Apr 292019
 

Earlier this year hedge fund manager Ray Dalio gave 3 financial recommendations for millennials in an interview.

His first recommendation is to focus on savings, and to think about how many months of living expenses your savings can get you through. Savings, explains Dalio, is “freedom and security.” Savings can also provide you with opportunities. If you need to further your education, start a new business, or invest in a discounted asset, it’s easier if you have extra money. If you can accumulate enough savings to last you for the next 300 months then you can be considered financially independent. 🙂

Dalio’s next advice is about what to do with your savings. He says “it’s important to realize that the least risky investment that you can make, which is cash, is also the worst investment you can make over time. You can judge that by comparing the rate of inflation to the after tax rate of return you will earn.” So if inflation is 2%, and you’re only making 1% on your cash investment then you are actually losing purchasing power and getting poorer. “So you have to move into other assets that will do better over a longer period of time.” This is why some people like myself don’t have a cash emergency fund.

The last advice Dalio gives is a bit of surprise to me. Instead of going with the mainstream and buying an index fund, he suggests that millennials should do the opposite of what their instinct tells them to do. This can be emotionally difficult to pull off. The market reflects the crowd and your instincts will usually lead you to do the same thing the crowd is doing. But herd mentality won’t get you any further than the rest of the herd. So you want to buy when no one else wants to buy. Famous investor Warren Buffett has a similar saying: “Be fearful when others are greedy and greedy when others are fearful.” The best way to approach this last advice for me is to apply original research and critical thinking to your investment strategies if you want to outperform the market. But then again, a lot of people are perfectly happy earning market returns and I think indexing is an acceptable way to invest as well.

Ray Dalio created a 30 min YouTube video about his famous work, Principles for Success. He believes that dreams, reality, and determination can all help to create a successful life. And that pain plus proper reflection will give us the tools to progress. It’s an interesting watch if you’re into mental models and self development.

 

__________________________________
Random Useless Fact:

An actress posted a photo of a man’s rear because she was tired of being harassed online by people leaving lewd comments on her Instagram account.

Jul 272018
 

According to a Fox article, millennials now make up the largest generation in America, and we’re seeing some troubling trends as they are increasingly turning away from capitalism and favouring socialism instead. Based on a study of over 2,000 people, nearly 45% of millennials polled said that they would prefer to live in a socialist country compared to the 42% who said they preferred a capitalist one. Another 7 percent said that the preferred living in a communist country. Oh dear. 🙁

By comparison, most baby boomers polled favor capitalism, compared to 26% who said they prefer a socialist system. Socialism never works in the long run because you eventually run out of other people’s money to spend. For a recent example we can turn to Venezuela, which has a socialist government. Venezuela’s currency has lost 99.9997% of its value in the past 6 years. In the span of a few months, the International Monetary Fund (IMF) has gone from forecasting that Venezuela’s inflation rate would hit 12,875% by the end of the year to now saying that it will get to 1,000,000%. Yikes! The country’s economy is on the verge of collapse for the past year. People often struggle to find food, medicine, and other essential goods.

If socialism is better than capitalism then all the socialists should get together and redistribute their properties fairly among themselves. But that has never happened, lol. As Winston Churchill once said, “Socialism is the philosophy of failure, the creed of ignorance, and the gospel of envy. Its inherent virtue is the equal sharing of misery.”

 

 

 __________________________________
Random Useless Fact:

Eating healthy can cost more money

 

 

Mar 022017
 

I’ve been saying for years that real estate prices in Canada are not that high. Certain areas like Vancouver and Toronto have the perception of being unaffordable. But the fact that population growth is still positive in these major cities suggests otherwise. If these places weren’t affordable then people would be moving out of them, not in. 🙂

People from all the world have wants. These wants turn into demand, which fuels certain parts of the economy. And what do young adults want right now? According to an HSBC survey, the “vast majority” of millennials want to buy property.

Demand from Young People 

HSBC bank polled 9,000 people from 9 different countries: Canada, Australia, China, France, Malaysia, Mexico, the UAE, the U.K. and the U.S. The results include some interesting numbers about the housing market among individuals between ages 18 and 35, which the bank defines as millennials.

37% of millennials said they had financial help from the bank of mom and dad to cover their housing costs. Canada is roughly in the middle of this trend.

A little over a third of Canadian millennials polled already owned their own home, and among those who didn’t, 82% say they intend to buy one within the next 5 years. Thus, housing must be relatively affordable, because even at the lowest earning stage of their careers, most people either already own property, or have the means to own in the foreseeable future. They are also willing to sacrifice a lot in order to become homeowners.

The results of the HSBC study shows that Canadian real estate may not be in a bubble. Funeral costs, health care costs, and tuition have also grown at a faster pace than inflation over the decades, but most people don’t label those sectors of the economy as becoming a bubble. So I don’t think housing is overpriced either.

Continue reading »

May 052016
 

The Pessimism in the Markets

Corporate profits have been disappointing lately. Apple (AAPL) recently said its revenue fell for the first time in 13 years due to a decline in iPhone sales compared to the same time last year. Apple shares are worth 26% less now than a year ago. Investors are warned the decline could continue. 🙁 Other publicly traded companies are experiencing similar challenges. Top line growth is slowing down, and its becoming harder to maintain profitability levels.

A recent article on Bloomberg.com suggests that future investment returns for millennials will be lower than prior years. It cites a study by consulting firm, McKinsey & Co, which proposes that “the forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing.” So maybe it’s time for investors to lower our expectations.

Lower Investment Returns for Millennials

The last 30 years was actually a bit of an anomaly because on average we’ve had a couple of percentage points better annual returns when compared to the past 100 years in general. Falling inflation rate has helped drive real returns, and bond prices increased substantially as interest rates fell for the last couple of decades. 🙂 But going forward we may face secular stagnation and a lack of economic growth due to an older population. Let’s take a look at the study’s findings, and future return estimates.

16-04-lowering-sights-lower-returns

Regarding U.S. equities for the time being, it appears growth in the following 20 years will be 1.4% to 3.9% lower than in the past 30 years. The director of the study, Richard Dobbs, warns that the people who will lose out the most are the millennials. Oh no. That’s me! It appears we’ll have to either work longer or find other ways to put more money in our retirement accounts. The alternative is to retire poorer and live off government cheese, which is actually a luxury in Canada considering the expensive tariffs we have on dairy products, haha. 😀

Preparing for the Next 20 Years

So here are a few of things I’m doing to deal with all this information. They may not work for you, but I will share anyway.

First, the most important thing is to lower the cost of investing. This is even more crucial if market returns will underperform in the future. Using the numbers from the graph above, the average return on U.S. equities over the last 30 years was 7.9%. So if our management fee and other combined costs were 1%, then our actual return would be 6.9% after fees. The 1% fee would effectively eat away 13% of our actual market return.

But the “slow-growth scenario” claims that over the next 20 year period the annual return of U.S. equities will be only 4%. If we still pay the same 1% portfolio fee as before, then this cost will eat away 25% of our future annual return, nearly twice as high in percentage proportion to a 7.9% market return. Bummer. 🙁

So how can we lower pesky fees and reduce the overall cost of investing? It’s simple. 🙂

How do we reduce the long term costs of plumbing? We learn some basic DIY plumbing skills. How do we reduce the cost of food? We learn to cook and meal plan. How do we reduce the cost of car repairs? We learn some basic knowledge about car maintenance like how to check the tire pressure, change the oil and air filter, etc. We can reduce the cost of any aspect of our lives by simply educating ourselves on the subject. 😉

16-05-check-engine-still-there-car-meme

So if we want to lower our investment fees, we just have to better understand how to invest and manage our own money. With the advent of ETFs and robo-advisors, I hope everyone reading this blog is paying less than 1% management fee on their portfolio. If you’re interested to learn more about low cost wealth management services, check out the thorough review about Wealthfront, that my friend Jacob wrote on his blog.

Continue reading »

Sep 182015
 

Millennials Create Their Own Opportunities

Some people believe millennials are the screwed generation because there are no jobs for us. And that we have every right to be angry at the older generation for pillaging public coffers, taking on loads of debt, and leaving the broken economy for the younger generation to fix.
 .
But I don’t see it that way. So what if there aren’t a lot of high paying jobs out there for young workers anymore? Any job is a good job because any income is better than no income. The world can be an amazing place if we just lower our standards a bit. 😀
15-09-ill-lay-almost-anything-low-standards
 .
And just because there are no jobs, it doesn’t mean there is no work. Jobs are given to us, but work can be self created. Don’t ask what the world can give us. Ask what we can produce for the world instead. 😉 Starting a small business is easy. When I was 14 I shovelled snow for my neighbours during the winter. Clearing each driveway earned me $10. Cutting grass would be a great opportunity to make money in the summer. There are plenty of busy households who would gladly pay $25 for someone else to mow their lawn every couple of weeks. Their time is valuable. And all that’s required for this to happen is for some proactive entrepreneur to go knock on their door and say, “Hey, here’s what I can do for you. How about it?”
 .
We can also develop knowledge based skills to make money. Being the first group of people to grow up with cell phones, laptops, and the internet millennials have a technological advantage over other working adults today. We can create a free blog in minutes. Social networks keep us informed and enable us to discuss our ideas with anyone from anywhere on the planet. We can download entire first year courses from Yale, Harvard, and other universities for free from their websites. There are non-profit organizations, such as the Khan Academy, which have free lectures on subjects like math, science, computer programming, history, art, philosophy, economics, and more. There’s also plenty of informational YouTube videos that teach everything from how to put on make-up, to how to start a small business, to how to make ricotta and spinach ravioli. ? Yum! Access to information is so ubiquitous today we can develop any knowledge based skills we desire to learn! And then use our new expertise to earn an income.

Continue reading »