Posted by webmaster on February 21st, 2008 — Posted in Prosperity, Books, People, Money, Debt, Investing, Personal finance
In 1994, author Graydon Watters (Financial Pursuit) wrote that 8 out of 10 Canadians had never invested in the market. By 2000, research revealed that almost 50 percent of adult Canadians owned stock directly or through mutual funds.
One of the risks wreaking havoc in the current interest rate environment is “reinvestment risk.” When we invest in bonds and/or GICs to achieve security of capital, at some point, our terms will mature. If we rely on those investments for income, we may find ourselves living on substantially less than we were prior to maturity. A study by Fidelity Investments of the 34-year period ending in 2002, for example, found that GIC investors received 214 percent less on their reinvested term, on average, than when they initially invested. Ouch!
In the late 70’s and early 80’s, inflation risk was a predominant factor. Somewhat predictably, when interest rates were at their highest, inflation was too, with purchasing power falling by as much as 12.5 percent in one year (1981). Today we have much greater confidence that economic and politic powers can effectively combat hyper-inflation, and demographic trends are also in our favour, i.e., an ageing population consumes less, and lower consumption lowers prices. However, there are still certain wild cards – like oil and gas prices – that are both unpredictable and unmanageable. Unlike market risk, which is reduced with time in the market, inflation risk increases with time. The younger and healthier we are now, the greater the influence of inflation during our lifetime. We can minimise the impact of inflation on our lives, very simply, by owning assets that go up in value as inflation rises – unlike cars, GICs, bonds, and money itself.
Finally, there is shortfall risk—the risk of running out of money before we die. My experience has been that far more Canadians damage their quality of life by worrying about running out of money than actually experience that remote eventuality, but since the antidote for one happens to also be the antidote for the other, I’m happy to help you overcome both.
Although the straight-forward, laddered GIC portfolio many risk-averse investors have chosen may seem like the lowest-risk way to build wealth and prepare for retirement, it really only provides protection from two of the six kinds of risk we face. A truly low-risk strategy is one that balances all of these risks, providing as much protection as possible against them all. That’s what we’re here to do.
In order to give you a clear path once you begin, however, let’s start by clearing up some of the money and investment myths that may be standing in your way right now.
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Posted by webmaster on February 4th, 2008 — Posted in Prosperity, Sustainability, Thinking, Books, People, Money, Investing, Personal finance
From the Globe and Mail:
Back in 1980, when I was in B-school, the book, Japan as Number 1 was required reading. Japan was the world’s largest creditor, its people enjoyed the world’s highest quality of life, biggest per capita gross domestic product and longest life expectancy. Robots in Japanese factories were replacing U.S. rust belt manufacturing jobs. The economy was on a tear and the Nikkei index was soaring.
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Posted by webmaster on February 1st, 2008 — Posted in Money, Investing
And now there is a new, low-fee, no hassle way to achieve that …
Claymore Investments has launched a new ETF that emulates a laddered bond strategy: The Claymore 1–5 Year Laddered Government Bond ETF trades on the Toronto Stock Exchange. (Which means you can buy units through your discount brokerage account.)
The ‘bond ladder’ has always been a primary way to diversify a bond portfolio, so this fund offers a convenient, one-stop solution.
The management fee on the ETF is 15 basis points. (Contrast that with an average bond fund fee of 150 basis points.) A basis point is 1/100 of a percentage point. It is available in common (symbol: CLF) and advisor class (symbol: CLF.A).
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Posted by webmaster on January 29th, 2008 — Posted in Uncategorized, Books, People, Money, Investing
(Continued from Day 14)
The aftermath has been painful. As a financial author and commentator, I hear almost daily from frustrated, disheartened Canadians. We want to be responsible, to live comfortably within our means, and to prepare for our retirements, but we are discouraged about our ability to do so.
This guide was designed to as an antidote for that discouragement, providing a series of easy-to-apply strategies to help you avoid risk (also known as losing your hard-earned money) and create wealth, without losing sleep in the process. And although it is really tempting to use big words and throw in every piece of information that has ever been written about the financial markets, we’ve made a real effort to keep it simple and relevant to the needs of individual Canadian investors. If it isn’t here, it’s because you can build wealth and generate income without it. If you want to learn more, either because you’re actually interested or because you want to impress other guests at cocktail parties, you’ll find a list of further recommended reading in the appendices.
We begin with strategies for building wealth, and then move on to strategies for creating income with that wealth. Through the liberal use of quotes throughout the book, we’ve let the experts speak for themselves. The tone throughout is conversational, because we believe that if you wanted a textbook, you’d read a textbook – and wherever we use a word that a beginning investor may not be familiar with, we’ve tried to provide a definition.
“When facing a difficult task, act as though it is impossible to fail. If you’re going after Moby Dick, take along the tartar sauce.” H. Jackson Brown, Jr. Life’s Little Instruction Book
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Posted by webmaster on January 27th, 2008 — Posted in Books, People, Investing, Personal finance
It is impossible to believe that Canadians – known for our prudence as well as our politeness – would choose to gamble away the savings we work so hard to accumulate, money that we will need to live on in what may be the longest retirements in history.
Yet from 1996 to the early months of 2000, that is exactly what many of us did. It is exactly what too many of us, dazzled by charts and sales pitches, continue to do. It’s time to stop the madness, and we are here to help.
Benjamin Graham felt so strongly about the difference between true investment and speculation that he begins his investment classic, The Intelligent Investor, with a two-page explanation on the distinction. In short, he says that a speculator is anyone who buys stock ‘on margin’ (with borrowed money), who buys a ‘hot stock’, who buys without a full understanding of the risks, or who buys “without proper knowledge or skill.”
In case you’re not familiar with Benjamin Graham, you should know that his most attentive student, Warren Buffett, has applied those early lessons to become the second wealthiest man in the world. Warren Buffett is also the only “investment guru” I know of who actually became wealthy by investing rather than by turning other people’s wealth into their own through fees and commission.
Graham’s definition reveals the tragic truth of the late 90’s – we thought we were investing, but we were speculating, gambling money we couldn’t afford to lose. Worried about retirement, tired of sitting on the sidelines while our friends and co-workers boasted of high returns, we cashed in our Canada Savings Bonds and GICs, even borrowed money, and moved into mutual funds, touted as the ‘safe’ way to invest in the market. With the full support of advisers who only got paid when we bought a mutual fund or stock, we bought companies we knew very little about at exorbitant prices, believing that the astronomical rise in their share prices was evidence enough of their success.
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Posted by webmaster on January 23rd, 2008 — Posted in Prosperity, Sustainability, Thinking, People, Money, Investing, Personal finance
Once we create order in our financial lives, our anxiety will diminish a great deal, but it won’t disappear entirely — not unless we retreat to Walden’s Pond. The more we expose ourselves to environmental stresses, the more time we need to invest in treating our anxiety. Modern living requires us to counteract the stresses of modern life through active self-care — and accepting that fact allows us both to treat the anxiety that we are currently experiencing and to shore up our strength against future challenges.
Just as importantly, we must come to understand that anxiety does not indicate that there is a terrible problem lurking somewhere.
I have spent a great deal of time over the last five years listening to the “still, small voice” of my higher self, and one thing that has become crystal clear is that it never speaks from a place of fear. As Reverend Marvin Anderson used to say, the voice of God is always a Yes! Your divine self is a point of awareness in the ultimate, infinite positive. If you are hearing a voice that says, “If you do that you’ll fail spectacularly and have to declare bankruptcy and even your mother will think you’re a fool” that is not your highest self speaking. That is the voice of anxiety. The only truth it signals is that it is time to treat your anxiety through self-care.
So, let go of that particular myth. Your anxiety is not trying to warn you that you’re about to move in the wrong direction. It is warning you not to move at all, not to grow, not to reach toward your potential. It is warning you to ’stay safe’ by resisting change. (Since change is the one constant, resisting change is ultimately always a waste of precious energy and time.)
Never attempt to treat anxiety by attempting to solve the problems that anxiety attaches itself to. I find that it’s very helpful to treat anxious thoughts like upset toddlers. Reasoning with anxiety is a waste of time — distraction is the only real solution. Do whatever it is that best distracts you (unless that activity is also anxiety-provoking). Go for a long walk, see a funny movie, meditate, make yourself a nice cup of tea and re-read a favourite book. Get a baby sitter if you have young children, and take a hot bath or a nap. Stop everything — and treat the anxiety.
Why is this important? First, because acting from a place of anxiety is the least effective way to overcome any real challenges we face. Any decision made from a place of fear is very likely to be a bad decision.
Let’s recap. First, we rid ourselves of our anxiety magnets by creating order in our financial life — then, we treat any environmental anxiety on a regular basis.
And if that doesn’t work, if we are still uncomfortable, it is safe to conclude that we are suffering from divine discontent. That means that we must change our lives. For the primary difference between divine discontent and anxiety is that divine discontent spurs us to action — while anxiety keeps us in inaction.
Self-actualization, living our best life, determining our purpose and reaching our divine potential requires that we take risks. So, first we treat our environmental anxiety. Then we embrace our divine discontent, and harness it — we use it to lift us off the couch, to create a defense against those in our lives who are afraid of losing us if we become our best selves.
Frank X. Barron was a scholar who spent his life exploring the creative mind. And just to be clear about what we are talking about here, know that everyone who ever succeeded at anything, from art to business to motherhood, did so because they engaged their creative mind. Sometimes the only art we engage in is the creation of our own lives, and it might be argued that the creation of our lives is the greatest masterpiece of all.
Dr. Barron wrote that “Creativity requires taking what Einstein called “a leap into the unknown”. This can mean putting your beliefs, reputation and resources on he line as you suffer the slings and arrows of ridicule.”
During more than 20 years in the world of finance, I have identified a number of traits that separate those that succeed from those who only dream of succeeding. Successful people don’t wait until they feel safe before they take action. They don’t let their fear paralyze them — instead, they harness that fear to motivate them to do their best.
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Posted by webmaster on January 14th, 2008 — Posted in Prosperity, People, Money, Debt, Investing, Personal finance
Money is perhaps the greatest source of conflict in marriage, but it doesn’t have to be that way. As I love to share in my workshops, creating a shared vision can be one of the most profound intimacies a couple ever experiences. And creating and executing a plan to manifest that vision is an extraordinary partnership-building process.
In today’s New York Times, financial writer MP Dunleavy writes about experiencing that process with her husband.
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Posted by webmaster on January 9th, 2008 — Posted in Uncategorized, Prosperity, Money, Investing
Many people ask me what they should read in order to increase their financial IQ. It’s an excellent question, and there are some great and many not-so-great books out there.
But I think it can be simpler. Rob Carrick’s personal finance column in the Globe and Mail is usually objective, information, accessible and in tune with what we’re thinking about.
Moneysense magazine (noted in an earlier post for its Couch Potato Portfolio) section is by the the best source of personal finance and investment information for Canadians — if you don’t want to commit to a subscription, you can often find a copy in your local library.
In terms of investment websites, there is nothing better for investors than Shakespeare’s Investment Primer.
The publisher Keith Betty describes the site as a primer for do-it-yourself investors, but I’d argue that this is the kind of basic knowledge that investors should also have at their disposal when considering recommendations from a financial adviser.
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Posted by webmaster on January 7th, 2008 — Posted in Uncategorized, Investing
Whether you want to manage your own investment portfolio, or simply have more informed and knowledgeable conversations with your adviser, it is really very easy to find out as much you need to know. (’Knowing’ isn’t the only component of successful investing, but we’ll get to that later this week.)
In the meantime — if you’re ready — here are the ONLY links you’ll need:
To buy stocks and index funds (if you don’t know what an index fund is, you can find out on the site) and learn how to evaluate stocks, visit Canadian Shareowner.
To learn how to create a solid, long-term, diversified, low-cost portfolio in only 20 minutes per year, learn about the Couch Potato Portfolio at Moneysense.
Can it be this simple? Absolutely.
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