Wealth - & you

Finding solutions at Every Turn

"I's spent $40,000. on shoes and I have no place to live? I will literally be the old woman who lived in her shoes! - Carrie Bradshaw

 
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Everything has a beginning, a middle and a.... future

Disclosure: I have been in business for most my life, having owned small companies like Secret Victoria, a children’s event company to an Interior Design company in Toronto, Ontario.  I started with a Master’s in English Lit and minor degrees in “Psychology of Business” and “Economics”.  As a former Bank Manager and recent CFO of my husband’s Financial Company, I look at the business of finance from an eagle’s nest!  I am not a professional Financial Advisor and I am pre-supposing that you  aren't either.  Starting out on my journey of independence, I realized I needed many footprints and shoulders to walk and cry in/on.  It wasn't easy going out on a limb, jeopardizing everything with only a possibility of success. I am hoping you will find some opportunities that will spark an interest that you can delve into and get started on your journey to independence! It's very important to set up even a small bed of roses as you go along, so, if you falter you can still stand up smelling like a rose! A Darby rose in particular!

Your can't be fearless without being fearful! 

 

By the way - speaking from experience - always buy a size bigger, after an hour of wearing these shoes - your foot will swell to the perfect fit.  

We are venturing down the path of investing in this series.  Investing is different than savings or stock trading. So, it’s important to understand the lingo associated with investing.  Investing is usually for the long term with goals in mind as opposed to trading which usually pertains to short term in and outs of different stocks and is much riskier especially if you are just starting out. Savings is considered less risky but the returns (which is the % earned on your money) is not advantageous for long term goal achievements. “INFLATION WILL ALWAYS OUTPACE INTEREST RATES” – especially after taxes. Investing in interest bearing instruments, is saving on the one hand while  the other throws it away! It’s my opinion that saving and earning fixed rate interest (%) is the riskiest venture in the long run.

DOWN TO BUSINESS:

Let’s look at the black clouds that must be annihilated before any initial financial progress can take place. The biggest elephant in the room is DEBT! Whether student’s loans or the ever popular 20% credit card, check this site and see if any are of interest and can help you with this annihilation.  Help is out there – you just need to know where to look.

ALSO:

“The Emergency Fund”.  An emergency fund is mandatory money set aside because crap happens and the pandemic is a perfect example.  How many people were caught off guard and had no income saved and eventually no place to hang their hat. 

There are good apps on your phone, or set up a system to evaluate where you spend your money. #1 is to identify where you are throwing your money away! You might be shocked My Visa has a built-in breakdown of where my $$$ goe on a monthly basis. As everything is tap and go today – nothing escapes the card – it’s like a tracking device for expenditures!  If you don’t have a credit card think of getting a ‘secured bank Visa” they will hold funds for the same equivalent as the credit provided. This will help build your credit rating and provide you with ID and purchasing power, especially if you are just starting out and you have debt. Investing can only happen at the end of the month after all your bills are paid. It’s what’s left over.  Set your goals, whether it’s a “newer” car, trip/vacation, education and/or a house, or a 30-year retirement plan.  Your goal has to be front and center and logically attainable.  Getting yourself overwhelmed is exactly what brings on inertia and results in doing something idiotic that can add to your debt.  

SO ---  YOU DON’T HAVE MONEY LEFT OVER AT THE END OF THE MONEY?

You got some serious problems Lucy! That is why you should evaluate and make unpopular decisions.  Kind of like suffer now for the longer benefit.  Even if it is extreme adjustment like moving residences.  I say this because as “The Wealthy Barber” once said: “Live below your means and live well”.  Let’s face reality, you will never get anywhere if your expenditures are above your income.  And also, if your income grows, this is not a license to increase your expenditures.  Meet the challenge and don’t let the “lifestyle creep” eat you up. It might even help if you use a “spare change app” like one from Wealth Simple or from Acorn.  Sounds insignificant but you will be surprised how much it adds up at the end of the month. It’s almost like using what is termed “Dollar Cost Averaging”.  (we’ll discuss how this works later)

 

LET’S RECAP

  1. Invest using a spare change app

  2. Start auto transfers from your bank account on the days you get paid.

  3. Pay attention of Lifestyle Creep – brew your own coffee. Starbucks isn’t that great!

  4. Invest any raises you get and maintain your current expenditures – keep YOUR lifestyle

  5. Ask for all gifts to be monetary and explain what you are doing – it may be catchy!

  6. Getting money back in taxes – invest it – remember you didn’t have it yesterday!

  7. Emergency fund – TFSA (Tax Free Savings Account). (we’ll discuss how this works later)

 

Even with the above – timelines are different for what all your needs are.  You are not investing for a car you want to buy 30 years from now.  The car is short term and retirement is long term.  This is when we want to discuss RISK!

 

RISK:

 

How much do you think you can afford to lose?  There are questionnaires that are provided to explain where the boundaries of your “risk horizon” falls within. For example, if you need to use your money to pay the rent – you risk factor is extremely low, but if your life wouldn’t be affected materially in any way if you set the money on fire then your risk factor would actually be skyrocketing!

 

TFSA

These accounts I mentioned previously – are accounts similar to an Registered Retirement Savings Accounts (RRSP) which are also “governed by the government’. You can save a limited amount of money, as it accumulates in value, the gain is not taxed and you can remove the money annually without tax consequences. There is a little more to it which will be covered in the next series.   It’s a great way to save for a rainy day outside the clutches of government taxation.

 

DON’T PUT ALL YOU EGGS IN ONE BASKET.

 

 

It’s all about diversity!

 

DIVERSITY

What diversity means is you are not zeroing in on one investment and if it goes south --- you lose! Diversity helps you mitigate your risk factor. No one sector can be number one in performance all the time. And guess what:  No one knows which sector is going to do well and which one isn’t.  Not even our esteemed Mr. Buffet has that much power!

Picking different investments from different geographies, industries and asset classes (stocks, bonds, real estate etc) affords you the opportunities to gain from investments that are trending up while supporting others that are going south.  Having many investments that are uncorrelated with one another, smooths out your portfolio returns.  This helps greatly because fluctuations can bring on a volcano of emotions. Having an advisor who is keen on the market will be right there to hold your hand and explain what is happening. This all sound quite difficult and I am here to say that it is.  The alternative of jumping in and jumping out of the market – because you are listening to the news, friends, little green men.  THIS HAS BEEN PROVEN TO BE FINANCIAL SUICIDE!   

We look at investing from two angles.  Hiring an Investment Advisor which I spoke about in my former blog:  Women, Wealth and Oxygen! And an alternative of using an automated investment on-line service like Wealth Simple, Acorn or M1 Financial.  These services are not for established investors, business owners who have multiple financial issues a seasoned Financial Advisor could help with. Like IPPS or IRA’s. When you are starting out with investing: “keep is simple” but once you have established yourself – time for step two. There are a multitude of financial institutes that want to keep you in the dark. Simply because they don’t have the ability to provide them.  Shameful but true! These are not the only providers and I use them as suggestions only.  Scout them out and let me know what you think! 

 

Next on our Path:  Investing for the Long Term and FEES!

One of the reason's I love these on-line applications, is it gives you anonymity, you can ask freely any question that pops into your head.  Accessibility at 2:00 am in the morning, and the education they provide with the understanding your focus should be on growing your business and furthering your career first .  I can't tell you how many young people think that they can invest and also progress in their vocation.  I will say this once:  You don't know what you don't know!   A Wealth Manager is what  hopefully you will eventually require! 

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The Quilt

The Importance of Diversity 

Risk vs Reward

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Take a look at the difference between 2018 and 2019! 

Explaining complex financial concepts to clients and prospects can be a challenge, even for experienced professionals. The right communication tools can go a long way in helping to spark meaningful discussions and client interactions. The Morningstar Andex Chart provides clients with an overview of how markets and the economy have performed over the last 100 years. The overriding theme is that markets rise and fall over time. The market may have ups and downs caused by different factors that affect the returns in the market. Still, those effects will move to the side at some point, and things will return to normal, and there will be an upwards pull in the economy.

Morningside 2021

 

The U.S. Morningstar Andex Chart Offers A Historical Perspective

 

 Of Market Downturns And Recoveries, Giving Your Clients Confidence To Stay Invested In Stable Or Turbulent Markets.

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Everything has a beginning, a middle and a.... future

 
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"As we drive along this road called life, occasionally a gal will find herself a little lost. And when that happens, I guess she has to let go of the coulda, shoulda, woulda, buckle up and just keep going." Carrie Bradshaw

 

I’m liking her style, let’s climb on board, ‘cause you’re here for the long run!  Just like long term investing.  You can’t look back at what you shoulda, coulda, woulda, done differently (If you knew then what you know now philosophy).  Investing is all about the future.  If you think climate change is the number one issue you face and that gets you all hyped – think of your future with no money.  How much hype are you going to have when the government is pilfering your pockets then! I am still waiting for the ledgers of where the climate $$$ flows to – no one seems to know – are you also curious?  

Studies have shown that investors who hold onto the same stocks for more than 10 years, will be rewarded with higher returns and shorter-term risks.  But understand the risk factor never leaves the stage, the spot light is continually on it.  It may dim at times and hopefully with age it will mellow. Risk is always in your shadow!  On my website, I have a chart, referred to as “The Quilt” that beautifully illustrates the importance of diversifying to meet the challenges of stock fluctuations.   Portfolio diversity is a must. It mitigates risk! Over the long term and with the certain strategies you will be the turtle who beats the hare.    

RECAP:

Stage I

  1. Eliminate credit card debt or initiate a solid program and stick to it.

  2. we have now secured a contingency fund for emergencies

  3. set up a system to invest your spare change

  4. create a budget

  5. control lifestyle creep

  6. turn off the noise of friends and relatives as they expound the next best stock of a life-time

  7. focus and buckle up

 

Stage 2

  1. Investing for the long term!  

  2. This takes into consideration your time line horizon.  The younger you are the more time you have to grow your portfolio. Nothing surprising in that comment!  

  3. Here we get to choose investments that are mixed, diversified and are typically more volatile, which is why diversity in investing is a must.

 

Buffett – the Omaha oracle wrote:

“The goal of the non-professionals should be to not pick winners neither he nor his ‘helpers’ can do that, but should rather be to own a cross section of businesses that in aggregate are bound to do well.”

Stocks are bought from people who are selling.  You may think you are smart to purchase a stock at a specific price but the seller also thinks they are smart to unload.  Equally, you both have access to the same information. So, who’s right?

If you read carefully what we have said, you will have grabbed onto the number one rule to investing.  Diversify:  investing in different types of investments / asset classes. Like bonds, real estate, stocks, fixed incomes etc. Again, spread your risk!  Look back at “The Quilt” and see if you can guess what will be the next profitable asset class for next year!!! Conciliation: Buffett doesn’t know either.

Think back to 2000 when tech was hot, until it was not!  Many investors put everything into the tech market and it crashed and many felt the financial pain.  DON’T PUT ALL YOUR EGGS IN ONE BASKET! Markets may be an uneasy proposition and you might think that turning to the real estate market would be more your style.

Real Estate Gurus!

I am sure you have watched amazing transformations on TV of flipping homes as some sort of magic and modern alchemy. So much fun to turn drywall and vinyl siding into gold.  Get rich quick? There are also dangers --  ones that sponsored TV shows don’t seem to advise you of. Property, insurance, maintenance and taxation upon selling. You have to hire professional licensed individuals to actually do the work or sign off on it. On top of that most people do not match their income tax returns to the property gains.  EBITDA! (Earnings before interest, taxation, depreciation and amortization)

Make no mistake, real estate is a business. Did you know that the housing market has increased 200% over the past 25 years.  Another statistic is the S&P TSX Composite Index for the same period was up about 325%. It’s not my focus to pick which avenue to take for investing in your future. Real estate is a forced savings plan for undisciplined investors.  Without seeing mortar in their hands they may not save anything at all. 

Which brings me to the subject of REIT’s.  They should be a part of your diversified portfolio.  You get to invest in the mortar without all the pitfalls of owning an investment property.  Real Estate Investment Trusts (REIT) are special trusts that sell shares in various real estate investments. REIT investors can spread their risks among thousands of REITS.  It’s also important to consider the tax advantages of owning REIT’s.

But all this investing costs money – called fees!

I referred previously to fees. Warren Buffet is famous for saying “value is what you want, price is what you pay”.  You are going to read lots of negative references about fees, but there is no escaping them.  To reiterate Buffett – it’s value you are seeking and good value always costs. After all, what money would you have to invest if you didn’t charge for what you do now?  Always look for how people get paid for their services.  It’s a telltale sign. The easiest way to determine this is to ask two (2) questions:

 

  1. Are you a fiduciary?  The answer is only a yes or no! No explanation necessary!

  2. How do you get paid?  Fee only or commissions?  (you want fee only, they make money only if you make money – incentive is always a good thing) Commissions – they get paid even if your investment heads south)

 

Next blog will discuss

  1. fees in more detail. 

  2. understanding MER’s,

  3. fee calculations,

  4. what asset classes are

  5. why rebalancing your portfolio is a must. 

  6. Trust and Trust worthy advisors. 

  7. steps to get you moving – no pressure here!

 

Thanks to everyone who contributed to this article with a salute to Andrew Goldman’s article on Beginner’s Investments.