Financial planning in this strange, strange world

Nothing is as it seems. This has been coming at us for 30 years, but we can’t ignore it any longer. The World Wide Web was launched into the public domain 30 years ago and changed everything. It allowed anyone with a computer to build a website with pictures, video and sound. It became the universal space for all information -- the same one we use today. Out of the 8 billion people in the world, 5.35 billion of them, two out of three, have access to the internet – 94 per cent of Canadians, 37 million of us are among them.

It’s old news that the internet has revolutionized how we communicate, shop, work, learn and play. Old news that it has expanded the reach of propaganda and disinformation. Old news that its existence has upended every one of the institutions we rely on to keep our society and economy stable. Add to this cataclysm the economic and geopolitical realignments happening today and it’s small wonder we’re unhappy with the way our governments work, critical of how schools educate our children, dismayed at the disintegration of our roads and bridges, disappointed in our healthcare system.

So, in light of this, what would make us feel better? Without doubt, it’s actively controlling whatever is in our power to control. Financially, it’s figuring out how to manage our money so that it’s there for us 10, 20, and 30 years from now. It’s harder than it used to be and there’s less room for error. But it’s not impossible.

A couple of things to stamp on your forehead: You must take the initiative. You must make the plan. Financial success depends more on your mindset than your brains. Many people never achieve financial comfort – meaning being able to do much of what you want when you want to -- because they don’t commit to it long term. Nor do they embrace the fact that true financial security is living below your means. Your “necessary expenses” will always grow to match your income unless you resist the urge. Don’t confuse them with your desires.

The principles of having a good life haven’t changed since the first recorded contracts were written in clay in ancient Mesopotamia. They start with saving as much as you can as early as you can. Time is the most powerful force in investing. Thanks to the miracle of compound interest, the earlier you start saving and investing, the more time you have to earn money on your invested money. All you have to ensure before you buy is that the rate is guaranteed and you’re not in danger of losing it.

Whether you look at the last 20 years or the last 50 or the last 100 years, long-term investing in the stock market beats investing in fixed income vehicles like bonds and GICS hands down. There are differences. The first is that equity investing is much more volatile than buying bonds or GICS. Company shares go up and down, so you have to know what to buy and you have to stick with the company for a long time. Do not do this with money you’re going to need within the next 5 years.

Knowing what to buy takes research. It starts with owning shares in publicly traded companies that offer goods and/or services that are consistently needed – utilities, energy, financial advice, technology hardware, real estate, infrastructure. Narrow it down to those with a history of growing their dividend. This is harder to do than it is to buy an ETF or a mutual fund.

The ETF or mutual fund strategy is not the best one considering the risks out there today. Three categories of risk in particular -- excessive government debt, bad monetary policy and geopolitical uncertainties – burden us all to the point where what used to pass for good financial advice no longer is. So either you learn how to pick stocks or you get yourself a savvy financial advisor/ asset manager.

There’s one other option, especially if you’re just starting out or you just don’t want to do all that other work. Buy the index that models roughly 70 per cent of the total market capitalization on the Toronto Stock Exchange. Buy it regularly. Total returns on the S&P/TSX Composite Index for the last 50, 20 and 10 years are 9.2, 7.8 and 7.5 per cent. If you have American money, you can purchase the S&P 500 Index, which models the 500 largest publicly traded companies in the US. Total returns of the S&P 500 over the last 50, 20, and 10 years are between 11 and 13 per cent. These returns are at least 50 percent more than you’d make with fixed income. Market returns are not free -- they have a price, like any other product. The price is not measured in dollars, it’s

Financially, it’s figuring out how to manage our money so that it’s there for us 10, 20, and 30 years from now. It’s harder than it used to be and there’s less room for error. But it’s not

impossible.

Many people never achieve financial comfort – meaning being able to do much of what you want when you want to -because they don’t commit

to it long term. Nor do they embrace the fact that true financial security is living below your means.

Knowing what to buy takes research. It starts with owning shares in publicly traded companies that offer goods and/

or services that are consistently needed – utilities, energy, financial

advice, technology hardware, real estate,

infrastructure.

Market returns are not free -- they have a price, like any other product. The price is not measured in dollars, it’s measured in fear, uncertainty and doubt. Only you can decide whether you’re willing to pay the price to reap the

reward.

measured in fear, uncertainty and doubt. Only you can decide whether you’re willing to pay the price to reap the reward.

Keep improving your skills to ensure a future income that will continue when you decide to stop working for it. If your family is dependent on you, buy life insurance as soon as you can. You can sell the policy when you no longer need it.

There are many ways to become financially secure, but there’s only one way to stay that way: some combination of paranoia and thriftiness. It’s a small price to pay.