Greg and Kat's blog

A lot of people seem to be talking to me about money recently. Like, a lot. I don’t know what’s up with that but, like questions from my class, I assume that if 3 people have asked, 30 have the question. So, here is everything you need to know to be financially secure. Seriously.

1. Start an investment account. My advice here is to go to one of the investment things in a bank: CIBC/Wood Gundy, BMO/Nesbitt Burns, or whatever. These have the advantage that if you move across the country, you can just move your account to a different branch. If you’re just starting out, they’ll probably put you with some schmuck that handles you and a thousand other accounts, but don’t worry about it.

   The investment advisor will do a little general financial planning: financial goals, risk tolerance, etc. To my mind, it’s worth it to have them do this kind of stuff.

2. Invest 10% of your income. Have the investment guy/gal set up a monthly or bi-weekly withdrawal of 10% of your income from your bank account to your investment account. You’ll never notice it’s gone. Really.

   If after six months, you think “boy I really feel poor without that 10% of my income,” I’ll buy your poor ass lunch.

3. Invest in mutual funds. Pick two mutual funds with as few adjectives as possible. That is, you want the “Growth Fund”, not the “Pacific Rim Manufacturing Fund”. All you’re doing by buying a more limited fund is limiting what your fund manager can do with your money. The fund manager knows what he/she is doing. You’re buying their expertise as much as anything else. Let them do their thing.

   The only other thing you need to worry about is risk tolerance: high growth and high risk generally go together. Your financial advisor should point you to funds that match your risk tolerance. (Basically, go high risk over the long term and lower risk for short term investments.) Edit 11/2007: Watch the fees on mutual funds too. A fund that gets 1% better return, but charges a 2% fee is a loss.

4. Paying off debt is the best investment. Since lending rates are typically higher than investment earnings, it makes sense to pay off any debts (say, by doing the 10% thing) before you invest elsewhere.

   If that’s going to take you a little time, first convert any credit card debt into something with a less-stupid interest rate.

5. Increase the 10% to cover your RRSP contribution. Have a look at what you’re allowed to contribute to your RRSP (it’s on a slip that comes back after you’ve filed your taxes). Get that amount into a registered investment and the taxman gives you 30–40% of it back. (Yay free money.)

   If you’re reading this, you probably want the retirement money in a high-risk/high-yield fund since you won’t be touching it for several decades.

6. Don’t shuffle investments. The whole point of the mutual fund is that somebody smarter than you is doing the buying and selling for you. Do you know what Russian textile companies are going to be up to over the next decade? Do you care? No? Then piss off and let the mutual fund manager to his/her job. Don’t let your investment guy/gal talk you into selling one investment for another unless they have a damned good reason.

   The only good reason I can think of: going from high-risk investments to lower-risk because you’re going to need the money in the medium-term.

7. The scary future. Get home/renters insurance for your shit. If you’re child-free and debt-free, you probably don’t need life insurance. You likely need long-term disability insurance, though. Your job may get you some of this for free.

   Come to think of it, get yourself a will too.

8. Do whatever the hell you want with the rest of your money. Liquor, hookers, fast cars, whatever. Fuck budgeting, we’re all too stupid for that. Make sure there’s enough for rent and food and don’t go into debt.

9. Read The Wealthy Barber. What I just wrote there is basically a distilled version of The Wealthy Barber. It’s a fast read and has better explanations and more details than I have here. I’ll lend you a copy if you want.

Okay, that might seem like a longish list of stuff, but until you have kids or edge up on retirement, that’s just about all you need. The time needed to maintain this is like 2 hours/year.

In fact, if you only get steps 1–3 down, you’ll probably be fine.

The only other things I can think of: Buying a house shifts some of your investments from mutual funds to real estate. If you get married and have dissimilar incomes, you need life insurance and can shuffle some things between you to save on taxes.

The magic here is, of course, compound interest. Try the calculator on that link: starting at $0, contributing 10% of your income per year, enter the number of years until you expect to retire, and a 6% return. Six percent is pretty reasonable over the long term, taking inflation into account.

Remember: that 10% is in addition to your basic retirement plan. That’s “I’m retired and want to live it up” money. That calculation also assumes you’ll never in your life get a raise beyond the cost of living.

They say money can’t make you happy? Bullshit. I look at the investment summary they send me every month and giggle to myself.