Baptized our little girl Julia Sofia last weekend.

The priest doused her in holy water, three times. She was surprised, I thought she might punch him. Then she smiled 😊 

What a special occasion with our families, truly.

Best part…see the dress she’s wearing?

It’s 200 years old!

Indeed, there are some things money can’t buy.

Have a great weekend everyone.

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Personal Finance

Thank you to everyone who completed last week’s poll: If you could simulate just one life decision to see how it affects your finances over time, which would you pick?

Results:

1. Retire at 50: 50%

2. Have a kid/start a family: 25%

3. Buy a home or keep renting: 16%

4. Switch from salary to dividends: 8%

So let’s give the people what they want—how to retire at 50.

Imagine you have a $1,000,000 net worth at age 35, here’s what to do:

Step 1—Background data

1. Age: 35

2. Retirement Age Goal: 50

3. Current Net Worth: $1,000,000

4. Future Desired Retirement Spending, after tax: $200,000

Step 2—Use the 4% Rule (see investopedia for full explanation)

Divide $200,000 / 4% = $5,000,000 → this is the size of investment portfolio needed to safely withdrawal $200,000 after tax.

Meaning, as long as you remain invested earning 6-8%, you can withdraw 4% and therefore not impact your capital base.

You can also just multiply $200,000 × 25 = $5,000,000… same result.

Step 3—Calculate Required Investment Contributions

Instead of going bottom up and doing a precise budget, I’m going to go top down to figure out how how much is required to SAVE and INVEST over the next 15 years to get to $5,000,000 assuming an 9% compound interest rate.

Using calculator.net, the results are below:

Looks like required contributions are $3,702 every month for the next 15 years while earning an average return of 9% in order to grow from $1 million to $5 million at age 50.

You might be thinking it’ll be hard to find an extra $3,702 every month. In annual terms, it’s $44,424. Honestly, sounds pretty reasonable considering the goal: you want to be a $5,000,000 guy or girl in 15 years? You best put on your big boy pants and sock away some decent coin then. Big goals require big responsibility.

• What happens if the average return is 8%? The calculator says you need to contribute $5,414 per month.

• What happens if the average return is 10%? The calculator says you need to contribute $2,064 month.

• What happens at 10% return and you work five extra years, to 55? It says you can actually withdraw $2,405 every month and still make it to $5 million.

Pretty big differences, especially if you work 5 more years to the hearty age of 55. Frequent readers understand that Compound Interest is so important that very small changes in your overall return and time invested make meaningful differences in your future net worth and your required savings in order to reach that future goal.

This is why low cost investing is so important, and why there is so much pressure on the Investment Advisory business to reduce fees.

I prefer investing on my own (Wealthsimple), in broadly diversified index funds that are next to zero cost. The only requirement is that I keep a level head and don’t make any major screw ups—this is something an advisor can help with, but you have to pay more to have an advisor, meaning your overall return will drop due to their fees.

So, on a very high level, this is how to start:

• current age

• what is your net worth today

• retirement age

• desired retirement spending

• go to calculator.net and input your figures (target amount, starting amount, # of years, and interest rate).

• This will tell you how much you must invest in order to reach that goal and by what year.

This is obviously a very generalized step.

For one, it does not consider if some of your net worth is tied up in a house. Is it realistic to forecast a 9% return on your home value? Probably not. Either exclude it, to be uber conservative, or adjust your overall net worth rate of return down.

If you get a windfall like an inheritance or sell a business, increase the starting amount. If you Gazelle on a boat or an F-150 (😅), subtract it.

Review the results to see what contributions are needed to reach the desired future amount. Because life happens…You might have a great job today and make lots of money. Then you have kids. Then you have housing costs. Then you have lifestyle and travel goals. Maybe you lose your job. If the market goes through a 5 year dead money situation, guess what, you’ll need to pare back your spending and save a lot more. It’s just math.

Point is, f*ck happens. Start with a scenario today, and course correct along the way.

Ultimately, you WILL NOT get to your future retirement portfolio goal if you don’t meet the calculator’s results that tell you how much you must save and invest.

If you are late to the investing game, perhaps 50 isn’t realistic. Get comfortable with 60/65. You might feel behind, but investing now is better than ignoring it for another decade.

If you are early, in your 20s, you should be doing everything in your power to aggressively save and invest NOW. If you can get to a million bucks by age 35 or 40, you have a good chance at retiring with several multi millions of dollars due to compound interest, and therefore flexibility around your retirement date. Basically, your life.

Once you do this ‘top down’ analysis, then you can get into the monthly detailed budgeting, analyze your spending, your credit card debts, investments, monthly savings goals, travel desires, etc, and optimize.

And there we have our marching orders.

Bit of a ramble today but it’s a busy week and hopefully this makes some sense for some of you 🙂 

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Stock Markets

Congratulations to everyone that didn’t listen to their boomer parents—who have already made it and have a totally different risk profile than you—who told you not to invest in stocks because of Trump.

S&P500 just hit all time highs, again.

**past performance is not indicative of future results—but, not investing, timing the market, etc, will result in being broke. That is a guarantee.

Real Estate

Everyone complained about the housing crisis—prices too high.

Now that prices are coming down, and no one is buying, a lot of the previous builds are sitting vacant and unsold—especially in the GTA.

And further price decreases are coming—in my opinion.

Now the Developers are desperately trying petition the government to bring more buyers into the market because they can’t build more product now that prices have decreased and their profit margins have dried up. But rather than under the guise of desperately “needing more supply”, what they are really after are higher prices so there is enough profit to build new stuff. Otherwise they won’t have enough cash incoming to keep lights on. Furthermore, current unsold projects are major drags on their balance sheets and they are under financial pressure.

So now they are out there dying for relaxing of the foreign buyer bans. Which many attributed as the reason—or one of—why housing costs were previously so exorbitant in the first place…I’d posit that the free money era was a big factor, if not the biggest.

Bit of a catch 22; a housing crisis created by foreign buyers that pushed prices out of reach of the people. Now that prices have declined, foreign buyers are desperately needed to build new supply?

Are the developers doing it for “the people”? Prices are already down so the “high cost of housing crisis” is already being addressed—lots of inventory to choose from and at much lower prices than the peak 3 years ago.

Or are they doing it for themselves?

You decide.

I have my opinions, and they are equally biased on either side. For one, I don’t own a place, but I intend to buy in the future, so prices coming down is a good thing. On the other hand, I’m in a development deal and yes I would love for the buyer demand to roar back, also a good thing, because I’d make more money on the deal! Makes for interesting internal arguments with myself.

PS. Shared this to my linked in, here are some of the comments below. Interested in your thoughts?

1 Quote

“Good things happen when you just show up”

Uncle Sam, from one of his good friends.

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