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Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.
How to be a millionaire
I’ve often said that becoming a millionaire should be achievable—if you have a decent wage, manage your debt, get cash-flow-positive and invest in a low-fee manner on a regular schedule. Easy-peasy, eh?
Wealth building is so “simple,” I was able to explain it in a 1,000-word blog.
Alright, alright—so, cutting back on coffee and a few other personal budget items will still leave you 12% short of that millionaires’ club, but it is surprising how modest amounts can add up to millions. (We recently looked at building the $8-million portfolio in this space.)
Here is a very good and simple video that demonstrates how much it takes from various starting points—that is, your age when you begin investing—to kicking off retirement at age 67. How much would you have to invest on a regular schedule beginning in your 20s, 30s or 40s to build that $1-million portfolio?
Here are the deets in chart form: the time it takes to make a million. The following is based upon an average annual return of 6%. The amounts do not include any fees or taxes.
Time, consistency and compounding are your best pals when it comes to wealth creation.
But is a cool mill enough to retire on these days? Of course, it depends on your spending needs (that is, your lifestyle choices) and your debt levels. Obviously, eliminating debt can be very useful for accelerating your ability to accumulate wealth, and making your retirement funds go further..
I’d suggest that for the typical Canadian. $1,000,000 makes it easy to enjoy a comfortable retirement. But certainly being a millionaire today is not the same as being a millionaire 20 or 30 years ago, thanks to inflation. Being labelled a millionaire does not hold the same prestige as when I was a kid and dreamed of the day.
There is a “retirement rule” that your portfolio can usually offer a 4.1% spend rate over the decades. That is, a $1-million portfolio could deliver $41,000 in annual income before taxes, and survive as long as you do. A Canadian would most likely have CPP (Canada Pension Plan) and Old Age Security payments in the mix as well. That might add $12,000 to $15,000 or more to your annual retirement income.
Recently in MoneySense, we looked at the Purpose Longevity Pension Fund, which is designed to deliver 6.15% annual income. The best use of that would likely be to utilize the fund for a portion of retirement savings, such as in the 30% to 40% range. I’ll be offering a post on that strategy on my site within the next week or two.
There’s more than one way to skin the retirement funding cat, and Larry Bates offers ideas for making your retirement saves go further.
Net net, building the million-dollar portfolio might be easier than you think. Heck you might even go for $2,000,000.
From there, make sure you do the research to understand how to make that money last. You might consider contacting an advice-only planner to help you put together the most efficient retirement funding plan.
Jeff Bezos “retires” from Amazon
Bezos, the founder and CEO of Amazon recently announced his retirement. Bezos will not have to worry about retiring on a mere million. Of course, Bezos is one of the richest persons on earth.
This Business Insider post notes Bezos is retiring with a net worth of $197 billion—739,489 times that of the average American. Looks like he’ll be OK. Here’s some more incredible wealth framing from that post:
“He’s more than twice as wealthy as the entire British monarchy, which is worth an estimated $88 billion as of 2017, and his fortune exceeds some nations’ GDPs—though the comparison isn’t exact between output and value. Bezos makes more money every second than the average U.S. worker makes in a week.”
But what about Amazon, the company he led and grew from day one?
The markets took the transition in stride. As Bezos’ email to employees suggests, he’ll still be hands-on in many respects as he delivers the head office to Andy Jassy.
The core mission will live on, in good hands.
From that email…
“Today, we employ 1.3 million talented, dedicated people, serve hundreds of millions of customers and businesses, and are widely recognized as one of the most successful companies in the world.
“How did that happen? Invention. Invention is the root of our success.”
As a former advertising and branding guy, I just love that the company and brand mission can be explained in one word: invention. We call that a “single-minded proposition.” If offers clear marching orders.
The company certainly became more than an online delivery model. It keeps inventing.
Bezos will continue as exec chair (and perhaps an appropriate title would be Chief Inventor).
I have few stock regrets. I often thought that I should buy Amazon as a hedge. It was supposed to eat alive my retail holidings, such as Walmart, Lowe’s, CVS and Walgreens. That hasn’t happened. But Amazon was an obvious buy even four or five years ago.
Readers know I love wide moats and monopolies. Amazon owns the online retail space, and that’s a great and profitable base to fund exploration. They will continue to invent and reinvent.
It appears they are in good hands even with Bezos shipping out to a new office.
I may one day order some Amazon shares.
Marker Medium asks, love him or hate him, should we be thanking Jeff Bezos?
Have a read, let us know your opinions in the Comments section.
Business leaders are feeling good
Those taking the pulse of the economy and consumers are feeling good about Summer. Happy days are here again, perhaps.
Business sentiment has risen to a record level, says a Bank of Canada survey of business leaders. From that post…
“A gauge of business sentiment released by the Bank of Canada rose to record levels as an accelerating vaccine rollout bolsters confidence in the recovery. Separate surveys of consumer confidence from the central bank and Bloomberg News found optimism at or near all-time highs.
“‘To me, it’s just how broad-based the optimism is, whether it’s hiring plans or spending or expectation for future sales. It’s quite impressive,’ Doug Porter, chief economist at Bank of Montreal, said by phone.‘It says a lot that businesses are so upbeat’.”
Add that to consumer confidence, and we’re piling on the good vibrations…
And, as per that post, it’s true the Canadian consumer is also looking forward to a second-dose summer and getting back to normal. We can’t wait to buy experiences and move about more freely. And many are flush with pandemic savings. From that link…
“The numbers will stoke confidence among economists and policy makers that households will be in a spending mood as pandemic restrictions are lifted, particularly given Canadians are supported by a massive stock of savings accumulated during the crisis. After a rough patch in April and May, during a spring surge of COVID-19 cases, the Canadian economy is seen rebounding sharply in coming months to pre-pandemic levels as consumers, and potentially businesses, ramp up spending.”
We’re in a good mood and we’re optimistic. It’s a wonderful one-two punch when consumers and businesses are singing the same happy song.
On the other side of that is what we called “close-quarters hesitancy” in last week’s post. Many of us may not be as eager to follow through on events that involve close quarters with strangers. In the pandemic, we’ve rewired our brains in relation to fear and protection.
This post called it “reopening anxiety, putting some science behind the modern phenomenon…
“Dr. Sanjeev Sockalingam, a psychiatrist and clinical scientist at the Centre for Addiction and Mental Health, said safety habits formed during the pandemic, and continued messages from officials about COVID risk, can stir up anxiety as people try navigating a world with eased restrictions.”
And, out of curiosity I conducted a Twitter poll. You’ll see that only 31.5% of respondents are ready to move about freely, while most continue to practice some level of cautiousness.
We’ll keep an eye on this and how that might affect the many sectors that rely on large groups of customers in close quarters. Hesitancy might affect employment as well. Businesses will need those workers to reopen in full fashion.
And as the economy recovers and the wallets open, we’ll continue with the inflation watch. Canadians are expecting to pay more in the economic reopening, but they also expect inflation to be transitory.
Canada is moving to the other side of the pandemic. Here’s hoping for more sunny days ahead.
Canadians have built a wall of wealth
Here’s an incredible story and a surprising event: Canadians have built a wall of wealth over the last couple of decades, and through the pandemic.
From the Financial Post…
“According to BMO, the average Canadian household now has more than $1 million in total assets, even after accounting for debt.
“‘Household wealth has more than doubled since the past cycle, and tripled just since the dot-com boom at the start of the century — an amazing outcome in the wake of a deep recession,’ Porter noted.”
Many in Canada are house rich and home ownership is a main driver of total net worth—but saving, investing and the markets have been kicking in big time, as well.
“While housing played a big role, other assets also surged during the pandemic. Currency and deposits, for example, rose $210 billion. In addition, Canadians also rode the S&P/TSX Capped Composite Index rally, which has jumped nearly 30% during the past year, while the U.S. markets are also trading at record highs.”
The housing bubble fuelled by low rates is a major concern, as it is locking out new buyers. In April, BMO sounded the alarm on the Canadian housing market.
BMO’s more recent report questioned whether we are at peak momentum for house prices in major centres such as Vancouver and Toronto. That’s not to suggest that prices might fall, but the rate of increase might decline. That might not be good news for first-time buyers.
Housing is cooling in hot markets, but keep in mind that is coming down from “astronomical” and perhaps out-of-reach highs. So that means housing may become less out of reach? That is little solace for those still reaching for that dream of owning real estate in Canada.
“The overall market balance continues to support solid price gains. In Toronto and Vancouver, benchmark prices were up 19.9% y/y and 14.5% y/y, respectively. Detached homes continue to lead, but condo prices are showing positive momentum too. This is still a very strong market, but peak momentum is behind us.”
I certainly feel for those looking to invest and build a down payment large enough to buy that first property or condo. The price increases of stock markets don’t match that rate of increase on housing. It’s a losing battle that can only be solved by a drastic increase in savings rate or a loan or gift from BOMD—the Bank of Mom and Dad.
That said, on net worth I’d point readers back to the section on building the $1,000,000 portfolio, above. While many of us homeowners have accidental investments, you don’t need home ownership to build an impressive net worth.
Dale Roberts is a proponent of low-fee investing who blogs at cutthecrapinvesting.com. Find him on Twitter @67Dodge.