The European debt crisis is so confusing, it’s like Greek to me. lol 😀 As of yesterday Greece became the first developed country to default to the International Monetary Fund (IMF) to the tune of €1.6 billion. Overall Greece owes about €300 billion to all its creditors.
A referendum in Greece will be held this upcoming weekend to decide if the Greek people would like to stay in the European Union and continue using the Euro, or exit the EU and revert back to their old national currency. What happens next is the million-euro question. A Greece exit (Grexit) should not have a large direct impact on other countries. But here are some lessens we can take away from the predicament facing Greece right now.
Earlier this month I blogged about my plan to help make this world a greener place by supporting renewable energy initiatives. One way to do this profitably is to invest in green companies. On Thursday this past week I purchased 50 shares of Brookfield Renewable Energy, (BEP.UN) for $38.05 CAD each for a total cost of roughly $1,900. It also trades as BEP on the New York Stock Exchange for interested investors in the U.S.
This is my first investment in a pure-play renewable energy company. Brookfield Renewable develops, owns, and operates renewable power generation facilities. It’s one of the largest and most diversified publicly traded green companies in the world. BEP has a diversified portfolio of high quality assets and over 100 years of power generating history.
The Business of Brookfield Renewable Energy
I’ve always like the idea of investing in B.C. Hydro or Ontario Hydro because the idea of creating electricity through the power of nature itself (water and gravity) and then selling that electricity to make money sounds like a great business model. The profit margin must be very profitable because once a hydro dam is built it doesn’t cost much to maintain it. But there’s no practical way for me to invest in crown corporations and government operated hydro facilities. Luckily, Brookfield Renewable has the solution.
BEP has over 7,000 MW of installed capacity, predominantly from its large hydroelectric portfolio. This means I can invest in water dams via BEP. 80% of the company’s assets is hydro projects, the highest quality renewable asset class. The other 20% is split between solar farms and wind farms with a compelling total return profile. In total Brookfield Renewable has $20 billion of assets under management (AUM,) mostly in North America, as the map below shows.
But ultimately what I really want to know is will this company be profitable in the future. First let’s look at its historical returns. Thanks to the experienced management team at the Brookfield Asset Management company (BAM), the parent company of Brookfield Renewable, BEP was able to return to its investors 16% compounded annualized return since inception in 1999. Hey not bad at all! 😀 It outperformed both the Canadian and U.S. stock market indexes.
Some people may think of me as frugal, but that’s actually not entirely true. For example, I spend a lot of money (over $2,000 every month) on interest payments. 😉 It’s fun to find out how much other people spend on their hobbies. But in the end it’s pointless to judge their behavior because money contains different meaning to different people. This is because our real wealth is time. Money is merely a means to maximize the enjoyment we get out of our time in this world.
This is why some people who make $30,000 a year can live a happier, more fulfilling life than others who make $300,000 a year. The income gap between the rich and poor gets a lot of attention, but from a broader perspective most people have roughly the same amount of real wealth in this world, which is measured in years, not dollars. The truly unfortunate are those who are so poor that all they have is money, lol. If all my financial assets disappeared overnight I’d be fairly upset. But if I knew I only had a few more months to live I’d be devastated. 😱 I don’t blame Walter White for what he did. Dire times call for extreme measures.
So if our goal is to enjoy life to its fullest using our limited financial resources then we simply have to allocate the right amount of money for each block of time we spend living. This means if we watch more than 10 hours of live sports a week then spending $3,000 on a new 60 inch 4K Ultra HD LED TV is totally justified. 😀 After seeing a football or soccer match in 3840 x 2160 resolution there is no going back. 😉 But on the other hand if we use those 10 hours a week to play PC games then we should spend $3,000 on a new kick-ass gaming computer instead. The point is to choose what our interests, passions, and values are in life, and spend our money with the purpose to maximize our happiness in mind. This way, we’re less likely to second guess ourselves and regret our purchases.
“It is not the strongest or the most intelligent who will survive but those who can best manage change.”― Leon C. Megginson
Change is inevitable, unless the vending machine is broken. 😀 When things don’t go quite the way we want them to it’s tempting to want to change the system. But it’s often more favorable to just change ourselves than the circumstances.
If we don’t like our surroundings or the people around us, it’s usually easier to change our habits, or our mindsets to adapt to the environment around us, than it is to convince the rest of the world that they should change.
People retire for different reasons. A skier might retire because he’s going downhill, or an elderly chef could retire because his sage is showing. 😀 But no matter what the circumstances may be we all have to be financially repaired for retirement. This means preparing an adequately sized retirement fund.
But what is retirement savings? Some believe it’s what you have in an 401(k), IRA, or RRSP. But due to the fungible nature of money almost anything can be a part of retirement savings. There’s no need for separation. For me, the definition of a retirement fund is all the financial assets I have at the time when I decide to quit working.
This simplifies life greatly. I don’t have to choose between contributing money to my TFSA or put it towards my RRSP because both vehicles will eventually become part of my retirement fund. The only implication would be for taxes. So retirement savings is more than a 401(k) or a pension. It includes Traditional IRAs, Roth IRAs, SEPs, savings accounts, mutual funds, stocks, and annuities. This gives us a more complete picture of what we have instead of just what’s in our registered retirement savings plan.
The financial world is constantly changing and retirement is part of it. A few decades ago the retirement plan for most people was based on 3 supporting legs; work pension, personal savings, and government pension such as social security.
Fast forward to 2015 and the grim reality for most workers now is we can’t count on generous work pensions anymore. A defined benefit pension plan is as rare as a Canadian who doesn’t watch hockey. With only 2 legs to stand on the retirement stool will become very unstable. The job participation rate is at decade lows. Many jobs are either going overseas or being replaced by automation. Who knows what kind of new retirement challenges our children’s generation of workers will face?