Welcome to the weekend and some of the best personal finance and investing articles from the blogosphere for your reading enjoyment. I can’t wait for the weekend myself. I have a bunch of work to do but on Saturday afternoon I’m not going to think about it or care about it; my #REDBLACKS with a win will be in the CFL East final. It should be a rockin’ atmosphere for the game at TD Place!
Earlier this week I provided some buy and hold and buy more of advice: ETFs and stocks to own for your portfolio. Of the stocks I listed, Telus increased their dividends this week. So did Sun Life, even though it wasn’t on my list. I also had some fun with some email requests for content on my site.
Enjoy these articles about housing corrections (which I don’t think is coming in Toronto or Vancouver), tax loss planning for 2015, fearing the stock market and much more.
This Globe and Mail article said some housing markets are ripe for a correction. I’ll believe it in some cities when I see it.
The Blunt Bean Counter provided a guide to tax loss selling for the 2015 tax year. You have about 6 weeks left to take advantage of this.
Boomer & Echo wondered if Millennials really fear the stock market. Possibly…
Speaking of the stock market, Rob Carrick has a memo for savers – you can’t save your way to retirement. You need to invest in the stock market.
Blonde on a Budget focuses on simplicity for 2016.
The Simple Dollar has a simple debt calculator to try out.
Million Dollar Journey profiled Sean Cooper who recently killed his mortgage.
How To Save Money figured out the best cash back credit cards for your wallet.
Michael James on Money had fun with his financial dictionary. An example from his list: Longevity risk is defined as cat food.
Mr. Money Mustache figures can we solve many of our problems once we wrap our heads around the inefficiencies of drive-thrus.
Dividend Growth Investor plans to snowball his income to $30,000 per year by 2024. My wife and I share a very similar goal and timeline here.
99.9% of financial bloggers agree with this stuff.
From the oldie but goodie file, here is Preet Banerjee talking about personal finances:
Thanks for checking out Weekend Reading.
Recall the persecution of Galileo. It wasn’t many scientists who thought the world was flat, it was the religious leaders imposing their beliefs on the people. Besides, when Flat Earth theory was dominant, society did not yet possess the knowledge or technology to prove the planet was indeed a sphere. Once they did, there was no going back, even for slow adapters like religion.
The trouble with finance is that it deals with people and not just planets or chemicals; its a very ugly mess of irrefutable math (e.g. 2+2=4)* and the uncontrollable human mind. Doubtful there will ever be a unified investment theory.
>> So by definition you don’t believe a stock, a share, is some share or ownership in a business?
By absolute legal definition, yes, common stock is ownership in a business. However, common stock is perhaps the single weakest form of “ownership”. Possessing a handful of common, sitting around waiting for a dividend, does not make you an owner, at most you are a claimant. Buying into any kind of fund pushes you even further away from ownership. Most public corporations today are managed, not owned.
If you care about Capitalism and your perceived “ownership” (and not just mindlessly collecting your quarterly cash) some must-reads on the subject matter, by two powerhouses:
By Robert Monks:
Capitalism Without Owners Will Fail
By John Bogle:
The Battle for the Soul of Capitalism (inspired by Monks)
The Clash of Cultures
Have a great weekend!
*(I had a math department head who claimed 1.9999…=2 since no other number exists between the two.)
I believe it was the catholic church that did the persecution. I didn’t live back then but surely many scientists disagreed and agreed with Galileo. My point being, theories and truths hold true until they are not. Not everything in life is absolute; such as universally valid definitions. If you feel that way that’s OK.
Most corporations are managed, yes, otherwise they won’t be in business for long.
Hey now, not mindlessly collecting my dividends; as you know, they are just a portion of equity returns 🙂
Thanks for the reading material. John Bogle is a very bright guy so The Clash of Cultures seems interesting…
Have a great weekend,
>>Well, to be literate as well :), I’m not sure there is a singular definition for anything in life.
I’m sure mathematicians, physicists, chemists, biologists, engineers, and other scientists would disagree whole heartedly.
>>Everything has a context. “Investing” could mean the act of being invested on oneself (as in education, health, other) or in a financial respect, it could mean how you commit capital to something, with again, an expectation of obtaining an additional income or profit. http://www.investopedia.com/terms/i/investing.asp
Again, just one source for this definition.
Guess it all depends on your scope of view, but within the context that Carrick uses, cash and stocks, financial entities (banks, advisors, brokers, etc), have taken the macroeconomic true operational definitions of savings and investment and flipped them when applied to individual personal finance. No idea why, but it probably had to do with being easier to squeeze money out of an individual than a whole market. Besides that, individuals are basing their financial interactions with the greater economy on functions which operate completely opposite than how they have been defined for them: what they think of as investments, the economy knows to be savings. The economy is the aggregate of all perspectives, so why has the perspective at the individual level become so warped? I would also guess “expectation” is a wholly individual factor, as it is never mentioned within the context of an economy.
Here’s a couple more descriptors:
#1. “Stocks and bonds are considered to be important intermediary forms of savings as it gets transformed into a capital investment that produces value. Mutual funds, CDs, BICs, GICs, pension obligations, insurance annuities, and other forms of savings marketed by financial intermediaries, all consist of stocks, bonds, and cash balances, which in turn pay for the capital that increases productivity, efficiency and output of goods and services [i.e. investment].”
Again, “investment that produces value”. Cash, stocks, bonds, Gretzky rookie cards…none produce value. They may store (save) value, but they do not produce it; thus, as we will see later, Carrick is incorrect in his classification of different assets.
#2. “Saving is income that is not consumed, so far so good. Savings, however, does not automatically become investment. I would define investment as the production of capital goods, goods used for producing other goods.
(By the way, note that buying stock isn’t investment–that alone is simply a transfer of ownership titles. Investment requires new capital goods).”
Again, “investment as the production of…goods used for producing other goods.” As above, savings vehicles are not production vehicles. A stock is not a factory. That last note is of utmost importance: “buying stock isn’t investment–that alone is simply a transfer of ownership titles. Investment requires new capital goods.” The function of stocks is something else the financial sector has completely distorted in the context of individual personal finance. The stockholder saves, the company invests. A stock is merely a claim on future production of said company, you don’t actually own a piece of the company as has been so thoroughly popularized. Perhaps Carrick should address this if he wants people to fully understand savings and investment. (As a side note, the stock’s ownership title isn’t in your name; you might buy it, but you don’t own it.)
>>Curious, do you believe in one definition for one word with one meaning?
Sure, for some words like ‘banana’…there’s not much else that can be banana, is there? Something can be “bananas”, slangily, but that’s different than banana, right? Even Carrick gets this subtlety wrong.
Firstly, “Saving means putting safety first while gathering money for short- to medium-term goals.”
No. Saving simply means not consuming now (e.g. “Are you going to eat that doughnut?” “No, I’m saving it for later.”).
Secondly, “Savings accounts and similarly safe vehicles pay 1 per cent to 1.8 per cent…”. Carrick is not only defining the act of saving with the form of savings, but also giving them both the same definition: safety. It’s like saying all people who run get exercise, except there’s a big difference between running after your child at a playground and running professional endurance marathons.
Thirdly, Carrick confuses the issue further with this statement: “Sixty per cent of all savings and investments are in cash…”, so now cash is both savings and investment? That must mean stocks can be both, as well. And if not, why not? Starting to be clear why financial literacy is in decline…
>>I don’t discount that your fondness for private equity is not investing, I think it is, but investing has a context and the way you invest may not be how others invest – it doesn’t mean both investors don’t have similar outcomes (i.e., to earn or gain a profit from it). Thoughts?
The context is a created distortion where savings is now equal to only cash and safety, and investing is now a blanket statement to mean ‘everything not cash’ and risk. (And speculating is saved for fools and last resorts.)
It’s like the active/passive debate, if people understand the root of what they are doing, it can change their perspective and future actions. If Carrick wants people to become financially literate and stop being frightened of the stock market in order to have a comfortable retirement, then perhaps a good start would be getting people to understand that stocks are just another form of savings.
Recall people/scientists/mathematicians/engineers used to think the world was flat. That was a truth a few hundred years ago… 🙂
Anyhow, I’m referring to most definitions in our lives as part of language; all words have context. 2 + 2 = 4 for now.
Investment in your context is the manufacturing of goods. I can buy that. Pun intended. I can also relate to the fact that an investment could be about time.
So by definition you don’t believe a stock, a share, is some share or ownership in a business?
‘Banana’, yes, in the singular is likely well-understood as fruit or plural, as you mentioned it could be slang for someone who is going crazy. Almost every word known to us has a context. This is my point. It’s OK we don’t agree, we don’t have to 🙂
Saving can mean many things including not consuming now. Just like ‘not consuming now’ can mean “deferred”. For the time being, when it comes to the context of personal finances, I’m going to consider savings as not spending now/not consuming now/future consumption planned, etc. and investing associated with the choices we make for future financial gain. Whatever we call it, it means we’re building a better future and as an outcome that’s the main goal.
Thanks for writing back, happy to read and better understand where you are coming from.
As this is Financial Literacy Month, and Carrick states “we need a renewed commitment to financial literacy”, I feel the need to address some basics from his article, mainly his definitions of ‘saving’ and ‘investing’.
Over the decades, the financial sector has done a great job of distorting these two concepts and their true definitions (‘speculating’ being the third misunderstood actor). You might say it’s no big deal, but it is. These two (three) terms are actual economic mechanics, that is, they constitute fundamental operations of the economy; if we misunderstand these basic actions, then we misunderstand our own actions and those of the greater economy.
From Carrick’s article: “Let’s clarify what these two terms mean. Saving means putting safety first while gathering money for short- to medium-term goals. Investing means taking on more risk in exchange for the potential to make higher returns in the long run.”
I’ll let someone much more intelligent than I correct Carrick:
Few of us are investors with investments, but most of us are savers with savings.
Have a great month getting literate!
I don’t mind those definitions per se, savings, is to put aside money for near-term things; investing is to be vested in an asset with the expectation to make a profit. I try to do both. We have some money set aside for “things” in our near future and we routinely invest so we don’t have to work someday. We hope that someday is about 10 years out.
If we are going to be literate, then we have to understand and use true definitions. No other “science” uses “variation of definitions”. (The word “invest” had a stable usage in literature until the 1950s, when the financial sector adopted and distorted it.)
“Savings” has nothing to do with time. I can save money for groceries this weekend or for groceries in 30 years; in this case my shorter time frame will be exponentially less riskier than my longer time frame. Savings is about risk allocation — cash, stocks, bonds (Canada SAVINGS Bonds), etc.
“Investing” has nothing to do with expectation. We all expect that our money, in whatever form it’s in, will be worth more, not less, in the future, but that doesn’t make it truth. Investing is about production (from an actual economic operational definition) — factories, machinery, employment, etc.
There is no reason to distort or deviate from the basic and true definition of these functions. It might just change people’s thinking and financial actions for the better if we all use the correct terminology.
(This is a driving factor of my fondness for private equity — my investment capital is utilized in the growth of the real economy, not merely exchanging stocks and cash with a broker taking a slice.)
Well, to be literate as well :), I’m not sure there is a singular definition for anything in life. Everything has a context. “Investing” could mean the act of being invested on oneself (as in education, health, other) or in a financial respect, it could mean how you commit capital to something, with again, an expectation of obtaining an additional income or profit.
Again, just one source for this definition.
Curious, do you believe in one definition for one word with one meaning?
I don’t discount that your fondness for private equity is not investing, I think it is, but investing has a context and the way you invest may not be how others invest – it doesn’t mean both investors don’t have similar outcomes (i.e., to earn or gain a profit from it). Thoughts?
@SST: The writer of the article you pointed to is under the illusion that when a technical field takes a word in common use and gives it a precise definition within their field, they come to own the word and get to impose their definition on the rest of us. This is not the case. The word “invest” is in widespread use with some variation of definitions, but buying stock clearly falls into the way that almost all people use “invest.” We are not all wrong. There is nothing wrong with Carrick’s definitions.
“Speaking of the stock market, Rob Carrick has a memo for savers – you can’t save your way to retirement. You need to invest in the stock market.”
The current retiree household has a net worth of ~$300,000. Over a 40-year period, a household would have had to save ~10% of income annually. For almost 65% of that time frame, the average savings rate was >10%. In other words, it was wholly possible and probable that current retirees did in fact save their way to retirement WITHOUT buying heavily into the stock market.
With that said, the current stock of twentysomethings won’t have many of the same advantages the current retirees had — lengthy bull markets in bonds, stocks, and real estate, huge expansion in debt-backed growth, bubbles, et al. They will most likely see sub-average stock returns for years to come, so a high rate of savings will be needed.
Perhaps the later third of their work life will see big equity gains again which will allow them to decrease savings as those gains work on their larger pool of capital. I know I’d rather see 2% gains on 3 years of savings and 20% gains on 30 years of savings rather than the obverse.
So, yes, you can and do need to save your way to retirement.
Thanks for the comment SST and I can see where you’re coming from…
I think the angle Rob was writing about was saving money means putting the safety of money first – for short- to medium-term goals. Investing is different in that you assume more risk for more reward. The risk is the stock market and its volatility short term. The reward long term is appreciation. This means people tend to save for a vacation. It also means people invest for retirement purposes.
As for the current generation of retirees I’m sure they got there by a number of means, gracious pensions (which is a form of investing for sure), individual investments, meteoric rise in house prices, and other assets.
I would certainly agree the “average” stock returns won’t be average going forward, at least that’s my thinking with the demographic shift.
Loved the video with Preet! He’s very eloquent. I would have stuttered and stammered through that whole thing I’m sure even if I practiced 🙂
One of the best speakers I know. He’s awesome. Cheers!
Maybe I’ll add to the list of definitions over time. Thanks for the mention.
I enjoyed the list. All the best.
Rob Carrick has a good article, but it’s not surprising as the majority of small investors have or usually loose money investing in the market.
Liked James fun list, especially: Lottery Tickets: A common retirement plan whose success rate increases when combined with smoking.
99.9% of financial bloggers agree with this stuff. “Diversify”, though I’d fall into the 0.1%
You have some diversity in your stocks, I know you do Cannew!
Yes I do, but is the comments like “Covering all Sectors” and “holding 100 or more stocks to ensure adequate coverage” I disagree with (just my opinion).
I guess it depends what investors feel diversification is. Certainly indexers wouldn’t think anything less than 100 stocks from multiple sectors and multiple countries is sufficient. Then there are some fairly successful investors I’ve met that hold 15-25 stocks and can live off dividends with that.
I personally believe in both strategies (indexing and dividend investing). I figure 40 CDN and U.S. stocks is enough for sure, when I’m indexing everything else.
George Athanassakos has an article in the G&M which explains what I think applies to diversification:
A value investor’s take on diversification and risk
Value investors have concentrated portfolios, not because they reject diversification, but rather because they operate within the boundaries of their competence; they select only securities they understand; they prefer companies with stable cash flows and a history of steady earnings that can be reliably valued. “The right method in investment is to put fairly large sums into enterprises which one thinks one knows something about,” Keynes wrote. And Gerald Loeb, co-founder of E. F. Hutton, wrote in his 1935 book on The Battle for Investments Survival, “Once you attain competence, diversification is undesirable.”
I can see that Cannew. Thanks for sharing that article. I guess I still feel for my wife and I, some indexed products are a good safety net for our 30-40 dividend paying stocks. This might be rather conservative but we sleep better at night knowing part of our portfolio is indexed.
Thanks for the mention Mark. It would be fun to check back in 9 – 10 years and see the benefits/drawbacks of extrapolation, using an actual data sample 😉
Have a nice weekend!
I agree, it will be interesting and time will tell. Enjoy your weekend.
30 Helens agree with those statements as well, although I did find a dissenting voice on Facebook. Have a great weekend and thanks for including me!
There’s always one dissenting voice eh? Enjoy BCM.