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January 9, 2017 | The Failure

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.

It was fun watching my colleague and fancypants portfolio manager Ryan Lewenza fighting with the trolls, basement people, DIYers and advisor-haters in the blog’s deplorable steerage section over the weekend.

Poor Ryan. Leaving the comfort of his mid-town mansion, trophy wife and Porsche to come here and argue the case for paying a dude like him fees to manage your money. Pffft. I should have told him everyone here’s a genius, alpha-adding macroeconomist who’s learned that 15 minutes’ worth of Googling beats his two decades of securities industry experience and string of designations hands-down. Silly boy. What was he thinking?

Ryan’s butt was still giving off a little smoke when he came into the office Monday morning. We talked about his tragic mistake. Simple. He made a financial, mathematical, logical argument for why people should have an advisor to make them money in a predictable, consistent fashion. But, sadly, humans (unlike portfolio managers) don’t think like that. Most equate investing with gambling, which means rolling the dice and occasionally hitting a home run. Batting singles and doubles every day (the goal of advisors) just isn’t sexy enough.

My colleague also neglected to make enough of the real reason folks would be better off with a financial coach, mentor, manager-type person. The bulk of us are emotionally ill-equipped to look after our own money. That’s why we screw up. Most buy things that are going up, then never sell to take a profit. We run away from what’s fallen in price and is a bargain. We believe rising assets will go up forever, and think declining assets will probably go to zero.

People are massively influenced by influencers. Moms. Peers. The girls at work. Sports celebs. Kevin O’Leary. Mike Holmes. The pumpers on BNN. The Trivago guy. Your BIL. The couch potato spuds. The list is endless, because it’s easier to read a text or a tweet than to research securities, learn the tax code, set a budget or write a financial plan leading to retirement and estate strategies.

I was reminded of that last week when one of the banks posted survey results confirming we’re a nation or money morons. CIBC found that most people have financial stresses, but almost half (48%) say they have no intention of cutting back frivolous spending in order to face debt, pay bills or invest. A third of people incurring new debt in the past year admitted it was not because they bought something, but overspent and needed to borrow to pay bills. Yikes.

Three-quarters of people have no intention of setting up a household budget, and for most of us saving for a vacation ranks equally to putting money aside for the future. This, mind you, is even before T2 legalizes weed. Just imagine when millions have to find money for that.

Of course I’ve reminded you often that 80% of TFSA money is in comatose, interest-bearing investments, that surveys show 50% of us could not survive one missed paycheque, that household debt’s at historic levels, RRSP contributions have plunged since 2008, mortgage debt is rising at six times the rate of income gains, only 7% max their tax-free accounts and collectively our personal borrowings (at $2 trillion) are bigger than the nation’s economy.

This is why people need advisors. Not just to grow the money they have left, but to restructure lives and step back from the brink. As this blog has tried to show in its pathetic, twisted, canine-addled way, the money choices most of us make are 90% emotion and 10% guess. We’re in constant danger of blowing ourselves up. Take Lorna and her partner Jason, for example…

“My husband and I just moved to Vancouver from Calgary where he was laid off one year ago.  He was making an engineer’s salary there, and now in Vancouver he’s a blue collar worker but with the City permanently so it’s stable.  I’m not working for various reasons.

“We’re currently renting in Vancouver.  We have two homes in Calgary.  One is a 275k rental townhouse property that is making a $200 profit per month, and plan to keep that for this reason.  It has 50k of equity.  The other was our large 750k home in Calgary which we were lucky to rent at all, for an $800-per-month loss.  We would like to sell this spring, and release as much of our 140k down as possible in order to get into the Vancouver market.  We got that house in the Spring of 2014 so there’s not a huge equity in it aside from our down.

“As we hope to have 2 kids, we thought of a 3 bedroom townhouse.  What do you think?  We appreciate you.”

You won’t appreciate me after this response. You’re nuts. Not only did you make big, dumb mistakes back in Calgary, but you seem ready to repeat them (even more monumentally) in Vancouver. The rental townhouse is surely making you absolutely nothing after property taxes and the lost use of your down payment, while the large house is a financial sinkhole, dishing up a sustained monthly loss while it quietly depreciates in a disastrous market. Of course you need to sell. Immediately, because things will only get worse.

And if all that happens successfully, you’ll end up with less than $200,000, renting in the midst of Canada’s most delusional and expensive city, on one blue collar salary. And now you want to buy again? And have two kids? Stunning.

This is financial illiteracy at work. It’s why housing’s turned into a debilitating anchor for so many people, hugely influenced by the media, friends and their equally disoriented relatives. These folks are being reamed by real estate, yet line up for more. They need help. Most of us do.

Advisors who get people on their feet, help them stay that way and grow some wealth are not the enemy. Even Ryan, who’s now home convalescing. On silk sheets. Pray for him.

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January 9th, 2017

Posted In: The Greater Fool

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