Personal Finance

I *will* be a multi-millionare! @@@ Next Plan Details : May 15 @@@

  • Last Updated:
  • Jul 31st, 2009 8:45 am
Tags:
None
Deal Addict
Apr 1, 2004
1582 posts
34 upvotes
PrinceMS wrote:
Jul 18th, 2009 3:59 pm
- My understanding is MF are bunch of industries put together (by who ever created the MF). ETF are index funds. Either way, they do get "re-balanced" once way or another. MF through actively managment. ETF are index and index take out bad performers and replace them with someone good. When people talk about rebalancing, they're talking about balancing between asset classes (and not just the index). ETFs (in general) follow an index that tracks a single asset class and so there's a need to rebalance between ETFs.

- Since MF has "professionals" backing it up? Do they guarantee anything? No, and if they claim to guarantee anything, you're being lied to.

- If you are doing "Couch Potato" style portfolio (its done with ETF rite?) then re-balancing takes 15min, why is it such a big deal that people don't even put out 15min / year!? It's unclear to many of us who use ETFs what the big fuss about rebalancing is. I personally use Germack's approach of using new funds to rebalance in order to avoid the tax consequences of selling. You are right that I generally spend maybe 10 extra minutes each large scale purchase to calculate my current asset allocation and rebalance accordingly.

- (sorry last Q) So I am reading more and more that quite high inflation is (almost) guaranteed down the road (in 1-5yrs). Also, Gold sky rockets during inflation. Isn't it a good time to throw loads of money at gold?
[ Any chance Gold will come close to $850 anytime soon?]
Here's how I kinda think about it.

There's a global financial community out there which is seeking to maximize their financial return on capital. There's a HUGE amount of money to be made if people are able to correctly predict the future... regardless of whether asset prices go up or go down. Every trade, in essence, is a sign of individual expectations, and on the aggregate, the current price of an asset is the price at which the aggregate expectation that the asset will appreciate balances out the aggregate expectation that the asset will depreciate.

There are many reasons why this is an oversimplification, but in general, I tend to think this is an adequate model for this theoretical discussion.

The question then that I ask myself is why, oh why, can I expect to succeed through speculation? As a lay individual getting my information from random online sources, newspapers, and most likely other lay individuals, how can I make a better prediction of the future than what's already embodied by the price of an asset?

Personally, I think I can only actually do it in two cases. One is where I have inside information on a company that the market generally does not have. My understanding is that statistically, there's a huge amount of insider trading going on.

Two, it's where I think I have a competitive edge over the market generally. And there I have to ask myself what makes me special. Realistically, there aren't that many math and comp sci trained lawyers specializing in IP in Canada... So where can I potentially make better predictions than the market generally? Potentially in evaluating the impact of patent litigation on Canadian tech companies? Perhaps in predicting whether future copyright legislation will impact the market share of Canadian ISPs?

But would I be better than avg. at predicting future inflation rates? Ha! No! In my opinion, to think I would do a better job than the market is ridiculous (and the same if you were to invest on that basis)

see above
Deal Addict
Oct 1, 2006
1967 posts
1233 upvotes
Montreal
PrinceMS wrote:
Jul 18th, 2009 3:59 pm
- (sorry last Q) So I am reading more and more that quite high inflation is (almost) guaranteed down the road (in 1-5yrs). Also, Gold sky rockets during inflation. Isn't it a good time to throw loads of money at gold?
[ Any chance Gold will come close to $850 anytime soon?]
Here is a quote from Warren Buffett about gold:

[OP]
Deal Fanatic
Jul 30, 2003
5454 posts
370 upvotes
Toronto
[quote="Germack" post_id="9094150" time="1248009875" user_id="59038"]Here is a quote from Warren Buffett about gold:

For Sale:
  • DSLR Slider
Deal Addict
Apr 1, 2004
1582 posts
34 upvotes
PrinceMS wrote:
Jul 19th, 2009 4:00 pm
LOL Love the quote. But gold does have its uses and it currency was gold backed for so many ions - so it is still considered important thing to fall back on.


@Icedawn: We are not working with speculation but some basics how economy works. Just because so much money has been put out - inflation will take place as a result. There are ways gov't can fight it but they can only do so much (or as i think it - only prolong the inevitable).
I haven't found anyone who give any rationale or side with inflation NOT happening in the next couple of years. Most say that we should be getting close to 1974 inflation (and high rates of ~14%)
I believe several different responses are warranted.

1. High inflation is not a sure thing as reducing the money supply or increasing interest rates are plausible methods of fighting inflation that don't simply "delay the inevitable".

2. My understanding is that in developed markets, current bond yields provide a summary view of expected future inflation. Taking the analysis a step further, my understanding is that the current pricing of government bonds are expected to yield a return that slightly exceeds expected future inflation. If what you're saying is true, there's a helluva lot of bond traders out there who are getting it wrong (http://www.bankofcanada.ca/en/rates/bonds.html and http://www.treasury.gov/offices/domesti ... ield.shtml)

3. Lastly, gold is undoubtedly a classic asset to hold in inflationary times. But at the same time, gold has appreciated 49% since the beginning of 2007. Given that there are undoubtedly people who think the way you do about gold, part of this price appreciation must undoubtedly be due to these people causing increased demand for gold. At the same time, there are undoubtedly people who agree in principle, but believe gold is now too expensive. The current price of gold should, in theory, take this into account. Why do you think you are better at judging that gold will further appreciate in the future as opposed to all of the people currently selling gold? (And remember, for every transaction there's a buyer and a seller)

My point? To overweight a specific asset with the mindset of expecting that asset to appreciate at above average rates is speculation. Pure and simple. It's another thing to use gold as a hedge as part of a risk management strategy.... but I didn't get the impression that that was what you had in mind.
[OP]
Deal Fanatic
Jul 30, 2003
5454 posts
370 upvotes
Toronto
Here are some quotes of Buffet (from someone else's article):
  • "You can bet on inflation." History suggests that higher inflation is an important trigger for a rise in the gold price.
  • Also referred often to their view that the US Dollar is headed south - another bull factor for gold.

Can someone suggest some good reads about Real Estate Investment (rental mainly - but any passive investment)?
For Sale:
  • DSLR Slider
[OP]
Deal Fanatic
Jul 30, 2003
5454 posts
370 upvotes
Toronto
I found out about REIT and MIC ....

Is there a online calculator to crunch numbers for me?
For Sale:
  • DSLR Slider
Newbie
Mar 18, 2009
57 posts
5 upvotes
PrinceMS wrote:
Jul 19th, 2009 4:00 pm
LOL Love the quote. But gold does have its uses and it currency was gold backed for so many ions - so it is still considered important thing to fall back on.


@Icedawn: We are not working with speculation but some basics how economy works. Just because so much money has been put out - inflation will take place as a result. There are ways gov't can fight it but they can only do so much (or as i think it - only prolong the inevitable).
I haven't found anyone who give any rationale or side with inflation NOT happening in the next couple of years. Most say that we should be getting close to 1974 inflation (and high rates of ~14%)
I wouldn't be so sure about that, if you think about it with the massive destruction in GDP, wealth and excess in production that supported that, there is nearly 7% gap in consumer output alone. Factor in destruction of current oversupply, 5 year pversupply of U6 unemployment (remember employment keeps rising for years after a recession is over...and I don't think it is yet) 3 Million in excess housing built over the last few years, the coming mortage resets, commercial real estate foreclosures rising, massive debt servicing by the U.S. taxpayer, 2010-2011 tax increases due to the previous administrations inability to secure the current cuts into law...plus many factors all lead to the economy NOT growing.

Just because there is tons of money pumped into the economy, doesn't mean inflation, it has to make its way to the market, which it isn't as banks in the U.S. are holding onto it. Without lenders there is no growth either.

Its a complicated formula that goes far beyond just pumping money into the economy, which I don't understand either:

GDP equals M2 multiplied by the velocity of money (V). M2 equals the monetary base (MB) multiplied by the money multiplier (m)
Member
User avatar
Apr 4, 2008
336 posts
42 upvotes
PrinceMS wrote:
May 8th, 2009 2:08 pm
So I went in for financial planning - spent some time with the financial planner. Asked all sorts of questions. He emphasized a lot on that I have lot of time so if I start planning now - I can be a millionare when I retire (using the most conservative numbers). Which make sense since compounding works like that.

Here is the intresting part - I can put in (virtually) all my savings and start the investing plan. I can take my original investment out after ~4 years and will not have to pay monthly interest on the loan either at that point - I will still end up being a multi-millionare at retirement. This attracts me a lot.

I am just wondering:

- Why doesn't EVERYONE jumps on this plan?
- What should I check before signing all my life-saving into this? (Basically, why should I do this?)
this is why some idiots lost there life savings during the recession.

Top