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COVID-19 Are we F*cked ?

This is being written during March 2020 the COVID-19 Pandemic. At the time of publishing things were quite confused and unsure, but this is my simple opinion of where we in Canada may stand financially.

We are f*cked.

Is this me being overly alarmist? I hope so, but there are countless areas that are not likely to ever recover from the Pandemic.

Travel and Vacation Industry

Dead.

  • The Air BnB industry and that side dodge is done. People will not be travelling much, for the next year or two. What happens to all those condos in Toronto that were bought with that in mind?
  • Cruises and Cruiselines? Good night, they are now synonymous with the Pandemic, if they recover it will be not in the near future.
  • Travel bloggers? Freebies are not going to be given out much, I think this gig is going to curtail or die off too. At this moment, Las Vegas is closed. This is not the W.C. Fields joke about visiting Philadelphia, this is Vegas, which never closes.
  • Airlines? These may recover if business travel returns, but they are going to take a beating, and will ask for a bail out.

Real Estate

F*cked

  • Construction sites are shutting down, thus screwing up the whole system.
    • People who are buying the new properties need to sell, but will have nowhere to go.
    • No one is buying a house right now, and when will they start?
  • Mortgages are being called and payments are being missed, renters are not being given reprieves either. What happens next? People being kicked out on the street? I doubt it, but you really don’t know right now.
    • Big wave of homelessness? I hope not, but the economic models aren’t there for this.
  • Over priced real estate may soon be worth less than their financing (i.e. mortgage), will we seeing folks walking away from their expensive high-rise downtown condo?

The Stock Market

F*cked currently having daily circuit-breaker calls.

  • Advisors are telling their customers to sell now, thus locking in their losses. They are following the buy high, sell low credo, that is not synonymous with getting rich.
  • FIRE and the entire early retirement craze should be forgotten for now. The markets have eviscerated those lofty goals for now.
  • The markets may rebound completely as it did in 2008, but surprisingly not as many folks got rich on that rebound as you might think.

Employment

F*cked, we had a weird job dynamic already, (the side gig world) but now it is F*cked.

  • My kids’ generation has had to have 3 part-time jobs to add up to a full time job, but none of those jobs exist right now. Restaurant jobs, are gone mostly due to the restaurants being closed. Retail jobs are gone, stores are closed.
  • The growth industries are:
    • Delivery, that is about it. Everything is being delivered now, but does anyone make any money doing this?
    • Government, because there is going to need to be a big government to deal with a broken country. Is this a good thing? I don’t think so, but I am a small L libertarian.
    • Debt, the world of debt is going to explode in terms of big money. Payday Loans, alternate loans and Bankruptcy Trustees are going to make big money in the short and mid term.
  • Will industries other than Travel go in the crapper? Lots of potential there
    • Retail, when folks don’t have a job, they aren’t going to be buying a lot of stuff.
    • Cars? If interest rates stay low, they may be OK, but if interest rates go up, this could make folks keep their old cars.
    • Oil and Gas already is in the crapper, with gas at 70 cents a litre, which makes it not worth working on the Oil Sands in Alberta.

Inflation

Coming, much like the four horsemen.

  • Governments are injecting Infinite money into the economy to try to prop it back up. I am not an economist, but even I know this is the recipe for Inflation (ever hyper-inflation). If money loses value, prices go up. Most folks don’t remember the 1970’s but this could be where we are heading (if not worse).
  • If we end up in an Inflationary spiral Interest Rates will have to be used to control things, and that is a world many folks have not lived in. I have seen 19% CSB’s in my lifetime, will I see them again?
  • Predatory loan companies making money on this? Absolutely.
  • Bankruptcy trustees may not be able to keep up with the tsunami coming at them.

Alarmist Clap Trap?

I really hope so. I hate to think we are financially f*cked as badly as I am guessing we are, but these are uncharted financial waters. I am not an economist, but I have lived for 60 years, and seen a lot of financial changes, and this one has me scared.

I hope we all come out of this with our health, and if we have that, all this other stuff can be dealt with, in some fashion or another.

Remember when we said, Get Out of Debt, it gives you options? This is what we meant.

What to Do?

First thing, take this article as simply a warning of what could happen. Next, make a plan for your financial world for:

  • The next week, what are you going to spend on? Why? Can you afford it?
  • The next month, assuming this stays the way it will.
  • Six Months, where hopefully around Autumn things start to turn around in terms of normalcy.
  • An overall recovery plan.
    • How are you going to recover your savings?
    • What is your retirement plan, given what has happened?
    • How do you plan around something like this happening again?
      • Hint: GET OUT OF DEBT !

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5 Mistakes Rich Folks Make

I read with great amusement an article in Business Insider Rich people make the same 5 mistakes over and over. I found it amusing, because it attempts to fool you into thinking that if you act like rich folk, you’ll become one. Unfortunately, Lies travel faster than truth.

Maybe the article is attempting to convince you that Rich Folk and you are similar, since you make the same mistakes? This is hardly the case.

Rich People Can Make Financial Mistakes

That is what you should take from this story. Rich folk have the luxury of being able to make financial mistakes, they can recover from them. Most of us don’t have the wiggle room to escape financial blunders.

Rich folks can become like the rest of us, if they make mistakes, that is true. The story the great Investment Monolith wants you to believe is that the reverse is possible too. I think it is possible but the former is much more likely than the latter.

Mistakes are easily made, we all do them, every day. To succeed financially takes dedication, discipline and damn hard work. The mistakes mentioned in this article are bad:

  1. Assuming they can out-earn bad spending habits. That is not a mistake reserved to the rich, in fact this is how we all dig the big hole called debt.
  2. Not automating their savings. Another spin on pay yourself first, which is something you can do as long as you are not spending more than you make.
  3. Not speaking with a professional for tax-planning or estate-planning purposes. This seems like sound advice, if you take it as, making sure you do your taxes well, and you have your Will and Power of Attorney up to date.
  4. Assuming they don’t need a financial adviser because they’re successful. This is the heart of the article, as it seems to have been written by a financial professional. I have a great mistrust of the financial industry in general and in advisors in specific, but if you use this type of service, you had better trust them (and you had better watch them closely). In the end, it is your money.
  5. Not having any idea how much they spend, again not a mistake reserved to the rich. I had no idea I was that far in debt ? We’ve talked about that before.

What Should You Do ?

Don’t make financial mistakes? Easier said than done, but you must be careful with your money. Don’t make rich folk financial mistakes? Absolutely, because you don’t have the luxury of making them.

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Exposed on Banks

Even as a simple country Index Investor (to paraphrase Bones McCoy), you need to understand the Index you invest in. If you own a TSX-based, Canadian S&P Based or Dividend Royalty based index you hold a lot of Banks.

Two examples of this are:

  • S&P/TSX Composite Index, (OSPTX) which holds 36 % “Financials“. The top 10 holdings 4 are banks (Royal Bank RY, Bank of Nova Scotia BNS, TD Bank TD and Bank of Montreal BMO).
  • S&P/TSX Composite High Dividend Index ETF (TXEI) which holds 30% “financials”. You find 4 banks in their top 10 holdings (Bank of Montreal BMO, Bank of Nova Scotia BNS, Canadian Imperial Bank of Commerce CM, National Bank of Canada NA)
exposed on banks

Why this imbalance? Banks are doing very well lately, and have done well for over 15 years.

Are banks likely to “Nortel out“, in the near future? No, but realize that you are holding a lot of Banks if you are investing in Canadian Indexes.

My problem is that I am highly exposed on Banks. From my days as a Stock holder, I still hold TD and BMO in one of my larger investing portfolios. In this same portfolio I also hold a TSX index fund, which means my exposure to banks is too large (given I may retire within the next 10 years).

As Interest Rates slowly rise to more normal rates, I should start thinking about some more stability and start building a GIC Ladder in my portfolio. I should be looking for more stability given I am within 10 years of retirement.

Treat This as Informational

I am not offering advice. I am simply pointing out that many passive investors are heavily exposed to the Financial Sector in Canada.

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FUD Financial Messages

What is FUD Financial messages? FUD is a technical term from the world of politics where you try to create Fear, Uncertainty and Doubt with your message. FUD is usually a strategy to influence perception by spreading negative and dubious or false information leading to fear-mongering and concerns by the public. Naturally, you do this to create an advantage for yourself, or cast aspersions on an opponent.

It is easy to see the power of FUD in the last few elections, but politics is not the only arena where FUD works well.

FUD financial messages are out there. Usually to cause you to wonder whether you are using the right bank, insurance company or you are missing out on a great deal. All Fear of Missing Out (FOMO) messages are in this genre.

Fear Uncertainty and Doubt

Some might argue this blog is a FUD financial message, however, getting out of debt is not really FUD in my book.

The message continues to be confusing to most folks. The Truth in finances is not clear to many folks (if any), and there are few places where consumers can get clear and truthful financial information.

Investing FUD

I find the entire investment industry seems to be a FUD Factory.

  • Cryptocurrency seems to be the leader in FUD. You will miss out on untold riches unless you buy one of the over 200 cryptocurrencies (even though you have no idea what it is).
  • In Canada there is tons of FUD swirling around legalized Marijuana, even though most of the companies seem to spend a great deal more than they are making currently.
  • Actively managed funds want you to be unsure that you are not making the huge growth they can offer, however, Index Funds point out that actively managed funds can’t keep up their claims (and thus are part of the financial FUD game).

Get the tools you need to comprehend truth from fear-mongering, and create Financial Firewalls to filter out the disinformation.

Remember that sometimes FUD is a good thing, and the sales person you are dealing with is trying to allay your personal FUD, with any lie that will cause you to buy their product.

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Risk Profiles and E-series Orders Rejected

My daughter is running into the same issue that I did when I had my TD E-series orders rejected, due to my investment risk profile. She has set up a TFSA, unfortunately with TD Mutual Funds (not TD Direct investing). As we learned to use TD E-series funds in a TD Mutual Fund account, you must complete many steps. None of these steps include the change your investment risk profile to stop having your TD E-series orders rejected.

e-series orders rejectedI have talked about how to use the E-series funds to set up a simple Couch Potato investment portfolio, so my daughter is going to use this for her TFSA account.

The application to allow you to use TD E-series Index Funds in your TD Mutual Fund account is straight forward and easy to fill in. You must do this if you end up with a TD Mutual Fund account, which is what you end up getting steered into if you go into a TD Branch. My daughter thought she was opening a TD Direct Investing account, but it ended being a TD Mutual Fund.

If you fill in the form, you assume that you then buy E-series funds (they even show up in your list of funds that you can buy), however, that is incorrect.

The E-series funds are Index funds with low MER fees (and I use them in many of my accounts, as full disclosure, but I am not receiving any recompense for talking about them). Many different web sites have talked about them, and how useful they are, but they are tricky to use in a TD Mutual Fund account.

A TD Mutual Fund Investing Risk Profile is filled out when the account is first opened, and periodically after that (every year or two). The profile questions usually push folks into a lower risk Balanced profile, and evidently the E-series funds are far more riskier funds.

The E-series Funds have turned into the red-headed step-child of the TD Mutual Funds group. None of their staff seem to want to sell them or use them in any kind of form. It is easier to use TD E-series funds in a Questrade account than a TD Mutual Fund account.

My opinion is that due to the E-series being lower cost, the TD Mutual Fund reps don’t make much money (if any) off them, so they are less motivated to sell them. Why the TD Mutual Fund on-line system seems to default to E-series orders rejected, is another issue.

Simple Solution to E-Series Orders Rejected ?

A simple fix which I will suggest to TD Mutual Funds who be to add the following “initial” block.


Ο  I allow the TD Mutual Funds group  to alter my Investment Risk Profile to allow me to use the E-series funds in my investment portfolio.

Name:  ________________           Initials: _____________


Seems straight forward to me. I doubt this will happen, it is too straight forward and nobody makes money.

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