Jonathan Clements wrote:IMAGINE YOU HAD ONE SHOT at offering financial advice to a high school or college graduate. Your mission: Come up with 10 rules that’ll help your graduate succeed financially in the years ahead. What would you recommend?
Read on to find out his top 10.
I'm curious how FWFers would alter or improve his list.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
That is a pretty good rational list directed at human beings who are mostly irrational.
So I'd start with the workings of the human brain say Jason Zweig's book and the like. "Investing is mostly a task of psychology, not mathematics" or some such quote comes to mind.
Don't think too many High School or even College (University) students would take the time to read the entire document, or really dwell on the material. Many good points, but he should have stuck to #4 Simplicity (though he meant something else).
My wife set up a bank DRIP for each of the grandkids back in 2007. When our grand daughter turned 18 we transferred it into her name. We tried to sit down with her and do exactly what this article tried to do, explain the importance of saving for the future. She shook her head and said yes, but was not really enthused. What she agreed to was to put $100 per month from her part time job, by direct debit into the DRIP. She wanted to add some other stocks, but didn't really want to do the work.
So that's what she's been doing and we try to have her make the entries each month\quarter, hoping she become more enthused. She has noticed the dividend increases and number of shares grow. I think she'll eventually get more involved, but slowly.
Anyway to answer the question:
#1 Keep out of Debt
#2 Save some of your earnings every month and increase the amount as you earn more
#3 Stick with DG stocks, not etf's
#4 Once earnings exceed $40k per year and you begin to be taxed, open TFSA
#5 Max out TFSA before adding funds to RRSP
cannew wrote: ↑08 May 2017 08:56
Anyway to answer the question:
#1 Keep out of Debt
#2 Save some of your earnings every month and increase the amount as you earn more
#3 Stick with DG stocks, not etf's
#4 Once earnings exceed $40k per year and you begin to be taxed, open TFSA
#5 Max out TFSA before adding funds to RRSP
Disagree with #3.
Disagree with #4, as some of the highest marginal tax rates can be experienced under $40k per annum. Forget about "official" MTR's and calculate the one that applies to your situation. In any case, there is no downside to saving even 20% tax, so open a TFSA to shelter any investment earnings.
#5 is too blunt. One can put money in an RRSP and not take the deduction immediately, making it similar to a TFSA. In some cases, such as holding US-listed securities, an RRSP is superior to a TFSA by protecting from the US withholding tax on dividends.
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
I think that is a tremendous set of guidelines for all people interested in earning their financial independence. It's simple, straightforward and chronological in the thought process. I can't improve upon it!
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
11. Realize that there is a lot more randomness out there than most people think. That is particularly true of financial markets. So don't start seeing patterns where there are none. Don't be impressed by strategies that have worked, oh so well, in the past. Don't ascribe to skill what is in fact luck.
I'm not too sure about not seeing patterns. I think there's a few gifted individuals who can see, what most others cannot. Very rare people. It was patterns in the data that led to the shorts on cdo's by a very few investors (speculators) in 2007 before the American housing collapse and the eventual financial crisis had even begun. The majority of Wall Street was on the other side of the table.
I would say that the Ten Commandments is a sort of "Lame" duck way of describing what true wisdom is. I'd have three ideas that should be tossed around for any young person instead.
1) What will make you happy in life?
2) Listen to people as a litmus test, as a consideration when you have the need. Anything that takes decisions must be made for yourself.
3) When you start investing, you'll have to get used to it before you get good. Some people will never make it past a year, much less two years.
Then I would lastly hand them off this article. This one has been a consistent favourite my entire life and I felt I was very lucky to read it at a young age.
ghariton wrote: ↑08 May 2017 15:52
I would add this one:
11. Realize that there is a lot more randomness out there than most people think. That is particularly true of financial markets. So don't start seeing patterns where there are none. Don't be impressed by strategies that have worked, oh so well, in the past. Don't ascribe to skill what is in fact luck.
George
Couldn't agree more. What has happened to Jason Donville.? Home Equity, Concordia Health , Valeant. He also preached very high concentrations. Same could be said for Bill Ackman.
Learn and understand the powerful concept of "Human Capital", and then apply this knowledge to your choice of career.
Agree. This has been the biggest factor in any success I have enjoyed. If you have a well paying career, saving/investing is a lot easier.
Yes. My mother lived through a number of devaluations and outright confiscation of people's savings. She used to say to me: Invest in yourself first. That [i.e. human capital] is the one thing the government can't take away from you.