I have been doing a lot of reading lately and listening to financial news. I just finished reading “Crash Proof 2.0″ and “How An Economy Grows” both by Peter Schiff who is an investment advisor famous for predicting the real estate crash in the U.S.
The recurring theme I keep hearing is that markets are going to be trading sideways for the foreseeable future. This isn’t the time to be in small speculative investments, but rather in larger stable companies that will pay you cash dividends while we all wait for the economy to recover. Peter Schiff put it this way:
I suspect some people are going to take it the wrong way and think I am suggesting that buying a home to have a safe place to raise your family is a bad idea. If you can make a decent down payment, plan to live there for the next 10 years and can honestly say that you wouldn’t be stressed if real estate values dropped 10-30% over the next few years, then I say go for it.
This isn’t a site about real estate, so I don’t really want to debate the issue too much, but these stats scare me:
70% of Canadians now own real estate (the highest level in history created by artificially low interest rates).
Only 53% of Canadians say they have a long term investment plan for their retirement. (source CTV News)
The market will be flooded with houses by the year 2030 as retiring baby boomers down size. (source CNBC)
Toronto is building more condos than New York or Chicago and the buildings are already starting to fail. CBC News – Throw away buildings.
In 1980, the ratio of household debt to personal disposable income was 66%; that ratio recently passed 150%. (source Stats Can)
So, I think houses are great to own, but I think people would be well advised to diversify into other types of investments if they want any real growth over the next few years.
There is a lot of talk about bond yield in the news now days, so I wanted to take a minute to talk about yield. We recently talked about interest rates and how low-interest rates meant that borrowing money was cheap, but it also means that you get very low-interest on your savings account.
This rate of return. The amount of money you get paid annually to invest in something is called yield. It is different from capital gains which are speculative in nature. Yield is clearly defined before you invest in something. If I buy a stock and it goes up in price, my profit is a capital gain, not yield. I had no guarantee ahead of time what that profit (or loss) would be.
Today’s guest post by Steve Kiziak. Life and health insurance advisor.
We are extremely fortunate as Canadians to have universal health care through the Canadian Health Act. Some of us also have additional health coverage and protection of income through a group insurance plan through our employer or unions. But as more Canadians are becoming self-employed and as our government seems to cover fewer services due to rising health care costs, we need to be more self-reliant and establish our OWN financial safety net.
Here are some the different ways we can protect our financial security.
In my last post we talked about how crazy it is to invest thousands of dollars in mutual funds without knowing anything about what you are buying. Today I am going to teach you how to do some very basic research to answer these questions:
What do my mutual funds hold? (stocks, bonds or both)
How much does it cost me? (what fees do those funds charge)
How are my returns? (compared to the financial markets in general)
I am reading a book right now called How An Economy Grows (and why it crashes). It’s a great book because it explains complex economic principals in the form of a children’s story book with lots of pictures.
Today I thought I would do a very basic lesson on interest rates.
The interest rate is really the cost of renting money. If renting money is cheap, more people borrow money and buy things. If renting money is expensive, people stop borrowing and save their money.
When the cost of renting money is high, the bank will offer you high interest on your savings account knowing that they can lend your money out at an even higher rate in the form of mortgages.
In 1981 banks would offer you 5% interest on your savings account because they could then lend that money out in the form of mortgages at 24%. As a result more people saved their money and people only bought a house when they had saved up a big down-payment.