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Friday, October 9, 2015

The Stock Market Yo-Yo

Posted by Tim Stobbs on August 25, 2015

I sort of laughed at some of the media stories on Monday based the the sharp drop off of many stock markets…reading the articles you would swear the world had just shifted on its axis a few degrees.  Yet then on Tuesday the markets spiked back up and the media then sounds all positive about everything.  Do you know what I did during all of this….nothing.

Yes, I didn’t sell anything and I didn’t buy anything since I had already moved around $10,000 into the markets last week.  I noticed the market was down a bit and we needed to shift over some cash into ETF’s (Exchange Traded Funds) in our RRSP accounts.  I bought some US stock index ETF and my wife had a bit more cash so she did the same US ETF and also picked up some Canadian index ETF.  So we missed the bottom…so what?  We aren’t stock market timers anyway.

I think the problem most people have with this big swings down is they feel the need to do something…when in fact when you are down the answer is usually to buy something rather than sell anything.  Selling just locks in your losses while buying can provided an option to load up on some good investments on the cheap.  Yet if you don’t have cash handy the right answer should be chanting to yourself: this too shall pass.  Because in fact, in the stock market on a whole, just about everything does pass at some point or another.

I’m not saying this isn’t easy to do the first few times.  Being active in managing my own investments does make you want to do something when these big things occur, but in fact a lot of the time the right way to approach things is doing nothing.  Sit on your hands if you have to but don’t login to your trading accounts…that just gets way to tempting to do something.  Instead, pick up a good book and distract yourself for a while.  See if the one day drop or spike is turning into a longer term trend and then decide if you need to make any adjustments according to your plan.

Yes, your plan.  You know your highly emotional at this point and perhaps you already planned for this by writing out your investment objects and plan.  Pardon…objective and plan?  Yes you know that one page document you know you really should have written out ages ago that outlines when you buy and sell things when were rational rather than your current emotional state.  See if you put in anything for drops of less than 5%…likely you didn’t which means you previous rational self is reminding you to keep sitting on your hands.  No trading for you.

In my case it would look something like this:

“Invest the money into your trading accounts approximately once a month…do not let it build up in the chequing account (you may get delusions that you are rich otherwise).  Our investments are broken into three buckets: pension, RRSP and TFSA.  Pension is the long term money and invested in the second most conservative option available from my plan provider.  The RRSPs are in index based ETFs.  The current ideal ratio is about 40% in bonds, the rest even split between Canada, US and world. Only rebalance about once or perhaps twice a year.  TFSAs are the high risk investments in individual stocks.  Seek out mature companies providing monthly billing services that pay dividends (ideally Canadian -remember that the US doesn’t recognize TFSA yet as a tax shelter and you will pay tax on US dividends).  Target average payout from TFSA accounts is 5%.  So some high risk ones are allowed if they are balanced off by lower risk ones. When you max out contribution room in all RRSP and TFSA then consider adding taxable accounts. You may only borrow to invest from the Line of Credit if you have put the money back in less than three months.”

That’s it…notice I have nothing about market drops in there.  It doesn’t prevent me from shopping a downturn, I just need to have the money into the accounts to do it or be able to put there in a short period of time.

So how do you handle these downturns or upswings?

Too Independent?

Posted by Tim Stobbs on August 4, 2015

I was reading a book the other day that pointed out something that honestly had not occurred to me as a danger of seeking financial independence: that you can end up being too independent. To which I initially thought: pardon?!?!

Then as I kept reading the author made his point a bit more clear.  Seeking financial independence is a fine goal for anyone to do.  The danger becomes when you apply the same thinking to everything in your life.  When you seek to be independent of everything does the trouble start to come home.

You see you can start to apply the idea of being independent of your job to other parts of your life. For example, why should I buy power from the power company when I can setup my own solar and wind power?   Or why should I buy my vegetables from the store when I can grow my own?  These types of independence aren’t really a bad idea depending on how much you enjoy the project, the costs versus the benefits (not all power generation systems make economic sense) and how much time you have to work on them.

The trouble can really kick in when you start applying the idea to people and think:  I don’t need to be nice to the people I work with since I’m leaving in a few years or perhaps I don’t have to hang out with my friends that spend too much.  This is where you start to become too independent.

“No man is an island entire of itself” – John Donne

It may pain people to recall this but you can’t live without other people.  We are social beings and while I’m a strong introvert even I realize that I need other people at times.  So that means you can’t just focus blindly at savings money and ignore the social impacts of your choices.  By never going out with friends you are social isolating yourself at the cost of a few drinks or a meal out, which really shouldn’t make or break your plan to retire early (because if it is, then your margin is far too thin and you need to go back and increase your spending estimate a bit).

The same idea applies to being a self absorbed egotistical ass to other people just because you are good at saving money and they are not (yes, even I have done this and regretted it).  Everyone has their particular gifts and skills so don’t just burn bridges to stroke your ego, you might find out that you being an ass has a much higher price in your life than you realize.

You see your social network also provides a degree of support to your early retirement plan.  For example, a friend will typically look after our house when we go on vacation.  Or if you need help moving something heavy to the dump a friend with a truck can save you the cost of a rental.  You in turn also help your friends with projects like painting a fence, installing a patio or putting up a garage.  It’s called social capital and it is just as important to have access to as financial capital and it works on a give and take basis…you help others and they help you.  I caution you not to underestimate the value of this…I mean having a friend to call when the world goes to shit on you is nearly priceless at that moment in time.

That same capital even applies outside of your good friends.  Think for a minute about work when you have two tasks to do to help two different people: the first one is for a nice guy who helped you out of jam last month and the other is an over demanding prick who is never helpful back…which one do you help first?  Sort of obvious, right?

So in your focus to financially independent don’t forget to also grow you social capital as well of your financial.  Both will serve you in the long run to getting to a better place in life.  Also there is the nice side benefit of feeling better by helping others…especially those you actually know and like.

Have you ever gone too far and become too independent?  What was your wake up call and how did you turn it around?

Hits You Like a Truck

Posted by Tim Stobbs on February 2, 2015

Some things in life you accept as being the natural cycle of life. For example, over the holidays my uncle who had cancer for a number of years finally passed away. It wasn’t a nice event to happen, but it wasn’t unexpected. I mourned for his passing, but it’s grief didn’t drag me down.

Other events in your life hit you like a truck. You never saw it coming or even thought about it and it just leaves you dazed and confused. I recently experienced that when I found out a friend of mine’s wife passed away at the age of 34. Shock doesn’t begin to cover it, and we don’t even know what happened except it was unexpected.

Unexpected. The word is so loaded with what might have been it is almost painful to write. Yet I still reached out to my friend who now is a single father of three lovely children and obviously doesn’t have much of a clue how to start to live life without someone who thought you would be there for the new few decades at least. I have problems even imagining being in a similar situation. My wife is like my other half, it would be like missing an arm suddenly…I would keep turning to say something to her or tell her a story only to remember in the end the person I love most in the world would be gone. Horrible doesn’t begin to describe it.

Yet this event as tragic as it was was a reminder to me. A sign post on the road of life. Life is unknown, you can’t plan for it all so you have to live for today as you really never know when it may be your last.

So while I haven’t made any huge changes to my life in the wake of this event I do try to remember to tell people what they mean to me. I tell my children that I love them more. I remember to kiss my wife a bit more than I need to. I remember to say thank you for those little things in your life that aren’t worth living without.

Yet most of all, it reminded me that is so much more to our lives than just a job. It’s only a tiny fraction of what you do and what you mean to the people around you. At someone’s death bed we never talk of they got that sales presentation done on time, or the number of clients they brought in or even what the hell their title was at work. No cares if you came into work on time or barely used your sick leave. No one recalls if you took all your vacation last year or not. It all drops away as it should be and becomes irrelevant. Instead if you read the summary of our lives it notes your entire career in a line or perhaps two. Then we tell of those lives you touched and those people that will miss you.

We aren’t our jobs. We aren’t our careers or titles, our houses, our cars or anything else, but we are remembered for those that we loved and how we made people feel. So remember to let go of your ego and recall what really matters most in life. It isn’t what you are likely spending your time on and it is what you should be spending your time on.

We aren’t our jobs and they don’t actual mean much to us at all in end. Yet in the moment we tend to forget that. We tend to worry about things that really don’t make us happier or wiser or even help the world be a better place.

So don’t blindly save for your future, honour your present as well but most of all don’t lose sight of the why of things. Why do you love those around you? Why do you do your job? Why do you save your money for tomorrow? These why aren’t always easy to find but when that truck hits you in life with the unexpected often in that moment everything is clear and you should try to remember that second where the world made sense and hold on to your why of your life. You will be happier and more at ease because of it.

In the end, the only thing to say is: I’m sorry. May she rest in peace and know she will be missed.