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May 1, 2019

All Things Different Vol. 1

by Bob Carter

Bob CarterVery long-time Canadian MoneySaver readers may recall I wrote the column Beat the Dow between 1993 and 2003. Together with David Stanley, we wrote about contrarian strategies based on the highest yielding TSE (now TSX) and Dow stocks. David was devoted to following the Canadian market while I wrote about the Dow. I’m back.

Life has certainly taken some interesting turns since I left Bay Street and MoneySaver late in 2003. I started and lost a business, made a couple of career moves and through all that—remained something of a contrarian. Life taught me some very valuable lessons about failure, resilience and how to rebuild wealth after having “taken it on the chin”. I’d like to share these lessons with you.

I approached the good people at Canadian MoneySaver late in 2018 with the idea of once again writing for the magazine. My new column will be called “All Things Different”. As I am no longer a Bay Street financial advisor, I will be writing about the investments my wife and I have used over the last 10 years to recover what we lost. These include real estate, private equities, private wealth management and precious metals. As these topics are not covered extensively in Canadian MoneySaver, I though the title “All Things Different” was somewhat appropriate.

Please don’t feel like I’ve turned my back entirely on the public market. I can assure you that some of my best friends are still stocks, bonds and mutual funds. I just think we should be open to the whole wide wonderful world of investment options and seriously consider all the alternatives.

I recently read a sobering statistic in an article written by Jonathan Chevreau, citing a report released earlier this year by the CIBC. The study shared the results of a survey of Canadians that suggested a retired couple would need $756,000 in portfolio assets and savings to ensure a comfortable retirement. The survey further revealed that 90% of respondents had no plan to amass such a sum and that 53% of those responding, were not sure they were saving enough. The statistics were more finitely broken down, painting an equal dismal picture of how unprepared men, women, children and family pets were to even address the subject. What occurred to me was the question: what about people like me who suffered a business setback, investment losses or changes in family situation (including the death of a partner or divorce)?

I started to think about that $756,000 target and what income might be derived from that size of portfolio. Using an old advisor’s rule of thumb (4%), I projected an annual income of just over $30,000. Is that enough?

Well, that’s none of my business. It’s up to you to set your own targets and create an investment plan (with or without an advisor) given your comfort level and perhaps just as importantly, how much you are prepared to stretch your personal limits within the boundaries of good common sense.

Let’s go back to the figures. An annual income of $30,000 could be broken down into 12 monthly payments of $2,500. Would there be other ways to generate $2,500 of monthly income that, when added to your other income sources (including CPP, OAS etc.) could derive an acceptable income on which to live? That’s what this column will address in future instalments.

If you are lucky enough to own your home and are retired or close, you could sell and downsize, creating some seed capital that could produce income or supercharge your investments. This would depend on your stage of life, the real estate market at the time of sale, your age and any outstanding debts to be settled, to name just a few considerations. You could continue to work in either a full-time or part-time capacity. Would you want that? Would your health and energy support that? How long would you want to work and what could you realistically expect?

If you’re like me and are still some time from retirement, you might want to be sure your plan is set so you have as much flexibility and as many options as possible when the time comes.

Considering my query started by examining “people like me”, it’s probably time I share some important personal stats. I just celebrated the 29th anniversary of my 29th birthday (58). I am currently employed full-time by one of Canada’s leading life insurance companies and earn a good living, doing a job I love. My wife and I started rebuilding our finances a little less than 10 years ago. We’ve managed to dig ourselves out a hole and now live on a beautiful lakefront home with 280 feet of shoreline. We’re blessed.

We started our journey by learning. We read books, took courses, attended seminars and found people smarter than us with the experience we needed to teach us new skills. Investing in real estate was the first vehicle we used to work our way back.

I know. Real estate. Scary stuff! We had to conquer our fear of taking on another mortgage, finding tenants, looking after building maintenance and “risk” in general. The first book I read was Rich Dad, Poor Dad by Robert Kiyosaki. In fact, I had read that book back in 1994 when I first started on Bay Street. The difference now being, we finally took action.

Everything starts with taking action; that’s where growth happens. Taking action can mean the difference between achieving results and living a life that hands you a mediocre existence. You can choose to be dependent on what the world gives you, or be accountable for building the life you want to live. My wife Susan and I decided to take the second path.

One of the most important lessons we learned in Kiyosaki’s book was the true definition of an asset and the difference between good and bad debt. This forms the entire foundation of what we believe Canadians need to understand to ensure their financial security.

Assets are “things” that produce income or “cash flow”. A house can be your home, or it can be an asset. It’s not likely to be both. Unless your home pays you to live there; your home is not an asset. It takes money to live in a home. The obvious expenses include your mortgage, property taxes, maintenance, insurance and utilities, to name just a few things. Now a house can be an asset if someone else lives in it and pays you rent to cover all these costs with hopefully a little something left over for your troubles. This “your house is not an asset” premise is perhaps the biggest mind-bending concept we ever had to embrace.

Other assets include stocks, bonds and mutual funds. Remember “these are a few of my favorite things” (with love to Rodgers and Hammerstein). Shares in a small business you own in whole or in part that produces dividends are assets. Assets could also include farm land or royalties you derive from natural resources you control. But now we’re getting into some esoteric stuff, so let’s go back to houses and talk about the first thing we did as investors.

When we started, we didn’t have a great deal of money. We had good credit and a plan. That meant borrowing money; bank money. I recall now another old saying; “if you’re going to borrow money, someone had better be paying you to do it”. This was Kiyosaki’s second tenet. The concept of leverage and the difference between “good-debt” (tax deductible and sourced in order to purchase a true asset) and “bad debt” (everything else) was the next lesson we had to embrace.

We had much to learn, a 20-year time horizon and the need to manage risk along the way. We’ll continue the story and go into greater detail next time. I promise to share everything – the good, the bad AND the ugly.


Bob Carter BA, GBA, CIM