Weekend Reading – Black swan events, new realities, should you borrow to invest and more #moneystuff
Hey Everyone,
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
It is spring yet???
It was actually snowing in Ottawa yesterday. Repeat. Today too. Ugh.
I can’t wait until the weather turns to play some golf. It’s the first time in some 30 years after I started playing the game I’m not at the driving range nor playing golf in the month of April (let alone early May). This feels very, very strange…
I hope the weather is far better in your part of the world!
I got around to posting these articles this week – including this new book giveaway below!
Your TFSA Compounder – Work Your TFSA Harder So You Can Retire Sooner
A savvy fee-only financial planner had this advice for readers:
Ask the Advisor – Dealing with and getting through financial emergencies
I hope to post my latest dividend income update next week so stay tuned!
Stay well and enjoy this Weekend Reading edition as always.
Mark
Weekend Reading – Black swan events and more…
I like what Get Rich Brothers mentioned when he paid off his truck and shared some advice about lifestyle inflation.
“Lifestyle inflation is a risk that we all face when it comes to using additional income. Whether from a raise at work, the elimination of debt, or any other windfall source, there are serious implications over the course of decades when money is invested effectively rather than squandered as it comes in.”
I read an excellent article here about Black Swan events. Is COVID-19 one???
A reminder about such events:
“First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact.’ Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”
So, by their very nature, black swan events are quite exclusive. They must be, because if next to everything is a black swan, then nothing is. When you think about it, an event like COVID-19 is not all that rare. “With pandemics, it is not really a question of if, but usually when.”
Tawcan wrote about accepting a new reality (and it’s not always easy).
Dale Roberts wrote about wide moat Canadian stocks and how they are performing in this market. Those seven stocks in particular are two big telcos (Bell and Telus); Canada’s two big pipeline stocks (Enbridge and TC Energy); three of Canada’s biggest bank stocks (Royal Bank, TD Bank, and Bank of Nova Scotia). I wouldn’t hesitate to own all 7 for long-term dividend income and growth. So I do!
My hard and fast answer to this question is always: if you have lots of other debt then heck “no”!
Investor advocate Ken Kivenko feels the same way in an email he sent me:
We recommend that you “NOT borrow to invest unless you have a need to take the risk, you have the necessary risk tolerance, you have the financial capacity to absorb losses if things turn out badly and you really understand the consequences of the consequences. Realize too that while interest rates are low, markets are extremely volatile and highly unpredictable. Some respected analysts have already predicted that we may be facing a depression for an unknown period of time. The vast majority of Canadians are unfit to undertake leveraged investing; only seasoned veterans should consider it. Even Warren Buffett just took a $50 billion hit and he’s been at it for over 50 years. Better to reduce spending and consumption – save more.”
Will COVID-19 change retirement planning? Financial expert (who I’ve had on this site by the way...) Alexandra Macqueen believes so and offers excellent retirement advice here.
“The economic fallout from COVID-19 also means that many highly indebted Canadians will need to take a fresh look at the spending that got them where they are, because the security of the income or assets they expected to use to retire the debt has diminished or even disappeared.”
Boomer & Echo offered some thoughts on mortgage renewals. I guess similar to Robb, I see things this way:
- Any low mortgage rate, while excellent to have, is nothing to agonize over. Get a good competitive rate for the period you are borrowing but more importantly get some great prepayment terms to pay down your debt faster. Debt repayment behaviour trumps low rates.
- I usually sleep a bit better at night locking into a rate before my new mortgage term starts.
- I have used both fixed rate and variable rate mortgages to pay down our mortgage debt over the years. I feel it’s usually best to go with variable.
- That said…with borrowing costs near absolute zero, I would be inclined to go with a fixed rate mortgage for my final, upcoming 3 or 5-year final term and amortization period. I find it hard to believe rates won’t climb 50-100 basis points in the coming years. I won’t really care about that if I go fixed as I clear the mortgage debt for good. I have to make a decision about my final mortgage term within the year.
My friend Retire Before Dad listed the best income-producing assets for retirement income. A very comprehensive read.
In some dividend investing news, it was nice to see a 10% raise from Algonquin Power amidst this crisis. That will definitely help my dividend income stream.
We hope to earn $21,000 this calendar year from our non-registered and x2 TFSA investments this year:
A reminder…I enjoy writing about our journey to semi-retirement often. You can continue to find some outstanding case studies to see “how much is enough” for your retirement number and use some free tools on my dedicated Retirement page.
Reader question of the week (adapted for the site):
Hi Mark;
I stumbled on your site looking for advice on a few things and read your blogpost about leaving the mutual fund market. I was inspired. I tried to take on self-directed investing years ago but gave up when I realized I did not have the time to learn.
By way of an introduction, I am in self-employed, intelligent, trained and educated in electronics, and inclined toward technology but I start to glaze over with the plethora of jargon and frustrated with the use of multiple terms for essentially the same thing.
So, I am reaching out to you today hoping you might be willing to help more. Are there particular books you’d recommend? It would be great to find something like “Personal Investing in the 21st century for Middle Aged Couples with limited incomes who want to learn the rudimentary basics on self-directed investing in Canada”. My Google search turned up nothing. Just Kidding. Kinda.
Thanks so much for your blog and keep writing!
I will keep writing and thanks very much!
OK, books, I have read a number of them. But if I had to distill my top books to buy for Canadian investors who want to learn the rudimentary basics on self-directed investing in Canada here are the ones from this page on my site to focus on:
- Millionaire Teacher by A. Hallam – outstanding premise for index investing and discusses investor behaviour.
- The Behavior Gap by C. Richards – helps you focus on “the whys” behind investing since your mindset (not what you really invest in) is most important long-term.
- The Value of Simple by J. Robertson – I know John personally and he is passionate about helping others and I would buy his book for the “rudimentary” learnings it will provide.
There are definitely other books about retirement planning and such but I think if you start with those three books (about how-tos on investing and your behaviour) those are great. I can provide more books after you read those.
In addition I have some FREE resources like these on my site:
- If You Can… – a book not just for millennials
- The Single Best Investment – a book targeting dividend investors like myself but the insights into market behaviour and how you need to react to them are invaluable.
While the books above are small investments themselves to buy $50 worth of books coupled with your valuable reading time, the takeaways could save you tens of thousands of dollars in lost money management fees and bad investing behaviour. I would think that’s an excellent tradeoff!
Happy investing,
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
@Gruff – I agree with your position on using the HELOC – I look at it as accessing some of the value in the bricks and mortar that I live in (bonus!) and make enough from using the HELOC to pay for the house expenses (after tax) = housing is paying for itself – I just occupy the space :).
Life is really a number of differing risks (biggest one is being born!) and it comes down how one manages/accepts/assesses those risks. Anyone who says they live risk free hasn’t looked closely at their life.
Good point in that as long as you understand and more importantly can appropriately manage the risks, then some leveraged investing can work!
Borrowing to invest is not for everyone and I don’t think any financial advisor should “recommend” leveraging as a strategy. If they do run. Having said that I enjoy the process and dabble in using my HELOC to improve our monthly income. I don’t take risks I cannot absorb and try and buy quality stocks and ETFS that have a strong probability of continuing to pay dividends and hopefully capital appreciation. Never any guarantees in investing. I try and think in possibilities and probabilities. It’s possible stock ABC could cut it’s dividend or go to zero – (I have bought a few of those), but is it probable? We leverage to buy a home or expand our business. There is risk associated in doing so but we hesitate to leverage to buy the best companies. Everyone has a different level of risk tolerance. Leveraging can work well but proceed with caution.
Lots of solid financial books out there but read everything with a level of skepticism. BTW I enjoyed Henry Mah new book. Bought and read both. Snow in Calgary this morning. Happy Mothers Day to all the Moms out there.
Yes, I recall you use some leverage. I think as long as you understand (and more importantly!) can appropriately manage the risks you are taking (i.e., something could happen when you have a callable loan on the books = HELOC) then some form of leverage is fine.
I would however stand by my position that for most working Canadians, more debt is not what they need to take on 🙂
Nice to hear you enjoy Henry’s new book. Seems he had quite a bit of joy writing about it!
Mark
Good point Mark about the HELOC being callable. However in reality I think the HELOC would have to be seriously mismanaged and in major trouble before the loan would be called – after all the banks are in the business of lending money, the last thing they want to do is call money back to then re-lend it – that means a lot of work, costs, lost revenue etc.
If the HELOC is being serviced as per agreement, the credit rating is good and the loan to value ratio is good I cannot see a bank calling the loan.
That’s the key. As long as your credit rating is in good standing; good loan to value ratio, little need to worry.
Now, that said, if folks are using any HELOC as a free-bank, drawing more over time then it’s trouble. You lose your job, you lose some good health status, things can go sideways very fast with debt. I suspect many folks believe “it can’t happen to me” but losing your job can and does happen.
Having no debt certainly reducing that worry. Working on that myself!
Mark
I have yet to read Millionaire Teacher but put it on hold from the library after reading one of your posts with him. Then just as the book was ready to be picked up the libraries closed indefinitely. I can’t wait for them to open again, that will be the first book on my reading list.
@ Maria – have you looked at ebooks available at your library? even if you don’t have a library card many libraries have setup temporary access to digital collections and ebooks of course do not require physical access.
As much as I love paper books after I got my e-reader the only books I get/read are ebooks – just way better imo – literally hundreds of books in 1 device (backed up of course 🙂 )
You’ll enjoy the book.
I hope to have Andrew Hallam back on the site again. He is a terrific writer and speaker on all things personal finance.
Mark
Mark, earlier this week I saw that Toronto might get snow on Saturday and I thought I had been looking at an old web page….I cut the grass today and spent the afternoon outside doing light gardening. Shorts and t-shirt weather here in my part of BC (but it has been a cooler spring generally). It will be soon for you, too. I do remember some very chilly May long weekends in Ottawa, have photos of us in jackets. My husband had a long walk today and said the golf course that he walked by was busy.
Regarding your reader’s comment about the jargon….it is always frustrating when you are reading about any topic and come across terms you do not know. But with financial terms, it is easy to have your computer near by and just type the word into google search. Great explanations of the term will be offered in seconds. You can jot down the word and meaning if you are like me and may not remember, either on paper or into a word/text document to save. But soon all the terms will be easily understood, don’t worry.
And if you don’t want to buy all those books (the dollars can add up), you can check your local library for them. I also like to buy used books; aside from the behemoth website, there are a couple of other good online used book sites that I buy from.
Yes, it is hard to navigate the investing landscape sometimes. I often believe the industry purposefully makes things confusing for the average investor begs for help….and pays dearly for it…
The basics in personal finance and investing are all most folks really need. Work, put 10-15% net income aside, put that money into low-cost funds inside TFSA or RRSP or RESP for kids and rinse and repeat for a few decades. That’s it. I’ve found it’s really investor discipline to a plan, a decent plan, that will help you realize your goals over what you invest in.
A good savings rate can overcome many mistakes. We all make them.
Good tips for the books!
Mark; Here’s some advice I find particularly relevant…in addition to the books you suggest… for your reader’s question above:
80,000 personal finance books and advice into simple bullets
I’ve read dozens of personal finance and psychology books on money over the years and I can distill those gazillion pages down into the following, simple, point-form bullets. Ideally, these are things we should all strive for and continually practice based on generations of financial expert suggestions:
You should work hard to get out of debt and stay out of debt.
You should spend less than you make.
You should establish and maintain an emergency fund. Ideally, at least a few months’ worth in cold-hard cash.
You should make savings for investment purposes automatic.
You should invest a good portion of your savings for long-term growth; as in equities.
You should invest a small portion of your portfolio in fixed-income, to act as a parachute when the stock market crashes.
Investments should be made in a manner that consistently aligns with your risk tolerance; don’t take on any investment risk beyond what you need to, to meet your financial goals.
Once invested in equities you should stay invested, without fail if you can help it.
Once invested, you should keep your investing fees as low as possible for as long as possible.
A reminder the 4% safe withdrawal rate is not gospel but a guideline. It make not make any sense for you.
You should diversify your investments across companies, countries and world economies.
You should mind your taxes.
You should obtain adequate life and disability insurance for the “what ifs” in life to protect against a catastrophic financial loss.
You should keep a will up to date, including any powers of personal care.
You should continue to educate yourself; continuous improvement will keep your mind growing and active.
Money doesn’t mean much if you don’t have your health. You should do what you can to stay healthy. Health is always the ultimate form of wealth.
https://www.myownadvisor.ca/there-is-no-perfect-personal-finance-plan/
Yes, very true and thanks for the reminder about that recent post. I do stand by that but many investors also want to know exactly what to invest in so hence Andrew’s book and others that provide a “what-to” list for certain ETFs.
Health is indeed wealth.
All the best Toby!
Mark,
Definitely appreciate the shout-out and link to my article.
Plenty of other good reading you’ve shared on here as well. I learned that I’ve apparently been erroneously using the term “Black Swan” in reference to COVID-19. I read Taleb’s book many years back and generally do use it loosely to describe highly impactful, mostly unpredictable events.
I’ve recommended “Millionaire Teacher” many times. While I prefer investing in individual equities, there’s plenty of merit to the ETF-based approach.
As for the weather, I’m just down the road from Ottawa, here in Cornwall. Chilly days for May, indeed.
Take care,
Ryan
Yes, I think Taleb actually does not like the term used so liberally by many. I’ve read a few articles on that. People sometimes use it as catch-phrase.
I’ve been to Cornwall and drove past it many, many times over the years.
All the best down South!
Mark