Morgan Housel’s The Psychology of Money makes an interesting, anecdote-filled case that financial success is more about patience, and even luck, than the “technical side of money.”

It’s not, he writes, that the technical how-to advice and education about money is “bad or wrong,” but that “knowing what to do tells you nothing about what happens in your head when you try to do it.”

As an example, he notes that a big factor in success with stocks is when you were born — something we all have no control over. “If you were born in 1970, the S&P 500 increased almost 10-fold, adjusted for inflation, during your teens and 20s. That’s an amazing return. If you were born in 1950, the market went literally nowhere in your teens and 20s, adjusted for inflation.” So people in those two groups will have a different personal history with stock investing, and different levels of willingness to enter the market, he explains.

It’s the same story for inflation, he notes. Those born in the 1960s remember it, those born in the 1990s are experiencing it for the first time.

Next, he notes that those with lower incomes have more faith and hope in lottery winnings than those with higher incomes.

“The lowest-income households in the U.S. on average spend $412 a year on lotto tickets, four times the amount of those in the highest income groups,” he notes. Does that factor correlate with another stat, that 40 per cent of Americans say “they couldn’t come up with $400 in an emergency.” They are, he writes, “blowing their safety nets on something with a one-in-millions chance of hitting it big.”

Looking at retirement, he writes that since the 1980s, “the idea that everyone deserves, and should have, a dignified retirement took hold. And the way to get that dignified retirement has been an expectation that everyone will save and invest their own money.” But, he continues, it is not happening. “It should surprise no one that many of us are bad at saving and investing for retirement.”

In a chapter titled Luck & Risk, Housel notes that Nobel Prize-winning economist Robert Shiller was once asked what he would like to know about investing “that we can’t know.”

“The exact role of luck in successful outcomes,” replied Shiller.

On risk, Housel stresses the concept of having “enough,” and not necessarily needing more.

“There is no reason to risk what you have and need for what you don’t have and don’t need,” he explains. Watch out if “the taste of having more — more money, more power, more prestige — increases ambition faster than satisfaction,” he warns.

A long-term approach to investing can work well, he writes. He notes that famed investor Warren Buffett “began serious investing when he was 10 years old,” and by 30, had a net worth of one million. That has grown to $84.5 billion at the time the book was written, Housel notes.

But if Buffett had been “a more normal person, spending his teens and 20s exploring the world and finding his passion,” and had $25,000 as his net worth at age 30, he would have — everything else being the same — just $11.9 million today.

“His skill is investing, but his secret is time,” explains Housel.

Getting money is one thing, he writes, but keeping it is another.

Buffett, writes Housel, avoided debt, panic selling “during the 14 recessions he’s lived through,” kept his reputation intact and “didn’t burn himself out or quit or retire.”

“He survived. Survival gave him longevity. And longevity — investing consistently from age 10 to at least age 89 — is what made compounding work wonders,” Housel writes.

So, he explains, while planning is important, “the most important part of every plan is to plan on the plan not going according to the plan.”

Rather than focusing on getting big returns, think about survival, and being “financially unbreakable… if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders.”

Unlike flying an airplane, you don’t have to be right all the time in investing. “If you’re a good investor most years will be just OK, and plenty will be bad,” he explains.

Being a saver is critical, he adds.

“Building wealth has little to do with your income or investment returns, and lots to do with your savings rate,” he writes. “Personal savings and frugality — finance’s conservation and efficiency — are parts of the money equation that are more in your control and have a 100 per cent chance of being as effective in the future as they are today.”

He spends time on the of “leaving room for error” with investments. “The person with enough room for error in part of their strategy (cash) has an edge over the person who gets wiped out, game over, insert more tokens, when they’re wrong.”

Some concluding thoughts from Housel are that “saving money is the gap between your ego and your income, and wealth is what you don’t see. So wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future.”

Manage money in a way that lets you sleep at night, increase your investing time horizon, and “become OK with a lot of things going wrong. You could be wrong half the time and still make a fortune.”

It’s hard to do justice to such a thought-provoking book in a short interview, so consider adding The Psychology of Money to your personal finance library.

The idea of starting retirement savings early is a good one, and as the author notes, not everyone has access to a workplace pension or retirement program. If you’re in that boat, take a look at the Saskatchewan Pension Plan (SPP). Under SPP’s new rules, you can contribute any amount to the plan each year, up to your available registered retirement savings plan (RRSP) limit! And if you are transferring money into SPP from an RRSP, there is no longer an annual limit — you can transfer any amount into your SPP nest egg. Contributing to SPP is now limitless!

Join the Wealthcare Revolution – follow SPP on Facebook!

“The best investment you can make is an investment in yourself.”

This quote, from famed financier Warren Buffett, begins Larry Bates’ book Beat The Bank, a nicely written, witty and fun “how-to” on how to build wealth without handing over a massive chunk of your savings to your local financial institution.

He introduces the concept of Simply Successful Investing by encouraging us all to “learn investment basics,” to “think long-term” when investing, and to “minimize” investment costs.

He rolls out the example of two couples, the Meeks and the Ables, who both manage to save $300,000 by age 65 in their Tax-Free Savings Accounts (TFSAs). At that point, the Meeks have saved $470,000 — a $170,000 gain on their investment. But the Ables, at the same point, have $856,000.

The difference, the book explains, is that while the Meeks followed the bank’s advice and invested their money in equity and bond mutual funds — carrying an average annual fee of two per cent — the Ables invested in index ETFs that charge only 0.25 per cent in fees.

“The Meeks paid total mutual fund fees of $217,600 — an astonishing 73 per cent of the original $300,000 they invested — while the Ables paid total ETF fees of just $63,900, about 21 per cent of their original investment,” author Bates explains. As well, because the Ables have so much more savings by age 65, they will receive more than twice the annual retirement income that the Meeks will.

In another chapter, Bates explains the three “wealth builders” that are out there for investors — amount saved, time (how long one has been saving) and “the magic of compounding.” The more you are able to save, and the earlier you get started, to more your savings growth will be compounded over time, he explains.

To illustrate the idea of compounding, a chart shows how $10,000 invested in Royal Bank stock would grow to $60,822 after 15 years, thanks to growth in the stock price over time. And if dividends are reinvested, the figure goes even higher, Bates writes.

Had you invested $10,000 in TD Bank stock in April, 1978, you would have $4.2 million 40 years later. “The only two investment values that really matter are the amount you pay on purchase, and the amount you receive on sale,” he writes. “The thousands of data points in between ultimately mean nothing… learning to ignore all these thousands of data points is key to Simply Successful Investing.”

Watch out, warns Bates, for “wealth killers,” which include fees (both visible and invisible), taxes, and inflation.

He offers a fee impact calculator (the T-REX calculator) at www.larrybates.ca.

Latter chapters provide detail on investing via discount brokerages or through “robo-investing,” both of which offer lower fees than traditional full service brokerages. Closing advice includes the idea of “automating” your investing/savings by making regular, automatic deposits.

This is a great, clearly written and very digestible walkthrough of what can seem like a very complex topic.

The Saskatchewan Pension Plan operates on a not-for-profit basis. That allows them to keep investment management costs low, typically under one per cent. No fees are charged directly to members. If you are looking for a low-fee, pooled retirement savings vehicle with a sparkling track record since its inception 36 years ago, look no farther than SPP!

Join the Wealthcare Revolution – follow SPP on Facebook!

The incomparable Warren Buffett calls The Intelligent Investor, by Benjamin Graham, “the best book on investing ever written.”

And it is Buffett himself who provides a forward and appendix notes on the latest, revised edition of this classic investing text by Graham, his mentor.

This is not a book you can sit down and breeze through in a day or two – Graham’s original work is deep on statistics, charts, and examples, and the updated commentary is no less detailed.

The book contrasts speculation with investing. The book talks about the so-called dot.com bubble earlier this century, a time when, with “technology stocks… doubling in value every day, the notion that you could lose almost all your money seemed absurd.” However, the book notes, by 2002 many stocks had lost 95 per cent of their value.

“Once you lose 95 per cent of your money, you have to gain 1,900 per cent just to get back to where you started,” the book notes. Avoiding losses, the book states, is a central platform for intelligent investing.

While there’s a place for speculation, writes Graham, “there are many ways in which speculation may be unintelligent. Of these, the foremost are: (1) speculating when you think you are investing; (2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose.”

By contrast, defensive intelligent investors must confine themselves “to the shares of important companies with a long record of profitable operations and in strong financial condition.” These choices must be based on “intelligent analysis,” the book explains.

Bonds can’t be overlooked, Graham writes. “Even high-quality stocks cannot be a better purchase than bonds under all conditions.” Both belong in people’s portfolios, he states.

While a 50-50 stocks/bonds portfolio is a sensible mix, Graham says you should allow yourself to go up to 75/25 in either category when conditions warrant.

While bonds are considered “less risky” than even good preferred stocks, Graham warns they aren’t completely safe. “A bond is clearly unsafe when it defaults its interest or principal payments,” he explains – and the same risk exists when a stock reduces or cancels its dividend.

On the idea of buying low and selling high, Graham suggests it is better for people “to do stock buying whenever (they) have money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value.”

The book warns about buying into funds or securities that are on a hot streak. “If a manager happens to be in the right corner of the markets at just the right time, he will look brilliant,” we are told. But, the book warns, the market’s hottest sector “often turns as cold as liquid nitrogen, with blinding speed and utterly no warning.” Buying stocks or funds based on past performance “is one of the stupidest things an investor can do,” the authors conclude.

On do-it-yourself investing, Graham is clear.

“There is no reason at all for thinking that the average intelligent investor, even with much devoted effort, can derive better results over the years from the purchase of growth stocks than the investment companies specializing in this area,” he writes. “Surely these organizations have more brains and better research facilities at their disposal than you do.”

The commentary section for this chapter expands the argument. While some people believe that “the really big fortunes from common stocks… have been made by people who packed all their money into one investment they knew supremely well,” Warren Buffett says “almost no small fortunes have been made this way – and not many big fortunes have been kept this way.”

Diversification is key, he warns, or else you will “stand by and wince at the sickening crunch as the constantly changing economy” crushes your only basket and all your eggs.

“If you build a diversified basket of stocks whose current assets are at least double their current liabilities, and whose long-term debt does not exceed working capital, you should end up with a group of conservatively financed companies with plenty of staying power,” the book advises.

A tip about Buffett is that he “likes to snap up a stock when a scandal, big loss, or other bad news passes over it like a storm cloud.” He bought into Coca-Cola after the disastrous “New Coke” launch in 1985.

This is a heavy read, but it’s well worth the effort.

If you’re looking for diversification in your retirement savings, consider the Saskatchewan Pension Plan. SPP’s Balanced Fund presently features 50 per cent equities (Canadian, American and non-North American) with the other 50 per cent in bonds, mortgages, real estate, short-term investments and infrastructure. That’s a lot of baskets for those precious retirement nest eggs.

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We often run in to various thoughts and pronouncements by the Oracle of Omaha, Warren Buffett, when reading the papers, watching the news, or even scrolling through social media. The man, after all, is a financial genius and one of the richest people in the world.

A nice book by Robert L. Bloch, My Warren Buffett Bible, catalogues some of the great man’s thinking in a well-organized, easy-to-access way.  There are literally hundreds of bits of good advice tucked away in this book that will help even the most novice of investors.

“Rule number one,” Buffett is quoted as saying, is “never lose money. Rule number two – don’t forget rule number one.”

He suggests that investors “buy companies with strong histories of profitability and with a dominant business franchise.” In other words, leading companies that are making profits.

“When I buy a stock, I think of it in terms of buying a whole company, just as if I was buying the store down the street. If I were buying the store, I’d want to know all about it.” The same holds true, Buffett says, when buying shares in a well-known company.

As well, Buffett states, “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” He also notes that “startups are not our game;” his company, Berkshire Hathaway, tends to buy companies that have been around for a long time. Its oldest holdings, the book reports, are American Express, Wells Fargo, Procter & Gamble and Coca-Cola, all firms that are over a century old.

And he says he plans to increase his holdings in these types of companies. “Too much of a good thing can be wonderful,” he states in the book. “The definition of a great company is one that will be great for 25 or 30 years.”

He’s not one for making a lot of portfolio changes, either. “Inactivity strikes us as intelligent behaviour,” he notes, adding that “what the wise do in the beginning, fools do in the end.”

He is not, the book states, a big fan of bond investing. “Overwhelmingly, for people that can invest over time, equities are the best place to put their money. Bonds might be the worst place to put their money. They are paying very, very little, and they’re denominated in a currency that will decline in value.”

For those who don’t want to pick stocks, he recommends index funds (such as index ETFs). “If you invested in a very low-cost index fund – where you don’t put the money in at one time, but average in over 10 years – you’ll do better than 90 per cent of people who start investing at the same time,” he states in the book.

And for those who may think money is everything, the book closes with this quote from Buffett – “money to some extent sometimes lets you be in more interesting environments. But it can’t change how many people love you or how healthy you are,” he states in the book.

This is a fine little book that is fun and quick to read.  If you are running into problems running your own investments for retirement, it’s never a bad idea to get some help. The Saskatchewan Pension Plan will grow your savings for you, using expert investment advice at a very affordable rate. When it’s time to turn those savings into retirement income, SPP has an array of annuity options to provide you with steady lifetime income. You can transfer up to $10,000 each year from your existing RRSP to SPP; check them out today.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

We were chatting about retirement with a salesman at the local car dealership when he rolled out a bombshell – in his early 70s, he had no plans for retirement. He loved what he does and wants to keep on doing it for as long as he can. Maybe in his mid- to late 80s he might get a cottage, he says.

That made Save with SPP wonder if others aren’t retiring – and why.

The Wise Bread blog says there are five types of people who don’t retire – the “broke non-retiree, the workaholic, the successful investor, the life re-inventor and the mega-successful lifers.”

The article notes that “a startling 47 per cent” of Americans “now plan to retire “at a later age than they expected when they were 40.” The reason why – 24 per cent of Americans 50 and older have saved less than $10,000 for retirement.

For workaholics, the article notes, “it can be devastating to face retirement,” with many fighting it “tooth and nail.” Successful investors, the article notes, may have bought real estate, gold, or stocks early and now have enough money that they don’t need to work. Life re-inventors retire from one job and take on a new, totally different one, and the “mega-successful” tend to be CEOs, actors, star athletes, folks who have sufficient wealth to not worry about a formal retirement.

The New York Times reports that there are 1.5 million Americans over the age of 75 who are still working. Judge Jack Weinstein, age 96, still gets up for work every day at 5:30 a.m., the newspaper reports. “I’ve never thought of retiring,” he tells the newspaper. “If you are doing interesting work, you want to continue.” The paper says that those who are employed in jobs “in which skill and brainpower matter more than brawn and endurance” often keep going past usual retirement age, as do the self-employed and industry stars, like Warren Buffett.

An article in Market Watch picks up on another point – there are many people who don’t like the sound of retirement. “The idea of a retirement where a person has little responsibility, and, worst of all, interacts with very few people, just isn’t appealing to the current crop of pre-retirees,” the article notes.

A more Canuck-friendly view comes from Canadian Living, which lists the main reasons for not retiring as “you need the money, you like working, you hate retirement,” and significantly, “you’ll collect bigger benefits” and “you’ll lose your RRSP later.”

“If you collect your CPP at age 70,” the article points out, “you’ll get 42 per cent more than if you retired at 65.” Similarly, if you collect CPP at 60, you get 36 per cent less than if you collected at 65, the article states.

On the RRSP front, since you must convert your RRSP to a RRIF (or buy an annuity) by age 71, delaying retirement means you will have more money in retirement, the magazine notes.

These are all good points. Save with SPP notes that there are many folks who simply live in the now and won’t think about retirement until they must. The idea that we can all keep working forever is a nice one but tends to be an exception, rather than a rule.

We may not want to retire, but the vast majority of us probably will. Even if you’re in the group that has saved very little up until age 50, there is still time to augment your life after work with some retirement savings. The Saskatchewan Pension Plan is quite unique in that it is open to all Canadians and provides an end-to-end retirement vehicle – your savings are invested and turned into a lifetime pension at retirement time. It’s a wise choice, even for those who don’t want to retire.

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22