Many Canadians in their 30s, 40s not saving enough for retirement

[Sylvanfan]

Originally Posted by Kybosh

Good advice, I wish I had been better at budgeting and put away 10% of my $1500/month. Come on, it isn't simple as that and depends on a lot of other factors.

I think most people can put away 10%, but I don't think breaking things down into percentages is all that applicable. The lower your income the tougher it truely is.

I mean if you're one of the wealthy few in this thread and make 15 grand a month...putting aside $1500 isn't that hard. I mean really...if these people live as frugally as they claim they should be able to put aside 12,000 since they're making it sound like all of us who are not making it are living such an extravagent lifestyle. If you're making 3 g's and trying to support a family, finding $300 is a bit tougher. I think a key for the low income folk is that when your income does go up, so instead of putting 10% of your new extra income towards savings, try to make it 25. Really once you get past a certain threshold of your basic living costs it can be 100%. But to get past that can be tough for many trying to get established.

[Shazam]

Originally Posted by Pastiche

Says the guy with a stake in selling Funds.

Not according to this recent survey:

http://blog.canadianbusiness.com/act...s-index-funds/




Full report: http://www.standardandpoors.com/serv...ervalue3=UTF-8

The number goes to 0% over 25 years. I'm rounding, though.

[Shazam]

Originally Posted by pylon

It is not like my parents were super wealthy. My dad was / is an oilpatch guy that was likely making around 100 k/yr through the 80's and 90's and my mother supplimented the family income with a part time job as a realtor. My understanding was that every dime my mother made, went towards low risk, long term RRSP's, and real-estate investments, and 10% of my dads take home went as well, leaving the rest to pay for everything else. We could have lived super large I suppose looking at the numbers, but their # 1 goal was assuring they would never have to rely on anyone to take care of them one day, and they had long term security. It was just smart money management... my mother is Jewish, so I guess it came natural.

You're upper-middle class and you don't even know it.

[kevman]

Originally Posted by Regorium

I did my bachelor's at the best university in Canada (U of T)

See now there's your problem. If you were going to Ontario to do an engineering degree, and skip on the obvious industry connections you make by going to U of C or U of A, you should have went to Queens! They're like a freakin cult out here...

[Slava]

[QUOTE=macker;2460468][QUOTE=Slava;2460292]

Originally Posted by macker

Weird. I did a very quick search and found 326 funds that were equal to or over your 6.2% rate for the last decade. I'm not sure how many index funds could make that claim? I also think that a lot of the ETF studies are flawed to being with. The MERs in some cases are low, but there are acquisition costs that are not factored in or the comparison is against the index as a whole that no one can buy for free.


I think you are making my point here. 326 funds divided by the number of funds in Canada will equate to at least 75% - 80% of the fund managers underperforming the index. If 75% - 80% can't beat the index then why give them 2% -3% every year. It doesn't add up. I couldn't agree more with Warren Buffett about the wisdom of using index-based funds for most institutional and individual investors. It is not just Warren Buffett either....look at the Chinese state owned sovereign wealth fund (over 300 billion in assets) Top holdings include MXI, XLE, EFA, EEM and GLD. I think they like ETF's so much as they can hide in them and play the trends without having to disclose their postions like in stocks. By the time we find out their holdings they could have changed. ETF's have much to offer and you can actually get actively managed ETF's now with Horizons BetaPro if that is your basis but I am saying to do your DD and see what works best for the average investor. Google active funds don't work and see what you get. Sure there are some star managers included in those 326 funds but it is a very small percentage. How many players are in the NHL and how many scored 50 goals this year. It is the same thing. I can see where you are comming from and I won't really argue this point beyond this.

Well that might appear to be the case, but this is using flawed methodology. That list of 326 contains some enormous names on it. For example the CI Harbour, Dynamic Power Balanced, a whole raft of funds from the major banks, Fidelity, etc. We're not exactly looking for a needle in a haystack here. The other point is that taking the number that beat the index and dividing into every fund implies that the little tiny fund with no investors is equal to the larger more well known managers who will have a lot of money invested. It also implies that every series of these funds counts as a separate investment, which is debateable.

Lastly, I'm so happy that you brought up Buffett. You're right that he has mentioned indexing as the way to go, but that is not the whole story. The actual quote is:

"Does that mean you should be in an index fund? Well that depends on whether or not you can invest money way better than average or you can find someone who almost surely will invest money better than average."

How many index funds does Berkshire Hathaway hold? Would Benjamin Graham be advising people to pile money into the passive indexes? Put me in the actions speak louder than words camp on this one.

Originally Posted by Pastiche

Says the guy with a stake in selling Funds.

Not according to this recent survey:

http://blog.canadianbusiness.com/act...s-index-funds/




Full report: http://www.standardandpoors.com/serv...ervalue3=UTF-8

These reports are ludicrous for another few reasons. A) The general public has a hard enough time understanding what a mutual fund is and how it operates, and now they are going to go and trade their life savings in ETFs? That just seems like a recipe for disaster from the start! (B) How many people can justify buying an ETF with the transaction fee every month so as to take advantage of the ebbs and flows of the market? Lets pretend that you are "getting a good deal" on your fee and its a mere $10. You make an average contribution of $100 and only $90 ever makes it to the account. Then you pay the MER and you expect that you are still out-performing active management? Its a red herring. The real winners in that trade are the brokerages, not the consumer.

[Shazam]

"Does that mean you should be in an index fund? Well that depends on whether or not you can invest money way better than average or you can find someone who almost surely will invest money better than average."

Do you actually think that a non-trivial amount of people can beat the market long term?

Please, name me 20 fund managers that have beaten the market over the past 25 years.

[ComixZone]

as a student who currently has 16k in debt (although will be down to 12k this summer - next year being my final year in school), I say...

...I'm definitely part of the problem. I've got an addiction to spending money on crap I shouldn't be buying - I need to kick this habit before I start making real money so that I can actually save money.

The debt I've incurred, I shouldn't have. I don't pay my own tuition, I could have easily stayed without debt but I wanted to continue living an active social life with partying, video games, hockey tickets, jerseys etc.

...I want to save, but I also love spending money - it's an addiction and it's stupid.

[Slava]

Originally Posted by Shazam

Do you actually think that a non-trivial amount of people can beat the market long term?

Please, name me 20 fund managers that have beaten the market over the past 25 years.

Well I just ran a preliminary screen and came back with 233 funds...so what rate of return do you want me to use?

10 years isn't good enough now that I show numbers for that one I guess...if it can be shown for 20 are we next looking at 25?

Frankly, most people need to realise that returns are not the major part of the equation; saving is. If most people would just put the money away in the first place and worry about these issues after they would be in a better position.

[firebug]

Originally Posted by Shazam

You're upper-middle class and you don't even know it.

Since Pylon has made it easy for him to be picked on...

Does being in the top 1% make one super wealthy?

Using CPI figures for Calgary (located here) a $100,000 income in 1985 is equivalent to $176,600 in 2005 (100,000 * (1.351/0.765)).

Median Canadian household income in 2005 was around $57,000.

I suspect most of us would be able to save for a comfortable retirement with a household income 3-times the median.

~firebug

[Shazam]

Originally Posted by Slava

Well I just ran a preliminary screen and came back with 233 funds...so what rate of return do you want me to use?

10 years isn't good enough now that I show numbers for that one I guess...if it can be shown for 20 are we next looking at 25?

Frankly, most people need to realise that returns are not the major part of the equation; saving is. If most people would just put the money away in the first place and worry about these issues after they would be in a better position.

Well, I'm not retiring in the next ten years, and not even in 25, so yeah, I'd say it's a fair measure.

If you assert that it's all about savings (and I agree, it is), then it shouldn't make too much difference whether someone invests in ETFs then?

[Sylvanfan]

Well if the index performs as bad in the next 25 years as it has in the last 10, I'll be pretty pissed that I didn't just waste it on a Porsche or something stupid, because I'll still need to go to work when I'm 75 fearing that I'll outlive my meagre savings.

[Slava]

Originally Posted by Shazam

Well, I'm not retiring in the next ten years, and not even in 25, so yeah, I'd say it's a fair measure.

If you assert that it's all about savings (and I agree, it is), then it shouldn't make too much difference whether someone invests in ETFs then?

Right; except that the transactions costs are too high on ETFs, and you'd be giving away money. That isn't exactly conducive to a nice retirment either!

I just think that the proprietors of ETFs in general have been arguing that the fees are too high in funds (and they may be right in some cases), with an obviously vested interest.

The 25 years is only a fair measure for you if you actually intend to hold the investment for that period of time btw. Many ETFs these days are held for about 3 days (or something foolish). I don't think that one year is an investment period, nevermind something less than a week. I have no idea how you make money when it costs you every time you trade and you're buying and selling at that pace...unless of course you're the brokerage.

[Pastiche]

The report's not ludicrous. All it says is that actively managed funds generally don't beat the market.

What you're saying is ludicrous is the ludicrous investment strategy you describe.

Yes investing $100 every month with a 10% transaction fee is ludicrous. But there are other options. Like investing quarterly to reduce the effective fee or investment in index mutuals like the td e-series. I guess the bottom line is the transaction costs vs. the return. No load mutual funds still have MERs that can be 2-3pp higher than ETFs. If you can get your ETF transaction costs down to 1% then the difference in MERs is huge in the long run and you aren't foregoing ANY gains as stated by the study above.

[Slava]

Originally Posted by Pastiche

The report's not ludicrous. All it says is that actively managed funds generally don't beat the market.

What you're saying is ludicrous is the ludicrous investment strategy you describe.

Yes investing $100 every month with a 10% transaction fee is ludicrous. But there are other options. Like investing quarterly to reduce the effective fee or investment in index mutuals like the td e-series. I guess the bottom line is the transaction costs vs. the return. No load mutual funds still have MERs that can be 2-3pp higher than ETFs. If you can get your ETF transaction costs down to 1% then the difference in MERs is huge in the long run and you aren't foregoing ANY gains as stated by the study above.

Right, there are ways to reduce fees and for the record I'm in favour of reducing fees. All I'm saying here is that we have to compare apples to apples which a study like that is not doing. The implication they make is that you can buy the funds for the same cost which is simply not true.

You can invest quartely or yearly, and that will reduce the transaction fee. It also takes away from the point of dollar cost averaging though, which has been shown to reduce the overall gains. Letting your money sit in a savings account for $0 (or close enough) while you could be making money is not a good idea either.

[1stLand]

Originally Posted by Slava

Frankly, most people need to realise that returns are not the major part of the equation; saving is. If most people would just put the money away in the first place and worry about these issues after they would be in a better position.

I think this thread is getting a little off topic.
Discussing ETF funds performance is not the point of this discussion. I do concede that talking about specific real estate investments isn't either, so I won't go into details about purchasing a personal residence or investment property for that matter anymore either

The point is that many people in their 20's, and 30's (moreso than 40's I believe) are not saving enough, are overly materialistic, addicted to spending, are too in debt, and in large part, do not have the means to get out of debt or save up money for the long term.

I have heard alot of good ideas on this thread as well as anecdotes from younger individuals that managed to get debt free and are doing well for themselves by living within their means.

Lets continue to discuss solutions / ideas on how to live our lives sustainably and in our means.

Here are some ways I was able to save up money after graduating University:

Every month I would put away $2,000 in savings no matter what.
I would clear that every two weeks from my office job, which meant I had the other paycheque to pay my mortgage with, utilities, bills and groceries.

I got a second job working as a bouncer a couple nights on the weekend to pay for anything extra, like gasoline for my truck (paid off), insurance, and anything I couldnt cover from my regular office pay cheque.

I got a roommate to live in the house I purchased to also offset high utility bills in the winter, misc vehicle repairs, hockey registration fees, etc.

Because I was working on the weekend at the bar, I wouldnt spend any money getting loser pissed (drinks, taxi's, cover charge) and I would still get to experience a good time at work.

I never bought new clothes. I had 3 pairs of decent jeans i bought for under $100 that would last me a year. I would buy a new dress shirt for work maybe every 5 months.

My only vice would be spending 3.50 at lunchour on a 6 inch sub, or more if I went to Edo!

A year after I bought my house I had saved up over $20,000

[blankall]

Originally Posted by firebug

Since Pylon has made it easy for him to be picked on...

Does being in the top 1% make one super wealthy?

Using CPI figures for Calgary (located here) a $100,000 income in 1985 is equivalent to $176,600 in 2005 (100,000 * (1.351/0.765)).

Median Canadian household income in 2005 was around $57,000.

I suspect most of us would be able to save for a comfortable retirement with a household income 3-times the median.

~firebug

To be fair median income in Calgary is higher than it is in the country as a whole (as are living expenses). You also have to take in the effect of income tax brackets, which will substantially decrease a high income earners take home pay. Those average income stats also include a lot of single parent families, single people, disabled people, mentally ill, drug addicts, etc..

But yes, it sounds like Pylon's parents' situation does not reflect the situation fo the average Canadian family.

[Cowboy89]

Originally Posted by Slava

Right, there are ways to reduce fees and for the record I'm in favour of reducing fees. All I'm saying here is that we have to compare apples to apples which a study like that is not doing. The implication they make is that you can buy the funds for the same cost which is simply not true.

You can invest quartely or yearly, and that will reduce the transaction fee. It also takes away from the point of dollar cost averaging though, which has been shown to reduce the overall gains. Letting your money sit in a savings account for $0 (or close enough) while you could be making money is not a good idea either.

True enough. However at some point after years of investing the chunk you have invested will still get pillaged at 2% per annum or higher without justifying its expense vis-a-vis stronger returns. Over the long term that has to eat away at gains maximized through dollar cost averaging.

[Bill Bumface]

Originally Posted by Frank MetaMusil

This townhouse is $310k in Silverado (next to Spruce Meadows)

Who the hell wants to live in Silverado??

Originally Posted by MoneyGuy

The biggest mortgage I ever had was $65,000 and now I have young clients (I'm a financial planner) who have 400,000-plus mortgages.

I'm curious how much you made at the time you got your $65,000 mortgage. Did it seem big at the time?

I know talking to many people in their 50's and 60's that they had a mortgage at one time that they pooped their pants signing the papers and looking back it was something we laugh at now, like $80,000 or $100,000.

I think you old guys need to figure out your $60-$80K mortgage is our $300-$400K mortgage.

Calgary isn't a small town like it was in the 70's and 80's. The price of real estate realative to incomes is quite a bit higher, and incomes are obviously MUCH higher. I think the majority of these young people with giant mortgages will do just fine, as they are obviously in a decent earning position if they can qualify (assuming no parent co-signers).

My parents rented until they were in there 30's and had a massive debt load even past that. If you saw where they are at now in their 50's you realize that you will hit a point in the cycle some time in your working life where your wage goes up significantly while your debt payments stay the same.

This recession was good for a lot of people in their mid 20's to realize that jobs aren't always guaranteed, real estate doesn't always go up, and risk investments never go down.

I think some older people in this thread are a little delusional about the state of their finances in their 20s.

[Bring_Back_Shantz]

Originally Posted by Kybosh

Good advice, I wish I had been better at budgeting and put away 10% of my $1500/month. Come on, it isn't simple as that and depends on a lot of other factors.

It's funny though, the bank classifies me in one of the highest earning potential brackets (which is why I was able to get my mortgage) but I struggle to make ends meet even with my frugal lifestyle. Stupid academic research.

I think you're exactly the kind of person username was talking about.
You only make $1500/month, you have a mortgage, and you can't find $150/month to put away as savings?

Traditional wisdom is that you shouldn't spend more than 1/3 of your income on housing, so assuming that $1500 is after tax, and assuming your mortgage (never mind property taxes, etc) is more than $500/month, then yeah, traditional thought on the matter seems to indicate you're exactly in the category of people who are living beyond their means.

Yes there are a lot of things that go into how much you can save, but there's a reason the term "house poor" exists.
If you're in a position where you're unable to save for the future (no just paying for a house isn't saving for the future) then you've got a few options:
1) try to find a job that pays better (probalby the hardest)
2) cut down on discretionary spending
3) reduce living costs (may be rent vs mortgage)
4) be prepared to work forever

[macker]

Originally Posted by Cowboy89

True enough. However at some point after years of investing the chunk you have invested will still get pillaged at 2% per annum or higher without justifying its expense vis-a-vis stronger returns. Over the long term that has to eat away at gains maximized through dollar cost averaging.

Stick to commisson free funds if you are going the fund route. Scotia I-trade for example offers these with $0 commission no load. I agree that the 2% and up can't really be justified anymore and they need to do something about it as there is better value elsewhere. Even take Bill Miller who out performed the S&P 500 for 15 consecutive years with his fund from 1991 to 2005. If you look at his last 10 year performance he is below the index. This is one of the greats imo. William Bernstein and John Bogle set things straight. Most of the fund managers hold etf's
The bankers should be the ones wearing the ski masks......Warren Buffett in "The making of an American capitalist".


Back on topic...There needs to be more education in this area and most people you talk to in their 30's and 40's don't know how to invest. The thought of doing it yourself scares the crap out of people. There is an entire industry that depends on people needing their advice. The problem is that often the advice isn't good. Currently, over half of all pension stock holders are passively managed, or "indexed," so if the nations largest mutual funds and pension funds, with access to the very best information, analysts, etc, cannot successfully pick stocks and managers, what do you think your chances are? There are two types of investors : those who don't know where the market is going and those who don't know that they don't know.