The Psychology of Investing
olume 3 #2 June 2017 $95
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Please remember that the following are my ideas. and that you should make no changes to your portfolio without first discussing those with your financial advisor.
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Trump Policy and Your Investments
I was supposed to write this letter in April, but as you know, each day there is a new revelation coming from the States that makes news and changes many things in the investment world. But one thing that the history of the first 6 months has shown is that uncertainty seems to be the sure thing. Unfortunately, or fortunately if you followed my thinking in the initial letter, President Trump did not disappoint. Threatening trade barriers, lack of trust and consistency, export issues, confusion on global warming (happening today), threats of leverage and the twitter effect have all come to fruition. I believe the path to avoid the pitfalls of these factors is to stay local, diversify and have cash at hand.
If you had followed the same specific investment path that I was taking 6 months ago, you have done very well. Your investments are up in some cases 16%, not counting dividends. The only stock to take a bit of a hit is Reliq Health Technologies from .16 to .12, but this is a long-term hold very speculative stock, as I stated, and the only one to not pay a dividend. As I stated, the stocks I was buying were for 4-8 year holds, so no issues to hold all of them including Reliq which is a very small position given it could go to zero at any time.
I am adding the following this month:
Northwest Healthcare Properties currently trading at $10.75 and a dividend of 7.43 %; this company owns healthcare real estate where doctors, chiropractors, psychologists, dentists to name a few have their businesses. Most of these healthcare companies can’t do their work virtually and will always need office space. The company also owns healthcare buildings in Australia and Europe. Boring, but the dividend is safe, and I am going to keep this one for a long time.
Innovalis Real Estate Investment Trust $9.99 with a dividend of 8.18%; they own office space in Europe and produce a steady stream of dividend income. Don’t expect the share price to do much, but the dividend is juicy and worth keeping over the long term.
You need to save each paycheck at least 10% of your take home income. Get set up at the bank and have the monies taken out and put into a savings account. Don’t invest that money in anything; keep it in cash so that in the future you can take advantage of buying opportunities.
Real Estate-Your Home is NOT an Investment
I was asked recently at a social event what should a person do if their home is now valued at over 3 million dollars in Toronto with no mortgage. Better question is what would I do? Well for starters, since I’m 60 years old and don’t live in Toronto - I can’t stand the drive among other things - this is what I would do.
I would sell my home immediately and move to an area where I can buy an amazing property for from 250-450 thousand dollars. That would leave approximately 2.5 million after moving costs etc. If you think I’m kidding, go to this website and see the price of Nova Scotia Properties on the ocean. You heard me, I said less than 500 thousand to be on the ocean: http://nscashflowproperties.com/ (that’s my son’s business, but he is the best real estate investment advisor in the world, manages all of our personal and business properties and investments).
With up to $500,000, I’d buy a house on the ocean (if I’m not already living there) and invest the remaining 2 million as follows.
I would start by buying income property of 1 million with a minimum return of 8% per year managed by an outstanding property management firm.
I would leave 500,000 in cash at the Meridian Credit Union daily savings account spread out over 5 accounts. Currently they pay 1.5% daily interest and the money will be there when you need it. In my opinion, they are the best credit union in the country. They are able to bridge technology with branches staffed by professionals who treat you with respect and who care about you: https://www.meridiancu.ca/ . Yes I’m a member, but get no fee or anything for this suggestion.
Next, I would take 250,000 and purchase a very boring stable ETF that would pay approximately 5%-6% return monthly. I would save that money and take a couple of vacations anywhere in the world each year or small ones every month if travelling was my thing (it isn’t, so I would just save the money). If you are keeping a second home, cottage or vacation property, it is in my opinion a very poor decision. You will be spending from $20,000 up to maintain the property, taxes, insurance and lost opportunity not to mention the work of keep it up when you get there. We sold our condo in Collingwood for this very reason, plus the fact prices were going crazy and it was very difficult to justify keeping it. You would have to live there 6 months or more, but even then it’s a very expensive hobby and habit. Cottages and second homes or vacations properties like your home are also not an investment. They are a drain on your cash flow and financial security.
Well with the final $250,000, I’d set up a fund that returns from 5%-10% per year and use the funds to give back. It could be a private mortgage or two or some other secure investment that would kick off cash that I could donate to the charities of my choice. We all need to give back.
So if you are living in a city in a home valued at millions, enjoy it if you must. I’m not telling you what to do, just saying what I would do. I’d be selling my home in Toronto or Vancouver immediately and heading to our beautiful East Coast. You should also know that many rural areas in Nova Scotia have fibre optic internet service. What are you waiting for?
The Certainty of Uncertainty
Interest rates continue to hover at historic low levels. Meridian has a 5 year Mortgage for 2.59%. GIC returns are also at historic lows. What would happen if interest rates ramped up to 5%, 10% or even 15%? Talk about uncertainty.
Most people tell me I’m losing my mind when I suggest this. Frankly I have no idea if interest rates will move at all. However, a good solution, regardless of what you think, is to have significant cash to ride out any storm in your personal or professional life.
The US President has assured us of 3 more years of uncertainty. You know this for sure. That is why spreading your investments over different regions and investment types are mandatory for myself. Here’s my summary from the first edition of this letter that now makes more sense than ever.
Private mortgages, private early stage investing, farm land or building lots, small service companies, web-based companies leveraging brick and mortar locations, real estate, real estate and more real estate. Having this balanced approach will let you sleep very well at night and when you wake up and start sipping that coffee on the balcony of your ocean front home you will be ready to take advantage of all of those buying opportunities. There are definite signs of a Real Estate Bubble in residential properties in Ontario. Recently a large bank started putting mortgages together and selling them to people as “secured” investments. Remember that movie from the States?
Houses in London, Ontario are selling in one day significantly over asking price and few pockets of reasonable housing prices remain in Ontario - with the exception of Chatham Kent, where I live, and Windsor, which is also now heating up.
I will talk in our next newsletter of how this hysteria impacted my recent decision to sell a property that I had never intended to sell. Until then, be well and invest wisely. You work very hard for your money - take control of it and be in charge.
As always, your comments are appreciated directly to me at firstname.lastname@example.org
In the Next Edition - Investing for Retirement when you are 60 - Isn’t it too late?
Look for it in September 2017.