Saturday, July 14, 2018

Be your own Financial Planner

“We’ll never see an investment industry where the clients come first” says Rob Carrick in today’s Globe and Mail (June 22, 2018).  What does that mean? Well this is about the difference between an agent and a sales person.  An agent must act in your best interest first and his /her own second. That means, he cannot sell you something because she gets a better commission (how is that for transgender grammar? 😊). She must only sell you investments which he feels fits best in your circumstances and with your level of investment skill.  

Realtors have for years worked on this basis and are so scared of saying anything about a property because, if incorrect or if it just doesn’t work out, they and their brokerage may be held liable. Thus, said realtors tell you nothing unless it is a glaring omission of something bad. They just show and don’t tell you what it is worth other than a superficial comparison of value.  If you want to get a real valuation, you could try a real estate assessor, but they have to be careful as well, because most of their revenue comes from value assessments that are super conservative and used by lenders. That doesn’t tell you the real potential of a property either.

To be honest, when purchasing any investment the buck stops with you. If you don’t know what you’re buying too bad. There is no regulation or law that can truly protect you. Having said that, if you have an investment advisor who doesn’t perform, the easy thing is to fire him and move on the next one. Lawyers and Accountants do also have a fiduciary duty but in the real world you cannot trust them. It is unavoidable and plain human nature that advisors work in their best interest not yours. If you really feel you need one of those types then your own street smarts will be more important than fake regulations.  Your own people-knowledge and intuition is your best defense against crooks. If you are not comfortable with an advisor, broker or realtor don’t use them. And do the math as to how much you pay them. 

Don’t trust them further than you can see, and there will be a few that will pleasantly surprise you. Those latter belong in the network of your true advisors. In real estate I do like to use the same realtors (after they have proven their mettle) over and over again. Same with my full-service stock broker, or the place where I buy gold. It is that simple.  

The other guy, the sales person (i.e. not the agent) just sells you something like a store clerk. Some are informative and good for you, but most aren’t. In fact, although in theory there is quite a difference between a sales person and an agent, in the real world there is not. So, follow your gut and only deal with people you think you can trust and then time will prove whether you were right or… wrong.  So now you have a way to select a financial planner. Unfortunately, it would be much better if you obtain your own financial knowledge and acumen. You can use advisors for special situations such as taxes or on particular stocks. However, in the end, you still need to know enough to be able to figure out whether they hose you or whether they are worth their fees. 

The good news is that most of this financial stuff is not much more than high-school math. Nothing that you cannot do on an excel spreadsheet.  Excel is one of my most valuable tools along with Quicken to keep track of my net worth. Quicken is far from perfect but, I have to admit, it is the best in market. Its recent security and subscription changes are a pain and if there was anything else as comprehensive, I would have used that many years ago. At $80 to $100 per year, it is value for your money although it probably is a money printing machine for Quicken’s owners. A bit of real competition would be nice.  My third software tool is Word where I write my financial diary also known as the Canadian Diversified Investor blog. It helps me verbalize my investment ideas to an imagined reader. Very useful for me, and hopefully to my sporadic readers. I am truly amazed at how many super valuable (I know because I put my money where my mouth is) ideas I post and how few do care. Well, reader of my drizzle, I hope you get a lot of value from my blog.

So financial planning! It is so simple as your probably know if you follow my blog on a regular basis. You plan your ‘retirement’ as non-existent. It is about having enough funds to do what you want during (in theory) an immortal life without being dependent on an employer.  You may have an employer when your eighty or in your twenties; you may be your own boss in your twenties or in your eighties. It doesn’t matter as long as you have enough funds to do what you want. I call this ‘financial adulthood’. Freedom 55 is bull if it means that you only have vacations and golf tournaments after age 55.  You always work towards a goal, no matter how old or young, otherwise you are going in circles and lead a rudderless life. 

When you build towards becoming a financial adult you depend on your career to make a living and build your net worth. During financial adulthood you probably still aim to increase your net worth because it is great to get paid for things you are good at. And doing things you are good at usually is something that you love doing. Not that you must do only one thing that you love doing – there may be several or even many. Look at Donald Trump, not my favorite, but he does a lot of different things that he likes (I hope for him): real estate, builder, tv host, being in the center of attention, being author, being president, hosts beauty pageants and who-knows what else. Rides horses with his buddy Putin? No matter whether you like him, he definitely is a splendid example of a financially adult person. He is his own boss and only accountable to himself (provided he does not commit any crimes). Whether you agree with him or not, he works towards what Donald sees as a better world. 

Building net worth to do what you want is NUMBER ONE. Salary or career income is money you make from your career.  Your career may evolve and last for ever or your skills get obsolete and expire. Those who stop working and ‘retire’ basically give up and let their skills become obsolete. Sometimes by choice; other times involuntarily. If you are employed, the latter is unavoidable for many. If you are self-employed you may keep on going far longer than your skill-obsolescence. That is NUMBER TWO: your career or better having your own business.  Investment Skills is NUMBER THREE but could be NUMBER ONE if you have no or little net worth. 

Investment skills are your skills to accumulate assets. Being rich or having a lot of Net Worth is not about money, it is about the accumulation of assets and is MEASURED in terms of a currency such as the Canadian Dollar. But what about expressing your net worth in terms of gold?  Wouldn’t that be funny if you could say: “I am worth my weight in gold”! 😊  I weigh 200 pounds; how many troy ounces is that? A bit of googling tells me that is 2916 ounces or 2916 times U.S. $1300 or U.S. $3.8 million!   A lot of money but achievable.  Here I may have a dream for you to pursue: Be worth your weight in gold!  Hahaha!   Investment skills are the skills that help you make a living and do the things you want to do in live without a career!

In terms of finance your minimum goal is to make enough money to be able to live. Or for you and your family to live. So, in your financial plan, your first question is how much do I need to live today and how much do I need once the kids are out of the house? Do sit down and spend some time figuring that out!  Now, you can choose a minimalistic life style or an opulent one. Or you could create a lifestyle with lots of vacations and travel. No matter what, put an annual price on that.

Next question you may want to answer is: What do you want to do that you feel is worthwhile doing?  How much does this require in funds?  Often, your chosen activity is making money or at least it is breaking even. But, you may need investment funds to start up.  This is money you could end up losing all. Make an estimate.  You may chose to do something that doesn’t cost a lot of money to start but later it will be self-funding or even throw off a profit.  There is always a component of net-worth involved. But don’t count your profits before you actually make them. For example, my own company, Eucalyptus Consulting Inc. has been re-activated two years ago. It is costing me money to run it – but I have a lot of fun and the work we’re doing even when not bringing in cash now, may prove very valuable in future years. So, I could argue that we are making hundreds of thousands. But reality is that it could also be worth nothing. To count that work as part on my net worth is probably delusional. For now, my net worth must fund Eucalyptus until the oil-patch turns around and maybe not even then.

I guess you could call Eucalyptus a high-risk investment with enormous (in my view) upside. As such, you can see nearly everything you do as an investment except your cost of living, i.e. that which you consume. But in our financial plan, we must be conservative and count the birds in our hands, or better our dollars in the hand.  We count what we have, not our potential (which is of course limitless – you see, I am very modest).

Our net worth fluctuates like our stock holdings, the value of our real estate, the value of our other projects, they all fluctuate. Even if it wouldn’t, our net worth would fluctuate in terms of Canadian dollars or gold or any other standard that we use to express our net worth. For our financial plan, it would be best to express our net worth and cost of living in terms most practical for our place of residence, i.e. Canadian dollars.

Now assets are properties that generate income either through appreciation or through dividends, distributions, rent, etc.   Assets create more assets; there is truth to the statement: It takes money to make money. But it depends on what you define as money or assets.  Everyone owns assets in terms of labor or work energy, in terms of skills, etc. Everyone its own most important asset. A liability is something that lowers your net worth – the costs of doing something even if it as simple such as the costs of storing gold or the purchase of food.  Thus, we can generate our own personal balance sheet: Those things that generate money, i.e. assets and those that cost money: liabilities. That is what we will do in the next post using Excel. If you want a copy of the spreadsheet, just email me at

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