Weekend Reading – Black swan events, new realities, should you borrow to invest and more #moneystuff
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!
A savvy fee-only financial planner had this advice for readers:
I hope to post my latest dividend income update next week so stay tuned!
Stay well and enjoy this Weekend Reading edition as always.
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.”
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.”
Indeed, Taleb recently weighed in on the question of whether COVID-19 is or isn’t a black swan. I liked his answer.
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.”
“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:
Other fun stuff and deals…
I’ve been very fortunate that many major financial institutions want to partner with me due to my passion for personal finance and investing.
Here are just some of the great offers you can take advantage of on my Deals page:
- You can use my promo codes when you invest with BMO to save hundreds of dollars right away!
- You can get $50,000 managed free with ModernAdvisor.
- As a My Own Advisor reader you get full-access, for FREE, to all of 5i’s research reports, all the model portfolios, top companies and best ETFs to own.
- Last year we earned over $600 in cash back money using our favourite credit card. I continue to keep it in my wallet and I use it every week.
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):
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!