# Truth vs Reality in Investing



## tygrus (Mar 13, 2012)

For disclosure, I believe a person should have some investments but for me I keep it between 5-10% of my net worth for a couple reasons. First the volatility in the market is sometimes stomach churning and secondly, I am not 100% convinced that its a path to getting rich. For me its really an income diversification strategy.

In the process of topping up my TFSA this year, I saw some commercials saying if you contribute to your TFSA every year, in 30 years you will have over one million dollars assuming a ROR in the 4-5% range. 1 million dollars should churn out $40-50k in tax free income.

Now thinking about this further, does anyone know of someone who got rich this way? I mean start investing a few hundred a week at age 25 and come out with millions at age 60? I personally do not. People who made a fortune got it other ways, by owning a business, by working their way up in a company and getting stock options or some by making a lucky stock or real estate purchase. 

I look at my LIRA accounts which I invested after I left the workforce and $90k has only grown to about $120k in 5 years - definitely not on track for millions.


----------



## nobleea (Oct 11, 2013)

tygrus said:


> I look at my LIRA accounts which I invested after I left the workforce and $90k has only grown to about $120k in 5 years - definitely not on track for millions.


90K to 120K in 5 years is 5.9% IRR. It is on track for millions if you continued to invest 5K a year in it for some period of time.

Yes, lots of people do this. You don't hear about it because lots of people do it and it's old news. What is an RRSP if not contributing some amount every year for your entire working career? My RRSP is at ~9.5% IRR since inception (14yrs now), well on track to over a million by retirement. And that's contributing about the same in after tax dollars as the TFSA limit.


----------



## gibor365 (Apr 1, 2011)

> look at my LIRA accounts which I invested after I left the workforce and $90k has only grown to about $120k in 5 years - definitely not on track for millions.


 Who knows?! You got 33% in 5 years....not too bad...
Just checked my LIRA accounts, in 4 years 1 gained 69% and 2nd 50% (and I hold just 2 equities there RY and VEA)...and I did a lot of big investment mistakes during this time.... but more important to me , that dividend income on those accounts, in 3 years (2011 - 2014) , grew up 246% and 179% respectivly


----------



## Just a Guy (Mar 27, 2012)

The truth in investing is that it appears to grow at different rates. When you start, it appears to grow slowly as per you example. In the last few years however, you'd be making 50k/year (still only 5%, but because the numbers are bigger, it seems like more). 

Next, if you're going to say that anyone you know who made money investing did it through luck, then you're not going to see the results you're looking for.


----------



## cainvest (May 1, 2013)

tygrus said:


> Now thinking about this further, does anyone know of someone who got rich this way?


I wouldn't say rich but have a fair amount of money for retirement, yes.
The problem is almost nobody starts at an early age putiing away that kind of money, even though they've been told what they will end up with. Most people go in debt and neglect adding to their savings for many reasons like being mortgage poor, have a low income job or they just spend every last dollar they get on things they want now.



tygrus said:


> I mean start investing a few hundred a week at age 25 and come out with millions at age 60?


So $200 a week (or $10400 a year) over 35 years @ about 5% ... yup, that'll put you around a million at age 60.


----------



## Barwelle (Feb 23, 2011)

tygrus said:


> In the process of topping up my TFSA this year, I saw some commercials saying if you contribute to your TFSA every year, in 30 years you will have over one million dollars assuming a ROR in the 4-5% range. 1 million dollars should churn out $40-50k in tax free income.


That's some misleading advertising. I ran a quick excel spreadsheet. Assuming 5% return, TFSA contributions starting at 5500 in year 1, with contribution room growing by 2% each year to match inflation, puts you at less than half a million after thirty years. You would have to increase your return to over 9%, or save for 42 years, to achieve 1mil.

Or maybe they are assuming we will get the 10,000 TFSA limit!



tygrus said:


> For disclosure, I believe a person should have some investments but for me I keep it between 5-10% of my net worth for a couple reasons. First the volatility in the market is sometimes stomach churning and secondly, I am not 100% convinced that its a path to getting rich. For me its really an income diversification strategy.


How do you think about your farm? Business, real estate, or investment?



tygrus said:


> People who made a fortune got it other ways, by owning a business, by working their way up in a company and getting stock options or some by making a lucky stock or real estate purchase.


If you're talking more wealthy than say an average or moderately well off boomer, then yea pretty much this. Or inheritances.


----------



## dogcom (May 23, 2009)

I think if all stays equal over the very long term then I think one can get rich assuming government doesn't bail us in or some other crazy thing doesn't happen. I say this because of the index ETF's and stock portfolios you can easily put together yourself these days.

Looking at the past you didn't have the product choices and info to make money easily so not very many people got rich or did well in investing. In fact since 1980 buying bonds would have been the way to get the sure thing not stocks of course in the 70's bonds didn't do very well but neither did non commodity stocks. 

So real estate and bonds were the path along with your savings that got you ahead and not stocks for the vast majority of people. So when you see reports of buying stocks over the decades getting most people rich it is more like a lottery dream then reality.


----------



## gardner (Feb 13, 2014)

tygrus said:


> some investments [...] I keep it between 5-10% of my net worth
> 
> my LIRA accounts ... grown to about $120k


So putting these tidbits together, you have a net worth of $1.2M of which 10% is "investments." What's the rest? Gold? Tinned beans and generators?


----------



## My Own Advisor (Sep 24, 2012)

tygrus said:


> Now thinking about this further, does anyone know of someone who got rich this way? I mean start investing a few hundred a week at age 25 and come out with millions at age 60?


Yes, I do. 

These people saved consistently, diligently, held mostly stocks (dozens of dividend paying stocks at that) and then retired.

Oh, I should add, they did this in their 50s. They did not wait until their they were 60. 

I suspect there are a few CMFers would have accomplished this as well and I'm a sponge, learning as much as I can from them!


----------



## Rusty O'Toole (Feb 1, 2012)

A million dollars isn't rich. Take your million to the bank and what do you get? The best deal they have is GICs at 2 1/2% if you are lucky.

Do you know what that means? 2 1/2% interest on a million is $25000 a year. Do you look at someone who makes $480 a week and say, that person has a millionaire's income? Because that is what it is.


----------



## none (Jan 15, 2013)

^ That's actually an interesting way to put it.


----------



## cainvest (May 1, 2013)

Rusty O'Toole said:


> Do you know what that means? 2 1/2% interest on a million is $25000 a year. Do you look at someone who makes $480 a week and say, that person has a millionaire's income? Because that is what it is.


Not exactly rich when you look at it that way.

However, is one had that at 60 (and living to 90) when you add in CPP (OAS later) and the possibility of extracting capital I'd say you'd be living pretty good ... but still not "rich" in my books. I also think many wouldn't leave the full amount earning only 2.5% either.


----------



## My Own Advisor (Sep 24, 2012)

Agreed...$1M in the bank now...paid off home...CPP and OAS coming in; that's a good living for most seniors I would think.


----------



## steve41 (Apr 18, 2009)

A sixty year old with $1M in his RRSP and expecting normal OAS/CPP can look to a $43,500 after-tax lifestyle out to age 90. I could do that. (2.5 % ROR, living in BC)


----------



## My Own Advisor (Sep 24, 2012)

Guess we need to keep saving....cheers Steve!


----------



## cainvest (May 1, 2013)

steve41 said:


> A sixty year old with $1M in his RRSP and expecting normal OAS/CPP can look to a $43,500 after-tax lifestyle out to age 90. I could do that. (2.5 % ROR, living in BC)


Is that without extracting any capital from the $1 million?


----------



## steve41 (Apr 18, 2009)

No.... that's a 'die-broke, screw the kids' number.


----------



## avrex (Nov 14, 2010)

Rusty O'Toole said:


> A million dollars isn't rich.
> Do you know what that means? 2 1/2% interest on a million is $25000 a year.





none said:


> ^ That's actually an interesting way to put it.


I agree. That is an interesting way of looking at it.

If this millionaire doesn't touch his principle, his annual income ($25,000) is just a little bit more than someone making *minimum wage* ($22,880 annual in Ontario).


----------



## RBull (Jan 20, 2013)

Tygrus I would say yes. People can and do, although obviously the 1 million you used in one statement will be a lot more common than strictly saving/investing for multi millions in the other reference. I doubt you honestly believe your short time in the corporate world with a 90K LIRA will lead to millions. Aquiring farmland and operating a 6mth a year business may well be more likely. 

Steve41 I think nailed it with the more real world scenario for most in that situation. 

Rusty O' Toole, no I don't look at them that way since I believe most millionaires either are still employed (have other income) or if retired will be making some level of withdrawal along with that, and probably have other pension income too, now or soon. Definitely might not be "rich" the way some people would dream of but much "richer" than most. It may not be long though before people will be setting higher asset goals more commonly.


----------



## tygrus (Mar 13, 2012)

gardner said:


> So putting these tidbits together, you have a net worth of $1.2M of which 10% is "investments." What's the rest? Gold? Tinned beans and generators?


Farmland


----------



## Causalien (Apr 4, 2009)

Answer to the post is Yes.


----------



## gardner (Feb 13, 2014)

tygrus said:


> Farmland


This guy claims to invest in farmland
http://www.freedomthirtyfiveblog.com/investing/farmland-investing

Arguably farmland *is* an investment. If it's how you earn your living and is something you could sell for money when you retire, it certainly is.


----------



## hboy43 (May 10, 2009)

tygrus said:


> Now thinking about this further, does anyone know of someone who got rich this way? I mean start investing a few hundred a week at age 25 and come out with millions at age 60? I personally do not. People who made a fortune got it other ways, by owning a business, by working their way up in a company and getting stock options or some by making a lucky stock or real estate purchase.


I am pretty sure there are a few people here who got rich in stocks. Keep reading and you might meet them.

hboy43


----------



## cainvest (May 1, 2013)

steve41 said:


> A sixty year old with $1M in his RRSP and expecting normal OAS/CPP can look to a $43,500 after-tax lifestyle out to age 90. I could do that. (2.5 % ROR, living in BC)


So how much would this change if this was all TFSA vs RRSP money?
Also, by normal OAS/CPP do you mean average amounts ~14k year of income?


----------



## steve41 (Apr 18, 2009)

He would see $53,213 if it was all taxfree. CPP would be $13487 and OAS $7164 starting at 65.

BTW what's wrong with a 'die broke' strategy? The heirs will probably get the family home. 

'Saving for retirement' doesn't mean 'preserving my capital for my estate' especially with someone with just $1M saved.


----------



## My Own Advisor (Sep 24, 2012)

CPP:
http://www.servicecanada.gc.ca/eng/services/pensions/cpp/payments//index.shtml

OAS:
http://www.servicecanada.gc.ca/eng/...Pension+2013,+Benefits+for+Low+Income+Seniors


----------



## steve41 (Apr 18, 2009)

Amounts are indexed (5 years out) at 2%.


----------



## Barwelle (Feb 23, 2011)

gardner said:


> This guy claims to invest in farmland
> http://www.freedomthirtyfiveblog.com/investing/farmland-investing
> 
> Arguably farmland *is* an investment. If it's how you earn your living and is something you could sell for money when you retire, it certainly is.


tygrus was comparing investing in equities vs investing in real estate, a business, or a career.


----------



## kcowan (Jul 1, 2010)

If I was in my 30s or early 40s, I would take some "flyers" with big return potential. I would not bet the wad, just 15% or less. That can make a big difference to your future life. If it fails, you are limited to the returns from 85% which would be just fine. I did that and it worked out fine. I have no money concerns for the life remaining. Had I not done well, I would still be on a budget and planning on leaving nothing to my kids.

As it is, by making judicious bets that paid off*, I am able to finance my grandchildren in their education, give generously along the way, and have a substantial remainder one day.

* Not all of them paid off, but more than average, and those were big.


----------



## cainvest (May 1, 2013)

steve41 said:


> He would see $53,213 if it was all taxfree. CPP would be $13487 and OAS $7164 starting at 65.
> 
> BTW what's wrong with a 'die broke' strategy? The heirs will probably get the family home.
> 
> 'Saving for retirement' doesn't mean 'preserving my capital for my estate' especially with someone with just $1M saved.


So a $10k increase between TFSA and RRSP, no bad for those in the future that can build up their TFSA.

Absolutely nothing wrong with the "die broke" strategy, its the one I use myself for planning ahead. I was just wondering if the value you gave was just living on the interest + CPP/OAS alone.


----------



## steve41 (Apr 18, 2009)

That isn't to say this proves the TFSA is a wiser choice than the RRSP.... remember contributing to your TFSA doesn't result in a credit from the feds.... only an RRSP does. When you run the numbers from starting work out to death, the RRSP and TFSA are very close, net income-wise.


----------



## Barwelle (Feb 23, 2011)

cainvest said:


> So a $10k increase between TFSA and RRSP, no bad for those in the future that can build up their TFSA.


But don't forget... someone who builds up their TFSA, vs. someone who builds up their RRSP... the TFSA guy will have no refund in their contributing years, so will have to either a) contribute less to their TFSA to have the same after-tax income, or b) live more frugally.

In the end, if you consider the difference starting right from when you contribute, it's closer to a wash than most people realize.

Edit: What steve said.


----------



## nobleea (Oct 11, 2013)

cainvest said:


> So a $10k increase between TFSA and RRSP, no bad for those in the future that can build up their TFSA.
> 
> Absolutely nothing wrong with the "die broke" strategy, its the one I use myself for planning ahead. I was just wondering if the value you gave was just living on the interest + CPP/OAS alone.


I assume that Steve was modeling 1million in an rrsp vs 1 million in tfsa, hence the difference in income? If there was 1mil in the tfsa, there'd be more available in the rrsp, or the tax refunds would have to be accounted for.

Edit: what they said.


----------



## cainvest (May 1, 2013)

nobleea said:


> I assume that Steve was modeling 1million in an rrsp vs 1 million in tfsa, hence the difference in income?


Exactly, kind of an apples and oranges from a real world view as the RRSP would be higher in value due to invested refunds but I didn't want to look at it from the tax bracket comparson side of things.


----------



## steve41 (Apr 18, 2009)

Imagine that the TFSA upper limit was removed...

Our subject is a 30 yo grossing 70K, retires at 60 croaks at 95. Salary indexed at 3%, ROR 2.5%


1. maxing RRSP results in a $40289 die-broke ATI.

2. maxing TFSA results in a $40048 die-broke ATI.


----------



## My Own Advisor (Sep 24, 2012)

OK, but $1M in TFSA at time of retirement is much better than $1M in RRSP at time of retirement...no?


----------



## steve41 (Apr 18, 2009)

My Own Advisor said:


> OK, but $1M in TFSA at time of retirement is much better than $1M in RRSP at time of retirement...no?


Uh.... yep.


----------



## Fraser19 (Aug 23, 2013)

I don't see any reason why I cant have 1m in my TFSA at 65. I turned 18 the same year they came out, I am nearly at a place where I can max it out.
Would that not be simple enough to contribute 5500 for 46 years in low cost ETF's? Seems to me I would need an annual average of about 6% to do that, which I believe would be easy enough over a period of 46 years.


----------



## Barwelle (Feb 23, 2011)

Fraser, assuming contribution room increases 2% a year, you'd need just 4% return to have 1mil by 65! Of course, it would be worth considerably less than 1mil in today's dollars...

Edit: If I'm doing my math right, you'd need 7.5% real return to keep up with 2% inflation... not sure if that's right though. Your 6% might be right actually.


----------



## Fraser19 (Aug 23, 2013)

Yeah that is more or less what I was figuring.

These are my financial plans, max out TFSA in mostly low cost ETF's.
350 a month into RRSP's probably stay with TD index funds for a long time to avoid commissions or regular purchases. Which would come out too roughly 700k with a 6% return.
DB pension, that gets a little harder to calculate but should be at least 35k annually. 
Due to my plans on staying getting with a bank and staying there, this provides me with years of discounted stocks 2250 annually. (just imagine what would happen with them dripping for 40 years)
Naturally all of these numbers are all in today's numbers.

I feel all of these numbers are pretty conservative. 

So the way I see it, is a very comfortable retirement is rather manageable.

I realize that my greatest asset is time and that I have learned the lessons about debt and flashy cars a few years back. I live a frugal life when the intentions of a less frugal but still realistic life in the future.


----------



## My Own Advisor (Sep 24, 2012)

Fraser19,

If you can...

1. Max out your TFSA every year
2. Contribute $350 a month (as you say) into your RRSP every year, and 
3. Have a DB pension for 25+ years, *you will be absolutely "set" in retirement.*

I am imagining those discounted stocks DRIPping for years on end....heck ya  +10


----------



## fplan (Feb 20, 2014)

yes..nothing new with these kind of commercials.. I think if you have discipline with some knowledge, then you can achieve the goal..so is weight loss .. everybody knows how to do it .. but only few people stick to the plan .. same is the case with investing.. so few people stick to the plan and get rich..


----------



## Afp (Mar 19, 2013)

tygrus said:


> Now thinking about this further, does anyone know of someone who got rich this way? I mean start investing a few hundred a week at age 25 and come out with millions at age 60? I personally do not. People who made a fortune got it other ways, by owning a business, by working their way up in a company and getting stock options or some by making a lucky stock or real estate purchase. .


My answer is yes, indeed. My aunt came to this country in the late 1960 in her early 20s. She worked her way to a PhD degree at Laval University in Quebec and became prof there. Now retired but always lived well below her mean. Despite a good pension, she has always put aside at least 20% or more of her income to invest for long term in stocks and bonds (remember the period bond yield over 12%). She has seen many buyouts and bankrupts in her life but she has kept her core holdings intact for the most part and DRIP them all until her retirement. For each position of a few thousands dollars back then now they are all in 7 digits each. Among the stocks in her core holdings are RY, MRU, BMO, BCE, ENB, EMA, and CMG. She never sold a single share of these stocks her whole life. Take MRU as an example, she said the stock split 6 times x2 and recently another x3, so 1 share back then now becomes 192 shares. $3 stock back then before any split now $33 per share, another 11 times more x192 so you can do the math how much a position of 5k has turned out to be today.

Per Benjamin Graham in "Intelligent Investor", "to achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks. Retail investors like us don't need to aim for the moon, just stay with something simple and well run business with a proven track of record of earning growth and dividend grow, we will do more than okay over the long run.


----------



## james4beach (Nov 15, 2012)

This is an interesting topic. I'm also not convinced that typical retail stock investing is the path to riches. (I think it's a heavily-pitched marketing story to bring in fees and assets under management).

I can think of some reasons that actual performance falls short of theoretical long-term performance:

*High fees and poor investment vehicles* ... Most mutual funds stink, have high fees, or are chronic under-performers. The high-MER fund problem is well know but there are many other examples. I've seen many bad mutual funds and even ETFs. The derivatives-based, leveraged, and commodity ETF are more examples of fundamentally flawed funds.

*Chronic minor fraud and occasional major fraud* ... also not to be under-estimated! Around a decade ago, my dad lost a significant amount when the Manitoba Crocus Fund turned out to be a fraud. Or how about all the Canadians who lost tons in frauds from Nortel, Bre-X, and a myriad of US examples? Personally the fraud and lack of integrity in the financial industry is the main reason I don't invest very much in securities. Just think how long it would take you to recover from one of your investments getting wiped out due to fraud. You might have +5% per year and then part of your portfolio loses -50% or -100%. Given enough time, I think it's inevitable and it's a very serious setback.

The chronic minor frauds are also noteworthy because they consistently bleed away performance. An example would be the classic mutual fund trickery of day-end pricing games; at the expense of shareholders, of course. Or dishonest forex fees, or HFTs getting in the middle of trades, or market makers lining up the orders and triggering all the stops. Or banks fixing LIBOR, manipulating money markets. Or banks colluding in the OTC market and cheating on derivatives trades. There are endless ways the financial middlemen constantly screw everyone else. This is transfer of wealth; you're going to lose performance as a result.

If you think it isn't happening to you, I think you're being naive. They rip off everyone. Some of it is "legal", strictly speaking, but much more of it is blatantly illegal but can not be brought to justice. There's a reason that Bay Street and Wall Street guys are fabulously wealthy. Where do you think that money comes from? It comes from us!

*Dramatic changes in cashflow needs. Emergencies, other big life events*. Too numerous to count. Changes in health, life goals, having a baby, getting sued or other surprise liabilities. If you live long enough, it probably will happen. And who around here has 100K of cash sitting around as a liquidity cushion? From the posts I've seen here, very few people actually have any liquidity and seem to nearly be _fully invested_. So in a sudden crunch they will have to liquidate investments, and that's how you destroy long-term returns.


----------



## james4beach (Nov 15, 2012)

Afp said:


> My answer is yes, indeed. My aunt came to this country in the late 1960 in her early 20s. She worked her way to a PhD degree at Laval University in Quebec and became prof there. Now retired but always lived well below her mean. Despite a good pension, she has always put aside at least 20% or more of her income to invest for long term in stocks and bonds


Your aunt had the good fortune of catching the greatest bull market in history, right near it's start. By 1980 -- the start of the greatest bull run known to human kind, she was getting into her peak income earning years of her 40s.

To me, your example only shows that investing can work out great if you happen to catch the start of the greatest bull market in the history of man. I think this actually underpins much of the overconfidence on these boards and in the media, coming from baby boomers who caught that bull market and believe (as they experienced) that investing will always work out that great.

Those kind of bull markets don't come along too often, ya know. 1980-2000 was a historical anomaly, with outlandish returns. Yet all the "wisdom", books, charts, models and advice of the financial world today is based on that anomalous period. Heck, even though we got two major crashes (in 2000 and 2008) these are typically dismissed as one-time events.


----------



## My Own Advisor (Sep 24, 2012)

I also know a couple of people (like Afp's aunt) who basically bought stocks and rode them to wealth. Not rich, wealth. 

Among their core holdings were energy companies and telcos and bank stocks in Canada. They DRIPped them until retirement. The same companies that have been paying dividends for generations. I wrote about that actually....
http://www.myownadvisor.ca/reader-question-what-stocks-have-paid-dividends-for-generations/

The "Intelligent Investor" quote is spot on and if you have a diversified basket of stocks (20+) and limit trading I suspect an investor would do quite well over time.

Will stock investors do as well in the future as they did like Afp's aunt? Nobody knows but unfortunately past performance is our only real indication of what the future _might_ hold. 


As for the comment about cashflow needs ASAP, you are 100% correct that life changes. Personally I don't have $100k lying around but that wouldn't make much sense for me anyhow, I'd rather have that money put to work. I keep a small fund for emergencies and everything otherwise is invested. If I need liquidity, I would turn off my DRIP taps and not reinvest everything like Afp's aunt. Until I need that liquidity the DRIP taps are on and money will be reinvested as much as mathematically possible


----------



## Cal (Jun 17, 2009)

I do know of people who have become millionaires this way, however you wouldn't know it. All of them live a fairly humble lifestyle.

Made me think of the book Millionaire next door. -apparently one of the authors recently passed away http://www.nytimes.com/2015/03/07/y...nd-his-millionaire-next-door.html?src=me&_r=0

And for the OP, I guess if you don't have the stomach for fluctuations in equities, then you probably shouldn't have alot there. Or should consider different holdings to allow you to sleep better at night.


----------



## tygrus (Mar 13, 2012)

Loading up a compounding calculator and running it off for 35 years is tempting but its not accurate. That doesn't take into account the corrections and recessions that happen about every 7 years. Even if you own an ETF with a basket of stocks there is going to be a couple losers in there dragging the thing down or some that are sensitive to rates which are always changing.

And if just contributing to equities on a regular basis was so secure, it would be a much more widespread practice. I mean everyone would be doing it, instead of almost no one doing it. Most pensions funds are even heavily weighted in bonds over equities. Blue chip companies would be buying the index. People wouldn't just put $350 dollars a month in there, they would out their entire paycheck in there. Kids wouldn't go to school, they would just live in the basement for 20 years and invest all they have instead of getting an education.


----------



## gardner (Feb 13, 2014)

tygrus said:


> People wouldn't just put $350 dollars a month in there, they would out their entire paycheck in there.


Well people *do* do that sort of behaviour around real-estate and it has risks too.


----------



## OnlyMyOpinion (Sep 1, 2013)

Better yet, give your children a head start the day they are born by putting their Canada Child Tax Benefit (CCTB) into an 'account-in-trust-for' until they are 18if you can afford to save that money. The payment and income earned is technically theirs so once they are 18 the account becomes theirs and they are well on their way to FI. The payment does start to get clawed back at 2%/child once your family net income is > ~$44k. We did this for our two until we lost the benefit due to net income.


----------



## cainvest (May 1, 2013)

tygrus said:


> Loading up a compounding calculator and running it off for 35 years is tempting but its not accurate.


You can easily back test this against indexes, go back 40 years on returns for the S&P500 as an example, see what real world numbers you come back with. Just going by memory (so I might be off) but I believe the S&P500 average was around 9% up to 2010.



tygrus said:


> And if just contributing to equities on a regular basis was so secure, it would be a much more widespread practice. I mean everyone would be doing it, instead of almost no one doing it.


In a world were many people can't even save money for the future (i.e. still in debt in their 40's to 50's with little or no savings) why would you think this?


----------



## none (Jan 15, 2013)

OnlyMyOpinion said:


> Better yet, give your children a head start the day they are born by putting their Canada Child Tax Benefit (CCTB) into an 'account-in-trust-for' until they are 18if you can afford to save that money. The payment and income earned is technically theirs so once they are 18 the account becomes theirs and they are well on their way to FI. The payment does start to get clawed back at 2%/child once your family net income is > ~$44k. We did this for our two until we lost the benefit due to net income.


I sort of doing that by filling up my kids RESP every year. I feel no obligation to give my kid a large cash infusion when he becomes an adult. Indeed, my job is to try to help him so he doesn't need that kind of help but stand on his own two feet like an adult.


----------



## Afp (Mar 19, 2013)

james4beach said:


> Your aunt had the good fortune of catching the greatest bull market in history, right near it's start. By 1980 -- the start of the greatest bull run known to human kind, she was getting into her peak income earning years of her 40s.
> 
> To me, your example only shows that investing can work out great if you happen to catch the start of the greatest bull market in the history of man. I think this actually underpins much of the overconfidence on these boards and in the media, coming from baby boomers who caught that bull market and believe (as they experienced) that investing will always work out that great.
> 
> Those kind of bull markets don't come along too often, ya know. 1980-2000 was a historical anomaly, with outlandish returns. Yet all the "wisdom", books, charts, models and advice of the financial world today is based on that anomalous period. Heck, even though we got two major crashes (in 2000 and 2008) these are typically dismissed as one-time events.


I don’t disagree with James4beach that the market has full of chronic minor and major fraud. Especially in Canada, we all know the OSC’s regulations is a joke in compare with SEC’s. You wonder why many resources and explorations choose Canada to list their stocks, because Canada is a fraud heaven… However, for a Nortel, there is a Royal Bank; for a Bre-X, there is a Metro’s success; for a Sino Forest, there is a Stella-Jones’s story. So when you stumble, what are you going to do? Should you admit your mistake, learn from it and move on or you blame the circumstance/the environment and call it quit?

We all make mistakes in investment. If you go stock picking and you do it long enough you will soon picking some bad ones. My aunt lost money in Nortel too. I lost money in Goldcorp and Suncor, and for O&G or mining stocks, you can’t get much bluer or better. Thus, you always need to have risk management in mind and it doesn’t have to be something complicated. Keep it simple like “My Own Advisor” said, have a diversified basket of 20+ stocks, keep each position weight less than 5% of your portfolio so when one stock goes under, the maximum you can lose will be no more than 5%. That 5% lost you can recover relatively quickly in the next fiscal year. And if you tell me “what if I don’t have one company bankrupt in a year but 3 or 4”, then the problem is you. It is something wrong with you and your choice of investment.

You said my aunt got there by having the good fortune of catching the greatest bull market in history and I agree with you that it is true, she has the tail wind during this period but from my observation, she has got there mainly by choice. Her greatest asset is not care what others think of her. While her colleagues in her faculty drove Mercedes, Jaguar and Cadillac; she drove Toyota Corolla her whole life. She is still living in the same house that she custom built in the 70s. It was her first and also only home. Think of the 40 years when people were paying 2k/3k per month for their mortgage, she was putting that same amount or more into her positions. When someone has worked that hard for their success for that long, I can't say they get there by luck.

For an average Joe like most of us, the only way to build wealth is to have a gap between your ego and your income. Getting rich has little to do with your income but everything to do with your savings rate. And your saving rate is just the difference between your ego and your income. Keep the former in check and you should be fine over time. 

The price one has to pay in order to achieve long term investment success is that need to learn to tolerate price fluctuations. Dealing with price fluctuations can be simplified by purchasing high quality, financially sound companies that have shown a history of surviving and then thriving in the face of adversity. Your lack of emotion in relation to your investments and the daily swings in price will make all the difference between good and bad decisions. If you should purchase a company and the market reverses shortly after, keep in mind that if you are looking for long term, quality companies will bail you out over time. They will bounce back. That’s part of what makes them quality. Meanwhile, you will get paid while you wait in dividend and what more could you ask for? In the end: it will come down to how much money do you need, when do you need it, and how sure are you that it will be there? My choice is to never sell my core holdings but living off the dividend when my time comes. There, that’s my preparation for future market crashes, never will I have to sell at the worst time.

If you really do your homework and knows your companies inside out, a portfolio of about 20 dividend growth stocks is both all you need and all you can really track closely enough. My rules from experience in order are: 1. Safety first: Only own companies where the dividend in unquestionably safe. Never ever reach for yield or continue to hold any stock where there is any question of dividend sustainability. This eliminates most Canadian O&G companies and the like of CPG, BTE. 2. Only own companies where the fundamentals continue to show that the next year the dividend will almost certainly be higher than it is this year. Over time, it is increasing free cash flow that begets increasing dividends and increasing dividends translates into the stock price rising. That’s direct correlation over the years. Just do not expect the share price to follow the dividend up every year. This applies to the like of CU, CMG and MRU (until its recent run up with TGT leaving Canada). If you get these two rules right, absolute safety of current dividend and a dividend grow every year, you will avoid virtually most or all of the errors out there and you will outperform those who take higher and totally unnecessary risks. 

Life is too short to live it through a vacation once a year. What a shame this whole working for a living thing is, and all to support corporate profits. This current system is brainwashing us into running like hamsters in the little wheels to continually buying the stuff that we don’t need to impress the people that we don’t know with the money that we don’t have. When your need and your want is not so much, it makes the distance to your freedom and security much shorter.


----------



## none (Jan 15, 2013)

^ As someone who has embraced a temporary life of pretty heavy frugality I admit there is a lot of pressure to buy stuff just to maintain appearances of success.


----------



## namelessone (Sep 28, 2012)

If you put all money under the mattress, inflation will cut its value in half in 20 years.
Yeah, 6% return is horrible but there's no free lunch in this world. 
I don't get people complaining low return if they don't do any thing. It's like companies complaining they have bad employees because they didn't do any interviews.


----------



## Cal (Jun 17, 2009)

Came across this article, thought it may be relative to this thread:

http://www.moneysmartguides.com/what-i-learned-managing-500-million-dollars


----------



## MrMatt (Dec 21, 2011)

tygrus said:


> For disclosure, I believe a person should have some investments but for me I keep it between 5-10% of my net worth for a couple reasons. First the volatility in the market is sometimes stomach churning and secondly, I am not 100% convinced that its a path to getting rich. For me its really an income diversification strategy.


If you only invest 5-10% of your net worth? what is most of your net worth in? ARe you poor, or do you only consider investments of a certain type "investments"?

As far as the comment on TFSA vs RRSP, they are basically a wash, unless you consider OAS clawback or changes in your marginal tax rate. If your tax rate changes substantially, it DOES matter.


----------



## My Own Advisor (Sep 24, 2012)

I wasn't sure about that either MrMatt (5-10% net worth only invested). I hope for example, my house is a small portion of my net worth eventually, meaning, most of my net worth comes from investments.


----------



## Jaberwock (Aug 22, 2012)

If you invest in GIC's at 2%, and inflation is 2%, then your money is not growing at all in real terms.

To make your money grow, you need to take a measured risk. A diverse basket of dividend paying stocks, focused on large cap stocks that regularly increase their dividends will give you real growth with very low risk. Don't worry about market fluctuations, just stay invested and reap the rewards.


----------



## Eclectic12 (Oct 20, 2010)

tygrus said:


> ... And if just contributing to equities on a regular basis was so secure, it would be a much more widespread practice. I mean everyone would be doing it, instead of almost no one doing it ...
> People wouldn't just put $350 dollars a month in there, they would out their entire paycheck in there. Kids wouldn't go to school, they would just live in the basement for 20 years and invest all they have instead of getting an education.


LOL ... so with all the posts here on CMF about how the vast majority of kids are more interested in spending on the latest iGadget or how many family members refuse to discuss investing as it's "too complicated" - you think people are paying attention enough to evaluate it? Let alone risk their hard earned money on something that it takes the skills of a brain surgeon to do successfully (or at least in their mind)?


You are definitely rubbing shoulders with a different crowd than I am .... or those in the thread a while back complaining there's no one to talk to about investing in real life. :biggrin:




Cheers


----------



## donald (Apr 18, 2011)

I am the kid that is 15 yrs in to not going to school and *was* living in a basement lol doing just that
Give me another 15 yrs though and I will let you know how it pans out !or maybe I will be


----------



## Afp (Mar 19, 2013)

tygrus said:


> I look at my LIRA accounts which I invested after I left the workforce and $90k has only grown to about $120k in 5 years - definitely not on track for millions.


Tygrus,
What you've got there, $90k to $120k with zero extra deposit in 5 years , was about 6% compound interest. 

Keep the same rate of 6%, add $500 monthly saving for 30 years, you will have your one million dollars. $500 per month over 30 years will only cost you $180k. Just A Guy used to say he considers his money investing in stocks as money spent and I think it's an excellent ideal. Short term, people tend to overestimate things but long term, people underestimate. Successful investing is pretty boring. Its main requirement is patience and inaction. The ability of putting up with perpetual boredom is a serious skill. Put your money into fundamentally sound businesses and keep your winners, the stronger usually gets stronger. 

Assume you manage your own money and save that 2% MER, your rate of return improves to 8%, you will have over $1.73m from that same capital. That 2% fee for advisors over years can turn out to be half of people net worth.


----------



## Eclectic12 (Oct 20, 2010)

tygrus said:


> Loading up a compounding calculator and running it off for 35 years is tempting but its not accurate.
> 
> That doesn't take into account the corrections and recessions that happen about every 7 years. Even if you own an ETF with a basket of stocks there is going to be a couple losers in there dragging the thing down or some that are sensitive to rates which are always changing.


True ... but then again, what one is willing to do and has the cash flow (or credit to do) will also affect the results.

I expect the compounding calculator taking a lump sum contribution and re-investing cash distributions to fair poorly compared to:
a) fresh cash put into fifteen stocks had for twelve - the share price increasing from 80% to 240%, with dividends/cash distributions ranging from 4% to 30%.

b) selling two thirds of a big gainer (up 289% for the share price) meant being able to replace the existing shares at a 60% discount (or if using the same $$$, end up with more shares in exchange for missing something like three dividends).


Then too, I've seen those who are focused on companies that cut their dividends/cash distributions ignore that YMMV as some did not cut and in short order, increased their payments.


Cheers


----------



## bmoney (Jun 22, 2013)

For what it's worth, I know, have worked with, are friends with or have been acquianted with hundreds of millionaires because of what I do for a living. Not a single one that I came to know got rich because of their investments, not one. Every single one became rich either through their own hard work (the majority), whether it was starting a business or becoming a professional (doctor, dentist, lawyer, accountant, etc), or inheritance (very few). Investments to the wealthy are a means of wealth preservation and income diversification, or simply something else to do with money they cannot constructively allocate. For my friends and those that I know that aspire to be be rich someday, my best advice is to focus on what you know best, as Gordon Gekko would say "what is your edge?" You will make a much higher return focusing on your edge, than wasting the day picking and analyzing stocks. Invest in yourself first, the ROI on you is much greater than the risk free return - if you haven't realized that yet, than you will never be rich but your employer will.


----------



## none (Jan 15, 2013)

That is a good way to look at it.

Although investing adds a bump, 300K making 7% per year is simply an additional $10.5 an hour more based on a 2000 hour work year.

It's like what couch potato Dan says: it's more about your savings rate than chasing minuscule reductions in MER.

Wow, this post is a bit depressing... I need to do more consulting.


----------



## hboy43 (May 10, 2009)

bmoney said:


> You will make a much higher return focusing on your edge, than wasting the day picking and analyzing stocks. Invest in yourself first, the ROI on you is much greater than the risk free return - if you haven't realized that yet, than you will never be rich but your employer will.


I think what you say has merit in the early days of a career, but later less and less.

I have made something like $1M in investment income and gains over my lifetime. To earn this I have done about 200 trades involving something like 50 to 75 unique securities/companies. So on average I have made $5000/trade. Say I do 1 hour (a more realistic number is 15 minutes) of investment specific research and reading for each trade. That is $5000/hour. Only CEOs do better than that. I expect the hourly rate to get much larger if I survive another 20 or 40 years.

I am sorry, but I don't see investing as rocket science. A bank here, a pipeline there and pretty soon you have serious money. I spend very very little time doing reading beyond general business news, something I have enjoyed since delivering the G&M 40 some years ago. 

hboy43


----------



## bmoney (Jun 22, 2013)

hboy43 with that type of performance, maybe you are really cut out for being a mutual, pension, private fund manager. You could have made a few million a year.


----------



## hboy43 (May 10, 2009)

bmoney said:


> hboy43 with that type of performance, maybe you are really cut out for being a mutual, pension, private fund manager. You could have made a few million a year.


LOL. No performance really, just time in the market and really frugal living in the younger years. About 10% PA the last dozen years. Before that who knows. the record trail is too murky.

hboy43


----------



## Afp (Mar 19, 2013)

hboy43 said:


> LOL. No performance really, just time in the market and really frugal living in the younger years. About 10% PA the last dozen years. Before that who knows. the record trail is too murky.
> 
> hboy43


hboy43, 

You post in the G&M as "Boulter", correct? I am a big fan of yours.


----------



## james4beach (Nov 15, 2012)

bmoney said:


> For what it's worth, I know, have worked with, are friends with or have been acquianted with hundreds of millionaires because of what I do for a living. Not a single one that I came to know got rich because of their investments, not one. Every single one became rich either through their own hard work (the majority), whether it was starting a business or becoming a professional (doctor, dentist, lawyer, accountant, etc), or inheritance (very few). Investments to the wealthy are a means of wealth preservation and income diversification


Well said, and I've seen the same thing.

I think this fantasy of "investments and stock picking as a path to riches" is pumped by an industry of parasitic fee collectors, including the brokers, advisors and even ETF vendors. This fantasy is bolstered in periods like we're currently in, strong bullish runs.

But adjusting your income & expense variables will have a far greater impact than anything you can get from the stock market.


----------



## My Own Advisor (Sep 24, 2012)

hboy43 said:


> I am sorry, but I don't see investing as rocket science. A bank here, a pipeline there and pretty soon you have serious money. I spend very very little time doing reading beyond general business news, something I have enjoyed since delivering the G&M 40 some years ago.
> hboy43


Agreed! The hard part is to be patient and not sell these banks, pipelines, railroads, energy companies, etc. after you buy them. Just keep buying and don't look back. 

I don't yet have the $1M in the bank but I'm certainly working on that. 

To bmoney's comment, $1M will not make me rich, far from it but it will certainly be a great supplement to a paid off home and other assets.


----------



## hboy43 (May 10, 2009)

james4beach said:


> 1.I think this fantasy of "investments and stock picking as a path to riches" is pumped by an industry of parasitic fee collectors, including the brokers, advisors and even ETF vendors. This fantasy is bolstered in periods like we're currently in, strong bullish runs.
> 
> 2.But adjusting your income & expense variables will have a far greater impact than anything you can get from the stock market.


1. I invite you to not use the above, like I declined to use all these years ... All I have ever paid is buy and sell commissions, currently $9.99.

2. I did plenty of this too. If over 30 years I saved $20K a year and had zero return, I'd have $600K. Now assume I actually got some return in there somewhere, why is it so hard for you to accept that we can and do have a NW of > $2M, the majority in stocks?

Anyhow, James is relentless in defending his beliefs. Evangelical even. I am pretty sure he flat out thinks I am lying here. So I invite people to search the archives to review my musings and then decide for themselves if I spew BS.

Cheers,

hboy43


----------



## cainvest (May 1, 2013)

hboy43 said:


> If over 30 years I saved $20K a year and had zero return, I'd have $600K.


That $600k would be around 3 million if it were invested (@20k a year) in the S&P500 over the past 30 years, no fantasy there.


----------



## My Own Advisor (Sep 24, 2012)

Yup. 

If you had a high savings rate, and you invested in the stock market and simply *did nothing* for 30 years, you'd be somewhat rich. 

This is both truth and reality in investing. No fantasy as cainvest put it!


----------



## dogcom (May 23, 2009)

After seeing hboy43 post I think I now get why we have never heard stories of people getting rich in the stock market.

The reason is if I am right is because these people like hboy never brag about it and if they explained the boring details to everyday people it would be forgettable. 

Investing in boring solid companies, indexes and bonds with money saved every month is not an interesting story. The people you do hear from are the sales men who make commissions and the gamblers who make big gains they brag about but won't tell you about the bigger losses. 

I still think over time for many reasons most people are unable to make it in stocks. There are not many people like hboy that have the discipline to carry out their plans and goals over the very long term.


----------



## RBull (Jan 20, 2013)

hboy43 said:


> 1. I invite you to not use the above, like I declined to use all these years ... All I have ever paid is buy and sell commissions, currently $9.99.
> 
> 2. I did plenty of this too. If over 30 years I saved $20K a year and had zero return, I'd have $600K. Now assume I actually got some return in there somewhere, why is it so hard for you to accept that we can and do have a NW of > $2M, the majority in stocks?
> 
> ...


I don't need to search. I believe. Congrats.


----------



## RBull (Jan 20, 2013)

dogcom said:


> After seeing hboy43 post I think I now get why we have never heard stories of people getting rich in the stock market.
> 
> The reason is if I am right is because these people like hboy never brag about it and if they explained the boring details to everyday people it would be forgettable.
> 
> ...


Good post. Spot on. It's not that it can't work. It's that few have that vision and then the focus/discipline to carry through relentlessly.


----------



## none (Jan 15, 2013)

Yes, this is how I preface my financial 'potato' sell:

1) I have a method that maximized the probability of retiring with the most amount of cash;
2) It's has a theoretical foundation;
3) It's supported my empirical evidence;
4) It's really easy to implement and maintain;
5) BUT it's really, really boring....


----------



## My Own Advisor (Sep 24, 2012)

dogcom said:


> Investing in boring solid companies, indexes and bonds with money saved every month is not an interesting story. There are not many people like hboy that have the discipline to carry out their plans and goals over the very long term.


Totally agree.

Sexy sells. 

Buying and holding some stocks or some ETFs for decades with a good savings rates is not sexy, is not newsworthy but it's wealth-worthy.


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> .... But adjusting your income & expense variables will have a far greater impact than anything you can get from the stock market.


Interesting ... so adjusting one's income upwards for high income earner where the next dollar earned is going to be taxed at 43% is going to out do earnings from the market taxed at 25%? 

Or at the other end of the scale, earning additional employment income taxed at 20% beats an eligible dividend income that is bolstered by another 6% refund, where the remainder is tax deferred until 10% is paid.


Expense variables on the other hand are a clear winner.


Cheers


----------

