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Canadians are idiots when it comes to saving and investing


Argus

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I sure hope so, because if not, that approach would suck even more. Preservation of capital is more important to some people than growth. It doesn't make them "ignorant"...just intolerant of risk and/or pursuing other short and long term objectives. Sure, I was able to time the market in 2008 and ride the wave, but so what...other people wanted no part of it. Doesn't make them "idiots".

As for low and high risk, I will issue the same challenge as before. Take equity out of your home and really roll the dice on individual equities...don't be so "conservative" by playing it "safe" with ETFs.

This is not an all or nothing game. Measuring risk and deciding how much you need to take, and how to mitigate your risks is part of investing. Being afraid of investing at all because you don't understand it - and yet taking no effort to educate yourself, qualifies as ignorant, and dumb as well, when there is so much at stake. If you have a fine government pension, okay. If you don't then you need to invest. Flat out. Old guys with a pension and plenty of money don't need to take risks. Their income is assured. Younger people with no real savings and no likelihood of a company pension definitely DO need to.

Those who did nothing with their investments in 2008 but leave them there lost a ton of money - if they panicked and sold. If they stayed in and ignored what the market was doing they made it all back again and more. Meanwhile a lot of people around the world, particularly in your country, who decided they were going to put all their money into their homes lost their shirts, lost everything they had, when those houses were suddenly worth less than half what they owed on them.

Edited by Argus
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The point was that those who eschew high risk investments with ETFs are no more "idiots" or "ignorant" than those who play it relatively safe with cash or bonds. Owning your home free and clear resulted in only a short term paper loss but they still had/need a place to live...we actually got a big break in assessed value / property taxes. Tax laws in the U.S. make real estate a more favourable investment than in high tax/ higher cost of living Canada.

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This. I've heard this from so many people. And perhaps I shouldn't have said Canadians are idiots about invsments so much as ignorant(as in lacking knowledge). I've had the time to look into it, to read books and untold articles, and to watch and listen to the experts. I also subscribe to an investment advice service.

For most Canadians who don't have the time and expertise, I would agree with Warren Buffet, perhaps the world's greatest, most succesful living investor, who said ordinary people should not buy stocks but buy ETFs instead. An ETF is an Exchange Traded Fund. It's a collection of stocks like a mutual fund, but it's not selected by any criteria other than whatever is in the index, so it's way cheaper, often a quarter, or even a tenth what a mutual fund will charge you.

Is there a good way for somebody to get started in investing without putting a lot of money at risk?

And regarding the ETFs... would I just walk into my bank and say "I want to buy an ETF"?

-k

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Is there a good way for somebody to get started in investing without putting a lot of money at risk?

And regarding the ETFs... would I just walk into my bank and say "I want to buy an ETF"?

-k

You can put as much or as little money into investing as you want. Generally your own bank will let you buy its own mutual funds, and probably its own ETFs without charge. If not, you have to pay a fee, which varies anywhere from $8-$25 any time you buy or sell a stock (or etf). If you have to pay a fee, it's best to put money aside for a bit, and then buy in bulk so as to minimize your costs. You don't want to put down $100 on an ETF if you're going to be charged what amounts to 10-15-20% up front, after all.

Not all banks have them. BMO has them and RBC is just starting to (BMOs are better, imho). I don't believe TD or Scotia do. If you're not with BMO you'll have to open an investment account to buy them (free). If your bank doesn't offer ETFs or you don't want THOSE ETFs you have to open an account with a broker. Most banks also have a brokerage arm, and again, the account itself is free. I bank with TD, and my investment accounts are with TD Waterhouse. Right now all the best performing ETFs are those holding American stocks, which is a reflection of how well the stock markets are doing at the moment, and likely to continue for the rest of this year and into next.

BMO has a low volatility US ETF right now (ZLU). Low volatility ETFs are fairly popular with the risk adverse and are made up of stocks which are not expected to bounce around all that much. Even so ZLU is up 24% year to date. To find out what stocks an ETF holds you simply go to the owner, in this case BMO http://www.etfs.bmo.com/bmo-etfs/holdings?fundId=93925#. That will also tell you their fee, which is 0.3%. By way of comparison, a mutual fund might charge as much as 2% or even 2.5% (this is per year, btw). And that adds up over the years to a LOT of money.

Vanguard and Ishares also have very good ETFs, but again, you need to get a trading account with someone to buy them. BMO doesn't have a Canadian minimum volatility that I can see, but Ishares does (XMV). On the other hand BMOs bank index (ZEB) is pretty reliable, and up 13% ytd not counting dividends.

Any of these can lose money in the short term, for a week, a month, even a year perhaps. The stock market does not move up in a straight line. But if you're putting something in there for your retirement it's almost inconceivable that one of these would be worth LESS in five or ten or twenty years than it is now.

By the way, never mistake your bank's investment advice for being unbiased. They're sales people and they will invariably try to sell you a mutual fund simply because that is what the bank makes the most money on.

If you need to sell your ETF, it's the same as when buying it. You pay a fee (unless you're with BMO and selling one of their ETFs. You can sell it at any time without any penalty, but it'll take 3 days for the trade to be settled so you can transfer it to your bank account.

Edited by Argus
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This is not an all or nothing game. Measuring risk and deciding how much you need to take, and how to mitigate your risks is part of investing. Being afraid of investing at all because you don't understand it - and yet taking no effort to educate yourself, qualifies as ignorant, and dumb as well, when there is so much at stake. If you have a fine government pension, okay. If you don't then you need to invest. Flat out. Old guys with a pension and plenty of money don't need to take risks. Their income is assured. Younger people with no real savings and no likelihood of a company pension definitely DO need to.

Those who did nothing with their investments in 2008 but leave them there lost a ton of money - if they panicked and sold. If they stayed in and ignored what the market was doing they made it all back again and more. Meanwhile a lot of people around the world, particularly in your country, who decided they were going to put all their money into their homes lost their shirts, lost everything they had, when those houses were suddenly worth less than half what they owed on them.

Is there a good way for somebody to get started in investing without putting a lot of money at risk?

And regarding the ETFs... would I just walk into my bank and say "I want to buy an ETF"?

-k

ETF's are bought and sold on the stock market. Just like stocks. You can go to your bank and open an investment account (although the organization where you hold your investments is theoretically separate from your bank). All the major banks have affiliates that offer investing.

If you are new to investing, my advice would be to start with research. Take a night course at your local community college or find a good book. Throwing you money into in investments will teach you things but that will be a painful way to learn.

A few basics:

- You can invest for growth (price appreciation), income or both

- Over the long haul, growth investments have produced better returns historically, but they are more volatile. You need to be prepared to lose 20% or more, which could take years to recover

- In the short term, there is an inverse relationship between the posted interest rates and the price of income investments. So, for example, if interest rates spike, dividend stocks, bond funds and real estate investment trusts will all go down in value

- Stock market prices are leading indicators of economic performance. That means if you wait for a strong economy to invest, you've missed the boat. The best returns have already been had

My advice:

- If you don't have a lot to invest and are new, stay away from individual stocks. Even high quality stocks can tank fairly quickly. ETFs offer fund diversity with low management fees.

- If you ignore the above advice, be warned that investing in individual stocks can take a lot of research to do it properly.

- The bull market has been going for quite a while so I wouldn't put too much into growth stocks/funds right now. Chances of a downturn grow as time goes on

- A good strategy for beginning investors, risk adverse investors and investors who don't want to spend all of their evenings and weekends reading analyst reports is to invest in a balanced portfolio of ETFs. Allocate a percentages of your investment to different categories (e.g. Canadian equities, global equities, bonds) and buy ETF's that represent those categories. Periodically, re-balance by selling some of those that go up and buying some of those that go down. This produces a natural effect of buying low and selling high.

- Whatever you do, understand this: there is money to be made but that doesn't mean that the game isn't rigged against you. Insider trading is rampant, executive stock options will dilute your returns and automated trading will make the markets behave in ways that will make your head explode. And markets are fundamentally driven by emotions - fear and greed. You want to see mob behaviour - just watch the next stock market crash.

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Very little about this article surprised me. I've been aware for some time of the profound ignorance Canadians hold on this topic, despite the importance of saving for their own retirement. One thing which did startle me was that two thirds of Canadians have all their savings and investments in cash. That is a recipe for disaster when they get old, for their money never grows. In fact, it shrinks, as inflation eats away at it year after year.

I embraced the TFSA the year it came out. That was six years ago. At a maximum contribution rate of $5000 a year (changed to $5,500 last two years) I could have put $31,000 into my TFSA. Right now, there is $58,000 worth of stocks in my TFSA. That's what being in the stock market the last few years could have done for anyone -- other than, perhaps, those deluded fools who still buy mutual funds.

Even mutual funds, though, are better than cash. But it seems Canadians are so anxious about their money they want to keep it close at hand, not even in bonds or GICs, much less the stock market. I wonder if that's a product of our nature or symptomatic of the apallingly overpriced and unethical state of investment advisors in Canada.

http://www.theglobeandmail.com/globe-investor/investment-ideas/getting-passed-the-point-of-low-returns/article21412830/

How long have you been investing? If your investment experience is based on the last 6 years, all you know is a bull market and you have no basis to criticize anyone. Anyone can make money in a bull market.

Talk to us again after you experienced a few major market meltdowns.

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Any of these can lose money in the short term, for a week, a month, even a year perhaps. The stock market does not move up in a straight line. But if you're putting something in there for your retirement it's almost inconceivable that one of these would be worth LESS in five or ten or twenty years than it is now.

This is nonsense. Again, I ask how long have you been investing?

Look at this chart of the Dow Jones Industrial Average since 1900. Overall the trend is up but there are lots of opportunities to lose money. If you invested just before the 1929 stock market crash, it would be 1957 before your stocks were worth the same money. If you invested in 1966, you'd be waiting until the early 80's. And it gets worse. Here is the same chart adjusted for inflation. It shows that people who invested just before the 1929 crash didn't really get their money back until about 1966, people who invested in the mid 60's didn't recover until the 90's and people who invested in the 90's still haven't recovered.

So, you just might to "invest" in a bit of research before you start calling people idiots.

By the way, never mistake your bank's investment advice for being unbiased. They're sales people and they will invariably try to sell you a mutual fund simply because that is what the bank makes the most money on.

I agree with this. Moreover, once you start investing, you'll quickly find that their level of investing knowledge is quite low. If you manage your own money, you'll quickly be more knowledgeable than the typical bank employee who deals with RRSP's.

Edited by ReeferMadness
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How long have you been investing? If your investment experience is based on the last 6 years, all you know is a bull market and you have no basis to criticize anyone. Anyone can make money in a bull market.

Talk to us again after you experienced a few major market meltdowns.

I was investing during the 2008/2009 mess.

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This is nonsense. Again, I ask how long have you been investing?

Look at this chart of the Dow Jones Industrial Average since 1900. Overall the trend is up but there are lots of opportunities to lose money. If you invested just before the 1929 stock market crash,

Honestly, you're going to use 1929 as your base year? And you're also acting like I was talking about the broader market. I was talking about banks and low volatility ETFs.

You're also presuming someone had money spread evenly in the broad market in 1929 (or 1966), and never shifted any money anywhere to take advantage of rising sectors and abandon falling ones. Someone with an oil sector ETF for example, could simply switch to banks or gold or pharmacies if those are doing better, or to bonds, for that matter. In 2011 I was heavily into REITs and bond ETFs. I sold those all off early last year.

You're also forgetting the markets don't collapse overnight. Even on October 29, 1929 the market 'only' fell 12%. Given how the market had behaved in the months up to that if someone pulled out after that the money they'd have lost was most likely profits they'd made anyway. The reason so many people were financially ruined was the amount of leveraging going on.

I didn't say there was no risk, but the likelihood the Canadian banks are all going to plunge like it's 1929 and stay there for decades is ... extremely unlikely.

Edited by Argus
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All investments are based on the "Risk - Reward" principle be it the market, real estate or your local bookie.

You have to base your choices on liquid capital, your personal needs and life style. The smart investor does a whole lot of reading and then finds a financial advisor with a history of success to make his/her final decisions.

Anyone having been very successful in their investment strategies would certainly not be sharing them on an anonymous opinion board nor would he/she be wasting their time on one.

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Is there a good way for somebody to get started in investing without putting a lot of money at risk?

And regarding the ETFs... would I just walk into my bank and say "I want to buy an ETF"?

-k

Your best bet is to use an online brokerage. There are many of these in Canada, some offered by the big banks (BMO Investorline, RBC Direct Investing, etc) and some are independent (Questrade, Virtual Brokers, etc). Read a few online reviews and pick one you like, then open an account online. The process should be quick and you can use your account within a few days. Then, simply transfer money online from your bank account to your online brokerage account, the same way you would pay a bill.

Once the money is there, you can use it to buy shares of whatever you want (at least in terms of stocks and ETFs). Transactions have a commission, usually around $5 per transaction from the cheapest brokers to $20 from others. If you plan to invest in multiple ETFs, stocks, etc regularly, or to trade, then the commission is really important so you don't spend hundreds every month on it. But if you plan to just invest a couple times a year, the commission is less important and you could look for other things like how user friendly their website is, what reviews say about customer service, etc. Another important consideration for you might be their minimum account requirement. Some will require you to transfer in like $5000 to open an account, while others have $1000 as a minimum or even no minimum at all. Keep in mind that even if you transfer in $5k, you don't have to invest it all if you just want to try it out and see how things work; the unused money will just sit there as cash just like it would in your checking account.

Now, to ETFs. The idea behind an ETF is that you don't want to have to pick individual stocks, but just invest your money in the market (or some part of it). ETFs have managers like mutual funds. But unlike mutual funds, rather than trying to actively manage it based on their own strategy to achieve the "best" returns they can, they just follow a very specific stated goal and algorithm (and this lets them keep management costs much lower). For example, the most widely traded ETF seeks to just track the returns of the S&P500 index (basically the average performance of the 500 biggest public companies in the US). The S&P500 is a good representation of how the US stock market is doing, and ETFs like SPY track it really well. So if you just want your portfolio to do what the market does, with minimal expenses and no hassle, all you do is transfer money to your broker once a month or a couple times a year or whatever, and buy shares of SPY or some other ETF. There are comparable ETFs to track the Canadian stock market, or those in Europe, Asia, etc. Other ETFs focus on specific sectors, like energy companies, or financial companies, or tech stocks, etc. Other ETFs seek to track the price of commodities like oil, gold, etc by investing in futures of these commodities, which are harder for a beginner investor to trade directly. There's thousands of ETFs out there doing all kinds of things.

But honestly for a beginner investor, just buy shares in SPY and forget about them. Some will say diversify a portfolio of different ETFs... but realistically, tracking the entire US market is already diverse enough (that's the whole point of buying the ETF in the first place rather than individual stocks). Holding just SPY or a similar ETF in your portfolio is already more diverse than if you had 100 different individual stocks. And as a small investor, buying multiple ETFs and rebalancing will eat into your returns through transaction fees (as well as capital gains taxes if it's not a tax-sheltered account). For example, if you invest $1000 and it earns 6%/year, that's $60 per year. But buy 3 different ETFs from a brokerage that charges you $10/transaction, and that's half your returns gone right there. Once the value of your investment account gets bigger, you can think about diversifying, but while you just have a few k to play with, the extra expenses in commissions are not worth it.

Feel free to PM me if you need any help.

Edited by Bonam
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And you wonder why the average Canadian doesn't invest. IQ is a standardized metric with a normal distribution and a mean of 100. The standard deviation is 15, which means 68% of people have an IQ between 85-115. With all of the stuff you need to keep track of in order to make wise investment decisions, most of those people are going to find the task daunting.

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Not at all....paying down the mortgage is a guaranteed rate of return compared to the higher risk and potential rewards of other investments.

The rate of return on a home is not as great as people would think. We can also look at the housing bubble in the USA to show exactly that. Expect a housing market crash within a year here in Canada.

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That's your experience with tough markets? A few months of uncertainty?

The markets went sideways for the entire 70's. Talk to us again when you've lived through a decade of no market growth.

Stop talking like an elitist gamer sneering at someone else's score and gear.

Actually, I made an amazing profit in the dot com years, doubling my money in a week, and lost a lot of it in the bust. It was something of an education in the pitfalls of momentum, and in knowing when to cut your losses and get the hell out. And I wouldn't call the 50% cut in many stock prices in 2008/2009 a few months of uncertainty. But I came through it with hardly an issue.

Some part of the market is almost always growing. If not, well, you find whatever will profit you most with the least risk, be it bonds or REITs or purchasing a second house and renting it out.

The point is you don't just stuff your money under your mattress and forget about it.

But we're not likely to see the old times again. The tax advantages of equities are now pretty overwhelming.

Edited by Argus
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And you wonder why the average Canadian doesn't invest. IQ is a standardized metric with a normal distribution and a mean of 100. The standard deviation is 15, which means 68% of people have an IQ between 85-115. With all of the stuff you need to keep track of in order to make wise investment decisions, most of those people are going to find the task daunting.

I know people who are as smart as I am, but they still find investing daunting and lack almost all knowledge. It's not just a matter of intelligence. It's a matter of educating yourself. And no, you don't need to take a course. I do recommend Benjamin Graham's book, the Intelligent Investor, though. It's reasonably easy to understand, and surprisingly not boring for something about investments. Graham is the man who taught Warren Buffet how to invest.

The real tragedy is there is such a dearth of decent investment advise in Canada. There is NO requirement for an adviser, be it your bank or whomever, to invest according to what is best for YOU, as opposed to what is best for THEM. Some will deliberately roll your money over, repeatedly investing in different equities and funds so as to maximize their fees. And you can count on the banks to recommend expensively managed mutual funds wherever they can. That's why to keep it simple, just invest in market ETFs yourself.

I have said before that I think the government itself should operate a voluntary investment scheme, a kind of CPP above and beyond CPP for those wishing to invest who don't know what to do or where to put their money.

Edited by Argus
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. With all of the stuff you need to keep track of in order to make wise investment decisions, most of those people are going to find the task daunting.

I agree it is hard - so it requires some work.

For people like me it's easy since I'm a tax accountant and presumably have the intelligence to also look after my own finances/investments (though at times I wonder).

The bigger issue is emotions.

Behavioral finance is an awesome field and it is there that I would point any novice investor - control your emotions, understand biases, etc.

The first time I saw an unrealized loss of 40% I had no idea how I would react to it.

Turns out I'm an investment sociopath and, sure enough, after re-evaluating my reasons for being invested, the investment went back to the good.

Most people would have panicked and realized the loss.

There have been times where I have taken losses because, in hindsight, I made a mistake in judgement.

So, know "thy emotional self" is big.

And remember, it is not easy making buy and sell decisions on stocks/bonds/ETF's etc in real time - I can see why the spectrum runs from addicted market gambler to play it safe stuff everything in gold (both these extreme positions, for most people, is foolish).

In the end (i.e. when I retire) I just hope that I have been lucky since it is usually better to be lucky than be smart.

Of course, one has no chance of being lucky unless one gets into the game and for many people that is the hardest decision to make in the first place.

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And you wonder why the average Canadian doesn't invest. IQ is a standardized metric with a normal distribution and a mean of 100. The standard deviation is 15, which means 68% of people have an IQ between 85-115. With all of the stuff you need to keep track of in order to make wise investment decisions, most of those people are going to find the task daunting.

I know people who are as smart as I am, but they still find investing daunting and lack almost all knowledge. It's not just a matter of intelligence. It's a matter of educating yourself.

Indeed. The "raw intelligence" required to be able to open an online account and invest in ETFs is not really very high. If someone can figure out how to post on this forum, they can figure out how to do that. Probably a total of like 10-20 hours of background reading/research throughout your lifetime will give you more than enough information to competently manage your own investments. It's really not hard.

People are daunted because they want to be daunted. They throw up their hands and say "I could never figure that out!" They assume that because banksters get paid millions to manage money that no one else can do it. But they are wrong. It's easy and it's quick, and a clueless individual doing nothing but buying an ETF that tracks the market will outperform the returns of over 90% of professional money managers (who all under-perform the market after fees).

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They assume that because banksters get paid millions to manage money that no one else can do it. But they are wrong. It's easy and it's quick, and a clueless individual doing nothing but buying an ETF that tracks the market will outperform the returns of over 90% of professional money managers (who all under-perform the market after fees).

One of my biggest frustrations is with people who hand over, year in and year out, thousands of dollars in "management" fees to their financial advisors.

While they grind down my fee as I give them some great tax planning advice, they don't notice the $12,000 they paid on their non-registered account last year (but hey, that's a tax deduction right so it's not so bad - as I bang my head against a wall).

Oh, and that investment account did not perform as well as an index fund which would have likely saved them 150 basis points in fees.

And on it goes...

Edited by msj
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The point is that it's a barrier and probably the reason a lot of people, even otherwise intelligent people, don't invest much beyond RRSPs or TFSAs now.

Getting a drivers licence is a barrier to driving but people still learn how to drive. And that's a lot harder than learning how to invest.

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The point is that it's a barrier and probably the reason a lot of people, even otherwise intelligent people, don't invest much beyond RRSPs or TFSAs now.

For most people (young people), if they started putting $5,500 into their TFSA each year and invested that in that index fund Bonam mentioned then they likely would end up with around $650-$800,000 at 65.

Between that, having a house paid for (which most people do by 65), CPP and OAS/GIS (kicking in at age 67), this would be far more than many people are going to have when they retire.

Too many Canadians are house rich and liquid asset poor which is a shame.

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Stop talking like an elitist gamer sneering at someone else's score and gear.

Oh, that's rich. Go back and read the title of your thread again.

Some part of the market is almost always growing. If not, well, you find whatever will profit you most with the least risk, be it bonds or REITs or purchasing a second house and renting it out.The point is you don't just stuff your money under your mattress and forget about it.

Yes, but there's the rub. It's easy to see what is appreciating, you can't tell what will keep on appreciating. And that's where the risk is. Even the housing market is crazily unpredictable and it's much more tied to fundamentals than most stocks.

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