For a young investor (say under 35).
You are starting out your investment career.
You are determining how much money you dream of having when you are an old fart.
You don't want to work very much or at all for spending money
You want to pass some money on to people (spouse, kids, and relatives) after you die.
You want to feel wealthy and independent (you want income to exceed expenses without busting your ass all the live-long day)
Wouldn't it be nice...
So what do you do?
Typically, you go to the people you've been banking with all your life (likely a service rep. at your local financial institution)
Or you can trust your parents to tell you what to do
Or you can trust someone who is older than you and followed a path to riches and is open and honest with you about money.
But you will typically know someone who works at a bank, and they will refer you to an investment advisor.
It's not entirely unlike asking someone if they know a good dentist- if they've ever been to a dentist, the odds are they know a relatively competent one.
Emphasis on relatively. With respect to dentists, relative means that from one certified dentist to the next, there may be a few perks like softer chairs or newer equipment, but the skill and dexterity of every dentist is extremely consistent across ages, areas, sexes, etc. for all dentists.
Relatively speaking, the 'average' competent investment advisor is competent relative to someone who throws darts at a board or bets on cock fights as a way of determining your investment strategy.
Relative to a skilled and honest investment advisor, the average advisor is no better at generating consistent returns than the average DIY investor.
What I'm speaking of relates directly to why I feel that young investors are told they are 'young enough' and 'therefore have a high enough risk tolerance' to invest heavily in the stock market. This line of reasoning introduces the theory that because the investor is so young, inflation, the rise in their wages, and taxation liabilities will require the need for immediate tax relief in the short- medium- and long-term.
Within this world-view of investment, bonds will never be profitable (even if they guarantee to return your money) because of historic returns of bonds vs. Stocks, inflation and taxation issues.
Sadly, this world-view does not correspond to reality. This world view makes sense only on the premise that stocks are capable of beating bonds by at least a factor of 2-1 and also relies on the notion that stocks will always be taxed at a rate that is almost 5-1 in favour of stocks (this changes completely once you retire and depending on rrsp and now tfsa context).
Tell someone to save up $500 000 (or better still save only $250 000 and borrow the rest at 5% interest), tell them they can get a 10% return, pay about 10% in tax because of the dividend tax credits you'll receive
Bingo, you are some old fart earning about $ 45 000 every year after tax. That should be enough to support a healthy and affluent lifestyle for a long time, still leaving a nice chunk of change to pay for your funeral, burial, headstone and give something to the kids, etc.
There are now millions of westerners who were sold this line of reasoning, told that they could sleep at night and are now facing the sad reality of impoverishment and never being able to retire.
This line of reasoning has earned thousands of investment advisors a steady income of anywhere from $ 75 000 - $125 000 every year. Every year that they were telling people not to worry, telling people that the bull market was on, telling people it was too late to sell, it goes on.
But there are always people who understand that excessive return means excessive risk. There are people who demand that they get their money back in less than 10 years, no matter what. There are people who understand some of the basics of macroeconomics and follow the news and history. These people are not afraid of inflation or taxes. These people instead focus on working hard, proving their worth in the world and getting compensated for a job well done. To these people, your best weapon against inflation and time is your own two hands. Your labour is what fights inflation because wages rise faster than stocks or interest rates in inflationary economies.
For these brave souls, these 'bondageers', there is but one simple rule: DO NOT GIVE AWAY YOUR SAVINGS!!!
If you intend to save something, it must never go down in value. That is why it is 'saved'- think evangelicals getting into heaven, they go only up.
High yields be damned, my capital is there for the future, for emergencies, it must never be allowed to fluctuate in value and must always be contractually guaranteed to be repaid in my name by whoever holds it as investment. Furthermore, never trust someone more than you can throw them. 20 years until you repay me? Forget it. 10 years? In this environment, it's a stretch.
The bondage freak is into power. "I give you my money. You better repay me. Pay me back my money and give me points for every day that you have it. Don't like it? Too bad, there are all kinds of players out there who are happy to hold money, and make enough of it on their own to gladly give me points."
It is these people who fear not the economy, its mood swings, the rise of china, inflation, Caesar, Huns, Visigoths, it matters not.
Seek to protect what you have saved from this cruel world. Seeking growth from that which is the product of labour is to seek derivative output from a non-productive entity. This is akin to gambling. Gambling is what you avoid by saving money. Gambling is not what you do with saved money.
This is not happy news for anyone who plans around the 10% fantasy. You are more likely to go back in time and have sex with Bo Derek while on the set of '10' then achieve your financial goal.
No comments:
Post a Comment