Weekend Reading – Wealthy problems, money BS, millionaire assumptions and #money stuff

Odds & Ends…

re: how to become a millionaire by age 65; it included an assumption with a whopping 12% annual returns.
Truly the only way to beat the market is to not play in that sandbox. In other words, if you buy stocks you will get stock-like returns; if you don’t buy stocks, you will get non-stock-like returns. To beat the stock market one must invest outside the stock market.

Which leads to my next question: How would you invest if there were no stock market?
With all the indexy-like funds flying around these days it’s easy to secure a baseline return for your money (e.g. your portfolio should have made at least 15% last year) and then work to build upon that; diversity, if you will. Just as money subdues creative thinking, the ease of the stock market seemingly squashes alternative thinking. Always interesting to look at how younger generations approach building wealth.

re: With those dividend increases we earned $80 in future retirement income, every year going forward…
That’s fairly audacious thinking, to project those current “profits” 20-30 years into the future. What’s your formula for calculating dividend risk? The trends of last 40 years can’t carry that much weight in the calculation because the next 40 will not be a mirror image.

re: Alternatively just live in downtown Toronto or Vancouver. Most of you are real estate millionaires in those cities.
— Don’t forget Victoria — up 20% last year thanks to the spill-over from the mainland. It’s good to be a millionaire (a la FrugralTrader) and I don’t even have a blog to sell!

I’ll add one right off the top, because it’s important:
Most of Canada’s regulators abandon plan to put your financial interests first
http://www.cbc.ca/news/business/financial-best-interest-standard-financial-regulators-1.4110767

— The trend continues: only 1% of the people employed in the financial sector — in any capacity — are legally bound to put your money where it will best serve you; 99% of the people employed in the financial sector — in any capacity — are legally positioned to put your money where it will best serve them.

re: Zweig/Buffett
— “I prefer, and [Berkshire Vice Chairman] Charlie [Munger] prefers, the permanent ownership of [private] businesses,” Mr. Buffett added. “That’s been my focus for well over 20 years.” Permanent ownership of private businesses has been (at least half) of my focus for well over 5 years (closing in on 10); it’s been serving me well.

“Mr. Buffett’s skill at picking publicly traded stocks pales alongside the value he has added to the company through other means.”
— Which is yet another reason Main Street stock buyers will never be able to emulate Buffett’s numbers — they don’t add value (let alone participate in the business world).

re: Canada’s insolvent population
(link to the Ipsos poll: http://www.ipsos-na.com/news-polls/pressrelease.aspx?id=7637)
— 1,500 sample size doesn’t do it for me. It does however provide a good inkling of the landscape. Perhaps the most damning statement being: nearly one-third (31 per cent) said they don’t make enough money to cover their expenses. When 1/3 of the population can’t afford to live at their current level (and I doubt very much it’s an excessive lifestyle), they either have to 1) earn more money, and/or 2) reduce the quality of their lifestyle. This is very bad in the long-term.
This should also be of great concern: A lack of financial literacy skills…rose to 61 per cent among those who aren’t confident in their understanding of finances.
To reverse engineer the process…if we don’t want our future citizenry to be a pear-shaped Pete Tong of poverty, we had better start educating them young, both at home and within the education (I repeat: EDUCATION) system. However, considering the top article I posted, there are very strong forces against financially enlightening the masses. Profit before people, yeah?
(As a side note, it’s been endlessly echoed that peak happiness income is ~US$75,000 (~C$103,000); would be interesting to cull out the amount which is allocated to debt of all forms. One might only require half that for a truly happy income.)

re: cannew — “Forecasting future returns to achieve a goal”. It just can’t be done. Nothing stays static and what happen before may or may not happen in the future. Setting Return goals is a waste of time because one can’t control or predict what future returns will be. So is there an answer?”
— The answer is in your question: nothing stays static. If you hold a static investment goal and strategy yet that which composes said strategy is ever changing, you might not hit your target. Much better to perhaps have a static goal and flexible strategy (i.e. doing what it takes to reach that goal). As has been said in the corporate world, the businesses which survive are those which adapt the best.

re: the downsides of being financially independent.
Here we go again. Not sure why there is such a mental short circuit within the PF community regarding their beloved term ‘Financial Independence’ (esp. from an MBA)? Perhaps it’s because most within this community have a negative view of their current condition — a miserable Matrix-like prison — that one of the few mindsets to offer alleviation is a slogan of breaking free of those perceived shackles and running free. I also wonder why they never question the slogan, perhaps more reality would only add to their perceived suffering. I don’t know, but what ever the case, as long as PF bloggers keep slogging this inane and factually wrong slogan, I’ll be right there dutifully informing them of their fairy tale.

Independent:
1. free from outside control; not depending on another’s authority.
2. not depending on another for livelihood or subsistence.

Looking realistically, one can NEVER be financially “independent” — ever — no matter how rich they are (e.g. Bill Gates is financially dependent to a monstrous degree)*. Semantics, sure, but as I’ve always said, if it is a simple case of semantics, then why not use the correct words in the first place? Perhaps they aren’t emotionally marketable enough.

I give big kudos for putting that entire blogpost into one sentence: “Being financially independent is fine, but unless you have a deep hunger to do something great, it is unlikely you will ever maximize your potential.” Bingo.

*(this is both true and untrue. Only his current wealth is dependent on the health of Microsoft and its stock. If Gates lost every penny tomorrow, his future wealth would be dependent only on himself; that is, he contains the knowledge and skill to create “financially independent” wealth. This is the quality that the abundance of negative life-view 9-5ers lack, thus rendering them perpetually dependent.)

There is a downside at every stage of life if one takes it too seriously, does not enjoy what they have, and later complains that they don’t have what they should have worked\saved for.

For those who have who have achieved their goal, whether if be FI or just a happy retirement there won’t be too many downsides unless life takes an unexpected turn, such as poor health, death of loved ones, etc. FI takes many of ones worries away and allows one certain freedoms to then enjoy doing things they may not be able if money is a worry.

Michaels point is valid, but something too many people get caught up with. “Forecasting future returns to achieve a goal”. It just can’t be done. Nothing stays static and what happen before may or may not happen in the future. Setting Return goals is a waste of time because one can’t control or predict what future returns will be. So is there an answer? That will depend upon a lot of factors, such as are you willing to save now and increase the amount you save as you earn more, are you willing to spend less than you earn, how you want to invest those savings, and do you want to control your investments or leave it to others. There are probably lots of other factors and different opinions on the best route to choose.