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Recommended reading, economic debates, predictions and opinions.
Taggart
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Post by Taggart »

Bylo Selhi wrote:1. What don't you like about 9.?
Some people are going to like #9, I don't. It's too one sided in favour of funds. He's like saying, funds are good and individual stocks are bad. Well, the fact is that some funds, don't bounce back either. I've seen, and read plenty about that since the early 80's.
Bylo Selhi wrote:2. Why is it necessary to like (agree with?) everything about an article in order to post a link to it?
Sometimes I'll post something I don't agree with, in part or in whole, just to see the reaction, if any. I don't post everything I read on the net, no matter the source.
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Bylo Selhi wrote:Amid Losses, 12 Financial Truths Persist
Get a grip. Spend a few days following the markets, researching investments and watching business television, and you are likely to find yourself overwhelmed by the uncertainty of it all. Will stocks rise or fall? Which mutual funds will shine? What's next for interest rates? But take a step back and you will discover that there is, in fact, a surprising amount of certainty. True, you will never know which way stocks are headed in the days and weeks ahead. But when it comes to managing money, there are some undeniable truths -- including the dozen listed below.
Like any article, it has a whole bunch of assumptions behind it which are not explicitly stated. So if the assumptions apply to you, then the 12 truths are valid.

For example:
1. It's hard to cut back.
We have already downsized and our run rate was well below what it had been before in the big estate where the kids were raised. This happened in 1995. I have friends who are experiencing this one though.

2. You'll never be satisfied.
We have had all the toys: the big estate, the expensive cars, the multiple technology toys. I still dabble in technology but have downsized everything else. So this may be an valid concern regarding retirement planning but not actual retirement.

3. Borrowings have to be repaid.
When we downsized, we became debt-free. And we still are.

4. Fancy cars and expensive clothes aren't a sign of wealth.
We like to look good and so there are still clothing expenses but much less than when we worked. Lots of shorts and slacks now but no dresses and suits. We do not have clothing sickness. We purge our cupboards regularly to remind ourselves of all the unused stuff. Downsizing the house helps because of the fewer closets.

5. Your family could prove to be your greatest liability.
Did that (college) and so only have the annual gifts that I make to the RESP for the grandchildren.

6. Investors face three enemies.
These are valid and must be addressed. Better be an active investor and avoid high MERs.

7. Adding risky investments can lower risk.
This is one of the best. Staying in CSBs is probably the riskiest approach one can adopt, especially given the inflation enemy above.

8. Diversification is a mixed bag.
Diversification will reduce short term yields. Yup that's true.

9. Not all risk is rewarded.
It will average out OK if you do diligent asset allocation adjustments regularly. I think twice a year may prove to be not frequent enough if the markets are too volatile.

10. Most investors fail to beat the market.
This seems to be true. So conservative financial planning should account for less than market gains.

11. Change is costly.
I think this is just a promo for that old Buy and Hold advice.

12. Your best investment strategy is saving.
I think this is pretty well on the mark.

So I agree with 4, 6, 7, 8, 10 and 12 in our case. 6 out of 12 but all 12 have relevance to the planning process.
For the fun of it...Keith
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Post by Bylo Selhi »

Taggart wrote:Some people are going to like #9, I don't. It's too one sided in favour of funds. He's like saying, funds are good and individual stocks are bad. Well, the fact is that some funds, don't bounce back either. I've seen, and read plenty about that since the early 80's.
Clements seems to be trying to differentiate between systematic (market) risk and the risks that come from owning a (presumed) small number of stocks. The former can't be avoided or mitigated through diversification in the same way the latter can (unless, of course, your stock portfolio approximates a broad market index fund.)

Yes even entire markets can collapse and never recover [or in the case of Japan, take decades to recover] however the risk of that happening is lower than it is for an individual stock or even a small basket of stocks. And even that can be mitigated by owning a portfolio of various asset classes [or even just EAFE instead of the Nikeii index.]
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Post by Bylo Selhi »

kcowan wrote:Like any article, it has a whole bunch of assumptions behind it which are not explicitly stated. So if the assumptions apply to you, then the 12 truths are valid.
Agreed. As we've discussed re other articles, it's hard for a journalist to cover all bases and explicitly state all assumptions within the confines of a column. Moreover, people like you and me, who generally have our finances in order, aren't Clements' target audience for this piece.
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Post by Taggart »

Bylo Selhi wrote:
Taggart wrote:Some people are going to like #9, I don't. It's too one sided in favour of funds. He's like saying, funds are good and individual stocks are bad. Well, the fact is that some funds, don't bounce back either. I've seen, and read plenty about that since the early 80's.
Clements seems to be trying to differentiate between systematic (market) risk and the risks that come from owning a (presumed) small number of stocks. The former can't be avoided or mitigated through diversification in the same way the latter can (unless, of course, your stock portfolio approximates a broad market index fund.)

Yes even entire markets can collapse and never recover [or in the case of Japan, take decades to recover] however the risk of that happening is lower than it is for an individual stock or even a small basket of stocks. And even that can be mitigated by owning a portfolio of various asset classes [or even just EAFE instead of the Nikeii index.]
Personally I think this definition of risk in a portfolio of individual equities is way overblown. As for diversification, and the number of stocks held, it all depends on what you hold in there (large blue chip, GARP, small growth, small value, deep value etc, etc.). These are all different entities, with different levels of risk. Even then, it depends on the person. What one person considers adequate diversification, may not be the same for another.

When it comes to what I mostly own, outside of a tax shelter, high yielding, dividend growth, aside from Enron in the U.S., and the old Royal Trust here in Canada, I haven't seen too many large cap stocks blow themselves up. Usually they give you ample time to get out, if you don't like the fundamentals any more.

In the withdrawal phase, many people don't mind chopping down the forest. I prefer to just eat the fruit from the trees, and hopefully plant a few more trees along the way.

Note, I do own equity funds in the RSP's, but including the U.S., they are all international. If someone wants to own Canadian equity funds, that's fine with me, but if someone says or implies I shouldn't own individual equities, I just turn around and say, "yeah, right". :evil:
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Post by Taggart »

BBC News

23 June 2006

US secretly tracked bank records
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Post by WishingWealth »

The Secret of Your Success - In Policy Review
The study of social mobility is finally coming in from the cold (or at least from the Frigidaire of university sociology departments). A couple of years ago three of America’s leading newspapers — the New York Times, the Wall Street Journal and the Los Angeles Times — all published, almost simultaneously, multi-part series on social mobility. All three papers focused on the same problem: Why is the American dream of limitless upward mobility fading? Why are people finding it harder to climb the social ladder? And why are so many people ending up on the same rung as their parents (or even several rungs lower down)? The assumption behind all this newsprint was that the “natural state” of a highly advanced society is a fluid and mobile one.

This essay tries to look at social mobility from the other end of the telescope. It looks back to an Anglo-American world where people started off with the opposite assumption from that of today’s journalists: not that we should be surprised that people follow their parents into their jobs but that we should accept that as the natural state of affairs. It focuses on a group of thinkers who tried to grapple with the emerging problem of social mobility — but whose first instinct was not to look at social forces but at individual characteristics. Why do some people climb up the social ladder while others stay put? What personal characteristics account for the fact that some people “get ahead” in life and others fall behind?

The purpose of this examination is threefold. The first is to remind people that there are two issues involved in any study of social mobility: the social forces that determine the shape of society and the individual qualities that determine the life chances of particular individuals. This is something that the Victorians instinctively understood but that their descendants, particularly since the 1960s, have tended to forget. The second is to remind people that explanations of individual social mobility have varied widely over the years, from individual character to individual intelligence to blind chance. And the third is to argue that the second of these theories — the one concerned with individual intelligence — is much the most interesting. This is the school of thought that flourished from the mid-nineteenth century to the mid-twentieth and that helped to reshape educational systems from America (through the sats) to Britain (through the 11+) to India and Singapore. This school of thought has lost ground in recent years as social scientists have questioned the science of individual differences and policymakers have made equality rather than equality of opportunity the aim of social policy. This loss of ground, however, has led not to a more egalitarian society but, on the contrary, to the calcification of a once mobile society on the basis of social privilege.
....
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Andrew Hallam

From the May 2006 issue of MoneySense magazine

How I got rich on a middle-class salary
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Post by AJ »

From How I Got Rich On A Middle Class Salary:
Remember that even modest savings can translate into the equivalent of a big pay raise. That's because you earn your salary or wages in before-tax dollars, but you pay your bills in after-tax dollars. So if you're in a 40% marginal tax bracket, saving $1,000 over the course of a year is the equivalent of increasing your annual earnings by more than $1,650.

50 Ideas On How To Save And Still Live The Good Life, Vicki Robins
...Into this void I offer the following list of simple activities one can do, at little or no cost. But shop-aholics beware: don't let these suggestions devolve into excuses for further splurging! And note that many activities, when done with a friend, take on a whole new meaning; I leave these to your imagination.

1. Go for a picnic. Lunch used to be something you ate. Now it's something you "do," as in "Let's do lunch on Thursday." Try "doing" your next business meeting as a picnic in a park.

2. Walk. Walk to work. Walk to the store. Walk around the block and say hello to your neighbors. Walk briskly for 30 minutes three times a week. Doctors say it's good for your heart. Or walk slowly, concentrating on your breath. Buddhists say it's good for your soul.

3. Walk with a friend. You might simply enjoy the company. But you could ask, "How are you?"... and then listen to the reply. The steady rhythm of walking allows an intimacy not often achieved while shopping together.

4. Phone a friend. Let your fingers do the walking. Let them know you care. Let them care for you. If you're on the verge of splurging, phoning a friend is a good way to purge the urge!

5. Hike. Hiking is like walking, only further, steeper, and on trails instead of streets. But beware - "hiking" is more seductive than "walking" to the shopper in you. To walk, you need a pair of shoes and street clothes. To hike you might feel compelled to buy high-tech sneakers, multi-pocketed reinforced shorts, and a day-glo daypack. But people have always walked great distances without such things and survived.

6. Watch the clouds. Get outside - lie on your back in the grass. Observe the process called clouds.

7. Look at the stars. Try focusing on the reality of looking out, not up. You are on a ball in space. These stars are your neighbors. Their light has taken years to reach your retina. Wink back.

8. Read a book. The public library system can get you practically any book in print through inter-library loan. If they don't have it, they'll even buy it for you! What's more, they'll store it for you. Such a deal!

9. Teach someone to read. Access to the rights and privileges of citizenship is limited for those who can't read. Tutors are needed in every locale. Empowering another person is one of life's greatest pleasures.

10. Volunteer. Do this, and you will never be bored again! Unlike work that we must do for money, volunteering is delightfully voluntary. You get to express your values, work on causes you care about, work with people who inspire you, help someone in need, get recognition, feel part of the larger community, forget your own troubles, learn new skills, take on challenges, feel good about yourself, experience your power to make a difference and even get some juicy credits for your resume. In a culture that worships the workplace (a necessary adjunct to shopping!), doing things for free has fallen into disrepute. At the same time, in a culture where so many people are locked into 40 (or more!) hour-a-week jobs, volunteers become powerful free agents able to make change happen when and where it's needed. Volunteers don't have to wait for a boss or the government to bless their activities through a paycheck. They just say Yes - and do what needs to be done...
http://www.context.org/ICLIB/IC26/Robin.htm
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Post by FrostedGlass »

NY Post story dated 27 June 2006 discussing Plunge Protection Team

George Let Plunge Slip
Beer is best served in a ... FrostedGlass
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Surprising Jump in Tax Revenues Is Curbing Deficit

Post by kcowan »

]Surprising Jump in Tax Revenues Is Curbing Deficit
NY Times wrote:Despite almost five years of economic growth, individual income taxes — the biggest component of federal tax revenues — have yet to reach the levels of 2000. Even with surging payments for investment profits and business income, individual tax payments in 2005 were only $972 billion — below the $1 trillion reached in 2000, even without adjusting for inflation.

Over all, individual and corporate taxes have lagged well behind the economy's growth over the past five years. Government spending, by contrast, mushroomed far faster than the economy.

And federal debt has ballooned to $8.3 trillion, up from $5.6 trillion when Mr. Bush took office. Republicans are trying to raise the authorized debt ceiling to $9.6 trillion.
Bush claims his tax cuts are working...
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Post by like_to_retire »

Bulls, bears and other animals

I thought the chart on lengths of Bear vs Bull markets was interesting.

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Post by Bylo Selhi »

Four Mental Mistakes to Avoid Now [WSJ, 20Aug06] [If link is dead, search Archive for "clements", then select Aug 20 article.]
Investing is so simple, any idiot can do it. The problem: There aren't enough idiots. Let's face it, amassing a decent-size nest egg isn't exactly rocket science. All we have to do is save regularly, buy a few low-cost mutual funds and patiently await our reward. Yet most of us scorn such humble simplicity. Instead, we are too confident and too clever. Result? Consider some of the mental mistakes that investors are now making.

Without a Doubt
..."People tend to buy the investments they wish they had bought last year," says Terrance Odean, a finance professor at the University of California at Berkeley. "Partly, people simply extrapolate the past trend. But also, people feel that the markets are more predictable than they really are."... "People who are successful tend to presume they have skill," Prof. Odean says. "They feel they know what they're doing. People confuse success with brains."

Getting Even
..."People will say, 'Oh, the real-estate market is slow,' " notes Meir Statman, a finance professor at Santa Clara University in California. "What they're really saying is, 'I don't want to sell at the current price.' They priced their home at $1 million because their neighbor sold at $1 million a year ago. But their home has been on the market for three months and maybe the price it will sell at now is $800,000."... "There is a lot more room to delude yourself with real-estate prices," says John Nofsinger, a finance professor at Washington State University in Pullman, Wash. "Until a transaction actually occurs, you can let your optimism run wild."

What Goes Down
...If you hold [TIPS] to maturity, they offer a government-guaranteed inflation-beating return. In early February 2005, 10-year inflation-indexed Treasury notes were paying less than 1.5 percentage points above inflation. Today, they are paying some 2.3 percentage points above inflation. In other words, if investors buy today, they are guaranteed a higher after-inflation return. The fundamentals have improved, not deteriorated. So why are people selling? Blame it on investor psychology.

Losing Control
...I suspect the negative savings rate, however, is also driven by our overconfidence. Sure, we know we aren't saving enough for retirement and for our kids' college education. But we figure that somehow or other, things will work out OK. A mental mistake? It may be our biggest.
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Post by yielder »

Bylo Selhi wrote: Losing Control
...I suspect the negative savings rate, however, is also driven by our overconfidence. Sure, we know we aren't saving enough for retirement and for our kids' college education. But we figure that somehow or other, things will work out OK. A mental mistake? It may be our biggest.
Yep, we haven't had a good recession reality check since the early 90s or a housing downturn since the mid/late 80s. For more than half a generation, the tree has been growing to the sky. And for those who went through it, the memory dims with time and the relative brightness of the present.
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Post by ghariton »

Bylo Selhi wrote:Four Mental Mistakes to Avoid Now [WSJ, 20Aug06
Yes.

Let me add a fifth, which is top of my personal list: Not selling when you know you should, so as to avoid paying tax on capital gains. :cry:

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Post by ghariton »

yielder wrote:Yep, we haven't had a good recession reality check since the early 90s or a housing downturn since the mid/late 80s. For more than half a generation, the tree has been growing to the sky. And for those who went through it, the memory dims with time and the relative brightness of the present.
Oh, I don't know about that. I seem to remember the 2000 - 2001 period with startling clarity.

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Post by yielder »

ghariton wrote: Oh, I don't know about that. I seem to remember the 2000 - 2001 period with startling clarity.

Georges

Then you don't remember the early 90s recession where GDP per employed declined 1.11% in 1989, 1.88% in 1990, and 1.37% in 1991 vs increasing 2.86% in 2000 before declining 1.05% in 2001 and .04% in 2002. (adjusted for inflation)


Cdn Unemployment Rate

1989 7.58
1990 8.16
1991 10.33
1992 11.23
1993 11.42
1994 10.43


2000 6.84
2001 7.23
2002 7.67
2003 7.60


I think what you remember is the market decline. Tech industries were affected but not the economy as a whole. Unlike the early 90s housing was booming in 2000-2001.
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Post by brian3 »

Yes, 1992 -1993 were grim years in industry. I had to lay off about 40% of my technical staff, even though most were bright guys. However, concomitantly, it was near bottom for real estate and we bought a condo in Florida under quite favorable conditions.
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Post by Taggart »

Mutual funds and other targets

Swensen takes aim at industry in this important book

Jonathan Chevreau, Financial Post
Published: Wednesday, September 13, 2006

Unconventional Success (Simon & Schuster, New York, 2005) is authored by David Swensen, chief investment officer for Yale University. The book is one of the more savage indictments of mutual funds I've encountered. Fully four chapters chronicle their failure on various fronts.
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Post by The Wealthy Boomer »

See also thread in ETFs and Funds: "Will ETFs repeat the mistakes of the mutual fund industry?"
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Post by Taggart »

Compounding is the road to riches

The Independent

By Jonathan Davis

Published: 16 September 2006
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Post by Norbert Schlenker »

George Foreman (yes, that George Foreman) discusses wealth.
Mr. Foreman, who stared down financial collapse as an adult despite a troubled, impoverished childhood, said he knew real wealth when he saw it. “If you’re confident, you’re wealthy,” he says. “I’ve seen guys who work on a ship channel and they get to a certain point and they’re confident. You can look in their faces, they’re longshoremen, and they have this confidence about them.”

He says he can spot a longshoreman who has enough equity in his home and enough money in the bank to feel secure, and that some people, no matter how much money they have, never get there. “I’ve seen a lot of guys with millions and they don’t have any confidence,” he says. “So they’re not wealthy.”
Fortune's Fools: Why the Rich Go Broke, NYTimes, reg required
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