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August 10, 2016 | Have it all

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.





Jessica is a 40-year-old single mom with two kids, unemployed, renting a two-bedder in Kamloops, living on precarious support payments and studying to be an accountant. She has a BA. And an MA. She worked at the Bank of Canada and ran a small business for three years.

“Yet investing remains a mystery to me,” she says. “Yes, I know the difference between stocks and bonds and have a good overview of how our economy, our banking system, and the stock markets work. However, I have no idea how to buy a bond, invest in stocks, or purchase options in a manner that is not random and blind. I want to learn to be a great investor, and given my educational background, I am confident in my ability to do so, if pointed in the right direction. I am hoping that you can recommend some basic steps to get started in DIY education on investing.”

Jessica’s assets: $15,000 in a TFSA put into a 10-year GIC (“I realize this was not a wise choice”) and $20,000 in a Tangerine TFSA sitting in cash, which she is drawing on to pay the monthlies. “We moved here from Vancouver a year ago to escape life in a rotting bug-infested wooden walk-up slated for teardown.”

Here are her goals: “Not to be poor, to be in a position to help my children become professionals, and to not be a burden on my children. I would also like to travel when I am older.” She wants to a comfortable retirement, “which I would like to take in my late 50’s to pursue my artistic inclinations.” And a house. “If the bubble bursts, maybe buying a townhouse for $350,000 or a home on land for $450,000.”

There it is. “I am writing in hopes of some advice. I discovered your blog recently, and I enjoy it very much. I see you offer personal financial advice to your readers from time to time, and I am hoping to benefit from that :-)”

Why share this note with you? Because we have an advanced case of financial illiteracy in the nation, and it’s hard to imagine a happy ending.

Jessica’s in serious trouble. Her net worth is close to nil, the funds she does have are locked in to worthless assets or sitting in growthless cash, while she’s burning through her capital, going to school and responsible for two toddlers. Despite that, she wants to retire in about 15 years, live off her investments and along the way buy real estate. Her strategy to get there? Learn how to trade stocks and flip options, all starting with the grocery money.

Sad. Unrealistic. Unachievable. And yet this is the same attitude which has Millennials buying condos with credit card deposits and young parents embracing Godzilla mortgages in order to give their kids ‘stability’ when they really need to be salting away RESP money for their education. Children, after all, couldn’t care less whether you own or rent. If they do, you corrupted them.

Advice to Jess:

First, abandon the idea of trying to be a day-trader who will turn the federal kiddie pogey cheque into a house downpayment and retirement plan. The overwhelming odds are that you’ll buy a few stocks and get whacked. That’s exactly what happens to most amateur traders. The pros have them for lunch.

Second, adopt realistic goals. Given your situation and the average accountant’s salary (maybe $60,000 after a few years), it’ll be impossible to educate your kids, buy a house and retire comfortably in a decade and a half. Pick one – which will obviously be the children. Any other goal would be parental failure. So a real estate purchase is out. So is retiring any time before CPP and OAS click in.

Third, self-investing is okay, but understand the difference between that and gambling. Take that fruit-housed TFSA and invest it prudently in a balanced mix of ETFs along the lines this blog keeps blathering about. Put 10% in a government bond fund, an equal amount in a higher-yielding provincials or corporate fund, 20% in a preferred ETF with its fat dividend yield, 8% in a REIT fund and divide the remainder between funds holding the TSX 60, the S&P and diversified international markets. That’s seven positions. Buy them. Hold them. Add to them. Leave them alone.

As for the RESP, if you locked into a long-term GIC, too bad. The return is less than 2%, which means you make nothing after inflation. Go to the bank (I hope it wasn’t Tangerine) and plead poverty and financial distress to pry the money out – then get it invested in growth ETFs, leaving them untouched for the next decade.

Fourth, when you finish school, try to land a job with some branch of a government, where you can slide into an obscenely cushy DB (defined benefit) pension, forking over a benefit equal to 80% of your best five years. Then we can hate you. It’s a blog thing.

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August 10th, 2016

Posted In: The Greater Fool

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