Tag: Aligned Capital Partners Inc.

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

full-leaf-tea-latte

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.

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by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Taking a Second Look at Europe

One of the benefits of being a financial advisor is the occasional one-on-one meeting you get with Portfolio Mangers (PM) and the opportunities to pick their brains. This week began for me by sitting down with AGF manager Richard McGrath, a PM based in Dublin who helps manage some global and european funds.

This was great opportunity to get some first hand information about what is going on in Europe. Following 2008, the Eurozone, easily the largest economy in the world, has been hit pretty hard. Strict austerity measures and public unrest have long painted a picture of a Europe constantly on the brink of failure. 2011 was easily the worst year as Greece got perilously close to defaulting on its debt as Germany and the Troika (the European Commission, the EU Central Bank and the International Monetary Fund) played hardball looking for more political concessions from Greece.

The fact remains that big financial crises like 2008 have long tails, and Europe has been beaten-up very badly, with big reductions in their GDP, large unemployment figures and generally all-round bad economic news. And yet no storm lasts forever. Despite a difficult political structure, a burgeoning recovery seems to be underway.

Richard McGrath seems to think so at least, and I share many of his views. Some of the good news is really less bad news. For instance in Ireland continued austerity was expected to cut €3.6 billion from government spending, but as the economy improves that number has been dropped to €2.5 billion. There are lots of little stories like this helping to outline a general recovery in the Eurozone. Bloomberg reported on October 23rd that Spain had ended 9 consecutive quarters of negative economic growth, with an anemic 0.1% growth rate. Not great, but it still goes in the “good news column”.

It’s worth remembering that negative news abounds in the United States, but their stock markets have reached all time highs (again) and that after several bad years European markets have also done very well this year. But from the perspective of watching markets its important to take notice when GDP growth turns positive (Germany, France, Spain, UK – Societe Generale, September 9, 2013), investment flows start gaining (Societe Generale), all the while valuations are considerably lower, and therefore cheaper than other well performing markets (Thomson Reurters Datastream, October 21st, 2013). All of this points to one conclusion, you can’t trust the media. With it’s constant focus on negative news you might miss some of the best growth opportunities!

by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc