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Personal Finance

Last week I posed the question: “If you could give your younger self one piece of advice, what would it be?”

Response:

I'd tell my younger self to invest every dollar you can from the moment you start earning money, buy stocks, purchase real estate (especially being in Toronto in the mid-late 2000s) and let your money work for you in your 20s and 30s. 

Response:

This question really got me thinking.  

I grew up with very little money and my parents really struggled. So when I started making money in my late 20’s I thought I would really enjoy myself expensive restaurants, bars and always having a nice new car. It wasn’t until I hit 30 that an older colleague asked me how I was investing my money that it really dawned on me what a missed opportunity this was. 

Looking back the nice stuff that we all think we deserve or need is all bullshit. I wish I could get those years back and have a better understanding of what those investment dollars would be worth now. 

I’m now 48.

Response:

I wish I had learned this stuff at 20 not at 30....  but reckless spending in my 20s is hard to regret....  so....

👏👏👏 Great commentary ladies and gentlemen, thank you for the responses. I agree and my response echoes all three. Rewinding would be great. But here we are, and I too have no regrets of my recklessness (!) in my 20s. Wouldn’t have led to where I am today which is exactly where I need to be. Anyway, never too late to figure it out, be a lion, not a gazelle, earn-more spend-less invest-the-diff, and if you have kids, get them on the investing program asap.

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Stock Markets

Response on the stock market section from last week:

Eddie.

I think you are giving great advice and I am sure your readers value it (I know Jimmy reads your posts). But don’t oversimplify the markets. Valuation and risk (i.e. timing) can matter. Looking at your 30 year S&P 500 chart: if you had bought the index in late 1990s and just held you would have had to wait 10 years just to break even (a lost decade); again if you had bought at the next peak (2007) you would have had to wait seven years to get your money back. Of course over that long period of time you eventually get ahead, but you have to be willing to wait out long periods of time with no returns if you happen to buy at the wrong time. I wouldn’t suggest you encourage your readers to be day-traders or market-timers (the message you give about averaging down is the right one), but you can lose money in the market if you are completely ignorant of risk.

My Response:

Agree for sure. Much of it depends on your time horizon though. Different for my Dad vs Jimmy vs Me vs You—all different stages of age and money, differences of income vs spending now vs income and spending tomorrow, not risking down payment money in the market, maybe there’s an inheritance, maybe marry rich-or divorce?! And all the factors that go into ‘ability’ to take risk and withstand a lost decade. Also only that high priced purchase gets the 10 year treatment, as subsequent buys lower your cost and future upswings are closer to each new purchase. Then there’s the final question which is what is someone’s tolerance for risk? You could have a rich young person with 0 emotional tolerance who would be better off dialing risk down lest they create a “real loss” selling when the market bottoms and destroys their chance of ever recuperating that loss—a permanent destruction of capital.

Anyway, following a thread of dialogue between this responder—a gentleman who has taught me a lot over the years and who has posed further questions to discuss in future newsletters (i.e. concentration risk in the S&P500)—I crunched some numbers to see what happened if you invested ONCE at the bubble peak in 1999 vs investing consistently through the collapse and ensuing bull market.

Rather than lengthening this newsletter any longer with the analysis, I am attaching a word document for the nerds out there to inspect.

To summarize:

1. Long-term equity investing works—even if you start at the worst time.

2. Young investors should go heavy on equities.

3. Near-retirees need diversification to manage risk.

4. IRR > CAGR for real people: it reflects actual investing behavior.

5. Invest consistently, earn more, contribute more—that’s how you get facking rich.

1 Quote

“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery”

Winston Churchill

A Question

Serious question from folks: what ideas or topics would you like discussed? Any feedback for me?

Thank you,

Eddie

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