• Jumping in

    In addition to marital relationships, canines, hormones, RVs, condos, Trump and occasionally truck nuts, this pathetic blog talks about investing. And taxes. Assets, retirement planning, balanced portfolios.

    It’s shocking how little people know about this. Schools don’t teach it. [email protected] just wants to sell you stuff. Same with your cousin who got a job last year flogging insurance. Or mutual funds. Finding credible, indie info about building wealth and avoiding taxes is almost impossible. As a result most of us just borrow a pile and buy real estate. Or we confuse investing with gambling on the stock market (Mars). Or flee risk to become savers – risking running out of money (Venus).

    This confusing world of money is overwhelming a lot of Canadians. The evidence is everywhere. Household debt’s off the charts. RRSP contributions have crashed. Four in ten think their TFSA is just an emergency savings account. We’ve borrowed $300 billion against real estate, plus $1.6 trillion in mortgages. A scary number say they’re just one missed paycheque from doom. People are retiring with unpaid debt. And seventy per cent of us have no corporate pension.

    Over the last 11 years this blog has addressed such things with nauseating repetition, about 80,000 dog pictures and endless emails from people who truly, deeply, madly need help. But, sadly, most Canadians will never come here, and continue to make near-fatal mistakes with their dough.

    Included will be legions of Millennials who have matured into Class A skeptics, trusting algos more than they do actual people. This has led to the rise of robo advisors like Wealthsimple. Now the banks are into it, with SmartFolio at BMO and InvestEase at the Royal Bank, for example. The appeal is obvious – put money into a computer-generated portfolio that buys negotiable securities, automatically rebalances and is cheap.

    The robos first appeared a decade ago and there are now 100 of them in over a dozen countries managing about two trillion dollars. That sounds like a lot, but it’s actually 1% of the wealth management business. In Canada WS has about 150,000 clients with an average of $30,000 invested.

    This week there was interesting news. RBC launched its robo last year. Given the size and clout of the bank it was expected to quickly attract a mess of moisters eager to grow their tax-free savings. But, nope, didn’t happen. The bank’s head wealth-management guy admits “only a small portion” of the population is interested. “We haven’t see Canadians run to it,” Doug Guzman says of the robo business. “Maybe it’s not as big a proportion of humanity as we once thought.” Bank of Montreal, which has been roboing for three years now, is believed to be in the same boat. TD is also in this space, but no word on how that bank is faring.

    Why is robo a bust?

    Maybe Mills don’t have enough money to seed portfolios. Perhaps they’re too indoctrinated into buying condos and swallowing mortgage debt. Maybe they’re a jaded bunch of emerging socialists who think a sharing economy with more government is the antidote to Boomer-dominated capital markets and the mindless pursuit of mammon.

    But, nah, I doubt it. They love money, too. It’s more a matter of knowledge.

    Financial illiteracy is the disease that may hobble Canada. Why would the robos – which offer a no-hassle, low-cost, no-frills, no-advice, eight-clicks-and-you’re-done investing experience – be wilting? Because most people (and especially the kids) have no idea what investing means. Eighty per cent of all TFSA money is in cash or GICs. People in their forties are lugging around student debt. Young adults hobble themselves with mortgages and condo fees when they could rent for half the cost and be building liquid assets. Couples pay more tax and increase risk by not combining their finances or investing together. And everyone buys high, chasing stuff that goes up, while selling low in fear.

    Robos are fine. If you have a modest amount of money, then jump in. It’s better than getting stuck with a few bank mutual funds or seeing your money rot in a HISA. It’s a step up from throwing your cash at some wonky weed stocks, getting into crypto or striving for real estate you can’t really afford.

    For those with a few hundred grand, life is probably more complex and you could use advice on tax avoidance, retirement strategies and how to escape the consequences of rampant financial ignorance. They’re coming. A fee-based financial advisor (with a fiduciary responsibility) is not for everyone. But this blog is. So next time, bring your kids.

    Choices

    Yesterday’s post referenced a honkin’ big white motorhome with a couple of blog dogs at the wheel who rolled into my day. Turns out it was Eric and Kylie. Now I know their story. This just arrived:

    Can’t believe we met yesterday like that… especially during Bandit’s bowel movement! And I didn’t even have to do the obligatory suck-up to be mentioned in your blog! Like most everyone probably, we know you but you didn’t know us. .Started reading your blog long ago. Loved your advice of living within your means, staying out of big debt, renting instead of owning if it’s cheaper even when society thinks you’re crazy, and saving and investing to take the extra stress out of life seeing that many of our problems are financially caused. Your take on the overall housing market insanity and FOMO mentality was bang on! Especially as we were living in the Okanagan and Vancouver areas and saw it first hand…

    Worked for the same company for 30 years in sales. Rented in the Vancouver area for the last 10 years, because renting was FAR cheaper than owning. Put the difference each month into savings. Don’t own real estate in Vancouver, but have a couple rentals in Phoenix AZ which we bought when the prices were low and the dollar on par (that was my wife Kylie’s great advice!)

    So move the clock forward to now….. as we just became empty nesters, and as we decided to move to Australia, we figured what a great time to do a sabbatical and see our great country of Canada! We sold everything, quit my job after 30 years (on a high point!), and hopped in our motorhome and are now taking 9 months off to do so as I wait for my Australian immigration visa to come through!

    As I took your advice over all these years, we saved up for this time and are now financially able to do it. What a great feeling to do this now in our 50’s while we are still young and healthy enough to do it. No kids, no job, no house, no cars, just the motorhome and having a blast. Almost 11,000 kms so far and we haven’t even made it to Newfoundland!”

    I got pix, too. E&K smiling on Parliament Hill. E&K happy in a campsite. And a fetching shot of E&K’s bloated bus in front of a mountain. And now off they go Down Under.

    So let’s contrast the screw-it-we’re-off-on-an-adventure choices E&K are making with the dismal, desperate real estate reality of Bill and Teresa Rambold, a Calgary couple whose lives have been ruined by a house – their dream home, now tenanted and sinking.

    Construction started five years ago in the tony Mount Royal hood, just as Alberta went into a funk and the housing market croaked. The place cost $3 million to build, but shortly after completion was assessed by the city at $1.6 million. Ouch. Drowning in debt, B&T are unable to sell the place for enough to cover liabilities. Trapped. They’re prisoners to a home they apparently cannot afford to even live in. It’s a classic example of how much risk there can be in recklessly pursuing a one-asset strategy (as most Canadians do).

    Now they hope to claw their way out with a form of crowd-funding. Their salvation will come if least 100,000 people will send them $35 and a cutesy pet picture. The winner gets the house. B&T get $3.5 million to pay off their debts. Two runners-up receive fifty grand each. Plus there may be a hundred left over for animal charities. The concept isn’t new, since a handful of other Canadian couples have tried this when confronted with a house nobody wants to pay for. But there’s no evidence the strategy has succeeded. Nor is it likely this time. However full marks for glitz and creativity, as you can witness at the official, begging web site.

    Two couples. Two divergent paths in life. Freedom and flexibility on one hand. Indenture and stagnation on the other.

    If you’re lucky, real estate can build wealth. If you’re unlucky, it can destroy you. And the things which dictate this outcome – monetary policy, bank rates, economic conditions, commodity markets, political changes – are beyond the control of any one person or family. Unlike having a diversified liquid portfolio, putting all net worth in a single, leveraged asset can be financially fatal. Asking strangers to bail you out must be humiliating. And futile.

    RV or mansion? No brainer.

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