

Even in the great depression, someone who stuck with investing every month, all the way through the depression was way up a decade later, compared to someone who pulled out, then re-invested, and tried to predict the market. The once a month investor had doubled their money while still in the depression. The once-a-year investor took 25 years just to break even!

If you don’t have the money, it’s probably a great idea to skip the RRSP loan. Yes, you’ll be out some tax refund – but only for this year. Then, instead of a year of payments for last year, invest something each month taken directly out of your bank account starting this month. You’ll get the refund next year, you’ve started on the successful track of dollar cost averaging, and you’re not going in debt to time the market. A triple win with just one adjustment!

Oh, and you do know, or remember, that banks are for parking your money and not the place to do your investing, right?

Sears, Amazon and Why We Can’t Do Our Own Investing

Ever wonder why retailers aren’t doing so well? Here’s a huge reason for it: Traditional retailers such as Sears, The Bay, Macy’s and the likes take 9 to 13 months to get a new clothing line from concept to production and into their stores to sell. Zella is a company with an extensive line of clothing. They can get an idea to production and into stores inside of two weeks! Two weeks versus a year. Wonder no longer why traditional retailers are fading quickly.

On the upside, Thursday Amazon announced they’d be selling Kenworth appliances online. Yes, Sears does have stuff people want – but now it’ll be online and in the U.S. only for the time being.

That announcement also shows why you and I really can’t do our own investing very well: When Amazon announced they’d be selling Kenworth, the stocks of other appliance retailers and manufacturers dropped by $12.5 billion collectively. From Best Buy to Whirlpool, Lowe’s, Home Depot, and the likes their stocks took a big hit. Now you and I may have figured out in a few days that, instead of Kenworth being gone, they’re now going to be a major player with Amazon behind them, but the Bay and Wall Street computers made the sell moves within a minute…

Speaking of investments, I’m going to make a bold prediction if you remember that I’m not an economist: The Bank of Canada can’t and won’t raise rates again until the U.S. does. The rate increase two weeks ago was based on thinking the U.S. would do one, too and they didn’t. The dollar is now way too high for our exporters and getting the dollar down is the main objective of the Bank of Canada. So they can’t do another increase, even if they wanted to, until the U.S. starts to raise them again.

Bad for savers, good for borrowers to get another reprieve…

2+2=4

Happy grad season! But that can be high school, post-secondary or lots of us adults graduating to financial adulthood. While 2+2=4 may sound simple enough, it’s not as much of a math example, as a reminder to use basic common sense. It’s actually a huge poster in the office of a Wall Street investment guru.

In other words: if it doesn’t add up, be careful, because there’s something wrong. But how many times do people not stop to think before investing, before borrowing, or making some really bad financial decisions? Here’s are some really common ones:

You can borrow your way to wealth. Sorry, no matter how great the rate, borrowing is debt and that’s the total opposite of building wealth.

You have received an inheritance of $25 million from a distant relative if you just send some money up front to Nigeria. Come on…get real…

I don’t need to start saving for retirement for few years. Ah, the common sense of delaying. If you’re 20, $9,300 will turn to a million at retirement. If you wait until 45, you’ll need $150,000. If you wait until 55, you’ll need almost $400,000. So if you agree that 2 + 2 = 4, are the odds better you can save $9,300 or $150 to $400,000?

Leasing a vehicle. You pay for three or four years and then just return. All those years of payments and you’re taking the bus home or starting another car rental cycle.

An internet start-up company email tip. Their stock tripled or more within months, with no earnings, and in business less than a year or so. It’s now ready for the crash as soon as you invest.

Trying to outsmart the entire investment world by jumping in and out of investments. Computers sell billions of dollars of stock trades a day and try to gain one-tenth of a second on one another. But you think you can do it for an hour or so with information that’ll be hours old. That’s why day traders lose money 93% of the time.

You have a chance to get in on a 20% return investment. OK, parking your money at the bank gets you half a percent. Does 2 + 2 equal 4 when someone is promising you 40 times a safe return?

Many ads for a ton of products or services promising something for nothing. Does that seem logical? Does that add up? The weight loss industry advertises like crazy in January for your New Year’s resolutions and now for bathing suit season with all kinds of promises…in a business with a 99% failure rate.

Maybe our schooling stops, but the learning can never ever stop, or you’re in big trouble with your career just as much as your financial success.

Stock Market Meltdown? What Meltdown?

Was I ever excited yesterday that there was a huge clearance sale on investments! And that sure came true. For the three days ending Monday, the markets dropped around 10%. But don’t panic:

Take a deep breath, don’t make panic decisions, and realize that a correction happens every 18 months or so. Since the last one was five years ago, this has been coming for over three years!

I manage a seven figure investment portfolio for a relative, so I have a LOT of skin in the game.  They are managed accounts where I don’t get involved at all with Hollis Wealth South Edmonton. Before the correction, the accounts were up 11% on average. They are conservative and do not have any individual stocks – because that is gambling. They dropped $54,000 in three days. But that only reduced then to their April 2015 levels. Yesterday, the market was way up and the accounts made back a ton of the previous drop.

The markets go down and they go up. Over a quarter, a year, or ten years, they’ll be up – just not as of Monday. Investing is a time horizon of five years or longer. So what on earth does it matter what one day or one month brings?

We tend to think what happened last week will go on forever. There are still people who have never invested again after the 2008 actual meltdown. The markets have quadrupled since then, and they’re in GICs. Conversely, when things go well, we tend to think that the good times will last forever, and that’s not true, either. There’s a great quote that more money is lost preparing for a correction than in an actual correction.

If you are saving for a down payment, a car, or whatever, your money should not and cannot be in the market. It needs to be in a boring no-return/no temporary loss savings account.

If you’re retired, or close to retirement, you do, or should, have a conservative portfolio. The markets dropped 10% but, in my case, the accounts didn’t go down by more than 4%. On the other hand, if you’re in your 20s, you should have good growth mutual funds and one week doesn’t matter because you won’t need the money for 40 more years!

The best way to invest is a little each month. Whether it’s $100 or $500. Make the contribution monthly no matter what the market is. On down months, you’ll get a lot more shares – on months when the market is up, you’ll get fewer shares. Go to yourmoneybook.com and search for dollar cost averaging with some incredible stats going back to the Great Depression of how that’s THE best way to invest.

Lastly, you need to be mindful that Canada is a resource rich country. But we’re also a tiny percent of the world economy. My investment accounts have almost no Canadian stuff in them – haven’t for 18 months – way before oil and the dollar plummeted. Canadian investments won’t come back for two years – if then…

Again: Take a deep breath and realize it’s temporary. If you think the free enterprise system is doomed and companies in the index that you hear about like Walmart, GE, Telus, etc. are all going to go under – then you can sell and get out. If not, just don’t open your statements for a couple of months and ignore the doom and gloom…