Tag Archive for: finances

Stock Market Returns

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A friend asked me to take a look at his portfolio. His concern was whether he was getting a reasonable return from his investment holdings.

As a case study, this person represents the ideal: no debt, a sustained pattern of consistent and disciplined savings, and living within his household income. He will finish well whereas many Canadians are poorly prepared for retirement.

I have posted about this before. And the data are worth repeating:

The leading edge of the boomer demographic is generally unprepared for retirement. For most Canadians, paying off the mortgage and acquiring RRSP savings are the primary savings strategies.

The Survey of Financial Security, in a report from 1999, found that among those people aged 55 to 64 only 75% owned homes and the median value of owned homes was $130,000. 25% were renting. Only 67% owned RRSPs with a median value of $50,000. The data means that a third had no RRSPs and another third had less than $50,000 in RRSP savings.

Basically, 21% of households near retirement in 1999 had no retirement savings at all and the savings of the next richest 32% of households averaged only $40,000. The survey quite rightly describes those amounts as futile.

It gets worse.

CIBC”™s economist estimates that 40% of Canadian households have no financial savings outside of their personal savings and chequing accounts. And the savings rate in Canada is at its lowest level since the 1920s.

The S&P/TSX Composite Index, including dividends, produced an average annualized return of 9.5 percent. Over the last 10 years, a time period that included a significant bear and bull market, the index produced an annualized return of 10.2 percent. Over the last 15 years, the average return was 10.5 percent. Over the last 20 years, it was 9.4 percent.

My benchmark is the index. I expect my portfolio to achieve an annualized return of at least 10 percent over the long run. My friend’s portfolio, over the past five years, was achieving much less than the index. That should not be the case. Unless, of course, you only hold Microsoft stock.

Identity Theft Insurance

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When I got home last night, I was catching up on the news with my wife. She had read a story on a recent mortgage fraud and asked me if we should be getting insurance for identity theft.

I did not know that the insurance industry offered such products. They do. Most are offered through homeowner insurance products. Are they necessary? Are they worth the cost? I am not convinced. And, a Forbes article of a couple of years back, reached a similar conclusion.

More disturbing though, was this blog on Mortgage Fraud. Some of the reports are quite troubling like this one.

The following is taken from the Identity Theft Index Canada Survey found here:

The ITIC poll found that one in four Canadians reported that they have been, or someone they personally know has been, a victim of identity theft. This is made up of nine percent who said they, or they and someone they know personally, have been victims; and 17 percent who said someone they know personally has been a victim.

As a possible result of these experiences, one-third of respondents said their level of concern about them or someone they know becoming a victim of this crime is higher than a year ago.

The types of fraud resulting from identity theft crime are wide-ranging, according to the ITIC poll. Among those who have been a victim or personally know someone who has been a victim of identity theft, seventy percent said the identity theft resulted in unauthorized credit card purchases, the most frequent, but least costly form of identity theft fraud for consumers. However, significant percentages of these respondents reported more serious frauds, including takeover of existing credit card accounts (43%), the opening of new credit card accounts (36%) or new loans (22%), unauthorized bank account access (42%) and the use of the victims’ personal information in other types of frauds, such as to obtain government benefits or medical care (24%).

“Many cases of identity theft perpetrated against Canadians are resulting in serious crimes that go well beyond simple credit card fraud where the consumer’s liability has traditionally been limited,” said Sheila McCracken, who represents Intersections’ Canadian solutions group. “These more significant frauds can have serious implications for consumers in terms of losses.”

The majority of identity theft fraud in Canada appears to be self detected. More than one-third (34%) of Canadian victims discovered the fraud while reviewing their bank or credit card statements (26%) or credit reports (8%). Thirty percent reported that their bank or credit card company first discovered the fraud, the ITIC poll found.

It is not surprising then that 92 percent of Canadians said they are responsible for protecting themselves from identity theft. However, compared to the results of a previous poll conducted for Intersections in June 2004, increasing majorities also feel that others, such as banks (87%, up 3%), credit card companies (85%, up 2%) the government (79%, up 11%), credit bureaus (75%, up 4%) and retailers (72%, up 2%) are also responsible for protecting them.

Encouragingly, seventy percent of respondents reported that they consider themselves ‘very well’ or ‘somewhat’ informed about how to protect against identity theft. When asked what steps they have ever taken to protect against identity theft, a majority of respondents said they have followed the security procedures requested by their credit card company (68%), reviewed their credit reports (65%) or bought a shredder or destroy documents (54%). Fewer Canadians have stopped banking or shopping online (30%), subscribed to a credit monitoring service (18%) or bought identity theft insurance or other identity theft recovery services (17%) to protect against identity theft.

Better make sure that our shredder is still working.

The Plan

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I updated our financial plan last night. The plan is a comprehensive document that contains the following information:

  • Personal information on all family members (e.g., date of birth, Social Insurance Numbers)
  • Important Records Location (e.g., Will, Insurance Policies, Investment Statements)
  • Statement of Net Worth
  • Cash Flow
  • Retirement Plan

I also have a section on Financial Goals and Objectives. And, looking at where we are right now, I am really pleased with most of our accomplishments over the years. I first set these goals and objectives back in 1989:

  • Invest and manage money wisely
  • Pay off the mortage and other debts
  • Provide for the children’s education
  • Maintain the family’s standard of living in the event of death or disability
  • Become financially independent
  • Maintain standard of living during retirement
  • Preserve the estate for heirs

Currently, I am doing more planning around the last item; preserving the estate for heirs. I was 16 when my father died. There was no family estate. I started with nothing.

My children will not have the same experience. Hopefully, they will be able to build on that estate for themselves as well as for future generations.

Financial Planning

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I spoke to another individual last week about the importance of financial planning. She is married, both her and her husband work. However, they have no idea about the state of their money and they have accumulated little, if any, savings. They are 40.

40 is not too late to start. However, the statistics are quite disturbing. The U.S. Department of Health, Education and Welfare prepared a study which tracked a representative sample of people from 20 to 65 years of age. And they uncovered that by age 65, for every 100 people:

  • 1 was wealthy
  • 4 were well off
  • 5 were still working because they had to
  • 36 were dead
  • 54 were dead broke, barely surviving off family or the government

According to Merrill Lynch, today’s average 50 year-old has only $2,300 saved toward retirement.

After I spoke with this person about financial planning, she thanked me although she admitted that she was quite concerned. I told her not to worry too much. The best time to start saving is now. The most advantaged savers are those who start young and keep with it for life.

$2,300 at age 50? Hard to believe.

Wealthy Boomers

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A friend of mine asked me a question yesterday: are baby boomers wealthier than their parents?

The leading edge of the boomer demographic is generally unprepared for retirement. For most Canadians, paying off the mortgage and acquiring RRSP savings are the primary savings strategies. The Survey of Financial Security, in a report from 1999, found that among those people aged 55 to 64 only 75% owned homes and the median value of owned homes was $130,000. 25% were renting. Only 67% owned RRSPs with a median value of $50,000. The data means that a third had no RRSPs and another third had less than $50,000 in RRSP savings.

Basically, 21% of households near retirement in 1999 had no retirement savings at all and the savings of the next richest 32% of households averaged only $40,000. The survey quite rightly describes those amounts as futile.

It gets worse. CIBC’s economist estimates that 40% of Canadian households have no financial savings outside of their personal savings and chequing accounts. And the savings rate in Canada is at its lowest level since the 1920s.

So. What will save the poorly prepared baby boomers? For some, it will be continued employment. For others it will be government assistance. And, for some, it will be their much wealthier parents.

  • Canadian baby boomers are expected to inherit an estimated one trillion dollars in bequests over the next 20 years.
  • Four in ten Canadians will inherit money, with some expecting to receive $500,000 or more.
  • One-third of those expecting to inherit will receive between $25,000 and $100,000; fifteen per cent between $100,000 and $500,000; and four per cent will be higher than $500,000.
  • Between eight and 10 million bequests are expected as a result of the record accumulation of wealth in Canada since World War II.

What Price Freedom

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The National Post had an interesting teaser in its weekend edition: How much money do you need to say I quit and live happily ever after. The article is an infomercial for Lee Eisenberg’s book, The Number.

I read Eisenberg’s book and posted about it here. Suffice it say, his book focuses on the needs of the very affluent and extremely rich. Consider the following Eisenberg Scale:

  • To be comfortable in retirement you will need $1 million to $2 million
  • To be comfortable plus you will need $2 million to $5 million
  • To be kind of rich you will need $7 million to $10 million
  • And, to be rich, you will need $20 million

Let’s do a bit of a reality check here courtesy of Statistics Canada. The median net worth of Canadians aged 25 to 34 is $9,100. Canadians between 35 and 44 have a median net worth of $25,500. And Canadians between the ages of 45 and 64 have a median net worth of $35,600.

According to the Eisenberg Scale, half of Canadians should just call it quits. I mean, why go on? They will starve to death in their retirement years so better to end it all now and let us comfortable folk struggle along with our paltry multi-million dollar retirement nesteggs.

For most Canadians, $1 million to $2 million in retirement capital is more than just comfortable.

Maybe it’s time to stop reading the newspaper. So much nonsense.

A State of Mind

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A few weeks ago I posted my reading list from 2005. I highlighted the books that I enjoyed reading and, by implication, I panned books that I did not enjoy as much.

I received a number of emails from various authors. Although I am an avid reader of books, I suspect that my newly found popularity as a book reviewer is directly related to my search position in Google. Since roughly two months ago, the traffic on the site has doubled and looking at the logs, I am getting hundreds of thousands of hits from Google searches.

However, the action of one author was really quite impressive to me. I had purchased Robert Gignac’s book, Rich is a State of Mind, several months back. His book made quite an impact on me. After reading it, I thought to myself: “I wish I had read this book when I was 20”. And then I thought: “I could use most of his examples as a way to teach my own children about money.”

Robert made contact with me over email and asked me if I would give him some feedback on his work. And I was pleased to do so. He then asked if I would be willing to chat with him a little bit over the phone. I thought about that for a moment. I’m sure you can all relate to being a bit hesitant to make contact with people you do not know particularly if your only contact has been through the Internet.

I am, perhaps a bit reluctantly, getting older. And with age comes more confidence. I also did not perceive an immediate risk on my life and limbs. After all, I do know some kung fu. So, with remarkable courage, I accepted his offer to talk over the phone. And we did.

A great book on financial planning for Canadians and, based on my discussion with Robert, a great Canadian author. There are not too many authors who would take the time to reach out to their readers. Very impressive.

Only in Canada, eh

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Jim Cramer, host of CNBC’s Mad Money, made a recommendation on a Canadian stock a few days back. The stock? ATS Automation Tooling Systems. The stock trades on the Toronto Stock Exchange under the symbol ATA.

Apogee Technology, a small sensor company under threat of delisting from the American Stock Exchange, had seen its stock plunge over 80% from the beginning of 2005. It closed the year at 91 cents.

Apogee Technology trades on the American Stock Exchange under the symbol ATA. The same symbol as ATS Automation Tooling Systems. Different exchange.

That did not deter the investors who follow Jim Cramer’s recommendation. After all, a buy for ATA is complicated enough without having to worry about the exchange. And so the shares in Apogee Technology doubled in three days.

On Monday, Apogee’s volume was 2,700 shares. After Cramer’s recommendation on the Canadian ATA, the American ATA surged to 733,000 shares. It jumped another 16% on Thursday to close at $1.92.

A new way to make a quick dollar off the market. Wait for Cramer to yell a buy on a foreign exchange.

Cramer