The Wealthy Barber

[Phanuthier]

Originally Posted by Peanut

Rich Dad, Poor Dad is another good read if you're interested. Quite different than the Wealthy Barber, but taking info from both books together is a good combo IMO.

And I agree with everyone else about the Will(s) and Life Insurance. Do it... do it now!!

Agreed. RDPD is a little ambitious (and a little BS) but there are a few ideas there that I follow as well. The problem I have with TWB is that the idea seems so average, and waiting for the grim reaper to come knocking on your door. I'd like a little more freedom myself.

[nickerjones]

i just bought the book for a dollar ...

[Cowboy89]

Originally Posted by Phanuthier

Very telling stat, which got me thinking, just slaving away working for the man and throwing the money in some bond or mutual fund just isn't the formula of finance that makes sense for me. There has to be other ways to guerentee your survival without having to depend on someone else.

That's another important message to pick up from the Wealthy Barber. If your life aspirations include luxary cars, second or third homes in exotic places, et al, you need to either be one of 'the man's' top performers, or you have to be 'the man' yourself.

[Phanuthier]

Originally Posted by Cowboy89

That's another important message to pick up from the Wealthy Barber. If your life aspirations include luxary cars, second or third homes in exotic places, et al, you need to either be one of 'the man's' top performers, or you have to be 'the man' yourself.

I have a Q particularly for you, Cowboy - how do you see this "the wealthy barber" idea working in the next decade? To me, it sort of seems like an old idea that worked in the 20th century, but I'm not sure its going to work for the next decade or two.

[jtfrogger]

I read the Wealthy Barber when I was a co-op student in university. It it what got me interested in investing. I've done further reading after it.

The basic concept of leaving beneath your means is a very important thing to learn to do.

I am much better off now having read this book.

[Cowboy89]

Originally Posted by Phanuthier

I have a Q particularly for you, Cowboy - how do you see this "the wealthy barber" idea working in the next decade? To me, it sort of seems like an old idea that worked in the 20th century, but I'm not sure its going to work for the next decade or two.

I think really what you're getting at is whether or not the economy in general will continue to perform at it's post-war growth levels in the medium term to allow a 'buy and hold' strategy to continue to be a guaranteed winning strategy. That is ultimately my biggest fear, because without that in essence there is no 'proper long-term strategy' to invest your money. Some of my thoughts on the subject include Japan as a case study. If you invested in the Japanese stock market in 1989 and held your shares to today you would be nominally down 75%, without even considering inflation (Although in Japan that has been minimal over the time period). I think one of the biggest reasons for this lack of performance over such a long period of time has to do with the country's demographics. Over the past 20-25 years Japan's population hasn't grown all that much, and the make up of that population has shifted much older, rendering their workforce to be actually smaller than it once was. In order to grow real GDP you need a combination of increased productivity, population growth, and/or increased exploitation of natural resources. With a shrinking workforce, a stable population, and little exportable natural resources any and all growth in their economy has to come soley from the innovations and productivity gains overcompensating for a lack of the other two, and quite frankly it hasn't.

Warning signs for the US and Canada of following down a similar path would be our fertility rates. Canada's is negative for population replacement and the US's is right with replacement. Without massive immigration we risk falling under the same problems that have plauged Japan (an aging stagnant population with a shrinking workforce).

Of course you don't have to invest in just Canada and the US. There are many other places in the world there is still massive population growth and economic opportunities to be had for the next generation of investors. What this tells us is that it is extremely important to diversify assets globally.

Ultimately I think all any of us have to fall back on is our own earning potential in a dramatically changing world.

[Phanuthier]

Thats sort of how I see it, sans some of the stock market stuff. I think a few issues,

- different inflationary pressures will render fixed returns useless (thus safe investments in the 10% saved by the "safe" wealthy barber idea rendered... obsolete)

- level of production (i.e. GDP) dropping due to, as you said, the baby boomers finishing... and not a lot of light at the end of the tunnel

- market shifts over to China and India

- growing disparity between the rich and everyone else... and its affect that follow through...

To go out and buy a who diversity of stocks/MF's where the previous returns were like 10% or whatever... and guess you could get that, before inflation, well I'm a little skeptical of that. Then again, 1987 saw some of these same fears as well. So yeah, like you said, I'm not convinced what worked in for the past few decades will work for the next few... thus I"m not really convinced TWB is something that works, at least not for me.

[Cowboy89]

Originally Posted by Phanuthier

To go out and buy a who diversity of stocks/MF's where the previous returns were like 10% or whatever... and guess you could get that, before inflation, well I'm a little skeptical of that. Then again, 1987 saw some of these same fears as well. So yeah, like you said, I'm not convinced what worked in for the past few decades will work for the next few... thus I"m not really convinced TWB is something that works, at least not for me.

Problem is, what else are you going to do with your money on hand to invest? One of the reasons why the Wealthy Barber and other 'buy and hold' strategies are so popular is that over time (meaning over 30-40 years) they outperform pretty much all actively managed positions. All it takes is one-event driven miscalculation to wipe-out everthing you gained from active management.

[Phanuthier]

For average joe? Probably not a whole hell of a lot.

As I said, the separation between the rich and everyone else is growing... pretty fast. As Albertans especially, we saw tremendous growth the past few years, "please god give us one more oil boom and this time we won't piss it away" ... I guess for those with the skills, as you said, your option from seperating yourself from medicore is to "be the man" rather then working for the man.

sorry to keep that short, gotta make the drive to some small town called "Bear Valley"

[Cowperson]

In the late 1980's, only about 20% of the population had exposure to equity markets either directly or indirectly (mutual funds, pension funds, etc).

Today, I think that number is about 60% or higher.

Generally, guaranteed rates of return through interest rates have returned to more historic levels from the demographic-induced push higher in the late 70's/1980's/mid-1990's. . . . . . forcing people out of 10% GIC's into something considerably lower or, the alternative, equity markets.

Hence the higher exposure to markets in the general population. Markets mean more to consumer confidence, the prime driver of the economy, than we've ever seen before.

Markets have gone through long periods of flat returns before. I think the Dow challenged 1000 several times between 1966 and 1982 before finally pushing through, as one example.

There is research indicating that, although there can be extended periods of underperformance, these tend to be flattened out by other lengthy periods of heady outperformance, producing long term averages that can be remarkably consistent.

Just a few thoughts.

Cowperson

[Mr.Coffee]

I read this book, and do the 10% thing. Good idea and makes you feel more comfortable, don't even think about the money.

Also took a personal finance course in univ like someone else in this thread, was pretty good. Did a personal projection to see how much money I'd thought I'd need at retirement- kind of like the poster in this thread stated about his prof including all those items. Was a real eye-opener if you wanted a decent lifestyle while taking into account the time value of money.

Also a good idea, maximizing RRSP's, but that's fairly obvious I think if you can. I just like it because you can't remove it for anything but home buyers plan or your kids going to school (tuition rule..I think).

As an aside, is our society surprised that the majority of people have BRUTAL money handling skills when it's not taught very well at any level of primary education? I never learned 1/10th the amount of stuff in school about personal finances from what I learned after in post-secondary and going out and reading about it on my own.

[FurnaceFace]

Originally Posted by albertGQ

I'm guessing I should wait until after we get married to get a will and life insurance hey? Its only three months away so not that long at all.

I wouldn't wait, you never know, you could find out you have cancer in a month and be un-insurable.

Originally Posted by edn88

The wealthy barber should be standard reading for Grade 12 students, if not college students.

There is another book he wrote called The Wealthy Paper Carrier. My Dad bought me that while I was in university. Some good advice.

Disclaimer - way back when I used to work for a major life insurance company so I have some biases. What I learned - and have followed successfully so far - is to focus on the four "foundations to financial security":

Liquidity - like the 2 or 3 month salary guideline for the diamond ring, having at least 2-3 months worth of "cash" on hand is smart. Things like the water heater blowing, your car dies, etc happen and you need to have cash on hand to pay for it.

Retirement - we all know this, and most invest in some form of RSP. The new tax free savings account is a fantastic option as it hits on retirement and can be used for some liquidity options if needed without having to pay a penalty. The ballooning option is also tantilizing.

Disability - Something like 1 in 4 of us will have some sort of event which will affect our life. Car accidents happen, people get cancer, fata happens. Having some form of disability coverage is important for protecting yourself and your family. You can look to top up from your group insurance with a private plan. There is also Critical Illness insurance which is very interesting as it plays a dual role of providing some funds if you do have a problem in your life and if you don't the funds can be used in your retirement.

Life Insurance - Opinions on the type of insurance you buy vary. Because of my background I'm a big believer in permanent insurance as the savings component can be leveraged to give you significant retirement plans. In general though, the cash is there to put you in the ground and to give your spouse or family options. With some cash your spouse can take your time to make some choices. Maybe they don't have to sell that house they can't afford on a single salary, maybe they can still stay home and raise the kid. It also may mean your spouse doesn't have to quickly remarry in order to survive. They can choose their new mate carefully instead of running to the first dirtbag who comes across.

Best advice is instead of reading random postings like mine on the internet, go talk to the pros. Find an advisor you are comfortable with who is in the industry for the long term. There are some guys on CP like Slava who are in the industry and can help out and are up to date on all the current options.

[MoneyGuy]

Originally Posted by Phanuthier

Agreed. RDPD is a little ambitious (and a little BS) but there are a few ideas there that I follow as well. The problem I have with TWB is that the idea seems so average, and waiting for the grim reaper to come knocking on your door. I'd like a little more freedom myself.

What in RDPD did you think was bs?

[Clarkey]

Originally Posted by MoneyGuy

What in RDPD did you think was bs?

The part about him seeking legal council from his cat.

The fact that the guy made his wealth by selling a book about how to become wealthy.

He lied and made up the Rich Dad character.

He mocks going to university.....

[Dion]

Originally Posted by albertGQ

I'm guessing I should wait until after we get married to get a will and life insurance hey? Its only three months away so not that long at all.

And if you die before you get that will the government decides who gets your money.

[SeeGeeWhy]

TWB is a nice introduction to the arena of personal financial planning. I didn't appreciate it for what it was when I first read it, but after going through life a little more I can get behind its main lessons. (I'm probably due for a re-read).

From what I remember, it doesn't go deep enough into the importance of goal setting and tracking your performance vs your plan.

FAR, FAR too many people focus on the investing part of their financial plan, only to ignore the rest (budgeting, tax planning, estate planning, retirement planning, risk planning), which is a big risk in my opinion. Running your financial life is just like running a business, and so few people treat it that way and suffer the consequences.

You really should be looking at getting insured, and drafting a will (if not a will, personal directive, and power of attorney). Passing away without a last will and testament will create nothing but headaches for your family at a time when they need them the least.

Insurance solutions are as varied as the needs of the individual. I recommend speaking with a CERTIFIED FINANCIAL PLANNER to determine your needs and become educated on the options.

I stress CFP because I attempted to learn about the insurance industry by meeting with insurance brokers. It took us three years to finally meet a broker that wasn't just a brutally agressive product salesman. We lost years of coverage (thankfully nothing happened), which means our premium rate is higher today.

Remember, life insurance is only one thing you'll insure, but its the main thing people associate with insurance. The probability of a premature death is quite low, but lots of people buy life insurance. Becoming critically ill or temporarily disabled while you're in your working years is almost a certainty and very few people cover insurance to cover this risk... why?

There are a number of products available to meet insurance and retirement planning goals, but you'll pay for them.

Again, its completely dependent on your situation... get hooked up with a planner and continue educating yourself.

[Red]

The book is more or less a tool to sell Mutual Funds. It's a nice story and has some generally good advice, but in the end, it is a book written to make mutual funds more appealing to an average Joe.

[MoneyGuy]

Originally Posted by Red

The book is more or less a tool to sell Mutual Funds. It's a nice story and has some generally good advice, but in the end, it is a book written to make mutual funds more appealing to an average Joe.

I don't think so. It's written to instill in people the need for proper financial planning, savings, goal setting, risk management, etc.

My favourite book of this nature is The Money Coach by Riley Moynes. TWB was fine but I don't like to read the novel-type book. Moynes' book presents similar information but in a factual recitation style.