Posted by Canadian Dream on January 16, 2009
Within a few days now we are going to see an interesting few weeks start to roll out. Obama is going to take office in the US and be sitting in front of the world’s biggest mess. Then the week afterward the Canadian government introduces it’s budget and we get to find out if the opposition either defeats the government and dumps us in another election or the opposition coalition gives a try on running the government or just pass the budget.
In both countries I’m dreaming that things turn out alright in the long haul, but I have to admit I have my doubts. Yet Obama I’m less worried about. Why? He at least has a vision. He knows where I wants the country to go and at least a rough idea on how to get it there. In Canada I’ve yet to see anyone display a shred of vision. We blindly follow policies that sound nice in isolation, but really don’t get us anywhere in the big picture.
Hell in Canada the lack of vision is so bad the current government given up coming up with their own CO2 legislation and have basically said they are just going to copy what ever the US does. This lack of vision is disturbing to say the least since it could get us sucked into a poor agreement for Canada. Yes, any change is going to be expensive, but that was going to happen anyway as infrastructure gets older and needs to be replaced. Yet without any guidance for the last few years all the government has done is shove the change into a more narrow window, which in the long run is just going to increase prices even faster.
There are no easy choices or solutions. Stop looking for them, they don’t exist. There are going to be winners and losers regardless of the choice. So stop whining about it and get a move on. If you want to stimulate the enconomy just roll out some CO2 regulations. You are going to see a huge amount of spending in a very short window and not to mention some serious job creation. Are there going to be job loses in some industries? You bet, but guess what right now doing nothing those jobs are still at risk anyways.
Life sucks some times, let’s be proactive for a change of pace and perhaps get a little vision. Or more likely not. At least I can dream about it.
Posted by Canadian Dream on January 15, 2009
Well another excellent book recommendation from another reader. I’m really spoiled as you guys tell me about all these great books! Crash Proof by Peter D. Schiff is a most enlightening read despite being written in 2006 and published in 2007. Why? Because it basically told us that the crash of 2008 was going to happen.
WHAT?!? Yep, you read that right. The author had saw the bubble and knew it was going to blow. He wasn’t sure when, but knew it was coming. The book deals with the fall of the US economy specifically and lays out the economic reasons why its going to happen and some of the bullsh!t that the US government was saying trying to keep a lid on it and the keep the party going as long as possible.
It was a VERY interesting read for the fist seven chapters which dealt with the background to the problem. Perhaps the most interesting things I’ve learned was about inflation and the insanity of the Social Security system.
First off I learned inflation is actually the expansion of the monetary supply. More dollars in play means reduced purchasing power. This is actually a very good thing from the US governments point of view, but bad from a taxpayers point of view (I won’t get into all the details, it’s too much to cover in one post. Mmm, maybe I’ll deal with this next week). Also how the government has been basically hiding that fact that inflation is as high as it is(which anyone living in the US already knows).
Second, I learned that Social Security is just invested in US government bonds. Which means the government is basically paying itself. What?!? Ok, Social Security payments come into the government. They buy US bonds with it. Who gets the money? The US government, who can now spend it on anything they like. Wow, what a load of BS, eh? At least Canada’s government has the decency to say that Old Age Security comes out of general government revenues. Thank goodness the Canada Pension Plan is invested elsewhere.
Now the book then starts to fall apart in the last three chaptes where Peter starts to recommend how to avoid the crash. His basic rules are: don’t have money invested in US stocks or even US currancy (because he expects the US dollar to collapse in the near term), buy gold (because it will go up in value) and keep a large cash reserve to cover some expenses after the crash as well as pick up some investments.
The gold idea and the cash reserve make some sense. I generally agree with those concepts. Gold is a traditional safe investment in down times and cash is logical. My beef is with the avoid everything US. Why? Because there are a lot of big US companies that get a lot of income from foreign markets. Even if the US dollar collapses they will still have a fair amount of non-US dollar income. Now obviously that applies to only some companies, but I think Peter was getting rid of the baby with the bathwater by saying avoid all US stocks.
So who else has read the book? What did you think? I’m interested to hear other points of view.
Posted by Canadian Dream on January 14, 2009
Welcome to my three part series on modifications to my retirement plan. If you haven’t previous read them I suggest you read my series “How Much Do I Need to Retire” for some of the background of the numbers.
Well this year Canadian’s were introduced to our new friend the Tax Free Savings Account (TFSA) which is similar to the Roth IRA, but better. The money we put is in is after tax dollars without a tax refund. Yet as we don’t have to wait for a certain age to use the money and it doesn’t count as income in your taxes or trigger any reduction of benefits for government programs it’s a great thing.
Previously I had stated I wasn’t sure what I was going to do with the TFSA and my retirement plans. Well I think I have decided. I’m going to maximize my contributions these accounts out for my wife and I for the next 15 years. My investment choices won’t be cash based but rather (at first ) distribution paying stocks we already own in a taxable account to help reduce our current tax bill. Then we will start buying other income producing investments. The long term goal of these accounts is to try and have these accounts produce about $7000/year in tax free income between the two of us (today’s dollars).
So why $7000/year? Because the current basic income tax deduction is $10,100 per person. If you add it up then I can get $27,200 per year with no tax in retirement. Yep, I’m going for the classic “don’t pay a dime in tax” retirement. Thanks to the TFSA’s that is now much more of a realistic goal.
So in addition to that change I’ve also decided to break down the next few years into saving goals. They are:
- Phase 1 (2009 till 2012): Buy investments like crazy while the prices are still cheap. My initial focus will be maxing the TFSA’s in a given year, but after that I’ll be looking a dividend paying stocks. In addition I have a backlog of contribution room in my RRSP I want finish maxing out over the next few years (which again will use index funds).
- Phase 2 (2013 to 2018): Shift focus and pour savings into paying off the mortgage. I want that beast dead by the time I turn 40. Why? I want the flexibility to leave work earlier than 45 if things change over the next decade (ie: If change my mind and pull off a semi-retirement). Also during this time I’ll move as much taxable investments as I can into the TFSA accounts.
- Phase 3 (2018 to 2023): At time point I will start stabilizing investments. I don’t want a stock market crash screwing up my savings. So I’ll alter the mix in my pension plan and my RRSP to a larger amount of bond exposure (perhaps around 70 to 75% in each, keep in mind the TFSA will have a large amount of my overall equity exposure). Also during this time I’ll build up a good size cash reserve (three to five years of spending) and make sure to either replace any longer term goods (ie: car, fridge, etc) or ensure I have a cash fund to buy a replacement later on.
The end goal of these phases is to give me focus during each period. That way I won’t ever be thinking ‘Ok, but what do I do now?’ Instead I’ll be just going ahead with the plan.
So what do you think? Nuts or not bad or wow? Let me know what you think with a comment. I’m open to ideas.
