Hello everyone,

I simply cannot stand the antiquated banking system.

Had to send a wire the other day to fund an investment, go into the Scotia Bank branch which is surrounded by homeless people smoking their crack pipes at lunch time on a prominent downtown corner (not the banks fault, it’s our fault as voters), wait in line behind someone who smells worse than a trash can for 15 minutes, only to wait at the teller for 20 minutes explaining why and where I need to send my money - that’s right, MY MONEY! I get there’s safety concerns and compliance regulations, but my goodness, it’s mine gosh-darnit. This is why I like bitcoin - no one can tell you what the F to do with it. And this is why I love Wealthsimple (more in section one), the ease at which money things get done using that platform on a low/no cost basis, is very impressive.

Sorry for the short rant.

If you are enjoying the Journal, please forward to your friends to subscribe. 

PS, we went to the Fairmont Whistler last weekend for some much needed R&R. Some might call that a Gazelle move. Some might call it a Lion move. See video below - there’s definitely a Lion in the house!

simplyfinanceandinvesting

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Personal Finance

Lot’s of you know I use WealthSimple.

Why I love it:

• in a word, it’s simple

• built to be no frills, low cost

• no trading fees on ETFs or stocks

• access to all accounts you require

• pay bills online, send e-transfers, automatic deposits and stock purchases, etc

• cash spending account pays 3.25% interest and the ‘tap’ feature is easily added to your phone

It covers about 95% of my banking needs.

What I don’t like / would like to see improved as soon as possible:

• doesn’t allow for self directed RESP, nor self directed corporate investing accounts, so I still use Questrade for the RESP and Scotia for my corporate account

• doesn’t accept physical cheque deposits via phone capture - have to use snail mail

• doesn’t allow wire transfers, which is unfortunate since I require the ability to send wires to invest in private real estate, for example.

Not sure why they don’t provide self directed RESP or Corporate account, only a ‘managed’ account. Managed account means they do it for you.

The Managed Growth account looks like this:

• 80% stocks

• 17.5% bonds

• 2.5% gold

• Management fee 0.50%.

• 3 year annualized return, net of fees: 6.6%

I don’t fuss much about a 0.50% management fee, but a net return of 6.6% over the past 3 years is brutal compared to a self directed, one ETF S&P500 portfolio that has returned 23% annualized over the same time period.

So I’d much prefer to manage my daughters RESP and my personal corporate dollars myself.

And in this world of money, picking up loose change today makes big differences tomorrow.

Once Wealthsimple takes care of the above, I’m pretty sure every need will be covered and I can finally close the Scotia / Questtrade accounts and keep everything under one roof.

I will be forwarding this email to my contact at Wealthsimple, hopefully they are already working on it

Stock Markets

Josh Brown over at Ritholtz Wealth Management is a top quality financial mind and content producer on the subject.

This is all I leave you with today:

Real Estate

Question I get asked often - private real estate vs public REITs?

First, what is a REIT?

Investopedia definition: Real estate investment trusts (REITs) are companies that own, operate, or finance income-producing real estate across a wide range of property sectors. These investments allow you to earn income from real estate without having to buy, manage, or finance properties themselves.

Like a stock, you can buy shares of publicly traded REITs on the stock market. There are individual REITs like Boardwalk REIT (if you like apartments), or Dream Industrial (if you like industrial) and hundreds more options. Or you can buy the REIT Index, such as the iShares S&P/TSX Capped REIT Index ETF (XRE).

Why do people think about buying a publicly traded REIT? I think it really boils down to two things:

• broad, easy exposure to “real estate” and you can spend as little as one dollar to invest. No need to save up $200,000 for a down payment.

• liquidity… instead of private, illiquid real estate, you can buy and sell out of your position any time.

But if you look at the performance of the REIT index, it’s pretty paltry.

• 1 year return: 12.76%

• 5 year return: -0.22%

• 10 year return: 4.36%

And did you know that the S&P500 or any other broad overall index already includes the real estate exposure?

So if your primary driver into publicly traded investments is liquidity, or even broad exposure to real estate, why not just buy the whole market index? Keep it simple right? And earn far better returns.

Comparing public vs private real estate investments.

It comes down to liquidity. See, when you invest in a Narland deal, for example, we buy private assets that you can see and understand because it’s a single property/strategy that has defensible value add opportunities. And we project returns of about 15% annualized.

The tradeoff is that you can’t sell or spend that investment until we have determined it’s an opportune time to sell the asset, once we’ve finished our value add program.

In exchange for sacrificing liquidity, you are buying a “product” - that is, you exchange money in return for the opportunity to earn an above average return on your capital, and all the direct oversight and management of the asset itself that is required to make the income grow to it’s full market value.

REITs, on the other hand, are black boxes. How do you assess each individual property that a REIT owns? Could be hundreds of properties across North America. So do you just buy it hoping that the company executives are going to increase the stock price? Maybe. You could also look at the prevailing premium/discount to Net Asset Value and make a trade based on that thesis. Easy to say, harder to do.

No, instead, better to buy the whole stock market index which is proven to outperform against all other liquid assets (save for Bitcoin).

And keep your real estate investing to your own principal residence or, if you have capacity, private real estate investments where ‘value add’ is tangible.

This email is getting long, next week I will delve into what it looks like to invest in private real estate, how to evaluate a sponsor, the deal metrics, etc.

Might have to be a weekly series because there’s a lot to talk about.

Stay tuned.

1 Quote

A Question

What is your view of public vs private real estate investing?

_____________

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Thank you

Eddie Gudewill, CFA

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