Keeping it simple makes your wealth plan elegant: JL CollinsSeptember 3, 2020
No question about it, A Simple Plan to Wealth by JL Collins is ideally suited for those of us who “have better things to do with their precious time than think about money.” This book grew out of a series of blog posts that were designed, in part, to enlighten the author’s kids, we are told. While a lot of the retirement saving messages are aimed at our friends south of the border, there is a lot of solid advice in these pages.
“Spend less than you earn – invest the surplus – avoid debt,” Collins begins. “Do simply this and you’ll wind up rich. Not just in money.” Collins adds that carrying debt “is as appealing as being covered with leeches and has much the same effect.”
Collins says even at age 13, he was a saver. “Watching my money grow was intoxicating.” And while savings first earmarked for a convertible ultimately were needed to pay for his college education, the important aspect of the story is having savings “in this fiscally insecure world.”
“To this day it stuns me to read about some middle-aged guy laid off from his job of 20 years and almost instantly broke. How does anyone let that happen? It is the result of failing to master money,” he writes.
Credit cards draw us in and then live in our pockets, he says. Early on, faced with a chance to put a $300 purchase on a credit card, he found that after paying the minimum he would owe 18 per cent on the balance of $290 that “they were hoping I’d let ride. What? Did these people think I was stupid,” he asks. But credit is not personal. “They think the same of all of us. And unfortunately, all too frequently they’re not wrong.”
Collins is a big proponent of stock investing, and notes that $12,000 invested in the U.S. S&P 500 in 1975 would be worth $1.07 million thirty years later. However, he says, most people lose money in the market because “we think we can time the market,” or “we believe we can pick individual stocks” or “winning mutual fund managers.”
Collins likes exchange-traded-funds (ETFs), specifically citing the Vanguard series. He also is quite aggressive in his personal portfolio mix – 75 per cent stocks, 20 per cent bonds, and five per cent cash, with stock and bond holdings all done via index ETFs. ETFs, he writes, have far lower fees than mutual funds, and there’s an argument for buying the entire index rather than trying to pick those stocks on it that are winners. He notes that Warren Buffett had similar advice for his shareholders – “put 10 per cent of cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund.”
Collins is also a “four per cent rule” skeptic, saying it is safer to draw three per cent per year from your retirement savings in order to live well without running out of money. “Stray much further out than seven per cent and your future will include dining on dog food,” he warns.
The key message throughout this easy-to-digest book is to stick to the plan and live within your means. Nothing, he concludes, “is worth paying interest to own.”
Be sure to earmark retirement savings in your plan. As the book suggests, the longer your savings have to grow, the more they will. The Saskatchewan Pension Plan has averaged growth of more than eight per cent annually since its inception in the 1980s, and the fee charged is currently about one per cent. Get your savings growing for you and consider checking out SPP 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, and playing guitar. Got a story idea? Let Martin know via LinkedIn.
Market update as of March 12, 2020March 12, 2020
The current market volatility illustrates the uncertainty facing investors, especially regarding when the markets will recover. The following information has been provided by the Plan’s investment managers, TD Asset Management (TDAM) and Leith Wheeler Investment Counsel (Leith Wheeler).
TDAM: March 2/20 – Click here for the full article.
“With a number of major market events making headlines, including the S&P 500 Index declining approximately 13% from its recent highs, 10-Year Treasury yields hitting a new record low of 1.18%, and gold set to break multi-year highs, we want to highlight a few important points.”
“As we currently stand the major known unknown is how COVID-19 will evolve. If the coronavirus doesn’t become a worldwide epidemic, then risk assets will likely recover quickly. But in a worst-case scenario where the outbreak morphs into a pandemic, the resulting market downturn could get somewhat worse.”
“We are of the view that the most probable outcome is the economic impact of the virus will be short lived for the following reasons:
- As economic activity is suppressed, we believe it is driving global inventory levels to fall rapidly. Low inventory levels should create pent up demand that will boost economic growth in the following quarters.
- The Peoples Republic of China will move away from financial de-risking and return to aggressive fiscal and monetary easing in order to help ensure a swift domestic economic recovery.
- It is important to remember that prior to the viral outbreak, the global financial outlook for 2020 was generally positive as market participants felt that the economic momentum had slowly turned the corner after a soft 2019.
- In addition, and unlike the global financial crisis of 2008, economic imbalances are generally smaller now than a decade ago.
- And finally, global monetary policy remains highly accommodative.
We expect these factors to support a rebound in capital
markets once the virus has run its course or has been contained.”
Leith Wheeler: March 2/20 – Click here for the full article.
“Why did markets fall? The most straightforward answer is that markets have become increasingly concerned that the coronavirus (also known as COVID-19) could materially reduce global economic growth.”
“How did markets fall? The first place that recession fears show up is in the fixed income markets. This past week government bond prices rose, showing both a demand for certainty and a view that central bank will need to lower rates further in 2020 in order to support the economy. The premium required to hold corporate bonds also increased, reflecting investor nervousness about carrying the risk of default – but only rose back to levels seen in recent months.
The recent declines in equity markets have been global in nature, as the coronavirus mutated from a health scare to a financial one. Both high – and low – quality stocks dropped, irrespective of how exposed they might be to changes in economic growth, how vulnerable they might be to fluctuations in their cash flow (i.e. highly indebted and new cash companies alike), what their growth profiles is, their level of management skill and so on.”
“The coronavirus may fizzle out in a month, or it could get much bigger. We could see trade flows normalize, or we could see a further global economic slowdown. “
“[W]hen you are investing for the long term, market fluctuations – even large ones that persist for quarters or even years – will just prove to be bumps on the way to your ultimate goal. Market corrections are a normal occurrence, but lenders and investors always find a bottom; business builders move on and build again; and markets rise again – ultimately to new highs.”
“As long term value investors, we have the benefit of knowing the value of businesses without the benefit of a stock quote, so our homework pays off when others are losing their heads and selling good companies out of fear. We use these corrections as opportunities to buy those quality businesses when they’re on sale. Beyond that, it’s business as usual.”
Please contact our office if you have any questions.
Feb 19: Best from the blogosphereFebruary 19, 2018
Unfortunately, what goes up must come down and recent volatility illustrates that the stock market is no exception. Your head knows this is the time NOT to check your investments every day or start selling at a loss, but your heart is still going pitter patter at random hours of the day and night.
There is little doubt that unpredictable markets will likely be the norm for the near future. This week we present blogs and mainstream media articles to help you achieve the intestinal fortitude to ride out the storm, particularly if you are retired or close to retirement.
The S&P 500 and Dow Jones Industrial Average both entered correction territory in early February — closing down 10% from the all-time highs that each hit several weeks earlier. The TSX also shed hundreds of points. Fortune explained the drop this way:
“The selloff comes as investors grow worried that the stock market may have run up too much too fast in anticipation of the impact of President Trump’s tax reforms…..The Bank of England likely also fueled some concerns that central banks worldwide would boost interest rates.”
On the Financial Independence Hub, Adrian Mastracci wrote that although you may be rattled by the correction, Diversification keeps your nest egg on the rails. He explained that diversification among asset classes, economic regions, time to maturity, foreign currencies and investment quality increases the odds of you being right more often than wrong. When some selections are suffering, others can step up and help cushion the rest of your portfolio.
For example, the diversified Saskatchewan Pension Plan Balanced Fund is professionally-managed by Greystone Managed Investments and Leith Wheeler Investment Counsel. As of December 31, 2017 the balanced fund portfolio is invested as follows:
- 30.6%: Bonds and mortgages
- 19.3%: International equities
- 19.2%: Canadian equities
- 18.8%: U.S. equities
- 10.2%: Real estate
- 1.9%: Money market
SPP has rated the volatility of this fund as low to medium. Nevertheless, the fund does not have any return guarantees.
The Globe and Mail’s Rob Carrick offers reasons why you should be grateful for the market freakout. “The markets are likely to be ornery for the next while, but there’s no need for radical surgery on properly diversified portfolios of stocks, bonds and cash that you’re holding for the long term,” he says. “Think about strategically adding stocks, not subtracting. After any big market decline, put a little money into quality stocks or exchange-traded funds and mutual funds that hold them.”
On the HuffPost Ann Brenoff addresses How To Handle A Stock Market Drop When You’re Retired. She acknowledges that for retirees or those close to retirement recent market gyrations are gut-wrenching. She comments, “Even those in their 60s likely have many investment years ahead of them. And with that length of time, you will have plenty of opportunity to recover from these types of market drops, she said. The key, though, is staying invested.” Brenoff also points out that if you were invested even just a few months ago, there’s an excellent chance you’re still ahead despite two days of falling prices.
Several months ago Ian McGugan’s column in the Globe and Mail suggests Five things to do if you’re nearing or in retirement and fearing a market pullback. He cites several takeaways from Wade Pfau, an economist at American College in Philadelphia:
- If you’ve won, stop gambling.
- Plan for lower returns.
- Think safety, not wealth.
- Consider alternatives such as annuities.
Pfau also recommends you ask yourself two questions if you are in doubt whether to stay heavily invested in the stock market: “How would you feel if your wealth doubled? How would you feel if your wealth fell in half? “Most people find the prospect of losing a substantial part of their portfolio far outweighs the possible pleasure of having substantially more,” he said.
Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.
|Written by Sheryl Smolkin|
|Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.|