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Any good books out there about investing and saving for beginners? 

 

Thanks in advance. 

 

well there are sooo many that is the problem - to be honest it really doesn't matter all that much which one you pick up as they all mostly (well not saying I have read them all I guess but I have read probably close to a 50 intro/basic personal finance books) have the same fundamentals. Things like paying yourself first, saving 10-15% of your income (they debate on whether that is pre or post tax ha), invest for growth in most likely low fee index funds and don't try to time the market and don't sell if the market goes down - it just comes back up, get a will and reasonable insurance for disability and if you have dependants then life insurance as well, a dollar saved is TWO dollars earned,  and live well BELOW your mean (you can always ramp up your lifestyle and be mildly happy for the upgrade but do the reverse when you have to drop your income? that is much more painful). Phrases like "I deserve this", or "I cannot afford not to" etc are dangerous :)

 

I started with the wealthy barber - Canadian edition - which is now a bit dated and would require you to also read the follow-up book to get current. Still on the fundamentals it remains solid I think and is a very easy to read book and surprisingly complete (writing like a story, minimal math because well to be honest mostly you don't even NEED serious math for personal finance strangely). Read that when I was 15 which ha (I am just a nerd) I started investing.

 

a lot of this will boil down to your style and how you think about money, what your goals are etc. If we knew that we could probably recommend you something more on point for you. The basics are always the same mind you.

 

NONE of this is complex - you can probably teach someone 99% of what they know is 2 hours. Sometimes I do in fact give that talk (have to brush off my economics degree every once in awhile after all ha). Personal finance is actually quite easy to understand, and over time quite rewarding. Plus the alternative is just too horrible to think about.

Edited by rmorelan

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^ Thank you!

 

I don't have an expensive lifestyle at all (far from it actually). I just wanted to learn the basics. I'm pretty good at saving money, but I want to start investing it so that it's not just sitting there. 

 

I'll start with the wealthy barber though, thanks for that suggestion! 

 

Do you happen to know if the "White Coat Investor" is geared towards Americans? Or can Canadians benefit from this book too? 

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Great advise from rmorelan. I agree that the basic principles are the same, whatever you read. When I was starting out the hardest thing to do was to keep track of where all the money was going. Creating spending habits to ensure a consistent positive cash-flow is key to achieve this. Its easy to say "spend less than you make" but if you don't know where all your money is going this is going to be hard to achieve. There are a few programs that help keep track of this, like mint, ynab or a good old fashioned excel spreadsheet.

 

Re: investing, it seems like the general consensus is to avoid mutual fund companies that charge high fees and stick to a low cost index funds approach. Check out Canadian Couch Potato for some good info on this. Once your wealth grows (~$100K or more), it may make more sense to start using a fee only adviser to ensure you are properly diversified and creating a tax efficient portfolio.

 

Your ultimate goal should be to create an investment portfolio that generates sufficient annual income that equals or exceeds your total expenses. At that stage you are considered financially independent :)

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^ Thank you!

 

I don't have an expensive lifestyle at all (far from it actually). I just wanted to learn the basics. I'm pretty good at saving money, but I want to start investing it so that it's not just sitting there. 

 

I'll start with the wealthy barber though, thanks for that suggestion! 

 

Do you happen to know if the "White Coat Investor" is geared towards Americans? Or can Canadians benefit from this book too?

 

Read most of that site plus his book - a lot is American centred but it is still full of valid points.

 

The truth is (I think) that doctors aren't that unusual of an investment group - our "special needs" aren't that special, a lot of others have the same issues etc. So basic rules still apply.

 

One of his points I think that is very apt is that if you are a doctor then you have a part time job - managing your money. DO NOT hand that responsiblity to someone else. Others can guide you but in the world of advisors many will take advantage of you if you don't know the rules. The rules aren't hard so learn them. Don't be paying some stupid 2%+ management fee ( eventually coughing over 10,000s of thousands a year to someone else) for some one to do a WORSE job than you can. You are smart so be smart. Learn the rules.

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Great advise from rmorelan. I agree that the basic principles are the same, whatever you read. When I was starting out the hardest thing to do was to keep track of where all the money was going. Creating spending habits to ensure a consistent positive cash-flow is key to achieve this. Its easy to say "spend less than you make" but if you don't know where all your money is going this is going to be hard to achieve. There are a few programs that help keep track of this, like mint, ynab or a good old fashioned excel spreadsheet.

 

Re: investing, it seems like the general consensus is to avoid mutual fund companies that charge high fees and stick to a low cost index funds approach. Check out Canadian Couch Potato for some good info on this. Once your wealth grows (~$100K or more), it may make more sense to start using a fee only adviser to ensure you are properly diversified and creating a tax efficient portfolio.

 

Your ultimate goal should be to create an investment portfolio that generates sufficient annual income that equals or exceeds your total expenses. At that stage you are considered financially independent :)

A lot of people do agree with tracking everything like that - I still do. I think everyone should do it for a bit just to see where the money goes. In the long run though with paying yourself first re automatic withdraws where your savings become just another automatic bill seems to be best for many - particularly less detail focused people than me (ie most people - and they are more interesting people for it ha). Then you just sit back and "watch the money pile up".

 

Mutual funds compared to index funds suck. Go with simple cheap index funds I think most people agree with that for the bulk of stock purchases. As a voice of one I will say that is what I do and have for a long time.

Edited by rmorelan

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Yeah for me it makes sense to continue tracking spending as I use cash back/points credit cards for most purchases and if I didn't have a known limit I may just go over it and end up paying interest fees which would just eat into any automatic savings done every month. I like ynab because it uses an envelope budget system and you can just enter spending as you go on your smartphone and you can set up how much you want for each category (for example $400/month for groceries, $200/month for eating out etc.) and when you spend money in each category it subtracts that from the original amount so you always know how much you have left to spend.

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Yeah for me it makes sense to continue tracking spending as I use cash back/points credit cards for most purchases and if I didn't have a known limit I may just go over it and end up paying interest fees which would just eat into any automatic savings done every month. I like ynab because it uses an envelope budget system and you can just enter spending as you go on your smartphone and you can set up how much you want for each category (for example $400/month for groceries, $200/month for eating out etc.) and when you spend money in each category it subtracts that from the original amount so you always know how much you have left to spend.

There are a lot of great tools that do that now! And i love tracking things ha :)

 

Big picture - pay yourself first (and learn what that means)

For final optimization - consider budgets, tracking tools etc if you can handle the work involved. Even if you cannot the pay yourself first approach will get you where you need to go.

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Read most of that site plus his book - a lot is American centred but it is still full of valid points.

 

The truth is (I think) that doctors aren't that unusual of an investment group - our "special needs" aren't that special, a lot of others have the same issues etc. So basic rules still apply.

 

One of his points I think that is very apt is that if you are a doctor then you have a part time job - managing your money. DO NOT hand that responsiblity to someone else. Others can guide you but in the world of advisors many will take advantage of you if you don't know the rules. The rules aren't hard so learn them. Don't be paying some stupid 2%+ management fee ( eventually coughing over 10,000s of thousands a year to someone else) for some one to do a WORSE job than you can. You are smart so be smart. Learn the rules.

Yes and I will add that people will not just take advantage, they will outright steal from you if you give them the chance.

 

As said above, taking a 2% management fee is a rip off. There are also worse traps you can fall into. You can be defrauded by people who seem very legitimate and are even affiliated with big 5 banks. But, if you fall for stuff that falls outside a certain scope, you won't be covered in the end.

 

Spend a bit of time learning how to avoid being the victim of fraud. Also get a very good lawyer to help you with your will, and also really understand what sort of insurance coverage you do and do not have.

 

And never let anyone do your books without you overseeing everything and signing all cheques personally.

 

Yes all this stuff is a pain, but most people would love to have these problems :)

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Yes and I will add that people will not just take advantage, they will outright steal from you if you give them the chance.

 

As said above, taking a 2% management fee is a rip off. There are also worse traps you can fall into. You can be defrauded by people who seem very legitimate and are even affiliated with big 5 banks. But, if you fall for stuff that falls outside a certain scope, you won't be covered in the end.

 

Spend a bit of time learning how to avoid being the victim of fraud. Also get a very good lawyer to help you with your will, and also really understand what sort of insurance coverage you do and do not have.

 

And never let anyone do your books without you overseeing everything and signing all cheques personally.

 

Yes all this stuff is a pain, but most people would love to have these problems :)

 

I have seen a lot higher than 2% as well - total rip offs.

 

People in medicine often seem to have a deliberate blindness to learning math, investing, business..... Strangely that is often supported by the field, understood and accepted.

 

I really hate that. Because it makes us as a field weaker and act sometimes in foolish ways to the benefit and profit of not nice people. People who rip us off. 

 

that is why I am happy when people take an interest in this sort of thing.

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I have seen a lot higher than 2% as well - total rip offs.

 

People in medicine often seem to have a deliberate blindness to learning math, investing, business..... Strangely that is often supported by the field, understood and accepted.

 

I really hate that. Because it makes us as a field weaker and act sometimes in foolish ways to the benefit and profit of not nice people. People who rip us off. 

 

that is why I am happy when people take an interest in this sort of thing.

I wonder if it also has to do with the types of people that enter? Many of my peers are well off, and don't really have any experience managing their own money...other than spending it, not having to pay their own bills, rent etc. 

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I wonder if it also has to do with the types of people that enter? Many of my peers are well off, and don't really have any experience managing their own money...other than spending it, not having to pay their own bills, rent etc. 

 

well no one does - I mean anyone graduating a university program and getting a job for the first time is stuck really for the first time with real income and "adult concerns".

 

yet doctors are particular vulnerable. In part because fewer come from a math/business background I think and they assume personal finance has a lot to do with those areas (it doesn't). Also because they are have even more time in school, and a high income. It is like you talk about finance and the first thing they say is "oh I am no good at math....". Hehehe well I was no good at medicine at one point but you pick up a book and learn :) It is the same thing.

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It would be nice if universities offered courses or at least information sessions that address these topics. 

 

But oh well, it shouldn't be too hard (as you've mentioned) to brush up on the basics :)

 

some do! I have given that talk before and in medical school they can be organized as well - but you have to be careful there to make sure it is an info session and not just an add for personal service in the end ha :)

Edited by rmorelan

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It would be nice if universities offered courses or at least information sessions that address these topics. 

 

But oh well, it shouldn't be too hard (as you've mentioned) to brush up on the basics :)

 

Heck, basic financial management should be taught in high school, and that should include the essentials of saving and investment.

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some do! I have given that talk before :) and in medical school they can be organized as well - but you have to be careful there to make sure it is an info session and not just an add for personal service in the end ha :)

 

Thanks for that heads up, I'll keep that in mind if I ever attend any sessions haha.

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Heck, basic financial management should be taught in high school, and that should include the essentials of saving and investment.

 

I have been saying that for ages :) The one thing anyone needs to know is basic financial planning. It is core to adult life to be blunt.

 

As much as I love math, and I do love math, the quadratic formula isn't exactly something needed on a regular basis. Why are we not focusing on important stuff first.

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Just for fun, look at Trez Capital Yield Trust Series F that paid 10% in 2013, 10.68% in 2014, is on target for 2015. And the silver lining is that as the investment is in US funds and you bought it at or near par, you have made over 30% in unrealized capital gains. Even today, without potential future capital gains (assuming the Canadian dollar does not weaken any further), 10% in a relatively safe investment is not bad.

 

See file:///C:/Users/Hp/Downloads/20150930%20-%20TCYT%20US%20Quarterly%20Report%20(2).pdf

 

Caveat: I believe it can only be purchased through a money manager.

 

There are other such safe investment giving a high return such as Centurion REIT -  see pg. 41 @

.http://www.centurionapartmentreit.com/sites/all/files/centurionproperty/Centurion_Apartment_REIT_Annual_Report_2015b.pdf

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Just for fun, look at Trez Capital Yield Trust Series F that paid 10% in 2013, 10.68% in 2014, is on target for 2015. And the silver lining is that as the investment is in US funds and you bought it at or near par, you have made over 30% in unrealized capital gains. Even today, without potential future capital gains (assuming the Canadian dollar does not weaken any further), 10% in a relatively safe investment is not bad.

 

See file:///C:/Users/Hp/Downloads/20150930%20-%20TCYT%20US%20Quarterly%20Report%20(2).pdf

 

Caveat: I believe it can only be purchased through a money manager.

 

There are other such safe investment giving a high return such as Centurion REIT -  see pg. 41 @

.http://www.centurionapartmentreit.com/sites/all/files/centurionproperty/Centurion_Apartment_REIT_Annual_Report_2015b.pdf

 

This is the only area where I will suggest caution :)

 

one thing we know about investments now with mutual funds and what not is that past performance is a very poor indicator of future success - actually there is a lot of economic theory on why that is that I love to explore ha over time.

 

Let's even take that one since it was brought up! I love examples.  Past performance - 9.8 +8.4 + 8.8 + 8.2 + 7.8 + 7.2 (according to their site) which is an annual return of 8.36%. Of course they have a management fee of in this case 1.5% so your real return is on average 6.86%. (You have to look at those fees every time :) EVERY time ) that is lower that the average stock market return of 8-9% if you include reinvested dividends (and of course you reinvest the dividends).

 

Still not bad at all (not all that volatile) - what has the stock market done over that time -  the entire US market as an example - best tracked with say the Russel 1000 index (which represents about 93% of the entire US stock market - and since the US companies are all international ones that is a big chunk of the world market as well). Big time exposure to all the major industries and diversified into 1000 different top companies.

 

28+16+1.23+16.5+32.78+13.08 over the same 6 years or an average of = 17.93% - and this not including the dividends per year either - so it is actually around 19.5%.

 

Now there is a management fee there as well - it is 0.15% - because it is a low cost index fund (stock code is IWB by the way). I like that fee - I like it because it is low. That is the only way I like my fees. Let's round down then to 19% a year. I am not even trying to pick good stocks here (in fact that is the point - trying to do that is probably completely, and utterly pointless for 99.99% of the people out there and completely unnecessary as well). I just went for simple, broad exposure. You would own pretty much everything (walk into a grocery/department store and yeah you own part of pretty much every company that makes anything sold in the store. You own part of the store as well.)

 

19% with compounding over 6 years is a lot better than 6.8%. I mean a lot. That 1.5% management fee is roughly 20-25% of your investment return (plus whatever other fees then have - I see then have a retraction fee, and an arrears fee, and a minimum investment, and some other fine print. I don't like fine print. People hide things in fine print - that is why they make the print fine in the first place - so it is hard to read). You just gave the fund manager 25% of your profit - each year, forever and so far you are not getting historical stock market returns.

 

Ok now both periods of time (the past 6 years) have been excellent stock market and mortgage years. Prior to the formation of the Trez fund mortgages were disastrous and the stock market grim. This example is kind of short term in any case - but the fund has only being around for 6 years so I work with what I have. Point is that fund is not a safe as it might seem - start bumping up mortgage rates and then we may have issues with real estate and the stock market.  Who knows what could happen next year. You don't. I don't. No one really dose - and if they say they do then they are trying to sell you something (probably for another 1.5-2% management fee - ugh, those fees).

 

Most financial planners would say for long term investing it is more profitable and a lot simpler to stick to low cost index funds. you will get the highest long term returns and have low fees. People will keep trying to sell you complex and talking in fancy economic terms sounding exciting. They are fun at parties. Not so fun when you read your profit/loss statements.

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well no one does - I mean anyone graduating a university program and getting a job for the first time is stuck really for the first time with real income and "adult concerns".

 

yet doctors are particular vulnerable. In part because fewer come from a math/business background I think and they assume personal finance has a lot to do with those areas (it doesn't). Also because they are have even more time in school, and a high income. It is like you talk about finance and the first thing they say is "oh I am no good at math....". Hehehe well I was no good at medicine at one point but you pick up a book and learn :) It is the same thing.

I guess that is a part of my concern. That many people dont have real life work experience and money management until after they graduate from aa bachelors degree. I find that particularly sad..there are few reasons most of those same people couldn't work customer service jobs in high school and summer jobs etc etc to begin the process about learning how to manage their own money and pay their own way. These are highly valuable experiences and skills, in my opinion and have served me well at least in many facets.

 

When you earn your own money, you begin to scratch the surface of how valuable time is -not only in the monetary sense but the nontangible aspects of " free time".

 

Additionally, it helps people realize that not everyone is a special snowflake and "deserves" the top high paying jobs just because they got a bachelors degree or masters degree etc etc

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This is the only area where I will suggest caution :)

 

one thing we know about investments now with mutual funds and what not is that past performance is a very poor indicator of future success - actually there is a lot of economic theory on why that is that I love to explore ha over time.

 

Let's even take that one since it was brought up! I love examples.  Past performance - 9.8 +8.4 + 8.8 + 8.2 + 7.8 + 7.2 (according to their site) which is an annual return of 8.36%. Of course they have a management fee of in this case 1.5% so your real return is on average 6.86%. (You have to look at those fees every time :) EVERY time ) that is lower that the average stock market return of 8-9% if you include reinvested dividends (and of course you reinvest the dividends).

 

Still not bad at all (not all that volatile) - what has the stock market done over that time -  the entire US market as an example -  tracked with say the Russel 1000 index (which represents about 93% of the entire US stock market - and since the US companies are all international ones that is a big chunk of the world market as well). Big time exposure to all the major industries and diversified into 1000 different top companies.

 

28+16+1.23+16.5+32.78+13.08 over the same 6 years or an average of = 17.93% - and this not including the dividends per year either - so it is actually around 19.5%.

 

Now there is a management fee there as well - it is 0.15% - because it is a low cost index fund (stock code is IWB by the way). I like that fee - I like it because it is low. That is the only way I like my fees. Let's round down then to 19% a year. I am not even trying to pick good stocks here (in fact that is the point - trying to do that is probably completely, and utterly pointless for 99.99% of the people out there and completely unnecessary as well). I just went for simple, broad exposure. You would own pretty much everything (walk into a grocery/department store and yeah you own part of pretty much every company that makes anything sold in the store. You own part of the store as well.)

 

19% with compounding over 6 years is a lot better than 6.8%. I mean a lot. That 1.5% management fee is roughly 20-25% of your investment return (plus whatever other fees then have - I see then have a retraction fee, and an arrears fee, and a minimum investment, and some other fine print. I don't like fine print. People hide things in fine print - that is why they make the print fine in the first place - so it is hard to read). You just gave the fund manager 25% of your profit - each year, forever and so far you are not getting historical stock market returns.

 

Ok now both periods of time (the past 6 years) have been excellent stock market and mortgage years. Prior to the formation of the Trez fund mortgages were disastrous and the stock market grim. This example is kind of short term in any case - but the fund has only being around for 6 years so I work with what I have. Point is that fund is not a safe as it might seem - start bumping up mortgage rates and then we may have issues with real estate and the stock market.  Who knows what could happen next year. You don't. I don't. No one really dose - and if they say they do then they are trying to sell you something (probably for another 1.5-2% management fee - ugh, those fees).

 

Most financial planners would say for long term investing it is more profitable and a lot simpler to stick to low cost index funds. you will get the highest long term returns and have low fees. People will keep trying to sell you complex and talking in fancy economic terms sounding exciting. They are fun at parties. Not so fun when you read your profit/loss statements.

How do you explain that the stock price of IWB showed essentially no net gain from Sept of 2000 to Sept of 2007. That was pre financial collapse according to my memory. Isn't that kind of concerning that there was essentially no gain after 7 years during that time period?

Edited by rmorelan

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How do you explain that the stock price of IWB showed essentially no gains from Sept of 2000 to Sept of 2007. That was pre financial collapse according to my memory. Isn't that kind of concerning that there was essentially no gain after 7 years during that time period?

 

IWB over that time period EXACTLY matched the overall US economy over the same period (or darn close - I mean IWB tracks well over 90% of the US economy by capitalization).

 

post-7058-0-78678700-1456629042_thumb.png

 

here I put up a chart showing the IWB vs the SP 500 and the nasdaq over the same period. As you can see they track extremely closely (they have to).

 

The reason there was no gain is that there was another market crash that happened in 2002-2003 that wiped a huge amount to the stock market away. There was yet another crash - the worst since the depression actually in 2008. The 2000s sucked for stocks as a result in general. You are comparing a pre crash high to the recovery point - in a decade with the worst performance since the depression. I mean it was terrible if you are comparing those points - that is why I mentioned pior to 2007 it was quite grim - it wasn't just the crash of 2008 that hurt retirements - it was the combination of that PLUS the earlier crash (the tech bubble exploding).

 

On a positive note though - that graph does NOT include dividends - so even if the stock was flat there was still income from that to reinvest.

 

 the vast majority of  mutual funds also though did WORSE over the same period - we can do the same comparison out for that as well. They had their returns, and then they had on top of that their extra stupid fees (remember  though when you lost back in the history that banks close funds not doing well so their active funds appear better - right now there are about 7500 mutual funds out there(!) but only 5000 real stocks - that is insane).

 

When the markets crashed so did the real estate markets as well (which was a part of the comparison people were making for this case) 

 

here is what happened in my home town of Guelph Ontario over that period:

 

post-7058-0-20884100-1456629736_thumb.png

 

see the early 2000s there? the market actually lost money and flat lined as well. Before that there was 10 year period of nice positive returns - I picked guelph because ha it is a city I am invested in real estate in and thus interested but also because it was away from any particular big city crashes, or single industry towns. Other places may vary of course.

 

This is why all of this is about playing the long game.

Edited by rmorelan

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Wow I did not realize the 2000s were that bad for stocks. I thought it was just the one time crash. Thanks for the info. Important stuff to be aware of.

Anyways can I ask you another question. What would you say is the most optimal way to buy an index fund like IWB? My mom received some inheritance money and she has no clue about money and so now I'm trying to invest it as best we can.

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