scary investing for canadians
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TRANSCRIPT
SCARY INVESTING*as according to Elliot
Thursday, August 11, 2011
MYTHS
Cash issafe
I’ll doublemy money
Investingis hard
I’ll lose allmy moneyInvesting
is risky What about Gold?
My retirement willwork out somehow
Investingmeans stocks
Thursday, August 11, 2011
• Anyone who bought real-estate is Vancouver is an investor – they’ve bought an asset that can appreciate (or drop)• How can you invest money?• Buy assets (like real-estate)• Buy bonds or GICs* (income over a period of time)• even Guaranteed Investment Certificates are only as guaranteed as the issuer
• Buy shares of a company that pays dividends• Buy shares of a company that appreciate in value
• There is no such thing as a sure bets, but there are good bets (Vancouver real-estate, oil, banks)
MYTH:INVESTING IS STOCKS
Thursday, August 11, 2011
MYTH: CASH IS BESTNot with inflation!
450
900
1,350
1,800
1991 2001 2011 2021
Your Cash Cost of living
A $1000 is always $1000, but it buys less
as time continues.In 2011, you need $1500 to buy the same as $1000
did in 1991* data from bank of canada
Thursday, August 11, 2011
0
1,250
2,500
3,750
5,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
TSX CompositeInflationGoldCash10 year Govt. Canada bond*
$1000 investment in 1991
Thursday, August 11, 2011
• For 2011, the values are for August 10 (worst-case data), and don’t include TSX Dividend yields (2% annually)• The TSX Composite has done well (comprised of well
known Canadian companies: Cable companies, Banks, Communication, etc)• 10-year Canadian Savings Bonds in 1991 offered a 9%
yield. In 2001 a 5.8% yield. In 2011 a 1.4% yield. Right now they don’t even beat inflation.• Gold is an interesting investment – its value is based on
fear. It will keep increasing in price as long as fear is prevalent. (Which it has been for the last 10 years).• The best investment approach is a combination
ANALYSIS
Thursday, August 11, 2011
WHATS THE TSX?• The Toronto Stock Exchange is a list of 1,500 Canadian
companies owned by the public•Within this Exchange, companies are grouped, like the TSX
60 and the TSX Composite. These are what you hear about in the news when they say the market has gone up or down.• The TSX 60 is a list of the largest 60 companies in Canada,
and include BMO, Bombardier, Potash, Royal Bank, Enbridge, Shoppers Drug Mart to name a few• The TSX Composite is a list of the largest 260 companies in
Canada, and represents a much broader cross-section of Canadian business.• You can find ETFs for the TSX 60 and TSX Composite; and
these are good to invest in if you are bullish about Canada
Thursday, August 11, 2011
SHAREHOLDERS• As a shareholder of a company, you own part of the
company•Many companies like banks pay quarterly or annual
dividends. Basically they share their profits as a percentage with the shareholders. Dividends tend to range between 0.1% to 4% (the biggest banks)•Dividends are a good way to build compounding
growth, especially if use the dividends to buy more shares of the same company• You use products and services by these companies every
day, so by owning a part of a company – you get some of that money you spend back.
Thursday, August 11, 2011
• The idea behind mutual funds and ETFs is that you are buying a grouping of companies, and therefore spreading your risk, instead of investing all your money in one company. • When you buy 1 share of a Mutual fund or ETF, you are buying a
portion of every company represented by that investment• Someone figured out that investing against the broader stock market
beat 90% of Mutual Funds, and the ETF (Exchange-traded-fund) was born. Most ETFs match an existing market index (like the TSX Composite)• The idea behind a mutual fund, is that there are experts picking stocks
and trying to beat the stock market for you. In reality 90% of them fail.• Mutual funds also take a higher commission than ETFs.
For example: if you make 5% on a mutual fund, 2.5% of that goes to the Mutual Fund company. If you make 5% on an ETF, 0.5% goes to the ETF company.
MUTUAL FUNDS & ETFS
Thursday, August 11, 2011
• There’s all types• Sector ETFs: Energy (Oil, coal), Consumer Staples
(shampoo, toothpaste, soap), Consumer Luxuries, Tech (PCs, Smartphones), Utilities (Water, hydro), more...•Market ETFs: You can find ETFs by company size
(large, medium, small), by currency (USD, Cad, £, ...), by risk (blue chip, junk stocks), by geography (NA, Europe...)• Bonds ETFs: Canadian govt bonds, US Treasury govt
bonds, Corporate bonds, bonds for Greece and Italy, and bonds for emerging countries in the world. The differing factor is return vs risk. These are a good way to invest in bonds. But make sure you know the quality of the bond you buy.
ETFS
Thursday, August 11, 2011
RETIREMENT PLANNING
• Simple to calculate:• what is your current age?• when do you want to retire?• how many years of retirement?• general rate of inflation• how much do you have saved now?• how much income do you want when you retire?• The earlier you’d like to retire, the more you need to save
If you think you’re too young to think about this now, you’re not, especially if you don’t have a pension
Thursday, August 11, 2011
Annual RRSP contributionAnnual RRSP contribution $10,000Return on investmentsReturn on investments 7%Inflation 3%
Age Savings35 $50,000
36 $62,400
37 $75,296
38 $88,708
39 $102,656
40 $117,162
41 $132,249
42 $147,939
43 $164,256
44 $181,227
45 $198,876
46 $217,231
47 $236,320
48 $256,173
49 $276,820
50 $298,292
51 $320,624
52 $343,849
53 $368,003
54 $393,123
55 $419,248
56 $446,418
57 $474,675
58 $504,062
59 $534,624
60 $566,409
Annual Retirement income (60-80)Annual Retirement income (60-80) $28,320
Annual RRSP contributionAnnual RRSP contribution $12,000Return on investmentsReturn on investments 8%Inflation 3%
Age Savings35 $50,000
36 $65,100
37 $80,955
38 $97,603
39 $115,083
40 $133,437
41 $152,709
42 $172,944
43 $194,192
44 $216,501
45 $239,926
46 $264,522
47 $290,349
48 $317,466
49 $345,939
50 $375,836
51 $407,228
52 $440,190
53 $474,799
54 $511,139
55 $549,296
56 $589,361
57 $631,429
58 $675,600
59 $721,980
60 $770,679
Annual Retirement income (60-80)Annual Retirement income (60-80) $38,534
Thursday, August 11, 2011
AGE VS RISK
0
25
50
75
100
20 30 40 50 60
Cash Bonds Stocks
Rational:
- keep low cash because of inflation- as you get older, your ability to absorb risk lowers and you have more invested- stocks provide the best chance of large growth over a period of time, so start early
What about Gold?
Thursday, August 11, 2011
• Do think about retirement and invest as much as you can when you’re young to take advantage of growth and compounding• Maximize TFSA, then RRSP
• Don’t buy individual stocks unless you really understand the business model behind the company, or they are a sure bet. It’s akin to gambling.
• Don’t buy mutual funds – they only make banks rich
• Do buy ETFs – they spread out your risk• Do buy when the markets are down. Don’t buy when the market is halfway
through a rally and everything looks rosy – wait till it falls• Do look at the price chart to see if the investment you’re buying is on sale
(below its average price)
• If you speculate (look for quick wins) in the market; you might end up a lot poorer
• And try not to be swayed by your emotions
DOS & DON’TS
Thursday, August 11, 2011
• So what can you invest in today?•With the market down 5-10% in the last 2 weeks, the TSX
Composite representing the largest 260 Canadian companies – is a fantastic buy. (Buy an ETF called XIC)• For a Bond ETF, I wouldn’t recommend any Canadian Govt
ones (due to their low yields), but a Corporate bond ETF like XCB will give you a 3-5% return annually.• If you’re willing to take on more riskier bonds, a ETF named
ELD focuses on Emerging Market bonds which offer yields of 5-7% annually, and is much less volatile than the general stock market.• I can’t give any recommendations for stock picks or gold;
they are just too risky.
TIPS
Thursday, August 11, 2011