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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

April 18, 2016 | Dear Eric’s Mom

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

A woman is seen walking in Manhattan with her pet dog harnessed to her back in a 'pooch pouch'. Where: New York City, NY, United States When: 14 Aug 2013 Credit: Alberto Reyes/WENN.com

Eric and his wife are Millennials, early thirties, living in a major BC city on an island starting with ‘V’ that shall remain nameless. There’s a baby involved, plus two six-figure incomes. These are no normal vaping, can’t-find-myself, entitled, under-achieving, over-educated whiny young people.

In fact, Eric & squeeze have a balanced portfolio of more than $500,000 in maxed TFSAs, retirement accounts and a non-registered portfolio, which they feed regularly. “We are of the mindset that we want to enjoy life the best we can but also make financially responsible and intelligent decisions along the way,” he says. That includes renting a great place for $1,850 a month, which works out to be a price-to-rent ratio of 27. So, the landlord is subsidizing their swelling liquid portfolio. Sweet.

But, these kids have a serious problem – not with each other (they both value freedom and mobility) – but with Eric’s mom. “Take the email I received the other day,” he says.

“Hi Dear, Everyone we know is of common mind that housing in Victoria will still be going up for many years and now is definitely the time to get in the housing market.  If it is your forever house, it will only increase in value and as they say, location, location, location.  We have heard this from so many of our friends who are encouraging their children to get into the housing market sooner rather than later.  There are even bidding wars on houses now but luckily the type of house in your price range is easier to put offers on as there aren’t as many couples with your good finances.  Love, Mom
PS –(from Dad) housing pricing in Victoria has increased 16% from the same time last year.   Banks are paying only 1 –2%.  Net loss of 14% on your investment if you stayed in cash.”

Sigh.

“I love my parents dearly and want to respect their opinions,” says Eric, “but obviously this is hard given the above parental advice.  Several of our other boomer friends/relatives reiterate essentially the same above advice. Housing articles are clipped and given to us, as well as open house pamphlets.  We’re lectured on how their real estate purchase several decades ago has been a great investment. It’s quite the pressure! There’s this certain perceived undeniable level of success that is only met when you purchase a home, irrespective of your financial situation, and we aren’t there yet, and having a large well balanced portfolio is a distant, distant second.

“I just thought I would let you know that the housing pressure some of us milenials are feeling is pretty intense these days. If you have any advice on snappy comebacks or ways to make saving and investing more “cool” or more respected when compared to home ownership, I would love to hear about it 🙂 Cheers, and keep fighting the good fight!”

My pleasure, stressed-out dude. Here ya go. Just sent this.

Dear Eric’s Mom:

My name is Garth Turner and I’m writing to tell you to quit picking on your son. You’ve stressed him so much he’s now writing to strange, bearded people on the Internet, looking for ways he can deal with you. That, Mom, should tell you a few things. None of them good.

First, by every measure, your kid is a standout success. He makes double the average income, has a stable family, a fat investment portfolio and five times the net worth of his peers. How is that not good enough? Take a look around the next time you venture out. Eric’s a rock star. So lay off.

Second, the point of life is not a house. Your son would go from flexible and wealthy to mortgaged and house-bound the instant he signs an offer to purchase. Now he writes one rent cheque. After closing there’d be an eternal blizzard of payments, from property tax to insurance, renos and maintenance to the mortgage (with a rate destined to increase with each renewal).  Why are you shoving him into financial servitude? So he stays close?

Third, real estate (even in Victoria) is inflated, fickle and massively influenced by the mindless house lust you and Eric’s father exhibit. Assets do not have inherently more value because prices are rising. Absurdly expensive houses represent elevated risk, not opportunity. Especially in a small city with a moribund economy, static population and way too many old people.

Fourth, just because owning houses worked for you back then doesn’t make it work for kids now. These are not days of rapid growth, inflation and expansion, but rather times of contraction, disinflation and debt. That makes the current faddish housing mania stand out even more starkly as a bubble nobody should want exposure to.

Finally, who asked you? Eric’s an adult whose decisions have obviously brought him success, comfort, achievement and security. Trying to impose a value system on him, making him doubt his choices, stressing him (because he loves you and wants to please you) and using maternal guilt to guide him into a decision that may be absolutely wrong for his marriage, is irresponsible and egocentric. You push Eric because your friends are pushing their kids? That’s pathetic. Plus the fact Dad thinks investing means collecting 1% interest at the bank shows you’re among the last people on the planet who should be shoveling out financial advice.

If you respect your son, set him free. If not, carry on.

Hugs,
Garth

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April 18th, 2016

Posted In: The Greater Fool

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