Dec 082014
 

The Divorce Capital of the World

To most girls, the word “wedding” will have a nice ring to it. :D But marriage can be difficult and it doesn’t always last a lifetime. Divorce can often go off without a hitch for some. But for others, it can get quite messy, especially if there’s a lot of money involved. London, England appears to be the top destination for married couples looking to go their separate ways. It is known as the “divorce capital” of the world due to its court system’s “generosity to estranged wives.”

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Sir Chris Hohn is a hedge fund manager in London. Recently his wife, Jamie, decided to leave him and she wanted to take half of their household assets with her because she believed their wealth was created due to their “partnership.” It was a bitter dispute, but in the end she was awarded £337 million ($525,000,000 USD). This enormous amount, granted by High Court judge Jennifer Roberts, was the largest ever seen in London’s courts. This settlement dwarfs the previous £220 million record, paid in 2011 by a rich Russian oligarch to his ex-wife, and further cements London’s reputation as the best place to get a divorce for non-working spouses. :)

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Aug 142014
 

The level of financial risk we can tolerate depends on our savings: The less money we have the more risk we can afford to take on. If you have worked with a financial advisor before then you’ve probably seen a risk tolerance chart like the following.

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Each portfolio from A to D represents a different risk tolerance of maximum expected returns and losses. Choosing a model portfolio can help one’s financial advisor determine the best funds for the client based on his risk assessment. Conservative portfolios tend to hold more bonds, GICs, and T-Bills. Aggressive portfolios may hold more technology and energy stocks, which are more risky but also more potentially profitable.

If we are currently in our working years and only have $100,000 of savings, then we should have an aggressive investment plan that mimics the expected rate of return as Portfolio D in the image above. High risk, high reward. Like Ms. Frizzle always says, “take chances, make mistakes, get messy!” This is because losing $20,000 in the worst case scenario is no big deal since we are still actively working. $20,000 is only 6 months worth of salary for many people, so the loss can be quickly recouped :D But if things go well then hot diggity dog! we’ll make a $50,000 profit. The key to compound interest is to start as early as possible so if we can make our portfolio value 50% higher at a younger age it will give us a huge advantage over the long run.

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But if we have recently retired and have $1,000,000 in savings then our investment goals would be different. We can’t be in Portfolio D because a potential $200,000 loss is a lot of money, and could prevent us from having a comfortable retirement. At the same time the potential return of $500,000 doesn’t sound that appealing when we’re already millionaires. At a certain level of wealth any extra money we save will face diminishing marginal utility which means the lifestyle of a senior who is worth $1.5 million isn’t going to be drastically different from another senior with only $1 million. So in this situation it would be better to choose the more defensive Portfolio A.

When we’re young our spending often depends on the product of our human capital and time, both of which we have an abundance of. But when we’re retired our human capital becomes diminished, so lifestyle needs to depend on our savings instead. This is when capital preservation takes priority over investment returns and we have to decrease our exposure to risk in order to make our portfolio last as long as possible ;)

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Random Useless Fact:
Humans don’t have natural enemies. So we fight with each other.

 

Jul 262014
 

If you ever want to feel rich just head over to globalrichlist.com to find out where you are on the spectrum of wealth. For example when I punched in my income I found out that I am in the top 1% of all earners in the world :) My income is so high I can afford to pay the annual salaries of 10 doctors in Azerbaijan, a small country between Eastern Europe and Western Asia. All you need is to earn more than $32,000 USD to be in the top 1% as well.

In terms of wealth I input $300,000 CAD as my total net worth and it turns out I’m in the top 5% :D

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To be in the top 1% you’ll need a net worth of $830,000 CAD or $770,000 USD. But for now I am already very pleased being at 4.61%. If I take just 1% of my current wealth I could feed a family of 4 in Ethiopia for 3 years :shock:  My personal wealth is equal to the combined wealth of 231 people in Afghanistan. What a financially empowering realization!

I think the moral we can take away from this relative wealth exercise is don’t work in Azerbaijan if you’re a doctor.

It’s possible to feel financially inferior after getting used to living in a first world country. Sometimes it’s nice to be reminded that making even just $30,000 a year and having a $50,000 net worth would already put someone in a very favorable financial position.

Other than using that website to compare our wealth with others for fun, we can also use it as a motivational tool. Find out how rich you are today in terms of both income and wealth. Write down your results, or take a screenshot and email it to yourself. Then go back to the site next year to input your new income and net worth to find out how your position has changed. You should be moving up the ranks every year. If not, find out what’s preventing you from getting ahead. In a global competitive world if we don’t improve, but others do, then we will get left behind. For my own goal, by this time next year I hope to be in the top 4% of the richest people in the world by wealth :)

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Random Useless Fact:

If plastic is made from oil, and oil is made from the hydrocarbons of decomposed, prehistoric plants and animals, then that means plastic toy dinosaurs are partly made from real dinosaurs.

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Jul 142014
 

Somewhere in the world right now there’s a person who is working 10 hours a day doing manual labour and making minimum wage. He realizes his life could be much better so he saves what he can to build the future that he wants. He believes that he can change his circumstances in life by working hard, and having a solid plan. He tries to start his own business but fails. But he tries again and again, sacrificing his time, savings, and energy to make it work. Eventually his company turns a small profit, which grows every year, and ten years later he is a millionaire :)

Meanwhile just down the street from the first person lives another man who just won the lottery and becomes a millionaire over night. He doesn’t think about how to use the money wisely. He just knows he’s rich now and believes he will stay rich forever, without considering that his circumstances might change over time. He starts to buy fancy cars, make friends with other people who also like to spend lots of money. He eats out almost every meal and becomes fat and lazy. He continues to buy lottery tickets hoping he would win again, but he doesn’t. Ten years later he realizes he has spent all of his money and is now broke :(

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Which type of person are you? By making it on your own you can appreciate the ups of success because you’ve experienced the downs of failure. It can be tempting to immerse yourself in the bliss of good fortune, but enjoy it responsibly to make that feeling last :) Circumstances in life can always change; people who don’t think their finances in the future can get better or get worse are not being honest with themselves. It’s important to understand where your life currently stands, where you want it to go, and how you’re going to make that happen. If the current circumstances around you suck, then find a way to change them :D

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Random Useless Fact:
Somebody made a ridiculous bet on the Germany vs Brazil World Cup game. Either that person can predict the future, or is just extremely lucky.

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Jul 112014
 

Meet the 5 wealthiest peoples in Canada, their net worths, and their source of wealth.

1) Thomson family. $26.1 billion. +30% from previous year. Thomson Reuters, Globe and Mail.
2) Galen Weston. $10.4 billion. +24% from previous year. Loblaw Cos. Ltd., Holt Renfrew
3) Irving family. $7.9 billion. -3% from previous year. Irving Oil ltd., J. D. Irving Ltd.
4) Rogers family. $7.6 billion. +18% from previous year. Rogers Communications Inc.
5) James Pattison. $7.4 billion. +20% from previous year. Jim Pattison group.

Except for the Irving family, it’s surprising that they’re still able to grow their net worths so much, percentage wise, despite how wealthy they already are. Thanks to these rich people small investors like us can just piggy back off their hard work and success. For example anyone who had invested in Galen Weston’s company, Loblaw Companies Ltd (L), at the beginning of this year would be up 12% on their investment so far.

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src: canadianbusiness.com

If we look at the industry these top elites work in it’s mostly information services, food, energy, telecommunication, and advertising. I think we should include these types of businesses in our own portfolios. For example late last year I blogged about buying Comcast, which is a big cable company but also has media properties that provide information and news. I thought Comcast has more potential than Reuters. So far this year Thomson Reuters stocks is down 2%, but Comcast shares are up 4% :D #lucky

There are many ways to invest in the food business as well like buying fertile land or stocks of seed producers. These are things everyone should do because if the price of food increase in the future at least our wealth will rise with it. Investing in oil and gas is a good bet long term and thankfully most Canadians are already well exposed to that :) The three big telecom businesses in Canada are highly profitable due to their oligopoly. If we hold Roger’s shares (RCI.B.) then we’ll earn 4.3% dividend each year regardless of the stock’s performance. That’s better than a high interest savings account or government bonds right now. And if the Rogers family continues to grow their company and become even wealthier, then so will we :D Personally I have stakes in all three major telecom incumbents because an oligopoly has unfair competitive advantages that companies in other industries don’t.

Most of us will never become billionaire entrepreneurial giants. But at least we can stand on their shoulders and go along for the ride. This is the easiest way to make money. If we side ourselves with the same interests as the ultra rich, then it only makes sense that we will eventually become rich too. The universe has a mysterious way of giving us what we associate ourselves with :D Investing with the rich won’t make us billionaires, but millionaire status is more than probable, which is good enough for me ;)

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Random Useless Fact:
The diversity of Fox News anchors.

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