Tag Archives: investing

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…

Keeping You Updated

Things change pretty quickly in the world of finance, credit, money and investing. Here are some updates to things we talked about in the last few  months. You can always find the stories at yourmoneybook.com and click on the radio stories button:

A few months ago we talked about the changes for airlines and your frequent flyer miles. Well, Air Canada just did another round of cutbacks to what you’ll earn and an increase to what you’ll need to redeem. Remember to think of your reward miles like bananas. Use them up as they don’t increase in value over time! Oh, and Westjet and Air Canada now charge baggage fees – surprise! Did you think they’d just ignore the $30 to $50 million in profits that you’re now going to hand over forever?

If it makes you feel any better, the deep discount carriers in Europe and the US now charge for carryon luggage. With Spirit Air, you can pre-buy it online at $35 for a carryon. If you want until you get to the airport, it goes up to $50 and if you do it at the gate, it’s $100 for a carryon!  Oh, and you’re paying $10 to print your boarding pass.

Yikes, it’s offical: Costco is dumping American Express in Canada. You’re Amex card is no longer welcome starting January 1st. They’re now partnering with Capital One. What’s in my wallet? Not Capital One! But, it’s a good guess that they changed over for a whole lot more money from Capital One…But why go from Amex whose clients spend four times more than Visa clients to a card that targets credit challenged people? Makes no sense, even if their kick-back is way higher.

I just read two reports that show independent book stores are growing in numbers and volume of sales. Great news as I love independents. I don’t deal with Chapters – you won’t find my books with them. I’m the author of 17 books. 14 are only on my web site and three are ONLY available at a few independents, including Mosaic on Bernard. When I talk about shopping local, I actually give up a ton of sales to do so. Actions speak louder than words.

For the last month, the stock markets have gone a little nuts. Down 300 points in a day, up 200 the next. We keep talking about the dangers of buying one or two stocks. If you’ve done that, if you gambled like that, you’re probably down a ton of money. If you’ve invested in good growth mutual funds, you’re already up again. I manage a seven figure account for a relative and all the bad news last month still had a 2% return for the month with Dundee Wealth.

And if you’re a gambler, gold and silver are below 2010 prices. Bitcoin, which is an online currency is down 75% for the year. If you bet only on energy stocks, you probably lost over 40% of your money. Those one-off buys are not investing. They’re gambling – and on these and many others, it’s a big loss right now. Investing is a five year or longer time period with a mix of good growth mutual funds with a long track record. Investing is also buying a fixed amount each month. Set it and forget it.

Graduate As a Millionaire

85% of teenagers never take a course on credit or finances. That means they haven’t got much of a hope of being financially successful from the get-go.

The first thing most teenagers do when leaving the home is to take on a car payment, get a credit card, pay rent, and often have a student loan. But if you have teenager that’s about to leave the home, here’s a deal you can make that’ll insure their financial freedom for the rest of their life.

The only thing your teenager has to do is to save $8,000 by their 20th birthday. Nothing more – nothing less. After that, without getting into debt, or touching these savings, they can literally spend every dollar they make.

It’s the magic of compounding and works with something called the Rule of 72. Simply take your rate of return and divide it by 72 – that’s how long it’ll take for your savings to double. So at a 7% rate, it’ll double every 10 years, while a 10% rate will double it every seven years.

Do some lateral thinking of how you can help them achieve this. Maybe you can charge them rent and keep that in a savings account. Some parents match whatever the teenager saves to a certain amount – there are all kinds of ways.

Then your 20-year old just has to watch his or her savings double again and again until it reaches $1 million at age 67, using a 10% rate, and it all started with a one-time saving of $8,000.

Oh, if only we had done this when we were their age. But one more thing: Because they’re teenagers, I’d recommend there’d be two signatures on the account – just in case they get the urge to take some money out…

The Rule of 72:   At 10% it’s 72 divided by 10 = money doubles every 7 years

At 11% it’s 72 divided by 11 = money doubles ever 6 ½ years

At age              Amount now saved through compounding interest at a 10% rate

20…                 8,000

27…                16,000

34…                32,000

41…                64,000

48…                128,000

55…                256,000

62…                512,000

67…                1,014,000

THAT is the best graduation present I can think of, and it’s not hard to do at all. It works with any starting amount. Even if it’s $5,000, it’ll turn to $640,000 and that’s not a bad deal for a year of two of savings at an early age!

Adults can get there, too. If you want to have $1 million when you retire at age 67, for example, you just need to work backwards.

So at age 60 you’ll need half a million because it’ll double when you reach 67. At age 53, you’ll need $250,000 and at age 46 you’ll need $125,000, and age 39 you’ll need $63,000. When you reach any of those amounts, at whatever age, it’ll double and double until you reach a million at age 67. But, depending on your age, you may want to use a more conservative 7%, depending on your age in order to lower the risk of your investments.

However, there’s a big proviso: It’ll never happen if you’re also in debt and making a bunch of payments. Sorry, can’t be done. You need to be debt free to have some serious money to put away for investments. I know the world has taught you that you can have it all – it’s not true. There’s no chance you can save a little, pay a little here and there and still have a life with your normal rent, mortgage, utilities, gas, etc. I know you think you can and it’ll be another five, 10, or 20 years of finding out that you were really wrong and wasted another decade.