Personal Finance

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

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  • Jul 31st, 2009 8:45 am
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[OP]
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Jul 30, 2003
5468 posts
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Toronto
Rehan wrote:
May 15th, 2009 4:05 pm
And an even better question is why the FA is not doing this himself and chilling on a beach rather than working for a living? :confused:
I did. The first advisor gave me a BS answer (want to help people). Second was straight up and said he came from a v.poor family and he is doing this for himself and his wife (for upto 350k) - I believe him.
Third advisor update in separate post :)
AllWheelDrift wrote:
May 15th, 2009 4:40 pm
What do you mean by you're not timing the market? If you're doing a lump sum investment of $50k you are essentially timing the market.

You also should keep in mind the interest rate of the loan probably isn't fixed, and interest rates are at hisorical lows right now and have no-where to go but up.

I'd suggest saving/investing as much of your money as you can every month in low cost mutual funds. You may lack the leverage meaning you have a much smaller amount invested, but you'll save about 2% drag of the fund management and around 4% on loan interest.

If you pay close attention you'll find you need the market to return 6.5% (that would be 4% return for you fund after the 2.5% management fees) just to break even. If you ditch the advisor and use a mutual fund with an MER of around .5% you'll come out ahead as long as the markets return at least 4.5%. Of course, if the interest rate on your loan goes up (you can probably count on it over the next few years) you'll still need your investment to beat the loan interest rate by at least .5% to come out ahead with your leveraged strategy. Of course, when the leveraged strategy is just breaking even, an unleveraged strategy would actually be generating a return.

As I said before, I wouldn't recommend even thinking of trying this unless you educate yourself enough to set it up all alone without the "help" of an advisor who will just diminish you chances of success. If you don't feel comfortable buying ETFs using a margin account you shouldn't feel comfortable with the avisor advising you to perform a much more expensive version of exactly the same thing.
Thank you - this is what I am looking for.

btw, not timming the market because original plan is not to cash out - until it is all paid out. Anyway - I see the flaws more clearly, so no point of explaining :)
Icedawn wrote:
May 15th, 2009 5:39 pm
Agree all the way up to the last last proposition.

Again, OP, you don't really seem to be hearing what people are saying on this forum. While the factors you point out may be valid (you are young and have risk tolerance on your side), you don't seem to have grasped the full extent of the risks inherent to the plan. For example, with respect to cash flow, are you in the position to pay up to 10K a year in interest costs in the event interest rates shoot to 20%? Alternatively, can this investment loan ever get called if the market drops another 50%? What happens if you lose your job? Do you have a partner who would be able to individually support the loan? What happens if everything happens together.... you lose your job, interest rates spike, and the market drops? Are you going to be bankrupt and forced to liquidate everything at the absolute worst time?

In general, the theory is incredibly simple. Stock market gains are historically higher than interest rates. Therefore, in theory, the more you leverage, the more you earn. The problem is volatility and risk though, and so while you have the upside right (albeit implemented arguably in an inefficient way), you dont' seem to have fully thought out the downside.
I am trying to learn ;)
fantom wrote:
May 16th, 2009 11:15 am
You got that all wrong to begin with...

You made a MASSIVE assumption that you will live to see your retirement and cash out that million bucks... if that's even worth anything at that point.

For all me and you know, you could get hit by a streetcar on your way to work tomorrow and proclaimed dead on the spot, and there goes your retirement plan down the sh1tter.

Think about it... then start living your life NOW.
I am living it now my friend ... but want it to get better as time progresses
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[OP]
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Jul 30, 2003
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Ok so I consulted a 3rd Advisor, who doesn't care much for small-fish portfolios like mine. Didn't sell me anything. He is a self-made millionare (through stocks). His advise was to invest in stocks - Warrn Buffet / Couch Potato way. Find good companies - then buy and hold.

Can't guruantee multi-millionare just mere millionare when i retire.

He pointed out flaws in the strategy as well - other than the one mentioned already by some people here. There was that it is capitalizing too much on dividend - and to bank on them lasting so many years is stupid.
Also, dividend paying companies are NOT blue chip stocks, and by definition they will not grow (duhh accounting 101).
To have more value in long run is to invest in GROWING companies or long-term blue chip companies.

Now I just need to find some good books / courses :)
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Oh well looks like you finally got some good advice.

Here is what I would recommend you:
1) Spend less than you earn
2) Invest your savings each month by using the couch portfolio strategy
3) Repeat steps 1 and 2

Just buy and hold, do not gamble and do not try to time the market and you will be fine and maybe will retire as a millionaire.

Books I would recommend to read are:
The Wealthy Barber
A Random Walk Down Wall Street
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Oct 16, 2007
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Is there actually any information on here or is this a shock thread?
Newbie
Mar 18, 2009
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5 upvotes
I myself have been trying to learn as I came into a fortunate position to actually have paid off all my debts and have some extra to invest recently. I have a mortgage unlike you so I was considering the Smith Manouevre (long thread here on that), RESP, of TFSA which ultimately all end up in the market regardless.

What I have been doing is reading allot of blogs and forums by investors and there is a ton of good information out there.

Here are a few:

http://www.financialwebring.org/forum/
http://www.milliondollarjourney.com/
http://www.four-pillars.ca/
http://www.thickenmywallet.com/blog/wp/
http://www.dividendgrowthinvestor.com/
http://www.nurseb911.com/

And one of the most interesting newsletters to follow: This will likely balance out anything that drives you too aggressively to invest: (made me pull $50k out of the market last week thank god)

http://www.frontlinethoughts.com/gatewa ... ef=reprint

Have fun!
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Jun 9, 2006
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Swilt wrote:
May 16th, 2009 7:21 pm
I myself have been trying to learn as I came into a fortunate position to actually have paid off all my debts and have some extra to invest recently. I have a mortgage unlike you so I was considering the Smith Manouevre (long thread here on that), RESP, of TFSA which ultimately all end up in the market regardless.

What I have been doing is reading allot of blogs and forums by investors and there is a ton of good information out there.

Here are a few:

http://www.financialwebring.org/forum/
http://www.milliondollarjourney.com/
http://www.four-pillars.ca/
http://www.thickenmywallet.com/blog/wp/
http://www.dividendgrowthinvestor.com/
http://www.nurseb911.com/

And one of the most interesting newsletters to follow: This will likely balance out anything that drives you too aggressively to invest: (made me pull $50k out of the market last week thank god)

http://www.frontlinethoughts.com/gatewa ... ef=reprint

Have fun!
Thanks!
I would add to this the Canadian Capitalist's blog
[OP]
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Jul 30, 2003
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Toronto
Can someone tell me the resource to see all the mutual funds available? See their price history / dividend payment details etc?
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PrinceMS wrote:
May 16th, 2009 5:31 pm

He pointed out flaws in the strategy as well - other than the one mentioned already by some people here. There was that it is capitalizing too much on dividend - and to bank on them lasting so many years is stupid.
Also, dividend paying companies are NOT blue chip stocks, and by definition they will not grow (duhh accounting 101).
To have more value in long run is to invest in GROWING companies or long-term blue chip companies.

Now I just need to find some good books / courses :)
So your 3rd advisor was saying dividend-paying companies like GE, BCE, Transcanada Pipelines and other Fortune 500 companies are NOT blue chip???
:idea: :) :lol: :razz: :D
[OP]
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charliebrown wrote:
May 25th, 2009 2:00 pm
So your 3rd advisor was saying dividend-paying companies like GE, BCE, Transcanada Pipelines and other Fortune 500 companies are NOT blue chip???
What he said was "Blue chip" term keeps changing over time (and who is using it) - but TRUE blue chip should be a company that is stable and growing slowly overtime. Their goal is not dividend, although some of them do give dividend and you can rely on their dividend (which you shouldn't btw).
A True blue chip company will (as rule of thumb) will NOT pay high dividend.

Thats all i remember.

Edit: There was subtle tip about BCE but i don't remember now :p
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PrinceMS wrote:
May 27th, 2009 12:32 am
What he said was "Blue chip" term keeps changing over time (and who is using it) - but TRUE blue chip should be a company that is stable and growing slowly overtime. Their goal is not dividend, although some of them do give dividend and you can rely on their dividend (which you shouldn't btw).
A True blue chip company will (as rule of thumb) will NOT pay high dividend.

Thats all i remember.

Edit: There was subtle tip about BCE but i don't remember now :p
http://en.wikipedia.org/wiki/Blue_chip_ ... arket[/url)

PrinceMS, you need to seriously sit down and think things through and be a lot more skeptical of these financial planners you keep visiting. I have this bad feeling your greed is going to get you fleeced if you keep putting so much stock into what advisors say. Keep in mind they are actually sales people, trying to sell you expensive loans and mutual funds with high fees.

If you are absolutely sure you want to go down the leveraged route and can handle the risks, set up a margin account and use leverage to buy ETFs.

Otherwise set up a TD eFunds account with a systematic investment plan. You should be able to reach your millionaire goals using that route as well, though it'll be a slower but a whole lot less risky (though still far from risk free.)
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Jan 27, 2009
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SpillOnAisle9 wrote:
May 8th, 2009 2:22 pm
I smell a segregated fund.....would your planner happen to be working for
an insurance company?

If it's too good to be true....it usually isn't. which should answer your question
as to why everybody isn't doing it.

The best person with your money is YOU. Read up and ask questions of people
that do not make money with your money.
I take offence to that last line as a professional financial planner. Do not stereotype or generalize us all with that crap.

But, in reality, what PrinceMS is saying is complete and utter shiza, I cannot believe someone in a position of fiduciary duty (the said financial planner) is feeding a person with zero investment expertise this crap.

He must be either very inexperienced or a crook. If this person holds a profesionnal designation, I would document everything he's said and file a complaint with the designation granting body. I would also report this person to the MFDA (Mutual Fund Dealers Association).

Planning for 12% returns AND leveraging a very large loan is ridiculous. I would never project 12% returns with a client, I usually stick in the 6-8% range (over long term) if client is not overly risk averse. Post-recession bull markets are usually great (mind you the canadian index, the TSX, is already at 10300, up froms its low of 7600 ish, do the math).

A financial planner/mutual fund rep/investment advisor has the legal obligation to act with due diligence and in most cases has a fiduciary duty to act in your best interest, not his. Your planner, PrinceMS, is clearly in violation of this. This person is looking out for his own interests.

The biggest problem is SUITABILITY, unless you are very financially comfortable already (paid off house, no debt, great-paying secure job, substantial investible assets, etc.), YOU ARE NOT SUITABLE for such a strategy. What if the investments go bad? What if the total investments go way below the balance on the loan? Guess what, you still owe the money to them, and there's a good chance the investment loan will have margin call provisions. Margin call means that if the market value of the investments falls below a set threshold relative to the loan value, you will be forced to either a) deposit more money or b) sell the investments at a large loss to payback the loan.

Stay away. I suggest that you post the name/company of the planner that is recommending this.

- cleanlude, Certified Financial Planner (CFP)
[OP]
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so I come back to get more advice (and annoy some people).

Reading WEALTHY BARBER - He keeps insisting that look for a good mutual fund manager with good sustainable record (15-20 years). Research on the actual manager.

Can someone please explain more details on this to me?
(e.g, TD mutual funds are managed by a department, right? So how do I get in touch with the manager? Is there a site that keep tracks the most successful ones? etc)

P.S: Whenever he uses the numbers for the market - he uses 11-13% rate of return (over v.long term). Yet, this thread consistently says that even 8% is an optimistic calculation?
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OP, I'd suggest you read Juggling Dynamite first.

It may open your eyes about mutual funds.
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Jul 21, 2004
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I remembered a recent interview with Warren Buffett on the current economic status and his 2 cents on the market next year.

he stated, we (as in America) has been push toward using leverage for virtually everything. leverage is dangerous. Smart investors don't use leverage, average investors should have no business using leverage.

Since loan = leverage... Nothing in the world of investment bares no risk.. there are always minimal risk at the bare minimum.

So no savings for first 4 years at 500 - 700 / mos input. You will be at least 24k in the hole before able to access the money?

PrinceMS wrote:
May 8th, 2009 3:55 pm
*darn it, wrote so much - it didn't save*

I am not keen on giving personal details in public. Anyway, here are some generic details:

- We didn't talk about specific funds, he said we can do that when / if I am ready to invest

- Plan A: Yes it is leverage investment. We take "investment loan" on top of my savings

- Plan B: We can also take 100 % Investment loan (meaning w/o my savings)

- He advised only Plan A but I want to do Plan A and B (both) because it doesn't effect your credit history, it is pretty secure, I can get out any point - In the long term ( 4-5 years, it has a lot of potential to grow with virtually no risk?). IF I do decide to end this before 4/5 years, I have gained nothing.

- For next ~4 years, I will not have any money in savings. I will have to pay $500 - $700/month in loan payments, but after 4 years we can take tens of thousands dollars out and re-invest it to pay these fees for me (more or less).

- The monthly payment I have to make is tax deductable, so I will get money back from it at the end of the year, so its not all a loss (touches tax planning - which I should do as well)

- I can also take out my original money to invest in business etc in 4-5 years time, but that will obviously hurt the funds full potential to grow

-----------------------------
As for real estate, I am still waiting for prices to come down. I don't have enf funds to invest in real-estate. I did get into that and lost money (my own stupidity).
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PrinceMS wrote:
Jul 8th, 2009 1:05 am
so I come back to get more advice (and annoy some people).

Reading WEALTHY BARBER - He keeps insisting that look for a good mutual fund manager with good sustainable record (15-20 years). Research on the actual manager.

Can someone please explain more details on this to me?
(e.g, TD mutual funds are managed by a department, right? So how do I get in touch with the manager? Is there a site that keep tracks the most successful ones? etc)

P.S: Whenever he uses the numbers for the market - he uses 11-13% rate of return (over v.long term). Yet, this thread consistently says that even 8% is an optimistic calculation?
The Wealthy Barber is a decent book, but it's a bit dated. Most modern investment theory suggests that picking an above average fund/fund manager is virtually impossible and it's better to focus on the one thing you can control, which is costs. The conclusion is you should invest in low cost index funds instead.

Also, based on dividend yields, rise in share prices and other factors, projected returns of equity investments have dropped over the years which is why 8% is now considered optimistic.

I suggest reading The Four Pillars of Investing next.

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