Derek Foster

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Re: Derek Foster

Post by stopwork »

Final thoughts on the whole Child Benefit thing (broke it up to make it shorter)...

Generally on AVERAGE, people are a net drain on the government for the first 20 or so years of their lives, a net contributor for their middle 40 years or so, then again a net drain for their final 20 or so years. This is the foundation of the whole social compact.

Now the interesting thing is in societies where there is not social systems, people have a lot of kids because there is a culturally ingrained family agreement where kids care for their parents in old age. In this type of society, there are a lot of kids.

Then in more modern times and in our society, we offered pensions, healthcare, etc to older people so that their needs were taken care of in old age. In other words, the "old age security" was now paid for by the state. To get the money, workers were taxed. So in essence, the "financial" benefits of having kids were taken from parents, but the bulk of the costs and effort remained with the parents. This had the expected results of crashing fertility rates. In Canada, we now lose 25% of our natural population each successive generation (but we're able to patch that issue thru massive immigration).

Child Benefits merely somewhat compensate parents for the costs they incur which ultimately accrue to society through future taxes. I know the familiar refrain is "You chose to have kids, you pay for them", but if everyone acted purely out of economic self-interest, our society would simply collapse as there would be no future generations to keep it going. It's sort of like running a tech or pharmaceutical business but totally slashing R and D - how would that play out longer term?

Cheers,
Derek Foster
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Re: Derek Foster

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Child Benefits merely somewhat compensate parents for the costs they incur which ultimately accrue to society through future taxes.
Should read the benefits accrue to society thru taxes. Does that mean people who can have kids, but choose not too are now immoral because society will not get the future taxes their kids would have created? Or how about people who only have 1 or 2 kids - when they could have many more and be productive (or reproductive, I suppose) so that society has more tax-payers in the future? Are they immoral? The next generation is an asset - not today, but in the future... /b]

Cheers,
Derek Foster
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Re: Derek Foster

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Derek, thank you for your thoughtful responses.

Let me ask you a simple question: do you promote the use of child benefits in your books? Is there a chapter or chapters where you show your readers how to make child benefits one of the pillars of their financial independence?

If the answer is No... if the books are purely about dividend investing... great! The fact that you personally receive the benefits is irrelevant. By all accounts, you are a productive member of society, a successful author, a taxpayer... there is nothing immoral about you getting the benefits you are eligible for.

If the answer is Yes... if you do promote child benefits in your "financial independence" books... well, that's a different story.
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Re: Derek Foster

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stopwork wrote: 26 Jan 2018 11:04 Sorry, but I am not posting personal financial information on a blog, or anywhere else for that matter. I don't mean to be rude, but I have no interest in doing that.[/b]
Can you talk to us in percentages and not reveal any personal information.

What percentage if your income comes from your investments?

What percentage from book sales?

What percentage of your portfolios (Liquid net worth)do you withdraw each year?

Are you still dabbling in options?

How many books do you have to sell in Canada to be considered a "Best Selling Author"?
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Re: Derek Foster

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I don't think any of this really matters. I think the irritation/hostility that developed was the image of someone taking the advantage of the system for what it would deliver and the 'ease' in which someone at a young age appeared to be able to withdraw from being a net payer into the system.

Some of that persona was the 'fault' of lazy and headline oriented media, and it got blown out of proportion. It likely didn't help that Derek likely did little to 'correct' that image because it all helped to sell his books. In the overall scheme of things, this is just a larger, more public, example of what we all do to optimize income and minimize taxes, whether that is to minimize OAS clawback, early drawdown of RSPs before collecting deferred CPP, etc.

I think Derek was simply able to parlay some good decisions, some good investing luck and a literary ability to sell his success at profit into a self-sustaining lifestyle. Time to let it be.
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Re: Derek Foster

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ISTM that there is a lot of shooting the messenger going on here. If FWF members think the CTC is too generous or has a flawed means test, they should be telling the government.
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Re: Derek Foster

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Insomniac wrote: 26 Jan 2018 15:17 If FWF members think the CTC is too generous or has a flawed means test, they should be telling the government.
Indeed. We have a lot of "tax expenditures" that indenture our children for selfish (personal or political gain) reasons.
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Re: Derek Foster

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In the 80s, the GoC would make pitches for immigration and outline all the assistance programs available to immigrants. (Means tested but not asset tested.) Many immigrants took advantage of the programs.

Derek just tried to make Canadian taxpayers aware of those same programs. At the time, I remember talking to DW about how we could live a much simpler life. We decided not to. As a SAHM, she could have taken advantage. But we were not like that.

I think, like AR says, it is a matter of degree and there are those here who advocate such moves.

So the subject of moral versus ethical is how it gets left. And neither of those can be handled adequately here.
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Re: Derek Foster

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Insomniac wrote: 26 Jan 2018 15:17 ISTM that there is a lot of shooting the messenger going on here. If FWF members think the CTC is too generous or has a flawed means test, they should be telling the government.
Exactly. The same as what I'm thinking.
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Re: Derek Foster

Post by fireseeker »

I want to second George's polite thanks to Derek for thoughtfully answering the forum's questions in detail. That was classy. (As was Derek's openness.)
A :thumbsup: also for Insomniac's point that complaints about Canada's tax-and-benefit system should be directed to politicians, not Derek.
We can all have seven kids, if we want. We can all claim child benefits. Or not. We can all claim OAS. Or not. We can all arrange our affairs to optimize taxation. Or not. Most of us take advantage of the dividend tax credit and the extremely generous taxation of capital gains.
Legally collecting benefits available to all under the same rules may be a governance issue, but it is not a moral one.
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Re: Derek Foster

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To be a bestseller in Canada, you need to sell 5000 copies. Probably one of the easiest countries to become a bestselling author.
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Re: Derek Foster

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ig17 wrote:
Derek, thank you for your thoughtful responses.

Let me ask you a simple question: do you promote the use of child benefits in your books? Is there a chapter or chapters where you show your readers how to make child benefits one of the pillars of their financial independence?

If the answer is No... if the books are purely about dividend investing... great! The fact that you personally receive the benefits is irrelevant. By all accounts, you are a productive member of society, a successful author, a taxpayer... there is nothing immoral about you getting the benefits you are eligible for.

If the answer is Yes... if you do promote child benefits in your "financial independence" books... well, that's a different story.
In my first book, I wrote about a lot of things - frugal living and investing being the main parts. I don't have a copy in front of me right now, but at the back I did a basic financial projection and included child tax benefits as one of the items - the same way a financial advisor figuring out your post-retirement income would be from all sources (including possibly OAS. It was a line item, because it reflected reality. I hope this doesn't prolong the debate,...

Cheers,
Derek Foster
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Re: Derek Foster

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deaddog wrote:
Can you talk to us in percentages and not reveal any personal information.

What percentage if your income comes from your investments?
It depends if you only count dividends or total returns. If it's total returns it would fluctuate drastically from year to year. Last year I would say about 70% of income comes from investments...

What percentage from book sales?
Again depends, but last year perhaps 20% or so?

What percentage of your portfolios (Liquid net worth)do you withdraw each year?
I only withdraw dividends, but maybe 2% as a rough guess.

Are you still dabbling in options?
In a separate portfolio I do.

How many books do you have to sell in Canada to be considered a "Best Selling Author"?
5,000 In actual fact, the book business is a crummy business, if you are already famous, it might be an easy go, but for unknown people, it is really a tough go. Many authors are not good at marketing and the publishers don't really help you. If you self-publish the margins are much higher, but you have to promote heavily to get the message out...In most cases, the books are just a marketing tool for the main product. I like writing books and it's been rewarding enough to do and I also enjoy when people email telling me that the books have helped them, but it was a lot of work to get going...

Cheers,
Derek Foster
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Re: Derek Foster

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kcowan,
In the 80s, the GoC would make pitches for immigration and outline all the assistance programs available to immigrants. (Means tested but not asset tested.) Many immigrants took advantage of the programs.

Derek just tried to make Canadian taxpayers aware of those same programs. At the time, I remember talking to DW about how we could live a much simpler life. We decided not to. As a SAHM, she could have taken advantage. But we were not like that.
I think the government did that because without immigration we are facing a population implosion in Canada. The last time we had above replacement rate fertility was the early 1970s. Look at how Japan and Europe is have huge problems that will get MUCH worse over the next few decades. The old idea that we are getting immigrants to "help them" is now not true, we NEED them. We lose 25% of our population each generation (without immigration) at current fertility rates. So look at the math for 3 generations...start with 35 million, 1st gen after is 26 million, 2nd is less than 20 million, 3rd generation is less than 15 million. This type of population trends does not work if you want to maintain any semblance of a social compact...Demographics are what will keep China from totally replacing the US as the preeminent world power by mid-century...

Cheers,
Derek Foster
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Re: Derek Foster

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stopwork wrote: 26 Jan 2018 17:17 ig17 wrote:
Derek, thank you for your thoughtful responses.

Let me ask you a simple question: do you promote the use of child benefits in your books? Is there a chapter or chapters where you show your readers how to make child benefits one of the pillars of their financial independence?

If the answer is No... if the books are purely about dividend investing... great! The fact that you personally receive the benefits is irrelevant. By all accounts, you are a productive member of society, a successful author, a taxpayer... there is nothing immoral about you getting the benefits you are eligible for.

If the answer is Yes... if you do promote child benefits in your "financial independence" books... well, that's a different story.
In my first book, I wrote about a lot of things - frugal living and investing being the main parts. I don't have a copy in front of me right now, but at the back I did a basic financial projection and included child tax benefits as one of the items - the same way a financial advisor figuring out your post-retirement income would be from all sources (including possibly OAS. It was a line item, because it reflected reality. I hope this doesn't prolong the debate,...

Cheers,
Derek Foster
Yes, I will refrain from any further comments. Thank you again for stopping by and sharing your thoughts. :thumbsup:
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Re: Derek Foster

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Sort of curious, looking back now what, if anything, would you do differently?
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Re: Derek Foster

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fireseeker wrote: 26 Jan 2018 16:30Legally collecting benefits available to all under the same rules may be a governance issue, but it is not a moral one.
There was a discussion over on early-retirement.org/forums that addressed such issues. The conclusion was that applying for EI when no longer intending to work was out-of-bounds. All the others were legal. The question of ethics/morality was discussed broadly.

In my case, I agree that any issue should be directed at the government and not at those who make use of the programs honestly. I am reminded of a means-tested scholarship that I applied for. Dad said we did need any help. I said that I would fill it out truthfully and let them decide! I got the scholarship.
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Re: Derek Foster

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stopwork wrote: 26 Jan 2018 17:39<snip> This type of population trends does not work if you want to maintain any semblance of a social compact...<snip>
Cheers,
Derek Foster[/b]
It was the Hong Kong Chinese that discovered the loopholes in our immigration/taxation system that I am talking about. They bought a million dollar home (across the road from us) and installed grandma and the kids in it with two Mercedes. They immediately applied for welfare and scholarship assistance. This has been going on since the mid-80s that I know of. Compared to optimizing OAS, this has been a major hole in our system. You cannot blame the immigrants for taking advantage of our stupid government, even if it is unethical.
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Re: Derek Foster

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Just a Guy wrote:
Sort of curious, looking back now what, if anything, would you do differently?
Great question. I think I was too confident at times in my early investing experience...I overused margin (I don't really use margin at all now). The funny thing is that in most cases it worked really well, and I had done a lot of research prior to investing, but it was too risky in hindsight. Two big moves that come to mind is buying Phillip Morris when US tobacco companies were being sued. It was the right stock to buy for a number of reasons, and I had done a lot of research, but I "bet the farm" on that one. The other I remember was leveraging to buy income trusts in the late 90s. A few of them did really badly in the end, but again, overall it worked out well, but there is a degree of luck there. It made sense to borrow at 6% or so and invest in income trusts nobody wanted and get 10-12% payouts - but too much risk with margin (and some we're of poorer quality).

Another mistake I suppose in not holding "growth" stocks - I get uncomfortable with very stretched valuations. In 1996, I moved to Vancouver, and there was the place I had never heard of called Starbucks. I researched and bought shares. They rocketed up 20% or so in a few weeks. They then sported a P/E of over 40, so I sold. It's up many times in value since then...

Finally, (and this is contra Buffett, but makes me more comfortable), is not limiting my holdings to a percentage of my portfolio. Buffett has argued that it is best to concentrate on your best ideas, and I suppose that makes sense for him, but I don't have his superior skills, so I try to limit my holdings to a percentage. I remember in the early 2000s I bought a fair bit of Canadian Oil Sands trust. The price climbed A LOT as oil prices climbed...I think I paid $8/share (split adjusted prior to a 5-1 split). Anyhow, the stock price kept climbing eventually reaching $56 (and dividends too) over a few years - to the point where it was over 30% of my portfolio. I should have been trimming it a bit on the way up. It crashed in 2008, and I think I sold it all for $19-20. It turned out to be a great return, but there was no competitive advantage in a higher cost producer and it fell a lot from it's high...

I make mistakes, and will make more, but if you try to stick to quality, investing really does work over time...

Cheers,
Derek Foster
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Re: Derek Foster

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Kcowan wrote
It was the Hong Kong Chinese that discovered the loopholes in our immigration/taxation system that I am talking about. They bought a million dollar home (across the road from us) and installed grandma and the kids in it with two Mercedes. They immediately applied for welfare and scholarship assistance. This has been going on since the mid-80s that I know of. Compared to optimizing OAS, this has been a major hole in our system. You cannot blame the immigrants for taking advantage of our stupid government, even if it is unethical.
Yes, although this example is anecdotal, I do think the government embarks on misguided policies at times (in so many areas - and I see it as I live in Ottawa). I think the previous government tried to focus on economic applicants, but the current government seems to be undoing some of that - not exactly sure why. On balance, immigration has been a benefit to Canada (and the US) as we seem to be pretty good at integrating immigrants, but sometimes the goals of the government might be vote-getting or some other incentive rather than purely looking at what is best in the interests of society. But Canada has two choices to collectively make - have more kids or keep the immigration numbers up...without one or both of those options happening, Canada becomes a geriatric ward over time...

Cheers,
Derek Foster
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Re: Derek Foster

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What are your kids interested in doing with their lives? Have you set up anything for them, or are they expected to make it on their own?
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Re: Derek Foster

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stopwork wrote: 27 Jan 2018 19:00 But Canada has two choices to collectively make - have more kids or keep the immigration numbers up...without one or both of those options happening, Canada becomes a geriatric ward over time...
I disagree to some extent. Canada, and all countries, need to get off the population growth model to increase GDP since the planet cannot sustain globally increasing populations. Our oceans in particular are under stress and dying with land resources not far behind. At best, our programs should look to simply stabilize our current population.
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Re: Derek Foster

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AltaRed wrote: 27 Jan 2018 20:49
stopwork wrote: 27 Jan 2018 19:00 But Canada has two choices to collectively make - have more kids or keep the immigration numbers up...without one or both of those options happening, Canada becomes a geriatric ward over time...
I disagree to some extent. Canada, and all countries, need to get off the population growth model to increase GDP since the planet cannot sustain globally increasing populations. Our oceans in particular are under stress and dying with land resources not far behind. At best, our programs should look to simply stabilize our current population.
I tend to agree with AltaRed's view. It's off topic for this thread, but I would find the views of FWF members in a new thread on ZPG and the effect on the economy interesting. Here's one view:
https://quadrant.org.au/magazine/2016/0 ... on-growth/
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Re: Derek Foster

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My point is that the government has been dribbling away our tax dollars on economic immigrants since the 80s on the assumption that everyone is ethical. That turned out to be a bad assumption and in 2018, it is being proven to be bad for the population of Canada. Yet they still are not moving on it.

(In the most recent case publicized in Vancouver, the rich Chinese owner of a multi-million dollar home declared their worldwide income as $97! So where was the CRA to look after the interests of Canada by enforcing their own rules?)
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Re: Derek Foster

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Just A guy wrote:
What are your kids interested in doing with their lives? Have you set up anything for them, or are they expected to make it on their own?
My oldest is 17, so the other kids are still not sure as they are still kind of young. My oldest son technically "homeschooled" this year after a few years of traditional high school, but because of this status, was able to take a reach-ahead course at Ottawa U - so he already has his first university credit and he hasn't even completed high school yet. Universities have many avenues to accept homeschooled students and have actually found on average they do better academically. He also works a fair number of hours and is saving up...

This area is controversial for some people, but I have set aside some money for my kids - but well less than my means would allow and not nearly enough to pay all of their schooling. This is not because I don't want to give them money and make things easier for them (because as a parent, of course I do), but I agree with "The Millionaire Next Door" book where if you give your kids too much, it creates a degree of economic dependency. I strongly feel that having to pay their own way will be a very useful learning experience. I understand my thinking is in the minority on this, but I strongly feel this way and I find majority positions in thinking are often wrong. I think that with the right money management, becoming financially independent at a fairly young age is within reach of the vast majority of people regardless of income - but I find the vast majority overspend.

Cheers,
Derek Foster
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