I am reading this weekend`s Globe and Mail - Globe Investor section. Something I like to do every Saturday morning, unwashed, in my bathrobe with a nice cup of java. My eye caught an article in the `Me and my money` column titled "Reliable returns with no risk`.
I guess a title suitable for these trying times. The subject of the column is David Trahair who for over 10 years invested in high `risk-assets and labour-sponsored funds`. The results are 1% per year return not counting the disastrous returns of the labour funds. Resentful Mr. Trahair fires his investment adviser, hires another (a fellow accountant) and starts to invest in GICs. To top it all off, he writes a best selling book titled "Smoke and Mirrors: Financial Myths that will Ruin Your Retirement". The book is now in it`s sixth edition and now he is writing a second one: `Enough Bull: How to retire Well Without the Stock Market, Mutual Funds or Even an Investment Advisor`.
His current GIC and bonds portfolio return is undisclosed, but heck "Even at today`s interest rates, you can still get 3.25 per cent on a 5-year GIC at ING Direct".... "And it is risk-free, unlike stocks."
I guess, at times like these, people are scared into the most extreme forms of `conservative investing` and they fall for the BS above. I bet, Mr. Trahair makes more money from his nasty books than from his portfolio. Consider that the 3.25% is probably his best - not his average return. After inflation his portfolio has probably a negative real return. That is not all: inflation is likely around the corner, and if you remember the early eighties, you may remember how inflation kills the GIC retiree. For those who forgot. inflation was 10% and 5-year GICs returned 8-12%. That was before tax. Canada`s tax rate was over 50% and thus after tax return the GIC investor netted 4-6% minus 10% inflation, i.e. a real return of -4 to -6%.
Not only that, I was involved with a GIC from the Principal Group in Calgary because they paid 0.5% more than the average Canadian Bank. Then Alberta Premier Getty called Principal investors `greedy and naive` after the Province pulled the rug from under the Principal. The so-called GIC insurance as the Principal claimed it had wasn`t there. Some larger investors with unsecured obligations did not get back a penny. Others such as myself with GICs got back 80cts on the dollar AFTER waiting for nearly 10 years and no interest. BTW, in my (not so humble opinion) after Ed Stelmach, Don Getty is Alberta`s worst premier - still we owe him Family Day.
So much for Mr. Trahair`s `No Risk investments`. The lesson: there is always risk, investment risk (the Principal went kaput in spite of its reputation); the after tax risk and... inflation risk. Oh, and the wasted money on Mr. Trahair`s book you can add to your losses.
I know a lot of you also look down on the stock market and only focus on real estate. Guess what, if you were investing in real estate in the U.S. or in Calgary in the 1980`s you may not have looked so smug. Using my current stock holdings near the bottom of a bear market, I made on average 3% on the stock market since 2000. Of course, I took profits in between and reinvested a lot in real estate - thank God. So my overall return is a lot better. In fact, I am down around 10% for my total portfolio from the peak and since 2000 my money more than tripled. That is AFTER tax.
So why the bragging? To show you the importance of diversification! Diversification is not the purchase of 2000 different stocks. It is not investing in only paper investment. I must admit that from my experience, diversification is best represented by Robert Allen`s book on 5 different income streams. Basically, you build up income from different sources.
My income sources are:
1 - Cash (and sometimes cap gains) from rental and other properties ( http://platinumsuitesresort.com/ part of my Belize)
2 - Income from part-time consulting - I teach courses and do petroleum consulting (http://eucalyptusconsulting.ca/ )
3 - Dividends and income from a diversified (not di-worsified) stock and bond portfolio AND... I am working on learning how to get income from options.
4 - Canada Pension and old-age security - once I am grown-up enough
5 - Living of your woman - hahaha. But really, I am proud of my wife`s venture`s - here is her latest one: http://sid21c.com/
6 - Maybe I`ll write a book or columns and live blissfully of the royalties paid for by the suckers who read my junk (just kidding).
The last is just `tongue in cheek`. However, there is some truth to it. If you truly want to learn how to invest, there is only one school, the one of actually doing it, the school of `hard Knox`. Books give ideas but not a single one points the way to risk free wealth accumulation. If there ever was such a way, everyone would be a millionair - only 1% of the population is. BTW being a millionair is not what it used to be... in the 1800s.
Live is about learning... if you stop learning you stop living. Life has to present you with challenges, how else can one appreciate the good times. The same with investing - it is challenging and frustrating. Sitting behind the computer and doing all day long day trading will kill you - mentally, physically and financially. Acting is the secret to a good live - sitting on your behind only numbs the gray cells. So... go out there and find another investment challenge.
I guess a title suitable for these trying times. The subject of the column is David Trahair who for over 10 years invested in high `risk-assets and labour-sponsored funds`. The results are 1% per year return not counting the disastrous returns of the labour funds. Resentful Mr. Trahair fires his investment adviser, hires another (a fellow accountant) and starts to invest in GICs. To top it all off, he writes a best selling book titled "Smoke and Mirrors: Financial Myths that will Ruin Your Retirement". The book is now in it`s sixth edition and now he is writing a second one: `Enough Bull: How to retire Well Without the Stock Market, Mutual Funds or Even an Investment Advisor`.
His current GIC and bonds portfolio return is undisclosed, but heck "Even at today`s interest rates, you can still get 3.25 per cent on a 5-year GIC at ING Direct".... "And it is risk-free, unlike stocks."
I guess, at times like these, people are scared into the most extreme forms of `conservative investing` and they fall for the BS above. I bet, Mr. Trahair makes more money from his nasty books than from his portfolio. Consider that the 3.25% is probably his best - not his average return. After inflation his portfolio has probably a negative real return. That is not all: inflation is likely around the corner, and if you remember the early eighties, you may remember how inflation kills the GIC retiree. For those who forgot. inflation was 10% and 5-year GICs returned 8-12%. That was before tax. Canada`s tax rate was over 50% and thus after tax return the GIC investor netted 4-6% minus 10% inflation, i.e. a real return of -4 to -6%.
Not only that, I was involved with a GIC from the Principal Group in Calgary because they paid 0.5% more than the average Canadian Bank. Then Alberta Premier Getty called Principal investors `greedy and naive` after the Province pulled the rug from under the Principal. The so-called GIC insurance as the Principal claimed it had wasn`t there. Some larger investors with unsecured obligations did not get back a penny. Others such as myself with GICs got back 80cts on the dollar AFTER waiting for nearly 10 years and no interest. BTW, in my (not so humble opinion) after Ed Stelmach, Don Getty is Alberta`s worst premier - still we owe him Family Day.
So much for Mr. Trahair`s `No Risk investments`. The lesson: there is always risk, investment risk (the Principal went kaput in spite of its reputation); the after tax risk and... inflation risk. Oh, and the wasted money on Mr. Trahair`s book you can add to your losses.
I know a lot of you also look down on the stock market and only focus on real estate. Guess what, if you were investing in real estate in the U.S. or in Calgary in the 1980`s you may not have looked so smug. Using my current stock holdings near the bottom of a bear market, I made on average 3% on the stock market since 2000. Of course, I took profits in between and reinvested a lot in real estate - thank God. So my overall return is a lot better. In fact, I am down around 10% for my total portfolio from the peak and since 2000 my money more than tripled. That is AFTER tax.
So why the bragging? To show you the importance of diversification! Diversification is not the purchase of 2000 different stocks. It is not investing in only paper investment. I must admit that from my experience, diversification is best represented by Robert Allen`s book on 5 different income streams. Basically, you build up income from different sources.
My income sources are:
1 - Cash (and sometimes cap gains) from rental and other properties ( http://platinumsuitesresort.com/ part of my Belize)
2 - Income from part-time consulting - I teach courses and do petroleum consulting (http://eucalyptusconsulting.ca/ )
3 - Dividends and income from a diversified (not di-worsified) stock and bond portfolio AND... I am working on learning how to get income from options.
4 - Canada Pension and old-age security - once I am grown-up enough
5 - Living of your woman - hahaha. But really, I am proud of my wife`s venture`s - here is her latest one: http://sid21c.com/
6 - Maybe I`ll write a book or columns and live blissfully of the royalties paid for by the suckers who read my junk (just kidding).
The last is just `tongue in cheek`. However, there is some truth to it. If you truly want to learn how to invest, there is only one school, the one of actually doing it, the school of `hard Knox`. Books give ideas but not a single one points the way to risk free wealth accumulation. If there ever was such a way, everyone would be a millionair - only 1% of the population is. BTW being a millionair is not what it used to be... in the 1800s.
Live is about learning... if you stop learning you stop living. Life has to present you with challenges, how else can one appreciate the good times. The same with investing - it is challenging and frustrating. Sitting behind the computer and doing all day long day trading will kill you - mentally, physically and financially. Acting is the secret to a good live - sitting on your behind only numbs the gray cells. So... go out there and find another investment challenge.
