I just saw the PBS/Frontline documentary "Two American Families." Very sobering. Filmed over 22 years, it follows two families (one white, one black) from 1991 to 2013. Both lost factory jobs and it followed them through their employment with other companies and entrepreneurship during the boom of the 90s. This has gotten me thinking about wealth-building. Do you think that self-employment or entrepreneurship is a true path to building wealth? Or should we focus on building a retirement fund made up of stocks and bonds. Until 2008 real estate was thought to be bullet proof. How does someone hedge themselves against the ups and downs of the economy? I'd love to hear people's thoughts.
(1) Like college - or strawberry daiquiris - it's not for everybody. When it works - it works like crazy for a few - Zuckerberg, Gates, Ellison Etc. When it doesn't (and the odds are it won't) it's awful. Are you one of the chosen? (2) Sure - if you have the knowledge and discipline. Especially if your name is Warren Buffett. No guarantees - I hope you're not looking for one. (3) I think it still is - as near to bulletproof as it gets. Over the LONG term. That horrible thing a few years back (which we didn't have here in Canada - thanks to regulations) was all NINJA-loan related. No fake-financial trickery - no meltdown. When I was a young man, 55 years ago, a good house here cost the price of two Cadillacs. Now it costs eight or nine Caddies -of the better sort. So don't invest your retirement money in a fleet of Cadillacs! (4) Get eight strong plastic storage tubs - not particularly big. Put fifty pounds of gold in each. That'll see you through to better times.
My experience - there have been only three things (I think) in my life that I have sold and received more than I paid for them. And it certainly didn't take genius on my part. Two of them were houses and the last was stock I bought at a very deep discount through the company where I worked. So - I'm for houses and employee stock plans - all the way. The first house I sold - I received twice what I paid for it six years earlier. It's now worth ten times what I sold it for - or 20 times what I bought it for.
I think the people at the bogleheads forum have a good answer. www.bogleheads.org Save more than you spend. Purchase diversified and low-cost index funds that span all major asset classes. The idea is to mimic the overall performance of the economy over the long term. The goal is not to have a lot of money, but enough money.
My Credit Union has a product called an Index-linked GIC (Guaranteed Investment Certificate.) The GIC is linked to a Market Index (choice of several - domestic and overseas.) If the index goes up over the term of the investment (usually 1-5 years) you can do very well. If it falls - you're still safe. Your principal is 100% guaranteed, no matter what. You can win - but you can't lose. Of course, if you don't like this product - you can take a GIC with a guaranteed interest rate instead. Or one of each...
That is an interesting option, Johann. The only problem that I see is that you almost surely pay for the insurance against loss. For many years, I was forced by the rules of 403b's for teachers in the U.S. to invest within an annuity that functioned in the same way. There was a guarantee against loss, but this also limited the upside gain. It was actually an insurance contract and with insurance, there is almost always a commission going to someone. Management fees were high. It would be important to look at how much the fees are within the GIC. The key to this kind of strategy is to commit to it for a very long period of time and almost completely cut out management fees. The average long-term rate of return for stocks is probably 7% and if you shave a couple of percent off the top to pay for bottom-side risk-reduction or insurance management, I think that the strategy kind of loses its appeal.
This is Canada. GIC's - of all types here: Guaranteed, that's why they call them GIC's . ZERO MANAGEMENT FEE. ZIP. You put in $1,000 and you get at least $1,000 back. Usually $1,000 plus interest if you take that route. You get them from the financial institution and there are no third parties. No insurance fees. Financial advisors often put their clients in these, where suitable, and I think they might get a small commission, around 1/8% - 1/4% paid by the institution, not their client. Paying fund-type fees and extra for insurance would be rotten. Guess I'll keep my money here.
Extra incentive - TFSA - tax-free savings account. Presently, Canadians 18 and over can contribute $5,500 a year. Contribution allowances are cumulative and started in 2009, so if you were 18 then, you can contribute a total of $57,500 - all at once, if you like, provided you have no prior contributions. No tax on earnings - while in the plan or when you take money out. Earnings don't count towards income, for Federal income-tested programs,so any government goodies oldsters like me get don't get reduced. You can replace money withdrawn, up to your cumulative allowance but not until the next calendar year. Plans can be structured to hold most types of investments - GIC's, savings accounts, stocks, bonds etc. Tax free earnings. Good motivation to save.
