Weekend Reading
Welcome my latest Weekend Reading edition.
Well, the Sens are out of the NHL playoffs but it was a great run – very proud of the hometown team. I hope they don’t reshuffle the deck too much in the off-season.
The weather remains soggy in Ottawa but I am getting to the driving range more (when it isn’t raining) and I hope to play more golf in June.
We have a few weekend getaways planned over the summer starting next month. How about you? Any big plans?
I managed to sneak in these two articles this week:
Here are three ways to make your money last
These are my perspectives about saving money on any income.
Enjoy the rest of these articles this weekend and I’ll be back next week to talk about some low-cost custom portfolio solutions to consider. Take care!
Dave Ramsey believes you can start saving for retirement at age 40 and still become a millionaire. I’m not convinced. Although anything is possible I feel this is a flawed argument for two big reasons. 1) His expectations for investment returns seem out of whack. “In order In order to retire with $1 million in 25 years, a 40-year-old just getting started would need to invest $800 a month—a little less than 20% of the average $50,000 income.” My quick math tells me you’ll need 10% investment returns for 25 years saving $800 a month starting from zero. Good luck finding that 10%. 2) Most people who haven’t figured out how to save – anything – by age 40 will need a radical financial behavioural shift. Most adults I know struggle with change. It’s not our fault entirely we’re simply wired that way. Not likely to happen Mr. Ramsey.
Here’s why you might not be ready to start paying off your debts.
The Blunt Bean Counter believes Canadians need to talk about money – more.
John Heinzl offered some advice for coping with market mayhem.
Krystal Yee has decided not to burn her mortgage. I’m with Krystal on this one – we’re about balance here too. Although we have some mortgage debt, and we’re working on killing it over time, I’m not about burn myself out worrying about it.
A Wealth of Common Sense wrote about the expectation of losses.
How to invest with lower (predicted) stock market returns? Here are some ideas.
Andrew Hallam provided some data to suggest there is no such thing as a stock picker’s market.
Family Money Plan fired his financial advisor.
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.
Just recently I read that Ramsay users a 12% average return number in his personal finance philosophy, so your quick math of 10% is close.
That 12% return is apparently based on the AVERAGE annual return of the S&P 500. This is a bit misleading because he uses the average and not the compound return. So if the S&P 500 went down 50% one year and then back up 100% the next year (getting back to the same original value) the average return is +25% but the compound return is 0%.
Although he’s helped a lot of people get out of debt and improve their finances its unfortunate that these people will also be disappointed in the future by this unrealistic 12% number.
12% is nuts 🙂
Nobody except for the greatest investors of all time are getting 12% returns year over year on average.
re: Nobody except for the greatest investors of all time are getting 12% returns year over year on average.
I’ll guarantee that “the greatest investors of all time” are not merely using a simple buy-and-hold strategy with the same public equity that’s available to everyone else to achieve 12%/yr. Theirs is a level of sophisticated diversification in both asset and strategy. And of course sweeter backroom deals can be had by a billionaire vs. the common roboadvisor user.
I have every reason to believe the greatest investors of all time are doing far more sophisticated investing than I am – to get their 12%! (hint: private equity is where the big money is at.)
re: “I’ve been in the miserable Matrix rat race of government for 10 years and relish the 8%/yr pay raises”
In government once you get to your highest increment level you will likely be where I am getting 0, 0, 2, 2%. Barely enough to keep up with cost of living increases. Enjoy it while it lasts 🙂
re: In government once you get to your highest increment level you will likely be where I am getting 0, 0, 2, 2%. Barely enough to keep up with cost of living increases. Enjoy it while it lasts
I will indeed, and last it will. I work, technically, for the the Speaker of the House; my position is not a unionized (or ‘regular’ gov’t) position and my raises are implemented by MLA vote (just as they vote raises for themselves). So yeah, technically, I have no “highest increment level”. 🙂
re: ” if I’m 25 years old, why do I require investment income? I won’t require that until I’m much older or feel that I need to stop working at 30.”
Respectfully, how do you expect to accumulate investment income so you can stop working (retire) if you don’t invest as early as possible?
It’s hard to think of your future when you are likely starting a career after post secondary education, paying down student loans, settling down with a partner, finfding a home, starting a family…..etc. There are just so many other “wants” when you are younger that seem to be prioritized over retirement investment planning. Hindsight only comes when you are older and you realize you don’t have enough to retire. “Shoulda started saving/investing earlier” to take advantage of compounding. Time is your most precious asset to build your nest egg.
re:re: …most people see at least a 3% annual increase…
I am obviously in the wrong job…….can I come work for you? Our union negotiated 0%, 0%, 2%, 2% over 4 year contract.
Gone are the days of 3% annual increase. Austerity is here for good.
re: how do you expect to accumulate investment income so you can stop working (retire) if you don’t invest as early as possible?
To clarify, yes, one should definitely save and invest immediately out of the womb (or even prenatal if one is blessed with wise parental units)…however, the umbrella advice of “Invest for Income!” (aka buy dividend paying stocks) should not and does not apply to everyone. (e.g. I often lock a good chunk of my money away in illiquid private equity investments simply because I don’t require the immediate income).
If that was the case, perhaps one would be best off dropping out of school at age 16 and getting a couple full-time jobs, saving 50% and investing in dividend growth stocks…vs. the 25 year old chump who has $50,000 in student loan and a barely-above minimum wage job. That 10 years of extra compounding growth and savings/investing will put the teenage drop-out financially much further ahead of the degreed person.
re:re: …most people see at least a 3% annual increase… I am obviously in the wrong job…….
I’ve been in the miserable Matrix rat race of government for ~10 years and relish the ~8%/yr pay raises. It’s a quandary; I enjoy it and am repulsed at the same time simply because I know I’m getting paid much more without adding a single iota of value. Government also utilizes tricky behind-closed-doors accounting which basically nullify any publicly announced austerity measures it may claim (e.g. retroactive lump-sum payments).
“Respectfully, how do you expect to accumulate investment income so you can stop working (retire) if you don’t invest as early as possible?”
Is that a question for me Bonnie?
If so, I DO believe in investing early, and staying invested, over time. 🙂
I hope to avoid the “shoulda started younger” thoughts by having a good savings rate now and keeping that up until my early 50s. Fingers crossed!
No Mark, that question was for SST, but it’s been clarified now 🙂 Ie: “Invest for Income!” (aka buy dividend paying stocks) should not and does not apply to everyone. (e.g. I often lock a good chunk of my money away in illiquid private equity investments simply because I don’t require the immediate income).”
Gotcha.
I was basing 3% on my own experience. I had about 700 employees and the minimum raise at least over the last ten years we gave was normally 3%. Plus generally there was a bonus. But we were an oil company and might not carry to other sectors. We are also in Arkansas so I figured we are on the low end of the scale with our low cost of living. Wasnt trying to be misleading. We routinely had employees making six figures in both hourly union jobs and in salaried positions. My experience was the raise% got smaller as you got to the higher corporate jobs but I never got to CEO.
3% is good Steveark – keeps up with inflation for sure. I know some folks don’t get such a healthy increase year over year.
re: …most people see at least a 3% annual increase…
The average annual wage increase over the last 25 years has been 2.25% (1.6% over the last 5 years)…meaning there’s been a handful (read CEOs et al) who have raked in triple-digit increases and a bucketful (read en masse) who have seen minimal/zero/negative wage growth (coupled with double-digit price rises in (declining quality) goods and services).
I’ve been thankful to get some wage increases over time but certainly not the CEO variety!
I agree it is going to take a higher savings rate than 20% for a $50,000 salary. However most people see at least a 3% annual increase and also if you can save 20% of your income for an average salary you are not an average person. That sort of discipline should also translate to superior work performance and superior pay. I doubt many people with that kind of drive can avoid earning a six figure salary but the time they hit their late forties.
I think a 20% savings rate is great personally. However, I don’t think there are many people that pull that off. You either need a) a good job(s), b) very good financial discipline and/or c) a bit of both!
Without expounding on each one, the common and overarching take away from all entries of your reading list is that when it comes to financial abundance: Mind Matters More than Money.
(Or perhaps ‘Brain Before Bank’. I dunno…make up your own simplistic slogan!)
re: How to invest with lower (predicted) stock market returns?/Good luck finding that 10%…
— I’ve said it before, the only way to beat stock market returns is to invest in not-the-stock market. Most people will continue to throw their money into stocks simply because it’s very easy and offers great liquidity (cementing the fact that most people are still driven by greed/ease and fear/liquidity). As a consequence, most people will get the return the market gives them, not necessarily the return they require or desire. The stock market is good for giving you a baseline return to work from; that is, if there are no other investment opportunities available which will give a long-term >3-4% return, then go into the stock market.
(Absurdly enough, the author considers REITs as “alternative” investments, claiming “It’s kind of in between stocks and real estate.” No, no it’s not. A REIT is a 100% stock market instrument. A good rule of thumb I recently read: Ignore all of the amateurs.)
re: …much more realistic advice. Invest for Income!
— if I’m 25 years old, why do I require investment income? I won’t require that until I’m much older or feel that I need to stop working at 30. Thing is, people will always believe in what has worked for them personally, regardless or inherent perfection or flaws (e.g. trading penny stocks worked wonders for me but I wouldn’t recommend it!). Different personal situations and circumstances will always require different investment strategies. As the axiom goes, there’s more than one way to skin a cat.
I agree, a REIT is a stock market instrument; otherwise, it could not be bought, traded, other.
Another rule of thumb – devise your own solid financial plan (that matches/tailors to your own financial objectives) and ignore all experts and amateurs alike 🙂 This includes all the indexing fans that feel they have some moral superiority over other investors. There are many ways to invest – drives me nuts when they consider indexed products “the only way”.
Dave Ramsey, like the majority, thinks in terms of price and assumes the market or savings can be projected in straight upwards terms. .John Heinzl. an advocate of Connolly, offers much more realistic advice. Invest for Income!
Big fan of John (Heinzl) here!