As the end of the beach approaches, the sweltering heat is a motivator to keenly seek out any beleaguered offerings of shade.
With sand, shade and a gently breeze as companions our gaze turns to the ocean, the watery horizon appearing to be sculpted with god like precision.
It is tough to concentrate and the mind wonders to echo’s of time and the cold snaps in Alberta and the food rioting in Egypt, Libya and Tunisia. One is a natural storm and other a financial one.
The captain said that the financial storm is already here, we just need to be able to read the signs, is this one of them?
A vision of a mobile above a babies crib comes to mind, pull on one piece and all the pieces move to adjust. I don’t remember the mobile, I just some how know it was there.
Yesterday's sailing lesson we talked about Government's ability to print money.
^^^
Let’s say we have a company worth $10. There are 5 shares outstanding so each share would be worth $2. ($10 divided by 5 shares = $2)
(stay with me :))
Now let’s print 5 more shares and hand them out to friends.
Each share is now worth $1. ($10 divided by 10 shares)
The shares have lost value and gone from $2 to $1.
As we print more shares, each share become worth less.
^^^
Think of a Canadian Dollar as the “shares” of the Canadian Government. As more dollars are printed, each one becomes worth less. Put another way, every time we print a dollar, each existing dollar will “purchase” less.
As we print more dollars, each existing dollar looses its "purchasing power".
^^^
When we put a $10 bill in our pockets and then pull it back out, it looks the same doesn’t it….its not.
So when you were able to by a loaf of bread for $2, and now it takes $3, did the price go up or did the purchasing power of the dollar go down? Does it now take more dollars to buy the same loaf of bread?
This stuff will prove to be critically important for your financial futures, hang in there!!
Monday, February 28, 2011
Friday, February 25, 2011
A World ...in Balance?
With feet back on terra firma, the invitation extended by the beach has been accepted. The rhythme of the crashing waves is an ancient song sung long before we were here.
The salt water rides up the shoreline to be partially kidnapped by the sand. Held hostage, the water cools its captures. It is this band we walk along as we wait for another imminent visit from our very old friend.
A distinctive aroma fills the air in that special place where the world of the ocean meets land. The salt air combined with sea weed and other mysterious offerings fills our nostrils with hints of her well kept secrets.
Am I alone on the beach or am I part of the beach with everything in balance?
Wondering thoughts have me present to a phase recently heard, "back to basics".
Balance can be seen everywhere and is very much a part of our personal world.
As individauls (or families) we often check our financial balance. Are the revenues we bring in equal to our expenses?
Is the money we bring in from our jobs, investments etc, equal to or more then what we are spending on food, housing, etc.?
If it is great, we have savings.
If it isn’t, we have some choices to make. We can try to;
1. Increase our income
2. Reduce our expenses or
3. Borrow money (usually from a bank)
Governments (many) are similar and different. Like us they can
1. Increase income – ie by raising taxes
2. Reduce expenses – by cutting programs
3. Borrow money – from us or corporations or other countries
Or
4. Print money – (ie print more Canadian Dollars)
It is this ability to “print money” (for little or no cost) that we much keep in our minds as we sail into the financial waters dead ahead.
(In Canada, the last day for 2010 RRSP contributions is March 1, next Tuesday)).
The salt water rides up the shoreline to be partially kidnapped by the sand. Held hostage, the water cools its captures. It is this band we walk along as we wait for another imminent visit from our very old friend.
A distinctive aroma fills the air in that special place where the world of the ocean meets land. The salt air combined with sea weed and other mysterious offerings fills our nostrils with hints of her well kept secrets.
Am I alone on the beach or am I part of the beach with everything in balance?
Wondering thoughts have me present to a phase recently heard, "back to basics".
Balance can be seen everywhere and is very much a part of our personal world.
As individauls (or families) we often check our financial balance. Are the revenues we bring in equal to our expenses?
Is the money we bring in from our jobs, investments etc, equal to or more then what we are spending on food, housing, etc.?
If it is great, we have savings.
If it isn’t, we have some choices to make. We can try to;
1. Increase our income
2. Reduce our expenses or
3. Borrow money (usually from a bank)
Governments (many) are similar and different. Like us they can
1. Increase income – ie by raising taxes
2. Reduce expenses – by cutting programs
3. Borrow money – from us or corporations or other countries
Or
4. Print money – (ie print more Canadian Dollars)
It is this ability to “print money” (for little or no cost) that we much keep in our minds as we sail into the financial waters dead ahead.
(In Canada, the last day for 2010 RRSP contributions is March 1, next Tuesday)).
Thursday, February 24, 2011
Tsunami?
As we approach the island, we can start to see the bottom of the sea as it rises up to meet us. The water is so clear that except for the blue green tint and the occasional ripple, it would appear we are floating on air. The sun is brightly hanging in the sky and it is very warm with just a gentle breeze.
It is like time is starting to stand still and I am slowly being hypnotized by the islands enchantment. Can there be a more splendid day?
This state of bliss is interrupted only by the concerned look on the Captain's face and some of the crews' faces. Rumour has it that the captain believes the storm is coming faster than he first thought.
That he has brought us to this island so that we can focus on what we need to learn without distraction.
Like a tsunami, something can happen off the coast of Japan creating a massive wave that will devastate Vancouver where, at the time, may not have a cloud in the sky.
He has told us that;
“by the time we see the storm coming; it will be too late to start getting ready.”
The biggest tragedy is that most people may know some of what they have to do and will not have taken action.
The Captain has said that;
"unless we know “why” we need to take a specific action, we will not have the "conviction" to do it."
If we were just told what to do, the information would be put on the pile of “I don’t get it” or “that’s new for me, I don’t trust it” or “let me think about it” or “how do I know that is right compared to all the other stuff I hear” and then forget about.
On this island we are going to explore financial sailing ideas that may not tie together initially or may not seem relevant. They may seem distinct but will be pulled together as it makes sense.
The captain seems to take some comfort in the fact that, on land, a man overboard just gets dirty.
It is like time is starting to stand still and I am slowly being hypnotized by the islands enchantment. Can there be a more splendid day?
This state of bliss is interrupted only by the concerned look on the Captain's face and some of the crews' faces. Rumour has it that the captain believes the storm is coming faster than he first thought.
That he has brought us to this island so that we can focus on what we need to learn without distraction.
Like a tsunami, something can happen off the coast of Japan creating a massive wave that will devastate Vancouver where, at the time, may not have a cloud in the sky.
He has told us that;
“by the time we see the storm coming; it will be too late to start getting ready.”
The biggest tragedy is that most people may know some of what they have to do and will not have taken action.
The Captain has said that;
"unless we know “why” we need to take a specific action, we will not have the "conviction" to do it."
If we were just told what to do, the information would be put on the pile of “I don’t get it” or “that’s new for me, I don’t trust it” or “let me think about it” or “how do I know that is right compared to all the other stuff I hear” and then forget about.
On this island we are going to explore financial sailing ideas that may not tie together initially or may not seem relevant. They may seem distinct but will be pulled together as it makes sense.
The captain seems to take some comfort in the fact that, on land, a man overboard just gets dirty.
Wednesday, February 23, 2011
“Mayday, Mayday, Mayday”
Our port o call is starting to grow on the horizon. As it takes shape, its mysterious interior is held captive by a thick blanket of tropical forest. High rocky outcroppings are completely covered by vegetation and she is surrounded by her beautiful blonde hair of sand.
Her deserted allure beckons our arrival and longingly sings to our wounded fantasies and promising healing and the unveiling of long forgotten dreams.
As I tear my eyes away from her enchantment and trust in our course towards her, I notice that I am starting to look at how other boats are riding in the water. That is new for me.
On route a Canadian Federal Government ship could be seen riding extremely low as was a US Federal ship.
Some US state ships were riding so low they looked like they were being swamped by the broadside waves and they weren’t even turning their bow into the wind? Yet, no one seems concerned, is that normal?
Low interest rates are like extremely good weather. As interest rates are kept at artificially extremely low levels (in an effort to stimulate the economy), it allows people (corporations and governments) to borrow way more money than they would be able to otherwise.
It begs the question, how long can we keep interest rates artificially low?
We want governments to borrow money during hard economic times to help spur the economy and create jobs, don’t we? That’s their job to help create jobs in tough times isn’t it? Governments are always in debt, that’s not a problem is it? We have been through times like these and been ok, this is just normal stuff isn’t it? We can trust our elected officials to figure it out on our behalf can’t we?
When things get complicated, sometimes it is good to get back to the basics.
Crackling heard over the radio;
“Mayday, Mayday, Mayday”
Her deserted allure beckons our arrival and longingly sings to our wounded fantasies and promising healing and the unveiling of long forgotten dreams.
As I tear my eyes away from her enchantment and trust in our course towards her, I notice that I am starting to look at how other boats are riding in the water. That is new for me.
On route a Canadian Federal Government ship could be seen riding extremely low as was a US Federal ship.
Some US state ships were riding so low they looked like they were being swamped by the broadside waves and they weren’t even turning their bow into the wind? Yet, no one seems concerned, is that normal?
Low interest rates are like extremely good weather. As interest rates are kept at artificially extremely low levels (in an effort to stimulate the economy), it allows people (corporations and governments) to borrow way more money than they would be able to otherwise.
It begs the question, how long can we keep interest rates artificially low?
We want governments to borrow money during hard economic times to help spur the economy and create jobs, don’t we? That’s their job to help create jobs in tough times isn’t it? Governments are always in debt, that’s not a problem is it? We have been through times like these and been ok, this is just normal stuff isn’t it? We can trust our elected officials to figure it out on our behalf can’t we?
When things get complicated, sometimes it is good to get back to the basics.
Crackling heard over the radio;
“Mayday, Mayday, Mayday”
Tuesday, February 22, 2011
Land Ho
Around the ravenous breakfast table this early morning a rumour had started to meander, one with proven sea legs, that the Captain was sailing to one of his favourite secret places. A tiny little island hidden from the burdens of time and territory.
It is said to be a place where the barrier between man and his infinite spiritual source is so thin that you can feel its influence everywhere; that if you are really quiet, you can hear its voice speaking to you.
The sea herself can be a spiritual place where the connectedness of all souls can be felt. A knowing that at some level we are all one, accompanied with a silent pleading to open one’s heart.
Time seems to stand still for a moment as I look around at the faces of my hungry crew mates. I am reminded of how much I have been shown of courageous open heartedness, love, acceptance, friendship and soulfulness by the souls sitting at this table.
As I get present to its power I start to get misty, only to hear a voice remind me that mist is not for men but only for the sea herself. I am thankful for this unnamed seaworthy sharing knowing that that is not true for me.
Heard over the Radio this Morning:
-------
“Household debt reached an all-time high of $1.41 trillion, according to the report. If spread out evenly among Canadians, every man, woman and child would owe $41,740”
-------
“Canadian household debt is at record highs at a time when interest rates are at record lows and rising.”
For the first time the crew is starting to get a hint of the oncoming financial storm. It is like the flap in a previously dead calm sail, an indicator that the weather is starting to change.
Aren’t Canadians suppose to be frugal and careful (and polite but that doesn’t really apply here); aren’t we in better shape than everyone else; don’t we have one of the best systems in the world? Aren’t we protected from this storm?
What’s true is the storm is already here, all the conditions are already set, you just need to know where to look for the signs.
“Land Ho”
It is said to be a place where the barrier between man and his infinite spiritual source is so thin that you can feel its influence everywhere; that if you are really quiet, you can hear its voice speaking to you.
The sea herself can be a spiritual place where the connectedness of all souls can be felt. A knowing that at some level we are all one, accompanied with a silent pleading to open one’s heart.
Time seems to stand still for a moment as I look around at the faces of my hungry crew mates. I am reminded of how much I have been shown of courageous open heartedness, love, acceptance, friendship and soulfulness by the souls sitting at this table.
As I get present to its power I start to get misty, only to hear a voice remind me that mist is not for men but only for the sea herself. I am thankful for this unnamed seaworthy sharing knowing that that is not true for me.
Heard over the Radio this Morning:
-------
“Household debt reached an all-time high of $1.41 trillion, according to the report. If spread out evenly among Canadians, every man, woman and child would owe $41,740”
-------
“Canadian household debt is at record highs at a time when interest rates are at record lows and rising.”
For the first time the crew is starting to get a hint of the oncoming financial storm. It is like the flap in a previously dead calm sail, an indicator that the weather is starting to change.
Aren’t Canadians suppose to be frugal and careful (and polite but that doesn’t really apply here); aren’t we in better shape than everyone else; don’t we have one of the best systems in the world? Aren’t we protected from this storm?
What’s true is the storm is already here, all the conditions are already set, you just need to know where to look for the signs.
“Land Ho”
Monday, February 21, 2011
The Direction of the Drift
Do you find that the wind tends to blow you in the direction of the wind and that the current tends to carry you down stream?
Part of the art of sailing is the ability to sail into the wind and without the wind it is difficult to sail at all.
With falling interest rates, it was like the wind and the current were carrying us in the direction we wanted to go. We were comfortable going in the direction of the drift.
With the real possibility that a financial storm is coming, with interest rates now blowing in a direction different than where we want to go, we get to re acquaint ourselves with the joy, the art and the beauty of sailing.
So while the thought of a financial storm coming can be a little scary, it can also be the cause of excitement and exhilaration.
After having drifted in the direction of the wind and current for a while (30 years), now is a great time to be touching base with the basic skills of financial sailing.
----------
Heard over the morning radio:
“Canadians' debt-to-income ratio now ranks first among the 20 advanced countries”
“Household debt has surged three times faster than income in recent years.”
“Even more remarkably, they took on more debt during the slump – a first for a recession – because borrowing was so cheap.”
“With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren't rising fast enough to meet their day-to-day expenses.” “
---------
Canadian’s personal debt levels are at record highs.
One of the basic skills of financial saling is debt management. It is time to take a look at the debt levels each of us is carrying and to look seriously at reducing these levels.
“The Canadian personal financial ship has never ridden so low in the water.”
The Coast Guard has made a ruling, Canadian's personal financial ship is over her maximum sailing weight and is a danger to herself and others. She will not be allowed to be placed in the water.
Part of the art of sailing is the ability to sail into the wind and without the wind it is difficult to sail at all.
With falling interest rates, it was like the wind and the current were carrying us in the direction we wanted to go. We were comfortable going in the direction of the drift.
With the real possibility that a financial storm is coming, with interest rates now blowing in a direction different than where we want to go, we get to re acquaint ourselves with the joy, the art and the beauty of sailing.
So while the thought of a financial storm coming can be a little scary, it can also be the cause of excitement and exhilaration.
After having drifted in the direction of the wind and current for a while (30 years), now is a great time to be touching base with the basic skills of financial sailing.
----------
Heard over the morning radio:
“Canadians' debt-to-income ratio now ranks first among the 20 advanced countries”
“Household debt has surged three times faster than income in recent years.”
“Even more remarkably, they took on more debt during the slump – a first for a recession – because borrowing was so cheap.”
“With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren't rising fast enough to meet their day-to-day expenses.” “
---------
Canadian’s personal debt levels are at record highs.
One of the basic skills of financial saling is debt management. It is time to take a look at the debt levels each of us is carrying and to look seriously at reducing these levels.
“The Canadian personal financial ship has never ridden so low in the water.”
The Coast Guard has made a ruling, Canadian's personal financial ship is over her maximum sailing weight and is a danger to herself and others. She will not be allowed to be placed in the water.
Friday, February 18, 2011
Someone just called the Coast Guard
A lot of ships carry markings on their hull. (the watertight body of a ship or boat, the part that touches and is in the water). These markings indicate how high out of the water the ship is sitting.
Even without markings, most captains can often judge how high or low their ship is riding.
Empty, a boat or ship will ride quite high out of the water. As you add weight to her, she starts to ride lower. Most boats are designed to carry a certain amount of weight and usually have a maximum.
The heavier she is (the lower she sits in the water), the slower she is to respond and the less able she is recover from being pushed over on her side by wind or wave. In affect, the heavier she is, the easier it will be for her to capsize in difficult conditions.
So what weights down our financial ship? How much weight are we carrying?How low is our financial ship riding in the water?
We can measure how much weight we are carrying, we can see how low we are riding in the water, by taking a look at how much “DEBT” we are carrying.
“Excess DEBT is going to cause untold wreckage in the coming financial storm”
How we manage our debt will play a large role in our effective stewardship and the “readiness of our craft”.
So if debt is going to play a pivotal role, then we need to ask;
“ How low is our ship (and the Canadian ship and other ships) riding in the water?”
At this point it doesn’t look good, the inspector just called the Coast Guard!
Even without markings, most captains can often judge how high or low their ship is riding.
Empty, a boat or ship will ride quite high out of the water. As you add weight to her, she starts to ride lower. Most boats are designed to carry a certain amount of weight and usually have a maximum.
The heavier she is (the lower she sits in the water), the slower she is to respond and the less able she is recover from being pushed over on her side by wind or wave. In affect, the heavier she is, the easier it will be for her to capsize in difficult conditions.
So what weights down our financial ship? How much weight are we carrying?How low is our financial ship riding in the water?
We can measure how much weight we are carrying, we can see how low we are riding in the water, by taking a look at how much “DEBT” we are carrying.
“Excess DEBT is going to cause untold wreckage in the coming financial storm”
How we manage our debt will play a large role in our effective stewardship and the “readiness of our craft”.
So if debt is going to play a pivotal role, then we need to ask;
“ How low is our ship (and the Canadian ship and other ships) riding in the water?”
At this point it doesn’t look good, the inspector just called the Coast Guard!
Thursday, February 17, 2011
The sea can be a harsh mistress
Out on the open ocean, if we can see a storm coming we have a chance to prepare. It gives us a chance to “batten the hatches”, a chance to put the ship and crew in a strategic position to respond to nature’s often unforgiving wrath.
The captain assembled us on C deck this morning and shared with us some of his thoughts. It was about facing difficult financial waters.
As sailors, we are accountable for 3 aspects of our stewardship;
1. The course we choose to sail, which waters we choose to sail in and which to avoid.
2. The state of our craft.
3. How we apply our sailing skills while in the financially rough waters.
One aspect of the “state of our ship” (or lack there of) will result in many Canadians (and others in developed economies around the world) having to sound the dreaded “Abandon ship”.
Even without having to take this extreme action, their ship will be in such poor condition after the storm, it will have no sailable value.
This one aspect can make all the difference and it will be shown that:
“Canadians have never before in history allowed their ship to be in such disrepair.”
The “good news” is that we can do something about it.
Let me rephrase that, if we are to weather the oncoming storm,
“It is critical that we, as sailors, start preparing our financial ship”
Having your financial ship sea worthy in this one area (I believe) will be critical.
For as we know;
“The sea can be a harsh mistress.”
The captain assembled us on C deck this morning and shared with us some of his thoughts. It was about facing difficult financial waters.
As sailors, we are accountable for 3 aspects of our stewardship;
1. The course we choose to sail, which waters we choose to sail in and which to avoid.
2. The state of our craft.
3. How we apply our sailing skills while in the financially rough waters.
One aspect of the “state of our ship” (or lack there of) will result in many Canadians (and others in developed economies around the world) having to sound the dreaded “Abandon ship”.
Even without having to take this extreme action, their ship will be in such poor condition after the storm, it will have no sailable value.
This one aspect can make all the difference and it will be shown that:
“Canadians have never before in history allowed their ship to be in such disrepair.”
The “good news” is that we can do something about it.
Let me rephrase that, if we are to weather the oncoming storm,
“It is critical that we, as sailors, start preparing our financial ship”
Having your financial ship sea worthy in this one area (I believe) will be critical.
For as we know;
“The sea can be a harsh mistress.”
Wednesday, February 16, 2011
Where have we been?
Hopefully everyone had a great Valentine's Day.
All the ships passengers and crew spent Valentines with their mistress…the sea.
It’s foggy outside with freezing rain so the Captain has decided to stay inside and take a look at where we have sailed so far.
Early in this journey, we have learned that:
* 91% of Canadians will not be able to retire at age 65 (and may go higher)
* We have just ended a 26 year period of falling interest rates and thery are now starting to rise,
* Interest rates, over the last 2 years, have not been this low since the 1930’s.
* Bond Funds may be the wrong place to be in a period of rising interest rates.
* We questioned whether we are getting the information we need from government, the banks, Wall Street, the school system or the popular media.
Congratulations on your sailing experience so far!!
Just knowing the information above has help ensure a strong hull to sail upon and already puts us ahead of a lot of sailors.
It is my contention that we are heading into a major financial storm. It is not a matter of if; it is just a matter of when.
There are major financial building blocks that people will need to know to be prepared and they are not being talked about. (Present company excluded)
Next we sail into the biggest financial factor that will define our sailing generation .... keep sailing and dress warm
All the ships passengers and crew spent Valentines with their mistress…the sea.
It’s foggy outside with freezing rain so the Captain has decided to stay inside and take a look at where we have sailed so far.
Early in this journey, we have learned that:
* 91% of Canadians will not be able to retire at age 65 (and may go higher)
* We have just ended a 26 year period of falling interest rates and thery are now starting to rise,
* Interest rates, over the last 2 years, have not been this low since the 1930’s.
* Bond Funds may be the wrong place to be in a period of rising interest rates.
* We questioned whether we are getting the information we need from government, the banks, Wall Street, the school system or the popular media.
Congratulations on your sailing experience so far!!
Just knowing the information above has help ensure a strong hull to sail upon and already puts us ahead of a lot of sailors.
It is my contention that we are heading into a major financial storm. It is not a matter of if; it is just a matter of when.
There are major financial building blocks that people will need to know to be prepared and they are not being talked about. (Present company excluded)
Next we sail into the biggest financial factor that will define our sailing generation .... keep sailing and dress warm
Tuesday, February 15, 2011
Poet or Sailor?
The oceans have been around for a long time, stretching out to foreign lands and calling us to explore. At the same time calling us to explore all those hidden and forbidden places with in ourselves. As we look out over the horizon and deep into the water are we not looking deep into our own soul? Are they the same?
Is it the poet or the sailor in us that asks that question?
As I start to yield to this call and consider taking the journey, a voice within fearfully asks, do I really want to see what I will find, do I have the courage to choose to look? What will I find…infinity?
It is tough to be out on the water and not be a sailor and a poet for the water brings our soul to the surface only to have us contemplate its depths and ask…….
Am I on my true path; am I charting the course truly meant for me; am I paddling in the direction of the current; all toward that distant land that we can not see?
Are we paddling our financial ship in the direction of the current, are we paddling her in the direction of our financial hopes and dreams? Some may not.
Let’s take a look…
Warning - tighten your seatbelt for a bit, rougher waters dead ahead
-----
If you were asked to choose between receiving $102 or $103 a year from now, which would you choose? $103 because it is more money.
Ok, if you were to give someone $100 today and had a choice of getting back $102 or $103 a year from now, which would you choose? Again $103.
So if interest rates are at 2%, and you buy a bond fund. You would, in affect, give them $100 now and lock in the right to sell your bond fund at the end of the year for $102.
Now lets say the day after you buy this bond fund, interest rates go up to 3%. Anyone can now buy a bond fund that will give $103 at the end of the year, why would they buy your bond for $100 that has locked in 2%? They wouldn’t.
They would pay you less than $100 dollars for your bond fund so that the return will be 3% not 2%.
-----
That is why, in a period of rising interest rates, you do not want to own a bond fund or bonds in a balanced mutual fund. Every time interest rates to up, the value of what you own goes down.
Well I hope you got all that.
Let’s move on, we can come back to this as we have lots of important fish to fry.
Is it the poet or the sailor in us that asks that question?
As I start to yield to this call and consider taking the journey, a voice within fearfully asks, do I really want to see what I will find, do I have the courage to choose to look? What will I find…infinity?
It is tough to be out on the water and not be a sailor and a poet for the water brings our soul to the surface only to have us contemplate its depths and ask…….
Am I on my true path; am I charting the course truly meant for me; am I paddling in the direction of the current; all toward that distant land that we can not see?
Are we paddling our financial ship in the direction of the current, are we paddling her in the direction of our financial hopes and dreams? Some may not.
Let’s take a look…
Warning - tighten your seatbelt for a bit, rougher waters dead ahead
-----
If you were asked to choose between receiving $102 or $103 a year from now, which would you choose? $103 because it is more money.
Ok, if you were to give someone $100 today and had a choice of getting back $102 or $103 a year from now, which would you choose? Again $103.
So if interest rates are at 2%, and you buy a bond fund. You would, in affect, give them $100 now and lock in the right to sell your bond fund at the end of the year for $102.
Now lets say the day after you buy this bond fund, interest rates go up to 3%. Anyone can now buy a bond fund that will give $103 at the end of the year, why would they buy your bond for $100 that has locked in 2%? They wouldn’t.
They would pay you less than $100 dollars for your bond fund so that the return will be 3% not 2%.
-----
That is why, in a period of rising interest rates, you do not want to own a bond fund or bonds in a balanced mutual fund. Every time interest rates to up, the value of what you own goes down.
Well I hope you got all that.
Let’s move on, we can come back to this as we have lots of important fish to fry.
Monday, February 14, 2011
A Chilling Disparity
Happy Valentines everyone!!!
Weather plays a big part in the enjoyment we receive from our sailing experience on any given day. It also impacts our pre departure navigational choices given wind, tide, temperature, etc.
All the weather factors will contribute to that masterfully contemplated and loving plotted course on the navigational chart.
As we carefully and lovingly plot our own pre departure financial journey, we must also look to the weather. Many of our hopes and dreams are waiting for us and depend on our successful navigation.
Interest rates act like a weather condition. If interest rates are falling (like they have been since 1982 until late 2008 / early 2009), it is like we have calm waters and the wind at our backs.
Now that we are sailing into rising interest rates, we will no longer have the winds at our backs nor extended periods of mild weather.
“It is like we have sailed into a change of seasons.”
Our financial world has four seasons. The difference being that each season is about 20 – 25 years long and an entire year takes about 80 years to complete, roughly the length of one life time.
Our captain believes that financially we have just left “Fall” and are sailing into “Winter”.
Having had a chance to talk to some of the passengers over the weekend, it appears that many believe financially we are in the middle of summer with many beautiful days ahead.
This is a chilling disparity.
Weather plays a big part in the enjoyment we receive from our sailing experience on any given day. It also impacts our pre departure navigational choices given wind, tide, temperature, etc.
All the weather factors will contribute to that masterfully contemplated and loving plotted course on the navigational chart.
As we carefully and lovingly plot our own pre departure financial journey, we must also look to the weather. Many of our hopes and dreams are waiting for us and depend on our successful navigation.
Interest rates act like a weather condition. If interest rates are falling (like they have been since 1982 until late 2008 / early 2009), it is like we have calm waters and the wind at our backs.
Now that we are sailing into rising interest rates, we will no longer have the winds at our backs nor extended periods of mild weather.
“It is like we have sailed into a change of seasons.”
Our financial world has four seasons. The difference being that each season is about 20 – 25 years long and an entire year takes about 80 years to complete, roughly the length of one life time.
Our captain believes that financially we have just left “Fall” and are sailing into “Winter”.
Having had a chance to talk to some of the passengers over the weekend, it appears that many believe financially we are in the middle of summer with many beautiful days ahead.
This is a chilling disparity.
Friday, February 11, 2011
Outcome Unforeseen
Three drills must be mastered by a sailing crew before they set sail and head for open water; “Fire”, “Man Overboard” and “Abandon ship”.
Yesterday, the involved crew’s "Man Overboard" resulted in a disillusioned crew member being stolen from the clutches of the watery depths of despair unharmed. Who, after a luminary accord with our Captain has returned to training under watchful eye.
Right now in the US (and elsewhere), people have been scared away from investing in stocks and real estate. As a result, they have been moving in record numbers into bonds.
“The masses have been buying bonds in record volumes at record high bond prices”.
This is one of the reasons interest rates can be held so low and why bond prices have been pushed to such heights.
Bonds have interest rate risk, which is what we have been talking about (risk interest rates will go higher), but also “inflation risk” and “default risk”.
The last two are significant, in these times more than ever.
If you don’t like stocks or realestate and bonds as suggested may not be a good place to sail into, then what do we do?
So, what to do?.......Great question.
First, please don’t throw yourself overboard, start a fire or otherwise try to sink the ship.
Second, now is a great time to take a look at your portfolio and just get an idea of how much you have in bonds and especially longer term bonds (3 to 5 years and over)… just look.
As an example, you may have a bond fund or a balanced fund with a portion invested in bonds.
So before you start eyeing the other side of the railing and develop a longing for the cool watery depths remember, we are on an adventure and it’s supposed to be a little scary with the outcome unforseen.
On to the next drill station……
Yesterday, the involved crew’s "Man Overboard" resulted in a disillusioned crew member being stolen from the clutches of the watery depths of despair unharmed. Who, after a luminary accord with our Captain has returned to training under watchful eye.
Right now in the US (and elsewhere), people have been scared away from investing in stocks and real estate. As a result, they have been moving in record numbers into bonds.
“The masses have been buying bonds in record volumes at record high bond prices”.
This is one of the reasons interest rates can be held so low and why bond prices have been pushed to such heights.
Bonds have interest rate risk, which is what we have been talking about (risk interest rates will go higher), but also “inflation risk” and “default risk”.
The last two are significant, in these times more than ever.
If you don’t like stocks or realestate and bonds as suggested may not be a good place to sail into, then what do we do?
So, what to do?.......Great question.
First, please don’t throw yourself overboard, start a fire or otherwise try to sink the ship.
Second, now is a great time to take a look at your portfolio and just get an idea of how much you have in bonds and especially longer term bonds (3 to 5 years and over)… just look.
As an example, you may have a bond fund or a balanced fund with a portion invested in bonds.
So before you start eyeing the other side of the railing and develop a longing for the cool watery depths remember, we are on an adventure and it’s supposed to be a little scary with the outcome unforseen.
On to the next drill station……
Thursday, February 10, 2011
Man Overboard!
Anticipation surrounds my early morning coffee along the starboard railing. This morning, while standing there in the cool humid darkness, I await the arrival of dawn's enlightened hints and with my eyes closed allow the chilly bow splash to spray against my face.
The weight of the ship can be felt striking the oncoming waves, the bow rising in rebellion only to return for another melee.
In this moment I realize .... I am starting to listen for her.
The glint off the water of early morning's arrival reflects back to me my sailor's intention, time for training......
Interest rates have been falling for 30 years but have not been this low for 80 years. As they start to rise from extremely low levels, there will be many ramifications.
Today we focus on just one, and it is a big one, their affect on Bonds and Bond prices.
Warning – reading about the definition of a bond is like swallowing salt water, it can taste really bad but sometimes it can not be helped.
What is a bond?
Simply put, when a government or corporation wants to borrow money from you, it will promise to pay a certain amount of interest every year (lets say) and pay back the original amount at an agreed date. If you agree, you have in affect purchased a bond. (please forgive the oversimplification)
As a sailor, why do I care?
The first thing we need to know as sailors trying to determine into which waters to navigate our ship, is:
“When interest rates rise, the value / price of bonds fall.”
That is a huge deal. We have just come off of 30 years of “falling” interest rates (rising bond prices).
Now that has all changed. We are now looking at rising interest rates (and falling bond prices).
This means that;
“Potentially, this is the worst time in 80 years to own long term bonds”.
What? What does that mean? Bonds are not safe? What is a long term bond?
Bonds have more than just interest rate risk but you will have to excuse me……….
Someone from our group has just through themselves over the railing and I have to go sound the alarm......
"MAN OVERBOARD!".
The weight of the ship can be felt striking the oncoming waves, the bow rising in rebellion only to return for another melee.
In this moment I realize .... I am starting to listen for her.
The glint off the water of early morning's arrival reflects back to me my sailor's intention, time for training......
Interest rates have been falling for 30 years but have not been this low for 80 years. As they start to rise from extremely low levels, there will be many ramifications.
Today we focus on just one, and it is a big one, their affect on Bonds and Bond prices.
Warning – reading about the definition of a bond is like swallowing salt water, it can taste really bad but sometimes it can not be helped.
What is a bond?
Simply put, when a government or corporation wants to borrow money from you, it will promise to pay a certain amount of interest every year (lets say) and pay back the original amount at an agreed date. If you agree, you have in affect purchased a bond. (please forgive the oversimplification)
As a sailor, why do I care?
The first thing we need to know as sailors trying to determine into which waters to navigate our ship, is:
“When interest rates rise, the value / price of bonds fall.”
That is a huge deal. We have just come off of 30 years of “falling” interest rates (rising bond prices).
Now that has all changed. We are now looking at rising interest rates (and falling bond prices).
This means that;
“Potentially, this is the worst time in 80 years to own long term bonds”.
What? What does that mean? Bonds are not safe? What is a long term bond?
Bonds have more than just interest rate risk but you will have to excuse me……….
Someone from our group has just through themselves over the railing and I have to go sound the alarm......
"MAN OVERBOARD!".
Wednesday, February 9, 2011
Let's face it Toto, we are not in Kansas anymore
The trainees are starting to settle into there new routine, slowly but surely.
They miss their old beds, they miss their usual cooking and they have a little physically and mentally fatigue. No one is complaining, however, as they know there is an adjustment period and getting back into shape is part of becoming a sailor.
It is all part of the adventure and they have all brought a brave face and friendly smile to breakfast.
---
Over the radio:
“The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent
“There was an unexpected interest rate hike announced by the People's Bank of China on Tuesday evening after reopening at the end of Lunar New Year holidays.”
---
Interest rates, there are those words again; we were talking about interest rates yesterday in training. Well chow time is over….
Governments, including the US, have been keeping long term interest rates artificially low in an attempt to stimulate the economy.
In 1982 the US Federal Funds rate was over 19%, it is currently being held in a range of zero to .25%.
19% down to .25% / 0% -- OH MY GOD
This rate is lower than the last time the interest rate cycle hit their lows in 1954.
Put another way, if you were an adult the last time interest rates were this low, you would not be alive to talk about it.
So this is the first big point trainees have been asked to get clear on, if we take a conservative and longer term approach,
“WE ARE AT THE BOTTOM OF THE INTEREST RATE CYCLE – INTEREST RATES GO UP FROM HERE”
All the lessons learned from falling interest rates over the last 30 years may no longer apply!!
I hope I am making my point.
Now, does this mean that over the next six months or a year interest rates could trade sideways to down, perhaps. (down from zero?, believe it or not, they are looking at mechanisms for that right now. They have been implemented in the past in other countries, but are never sustainable).
But, perhaps not, and we are not here to play with fire.
This has major ramifications and we need to know what they are and what we need to do.
The trainers tell us that what we are about to learn is critical and not to be late to tomorrows training.
Let's face it Toto, we are not in Kansas anymore.
They miss their old beds, they miss their usual cooking and they have a little physically and mentally fatigue. No one is complaining, however, as they know there is an adjustment period and getting back into shape is part of becoming a sailor.
It is all part of the adventure and they have all brought a brave face and friendly smile to breakfast.
---
Over the radio:
“The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent
“There was an unexpected interest rate hike announced by the People's Bank of China on Tuesday evening after reopening at the end of Lunar New Year holidays.”
---
Interest rates, there are those words again; we were talking about interest rates yesterday in training. Well chow time is over….
Governments, including the US, have been keeping long term interest rates artificially low in an attempt to stimulate the economy.
In 1982 the US Federal Funds rate was over 19%, it is currently being held in a range of zero to .25%.
19% down to .25% / 0% -- OH MY GOD
This rate is lower than the last time the interest rate cycle hit their lows in 1954.
Put another way, if you were an adult the last time interest rates were this low, you would not be alive to talk about it.
So this is the first big point trainees have been asked to get clear on, if we take a conservative and longer term approach,
“WE ARE AT THE BOTTOM OF THE INTEREST RATE CYCLE – INTEREST RATES GO UP FROM HERE”
All the lessons learned from falling interest rates over the last 30 years may no longer apply!!
I hope I am making my point.
Now, does this mean that over the next six months or a year interest rates could trade sideways to down, perhaps. (down from zero?, believe it or not, they are looking at mechanisms for that right now. They have been implemented in the past in other countries, but are never sustainable).
But, perhaps not, and we are not here to play with fire.
This has major ramifications and we need to know what they are and what we need to do.
The trainers tell us that what we are about to learn is critical and not to be late to tomorrows training.
Let's face it Toto, we are not in Kansas anymore.
Tuesday, February 8, 2011
Are you Interested?
We’ve gotten up early and have sneaked outside. With a cup of coffee in hand, we lean against the railing and look out over the water.
The humming of the engine, the rhythmic breaking of the waves off the bow: nothing but you, the ship and the sea.
For me it has a calming and mesmerizing affect. I feel alive and connected yet I am humbled into insignificance by the massive expanse of the ocean.
There is just something about being out on the water.
The captain has told us that if we are to be successful, there are basic functions of the ship that we need to understand. He has broken us up into groups with each group going to one of these key functions.
By themselves, we may not see each functions direct significance, but the Captain assures us that when pulled together, the picture will become clear if not beautiful in its clarity. Thus his love for sailing.
It looks like our group is starting with navigation.
For us to navigate successfully, we need to start with knowing where we are. So….
“WHERE ARE WE?”
For a mariner, the starting point may be the location the North Star. (Assuming of course that our GSP isn’t working or for what ever reason we can’t trust it, god forbid)
For us, our potential north star is where we are on the interest rate cycle. (Not quite as glamorous or romantic as staring up at the stars)
In the early 1980’s, or 30 years ago, long term interest rates were over 15%. At the end of December 2008, long term interest rates hit a low of 2.6%.
If you were to draw a line on the chart of interest rates from top to bottom, you would see that the decline was in a straight line, even and measured with no big swings.
So one of the answers to the question “Where are We” is …,
“At the very far end of a very long (30 year) steady, even drop in interest rates.”
While our group seem unfazed by this celestial information, based on the reaction from our crew, this is not good news.
The humming of the engine, the rhythmic breaking of the waves off the bow: nothing but you, the ship and the sea.
For me it has a calming and mesmerizing affect. I feel alive and connected yet I am humbled into insignificance by the massive expanse of the ocean.
There is just something about being out on the water.
The captain has told us that if we are to be successful, there are basic functions of the ship that we need to understand. He has broken us up into groups with each group going to one of these key functions.
By themselves, we may not see each functions direct significance, but the Captain assures us that when pulled together, the picture will become clear if not beautiful in its clarity. Thus his love for sailing.
It looks like our group is starting with navigation.
For us to navigate successfully, we need to start with knowing where we are. So….
“WHERE ARE WE?”
For a mariner, the starting point may be the location the North Star. (Assuming of course that our GSP isn’t working or for what ever reason we can’t trust it, god forbid)
For us, our potential north star is where we are on the interest rate cycle. (Not quite as glamorous or romantic as staring up at the stars)
In the early 1980’s, or 30 years ago, long term interest rates were over 15%. At the end of December 2008, long term interest rates hit a low of 2.6%.
If you were to draw a line on the chart of interest rates from top to bottom, you would see that the decline was in a straight line, even and measured with no big swings.
So one of the answers to the question “Where are We” is …,
“At the very far end of a very long (30 year) steady, even drop in interest rates.”
While our group seem unfazed by this celestial information, based on the reaction from our crew, this is not good news.
Monday, February 7, 2011
Scrub!
As we look back early on this crisp morning, we can see the distraction of the fading coastline being consumed by the skyline of the ocean. It is a reminder of why we are here, why we have chosen this journey and the necessity to focus on the task at hand.
In talking with some of our fellow bunk mates, it is becoming clear that the passengers on this voyage all have something in common and have similar intentions. We have come to learn and to develop our sailing skills.
We are here to learn how to sail our own financial ship. It is my contention that while most people and families will face the difficult financial waters that lay ahead, few will navigate and traverse them successfully.
Since the soon to be mariners on this journey may have different levels of experience, the captain wants to scrub the dirt off a few basics as he now considers us all part of the crew.
Why is it that the first job you get when you join a sailing crew is to be handed a bucket and brush / mop and receive the fateful one word command “Scrub”?!
My guess would be that many people have, or will between the first of January and the end of February (RRSP season), sit down (perhaps with an advisor) and decide how to apportion their portfolio between a “diversified portfolio of stocks”, “bonds” and “cash”.
Their may be also be a small spattering of investments in emerging markets, commodities or other niche areas.
The original crew members, now our trainers, have told us that it is important we start "listening for the ship" and to start to be “getting a feel” for her.
In this instance, if you listen really carefully, you can hear the implication. Or if you follow the logic, it would imply that there maybe something wrong with investing in a diversified portfolio of stocks, bonds and cash. But that can’t be, I must be mistaken, because that’s just ridiculous.
With all this sea air and scrubbing, I know I am going to sleep well tonight.
In talking with some of our fellow bunk mates, it is becoming clear that the passengers on this voyage all have something in common and have similar intentions. We have come to learn and to develop our sailing skills.
We are here to learn how to sail our own financial ship. It is my contention that while most people and families will face the difficult financial waters that lay ahead, few will navigate and traverse them successfully.
Since the soon to be mariners on this journey may have different levels of experience, the captain wants to scrub the dirt off a few basics as he now considers us all part of the crew.
Why is it that the first job you get when you join a sailing crew is to be handed a bucket and brush / mop and receive the fateful one word command “Scrub”?!
My guess would be that many people have, or will between the first of January and the end of February (RRSP season), sit down (perhaps with an advisor) and decide how to apportion their portfolio between a “diversified portfolio of stocks”, “bonds” and “cash”.
Their may be also be a small spattering of investments in emerging markets, commodities or other niche areas.
The original crew members, now our trainers, have told us that it is important we start "listening for the ship" and to start to be “getting a feel” for her.
In this instance, if you listen really carefully, you can hear the implication. Or if you follow the logic, it would imply that there maybe something wrong with investing in a diversified portfolio of stocks, bonds and cash. But that can’t be, I must be mistaken, because that’s just ridiculous.
With all this sea air and scrubbing, I know I am going to sleep well tonight.
Friday, February 4, 2011
Do you know where your life jacket is?
Well our ship is starting to pick up speed and steam out of the harbour. It is time to step outside onto the main deck to take a breath of the fresh, crisp sea air and see what you can see.
The first thing to be noticed is that the crew is busy rushing around battening the hatches. When asked about all the activity, the crew member says there is a chance that we may be encountering a bit of rough water, nothing to worry about.
Lets take look at the bigger picture and see how the Canadian ship doing as a whole? According to Stats Canada,
“91% of Canadians will not be able to retire at age 65”.
That is an astonishing number which seems very high to me. Especially when you consider that over the past 30 years (until recently) we have had one of best performing periods for the stock market and best performing periods for the bond market.
Also, governments have, for the most part, continued to spend more than they bring in as revenue which, while increasing the debt, helps to stimulate the economy.
That 91% statistic is not intuitively what I would expect. It would seem that something isn’t quite right here, something just does not seem to add up???
Among other things, it begs the question, where are Canadians (and people around the world for that matter) getting their information from: government, the banks, Wall Street, TV, the school system?
It is my belief that there are key financial building blocks that people will need to know in order to successfully avoid the major financial storm that is coming. From where I stand, very few people are talking about what those building blocks are.
After another deep breathe of that fresh sea air and it is evident that the ship is starting to pick up speed and is steaming straight for deeper waters.
Just as a check, do you know where your life jacket is?
The first thing to be noticed is that the crew is busy rushing around battening the hatches. When asked about all the activity, the crew member says there is a chance that we may be encountering a bit of rough water, nothing to worry about.
Lets take look at the bigger picture and see how the Canadian ship doing as a whole? According to Stats Canada,
“91% of Canadians will not be able to retire at age 65”.
That is an astonishing number which seems very high to me. Especially when you consider that over the past 30 years (until recently) we have had one of best performing periods for the stock market and best performing periods for the bond market.
Also, governments have, for the most part, continued to spend more than they bring in as revenue which, while increasing the debt, helps to stimulate the economy.
That 91% statistic is not intuitively what I would expect. It would seem that something isn’t quite right here, something just does not seem to add up???
Among other things, it begs the question, where are Canadians (and people around the world for that matter) getting their information from: government, the banks, Wall Street, TV, the school system?
It is my belief that there are key financial building blocks that people will need to know in order to successfully avoid the major financial storm that is coming. From where I stand, very few people are talking about what those building blocks are.
After another deep breathe of that fresh sea air and it is evident that the ship is starting to pick up speed and is steaming straight for deeper waters.
Just as a check, do you know where your life jacket is?
Thursday, February 3, 2011
Forecast....Fog
Welcome back.
Well the ship has left the shore and, in some respects, it is like we have left at night and in a fog.
In a way, this can be good thing. Some may have a notion of the direction we should be heading or what the journey should look like. At night and in a fog you can’t see a thing so as long as we can hear the engine humming and we can see we are moving, there is a kind of peaceful serenity.
Passengers can sit back, relax and enjoy the ride as we explore hopefully many new places. (Although for this journey I strongly suggest you keep you hands inside the ride at all times)
As we go on this journey, which hopefully includes a shift in our thinking and an endeavour to learn new building blocks on which we may lay our financial futures, there is a danger.
We may hear an idea that doesn’t seem right (or seems ridiculous) or come across a word that is intimidating or scary, and we may react by saying “I want to get off at the next port”.
I encourage you to continue in peaceful serenity and stay the course, sit back and enjoy the ride remembering it can be fun to go to new places.
“Your guide / interpreter / financial friend will be coming on the intercom shortly,
Tickets please…..”
Well the ship has left the shore and, in some respects, it is like we have left at night and in a fog.
In a way, this can be good thing. Some may have a notion of the direction we should be heading or what the journey should look like. At night and in a fog you can’t see a thing so as long as we can hear the engine humming and we can see we are moving, there is a kind of peaceful serenity.
Passengers can sit back, relax and enjoy the ride as we explore hopefully many new places. (Although for this journey I strongly suggest you keep you hands inside the ride at all times)
As we go on this journey, which hopefully includes a shift in our thinking and an endeavour to learn new building blocks on which we may lay our financial futures, there is a danger.
We may hear an idea that doesn’t seem right (or seems ridiculous) or come across a word that is intimidating or scary, and we may react by saying “I want to get off at the next port”.
I encourage you to continue in peaceful serenity and stay the course, sit back and enjoy the ride remembering it can be fun to go to new places.
“Your guide / interpreter / financial friend will be coming on the intercom shortly,
Tickets please…..”
Wednesday, February 2, 2011
All Aboard
Boy, where to start.
Well, I think that for most people, while financial matters are important, their main focus is on their jobs, their families and other important things.
They don’t have a lot of time to devote to what is going on in the world of finance and investments. They work hard to earn their money and wealth but may not be confident in how to grow or, equally important, how to preserve their wealth.
This is RRSP season and tax season so what a great time to focus.
I believe that the fundamentals have changed and what worked before (and has already stopped working) will no longer serve you going forward.
AND I don’t want to understate what is going on.
“It is my belief (and many of the independent economists that I follow) that we are entering a time where if you do not understand what is going on, there is a high probability you will loose most of your wealth (and purchasing power).”
A bold statement for sure.
Two things to do:
• Start to learn the basic fundamental building blocks of what you need to know
• Start moving in that direction.
It would be my honour to share all my hard work, research and knowledge to help guide us in this journey.
All aboard!!
Well, I think that for most people, while financial matters are important, their main focus is on their jobs, their families and other important things.
They don’t have a lot of time to devote to what is going on in the world of finance and investments. They work hard to earn their money and wealth but may not be confident in how to grow or, equally important, how to preserve their wealth.
This is RRSP season and tax season so what a great time to focus.
I believe that the fundamentals have changed and what worked before (and has already stopped working) will no longer serve you going forward.
AND I don’t want to understate what is going on.
“It is my belief (and many of the independent economists that I follow) that we are entering a time where if you do not understand what is going on, there is a high probability you will loose most of your wealth (and purchasing power).”
A bold statement for sure.
Two things to do:
• Start to learn the basic fundamental building blocks of what you need to know
• Start moving in that direction.
It would be my honour to share all my hard work, research and knowledge to help guide us in this journey.
All aboard!!
Tuesday, February 1, 2011
Welcome
Hello everyone and welcome to my Blog.
I am excited to get started on what I am going to call “Random Thoughts” from your financial friend.
I believe that we are headed into dangerous financial waters and that the rules that have applied for the last 30 years,(the ones everyone knows are true) will no longer help people meet their financial goals or help protect and preserve there wealth.
The first step in managing your financial future is to be an active participant, and to do that, the first step is to learn and expand your knowledgable.
So congratulations on coming to this site and investing the time in yourself for what is going to prove to be unprecedented, (and scary if you are not prepared), financial times.
So lets push this boat away from the shore and lets get started!!!
I am excited to get started on what I am going to call “Random Thoughts” from your financial friend.
I believe that we are headed into dangerous financial waters and that the rules that have applied for the last 30 years,(the ones everyone knows are true) will no longer help people meet their financial goals or help protect and preserve there wealth.
The first step in managing your financial future is to be an active participant, and to do that, the first step is to learn and expand your knowledgable.
So congratulations on coming to this site and investing the time in yourself for what is going to prove to be unprecedented, (and scary if you are not prepared), financial times.
So lets push this boat away from the shore and lets get started!!!
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