From the Desk of Brian Walker – In Retirement Go Small

ImageFor many people approaching retirement, there may be mixed feelings about their house. Perhaps not their house, but their home. Homes are where important things happen for families and for many soon-to-be retiring couples there is sometimes some question about whether you should sell your home, or keep it in retirement.

While you may have lots of fond memories about your home however (and while your children may never forgive you for turning their room into a train model city) selling your family home in retirement can be liberating, financially and personally. Downsizing in retirement can represent an exciting new phase of your life, providing you with more leisure time, additional funds for travel and a considerable reduction in the amount of manual household chores.

I speak from experience, having recently moved from a country home of nearly 4,000 square feet and three acres of grounds to a modest 1000 sq ft condo in downtown Toronto. But deciding to make the move was difficult. I knew the benefits of parting with my home, the extra money I would have and the lack of physical work, etc. But I also recognized that I would also have to part with many things I had acquired in my life. In the end what finally drove my decision was the realization that caring for my home was now more a burden than a joy.

In most cases you will never be as healthy, or as in good shape as we are today. Retirement is no longer about spending your remaining years in your slippers. I have a bucket list of things I’d like to do, trips I’d like to take and a granddaughter I enjoy playing with. Your retirement should be about what you want, and while the decision to downsize our houses and change our lifestyles can be difficult, we shouldn’t be squandering our active years shackled to our homes.

It took me a year to make up my mind that it was time to downsize. Ultimately a pro and con list really helped crystallize my choice. There was lots of work to do, lots of emotion and stress associated with the move, but after six months in my new home I know I made the right decision.

Successful Cities Don’t Always Feel Successful

Toronto Boom Town

In the ongoing tedious and sad affair that is Rob Ford, I came across an interesting article from Edward Keenan written just before Mayor Ford won his election. The pertinent part of the article I feel is where the Ford campaign’s genius was to define the election around the idea that Toronto is a city in decline. This idea, which caught on as the election narrative suited the Ford camp well, and by pointing to traffic, city projects and basically the realities of a city that is rapidly growing made it appear that Toronto really was broken.

But Toronto isn’t broken, and many of the problems that we face are actually the problems of a city that is incredibly successful and growing rapidly. It’s ironic that the outward signs of our success are some of the things that aggravate us the most, but its a reminder that strong economies don’t look like lazy towns on a Sunday afternoon but instead are chaotic, busy, hot and frustrating. It’s also interesting that many of the problems that successful cities face (and things that define a successful city) don’t ever change, regardless of the age. Noise, construction, overcrowding, congested traffic and suburban resentment are the hallmarks of prosperous cities.

Since I am a great believer that cities are our economic future I think its worth pointing out that the problems we face today we faced in the past, and will continue to face in the future. Cities that are actually in decline have a totally different set of problems. So its better to worry about constant traffic congestion and debate how best to expand our public transit than to wonder whether we should have public transit at all. If you’d like to see Toronto dealing with this in the past, may I recommend Toronto Boom Town by Leslie McFarlaneNational Film Board of Canada, a ten minute long video from 1951, looking at Toronto, a booming city of tomorrow!

Great Further Reading: The Unwanted Sound of Everything We Want by Garret Keizer, Triumph of the City by Edward Glaeser, Some Great Idea by Edward Keenan

All Time High Doesn’t Equal Bubble

iStockphoto 046On more than one occasion I have been quizzed about the future of some stock market-or-other to the lack of satisfaction of the quizzer. Invariably the conversation goes something like: “What with all the money being printed and the new highs of the stock market, shouldn’t it all come down?” And my answer is usually, “No.”

This is frustrating for people because there is a real feeling that the stock market in the United States should not be doing as well as its doing. Some of this comes from the incongruity of negative media reports about the US economy and the ever growing stock market, some comes from the lingering shock of 2008, and some from an intellectual class that feel that our economic future is built on sand.

But a large reason for my belief in future growth is in looking past the fear of “big numbers.” When the stock market has a correction it’s often pointed out that it had just reached new highs. But this doesn’t mean that all new highs equal a market correction. The subtext is that there must be some limit to the growth in the market and that a new “all time high” must transcend this natural barrier, creating a bubble.

This is a populist understanding of market bubbles and has little to do with reality. The market should grow and reflect a burgeoning economy, and while the American economy has struggled its companies have continued to post substantial profits and many of them have either continued to grow in the slower market, or have begun to offer or expand dividends, making them more attractive. 

The simple truth is crashes happen at market highs, but not because of them. Bubbles are not simply a quickly growing market, but represent a detachment between market fundamentals and a rapidly rising price, fed by the enthusiasm for rapidly growing prices.

Economists Worry About Canadian Housing Bubble, Canada Politely Disagrees

real-estate-investingThis week the Financial Times reported that “Canada’s housing market exhibits many of the symptoms that preceded disruptive housing downturns in other developed economies, namely overbuilding, overvaluation and excessive household debt.”

These comments made by economist David Madani have been repeated and echoed by a number of other groups, all of whom cite Canada’s low interest rates and large household debt (now 163% of disposable income according to Statistics Canada) as a source of significant danger to the Canadian economy.

This is not a view shared by Robert Kavic of BMO Nesbitt Burns who believes that the Canadian housing market has long legs, saying “Cue the bubble mongers!”

Since 2008 predicting the fall of housing markets has become a popular spectator sport. Canada seems to have sidestepped most of the downturn, which has only made calls for the failing of Canada’s housing markets greater. But the reality is that our housing markets are very hot, and we do have lots of debt.

So is Canada’s housing market heading for a crash? Maybe. And even if it was its hard to know what to do. Fundamentals in Canada’s housing sector remain strong (and have improved). People also want to live in Canadian cities, with 100,000 people moving annually to Toronto alone. In other words, there is lots of demand. In addition regulations in the Canadian financial sector prevent similar scenarios that were seen in the United States, Spain and Ireland from occurring.

But housing prices can’t go up forever, and the more burdensome Canadian debt becomes the more sensitive the Canadian economy will become to interest rate changes. Meanwhile I have grown far more weary of over confident economists assuring the general public that “nothing can go wrong.” 

The big lesson here is probably that your house is a bad financial investment, but a great place to live. Unless you own your home, a house tends to be the bank’s asset and not yours. In addition your home, like your car, needs constant maintenance to retain its value. So if you wanted to buy a house to live in, good for you. If you want to buy a house as an investment my question to you is, “Is this really expensive investment the best investment in a world of financial opportunities?”

No, Rob Ford’s Crack Smoking is not Hurting Toronto Businesses

If you happened to pick up the Toronto Metro paper on Thursday morning, you might have noticed an article claiming that “experts” said that the scandal is bad for businesses in Toronto. It’s been echoed by other news outlets as well, including the CBC.

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This is the kind of assertion that’s easy to make, but rarely seems to be backed by any hard numbers. While its true that Toronto Region Board of Trade would like Rob Ford to step aside, its not uncommon for businesses to be overly sensitive to potential threats. But while we may not enjoy the additional and unflattering media coverage regardless of how funny it might be, it’s hard to see how Rob Ford’s personal life can overpower an entire city.

Because of the circus that is Rob Ford attracts so much attention, many feel like he can do permanent damage  to the reputation of the city. But cities are much bigger than their mayors, and few cities have ever been held back by the sordid private lives of their politicians. If you don’t believe me, simply compare the fates of Detroit to Washington D.C. and guess what was more damaging, the collapse of the auto industry, or Marion Barry’s own drug related escapades?

In the end the only lasting damage that a mayor or city council can do to us will be in the form of poor infrastructure and runaway costs. In other words the damage Rob Ford was doing before we learned about his crack use.

That Latte Makes You Look Poor – Great Advice for Young Investors

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In the long fight to encourage people to save money, there is a theory that the money we fritter away on small treats is actually bankrupting us. Coined “The Latte Factor” by David Bach, a personal finance guru formerly a Morgan Stanley broker, it caught on like wildfire after he appeared on Oprah in 2004. Already the author of the popular book Smart Women Finish Rich, David’s idea was that the small expenditures on things like Starbucks lattes, the occasional lunch out and other “treats” that we give ourselves were bankrupting our future.

But the devil was in the details. According to author and former personal finance columnist Helaine Olen, David Bach’s latte factor wasn’t true:

 It didn’t work mathematically. It didn’t work in terms of what we were actually spending our money on. And it didn’t take into account what life costs were actually rising or falling.

– From Pound Foolish: Exposing the Dark Side of the Personal Finance Industry

As the reality often is with personal finance gurus, they need a hook, and Mr. Bach had a great one with the “Latte Factor” (a term he’d trademarked no less). But to make his numbers more impressive he would fudge them and round up, forget inflation and taxes and grant a very rosy investment picture so he could demonstrate his luxury cutting routine could equal millions of dollars saved.

But while Helaine Olen may have sussed out Bach’s faulty math, I don’t think the idea is a total waste.

Lots of 20 and 30 somethings struggle with saving. Retirement seems so far away as to be in another galaxy. Debt is normally quite high, either because of student loans or because of mortgages and new families. In other words lots of money is being funnelled into cost of living and debt repayment and little money finds its way into direct investments.

But lots of young people do drink lattes. And go out on the town. And eat out. In other words people between the age of 20 to 35 do have lots of money that is being spent on small luxuries. Getting a hold of those costs could easily lead to small, but incremental investments.

Now is the time to turn away from flash finance gurus like Mr. Bach and towards the steady hand of  David Chilton and his seminal book The Wealthy Barber. 25 years after it was first published it still has some of the best advice about saving that anyone can take. Pay yourself first! Set up an automatic withdrawal on your pay-days and put it into your RRSP or TFSA. You won’t notice its even gone, and you’ll thank yourself later.

Need help getting control of those little luxuries? Check out mint.com – a free site that can help you budget, or give us a call to discuss some easy ways to save.

The Real Economic Impact of Rob Ford

Whether you think that Mayor Ford is great at his job, some terrible buffoon or actually a buffoon that is great at his job, there’s no doubt that we are all paying attention to his antics. But while Rob Ford’s behaviour may be giving Toronto a “black eye” internationally the reality is that it probably isn’t going to make much of a difference when it comes to Toronto’s economy.

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Rob Ford – Toronto’s besieged mayor

The real economic impact of Rob Ford will likely have nothing to do with his drug use, but more to do with his continued fight for cars against LRTs and bicycles. Mayor Ford is a car enthusiast, and he isn’t alone. In many of Toronto’s sprawling suburbs cars are king and public transit is largely relegated to buses. But the real complaint that car drivers have is in their commute.

Toronto is said to have the worst commute times of 19 major cities in a study completed in 2010. On average a round trip commute in the GTA is 80 minutes long, 24 minutes longer than drivers in LA and 32 minutes longer than drivers in Barcelona. This gridlock comes with a cost. In 2006 that cost was estimated to be about $3.3 billion, a result of travel delays, stress on vehicles, increased likelihood of traffic collisions and impact on the environment. Additionally there was also a loss to GDP from travel delays, which amounted to an additional $2.7 billion.

Since 2006 these numbers only seem to increase. In 2011 Toronto’s Board of Trade said that gridlock was now the greatest threat to economic prosperity in the region and estimated that the cost of all the gridlock was $6 billion annually and growing. That cost was updated again this year by the C.D. Howe Institute, now estimated to be about $11 billion.

In the midst of this are politicians fighting over whether we should have subways or LRTs. This is all proving to be bad both for our financial health, but also just plain bad economics. Subways, it is argued are a great investment, though they come with a high price tag. But if a subway line operates at less than full capacity it also serves to suck money out of public coffers. Maintenance for subways are also high, and while subways move many more people around you need people to make them profitable. But the other bad economic idea is the love affair with the car. Cars receive enormous public subsidies, in the form of dedicated roadways, highways, public parking spaces and mandated parking spots in new buildings. While this cost seems largely invisible it is still there, hitting our pocket book.

All of this amounts to an economic failure for Rob Ford. An inability to rally the city to one transit vision, his or anyone else’s, means that Toronto is stuck in gridlock and that is a real embarrassment.

Great Further Reading: Straphanger: Saving our Cities and Ourselves from the Automobile by Taras Grescoe

The Rent is Too Damned High: Stop Stopping Condos!

Driving through mid-town the other day I caught a sign that said “Stop the Alaska Condo”. Not knowing anything about it I looked it up and was met with an inspiring, modern design to replace 28 family units with 130 new units of housing around Yonge and Strathgowan.

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The Proposed Alaska Condo

Of course there is a neighbourhood association who are protesting its development. Reasons to protest include “safety” (left considerably vague), that it will introduce a number of new people and cars and that it isn’t in keeping with the village’s rustic aesthetic. The Uptown Yonge Neighbourhood Alliance acknowledges the need of urban redevelopment, just not that urban redevelopment.

Cities are more than just crowded places that people live. They are the modern backbone of vibrant economies. Toronto itself accounts for 11% of Canada’s total GDP, and depends on a growing number of people to provide tax revenues, employment and businesses. In his book Triumph of the City, author Edward Glaeser outlines how cities provide networks that spawn a creative class and strengthen our economies.

But far more concerning is how in modern times cities have also become a mess of regulations that are stifling growth. Not economic growth, but residential growth. Urban density helps make neighbourhoods more prosperous and with a wider more successful variety of services. But as is the case with the Alaska Condo, proposals to increase density often face strong resistance. I tend to view this resistance as not only cutting off one’s nose, but as immoral too. Toronto is a bustling city, whose cost of living continues to skyrocket because of lack of housing. In the rush to try and prevent change to our city we are not only choking off our future economic vitality, but punishing people financially with ever increasing home ownership and rental costs, even as more and more of our economy depends on service sector work and less on manufacturing.

I have no doubt that the members of the Uptown Yonge Neighbourhood Alliance feel very passionately about their cause, but I’m afraid it boils down to little more than NIMBY-ism. People need places to live, and the Yonge & Strathgowan area will benefit from some lower cost housing and all the new residents, who will bring money, taxes and businesses to the area.

Further Reading: The Rent is Too Damn High by Matt Yglesias

Is the Internet Making Business Weirder?

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If there is any doubt about whether the internet is changing how we do business I think it is best summed up in the above chart from Statista.com, which highlights both how Amazon continues to grow its sales while simultaneously losing money.

The point here is not to criticize Amazon’s business practices. Its an enormously successful company, but its share price has continued to grow in the face of declining revenues. What other company could operate like this outside of the internet? Apple, who I’ve written about before, is uniquely profitable but is frequently criticized for not growing enough even while it crushes its competitors.

The other way to look at this is whether Walmart would be given similar considerations? Amazon is spending and investing everything that they make, and in the process some of those investments run at a loss. This is good for us, but its rare that the market rewards companies who ignore the shareholder so entirely for the sake of the consumer.

The question of what effect the internet is having on business only gets more confusing when you find out that Pinterest is valued at 3.8 billion with zero revenue and Twitter isn’t expected to make a profit until 2015.