Investing in the Age of Brexit Populism

There is going to be lots of news around Brexit for the next while, and we have many other things to look at. So until more is known and more things are resolved this will be our last piece looking at the In/Out Referendum of June 23rd.

 

So far the best thing that I’ve read about Brexit is an essay by Glenn Greenwald, who has captured much of the essential cognitive dissonance that revolves around the populist uprisings we’ve seen this year, from Bernie Sanders to Jeremy Corbyn and from Donald Trump to UKIP. You can read the essay here, but I think he gives a poignant take down of an isolated political class and an elitist media that fails to capture what drives much of the populism intent on burning down modern institutions. In light of that criticism, what should investors think about the current situation and how does it apply to their investments?

Let’s start with the basics; that leaving the EU is a bad idea but an understandable one. The Eurozone is rife with problems, from bureaucratic nonsense to democratic unaccountability, the whole thing gets under many people’s skin, and not just in the UK. Across Europe millions of people have been displaced from good work, have lost sight of the dignity in their lives and have come to be told repeatedly that the lives they lead are small, petty and must make way for a new way of doing things. The vast project that is the EU has been to reorder societies along new globalized lines, and if you live in Greece, Spain, Portugal or Italy those lines have come with terrible burdens of austerity and high unemployment.

It’s easy to see that the outstanding issues of the 21st century are going unchecked. Wealth inequality and increasing urbanization are colliding with the problems of expensive housing markets, wage stagnation and low inflation rates. The benefits of economic growth are becoming increasingly sparse as the costs of comfortably integrating into society continue to rise.

In response to these problems the media has shown little ability to navigate an insightful course. Trump is a fascist, Bernie Sanders is clueless, “Leave” voters are bigots, and any objection to the existing status quo that could upset the prescribed “correct” system is deemed laughably impractical or simply an enemy of free society.

This is a dynamic that can plainly not exist and if there is any hope in restoring or renewing faith in the institutions that govern much of our lives. We must find ways to more tactfully discuss big issues. Trump supporters are not idiots and fascists. Bernie supporters are not ignorant millennials. Leave campaigners are not xenophobic bigots. These are real people and have come to the feeling that they are disenfranchised citizenry who see the dignity of their lives is being undercut by a relentless march of progress. Addressing that will lead to more successful solutions to our collective woes than name calling and mud slinging.

For investors this continued disruption could not happen at a worse time. In some ways it is the needs of an aging population that have set the stage of much of the discontent. As one generation heads towards retirement having benefited from a prolonged period of stability and increasing economic wealth, the generations behind it are finding little left at the table. Fighting for stability means accepting that the current situation is worth fighting for. For retirees stability is paramount as years of retirement still need to be financed, but if you are 50 or younger fighting for a better deal may be worth the chaos.

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For anyone doubts that cities are the most important part of our society and economic wealth, here is the history of cities over the past 5000 years. – From the Guardian

 

Investors should take note then that this is the new normal. Volatility is becoming an increasing fact of life and if wealth inequality, an unstable middle class and expensive urbanisation can not be tamed and conquered our politics will remain a hot bed of populist uprisings. So what can investors do? They need to broaden their scope of acceptable investments. The trend currently is towards more passive investments, like ETFs that mimic indices, but that only has the effect of magnifying the volatility. Investors should be speaking to their advisors about all options, including active managers, guaranteed retirement investments, products that pay income and even products with limited liquidity that don’t trade on the open market. This isn’t the time to limit your investment ideas, its the time to expand them.

Do you need new investment ideas? Give us a call to learn about all the different ways that investments can help you through volatile markets!

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The Robo-Advisor Cometh

 

roboadvisorAs proof that the robot revolution will spare no one, even our industry is feeling the intense weight of cheap human alternatives in the form of “robo-advisors”. Given some glowing press by the Globe and Mail over the last weekend, robot advisors now represent a real and growing segment of the financial services markets and are forcing many advisors, including us, to ask how they and we will live together and what our respective roles will be.

200To say that robo-advisors are a hot topic among financial advisers is to understate the collective paranoia of an industry that has come to see itself as besieged with critical and often unfair press. We haven’t been to a conference, meeting or industry event that doesn’t at some point involve financial advisors attempting to rationalize away the looming presence of cheap and impersonal financial advice. While there are some good questions that get asked at these events, there is a whiff of denial that must have given false hope to autoworkers in the 80s and 90s in these conversations.

For the uninitiated, robo-advisors are investing algorithms that provide a model portfolios based on a risk questionnaire that people can complete online. Typically using passive investment strategies (ETFs), these services charge lower fees than their human counterparts and offer little in the way of services. There isn’t anyone to talk to, no advice is dispensed and you won’t ever get a birthday card. But you can see your portfolio value literally anytime you like on your iPhone.

Looking past the idea of reducing your lifetime financial needs down to a level equivalent to a Netflix subscription, the concern around robo-advisors illustrates everything that our industry gets wrong about what services we provide that are most valuable. The pitch of automated cheap portfolio alternatives revolves entirely around the cost of the investments and has little to say about what it is that leads to bad financial self management.

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The distinguishing feature between what we do, and what a computer algorithm can offer extends well past the price of the investment. Time and time again investors have shown themselves to be bad at investing regardless of their intentions. Financial advisors do not exist because there haven’t been cheap ways to invest money, they exist because there is an existential struggle between planning for events decades away and the fight or flight responses burned into our most reptilian brains. When times get tough investors make bad choices. Financial advisors are there to stop those decisions before they permanently define or destroy an investor’s long term plans.

That multi-decade struggle between an advisor and their client’s most primal instincts is an intangible quality and takes many forms. Genial conversations about new investing ideas, gentle reminders not to overweight stocks that are doing well, trimming earnings and investing in out of favour sectors and sometimes just being there to listen to people as they make sense of their problems and financial concerns is an ongoing roll that we, and thousands of other advisors, have been happy to fill. These qualities can be difficult to quantify, but can be best expressed in two ways. First, by the independent research which has shown that Canadians who work with a financial advisor have 2.7x the assets of investors who didn’t and second, by the number of our clients who have remained clients for the near quarter of a century of our family practice.

Fees, by comparison, are very tangible and as a rule people hate fees. And while bringing down costs is a reasonable expectation in any service, there is a snarky cockiness to proponents of robo-advisors that see the job of financial management as both straight forward and simple. Robot champions are quick to say that financial advisors must adapt to the new world that they are forging, but it is unclear just how different and liberating this world will be. Far from creating a new utopia of cheap financial management for everybody, what seems more likely is that they will have merely created a low cost financial option for low income Canadians, a profitable solution for banks and other large financial firms but not for their investors.

The proof of the pudding is in the tasting, as they say. When the markets suddenly collapsed in the beginning of the year, bottoming out in mid-February, robo-investors did not sit idly by and let their robot managers tend to their business unmolested. Robot advisory practices were swamped with phone calls and firms relied on call centres and asked employees to stay later and work more hours to deal with the sudden influx of concerned investors wondering what they should do, whether they should leave the markets and what was going to happen to their investments. As it turns out, when times are bad people just want to talk to people.

Most Canadians started saving with an adviser when they had few assets. Start saving for your future now by sending us a message!

Notes from the Edge

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The June 18th cover for The Spectator

 

With the BREXIT vote now only days away its worth taking a moment to consider the dramatic political shift that seems to be happening around the globe. Where once left/right politics dominated, or pro-capitalism vs. pro-socialist forces clashed, today the challenge is far more frightening. Today we sit on the brink of the end of the new internationalism and face the rise of old nationalism.

In Jon Ronson’s funny and insightful book THEM: Adventures with Extremists, the author describes his final meeting with a founding member of the Bilderberg Group (yes, that Bilderberg Group) Lord Healy, who explains that at the end of the Second World War a real effort was made to encourage trade and economic growth as a way of deferring future wars. The Bilderberg Group is but one of many, slightly shadowy and often undemocratic, organizations that exist to further those goals, encouraging powerful people to air out their issues and discuss ways to make that vision of the world more likely.

But for millions of people the new internationalism that has been fostered through trade agreements, globalization and corporatism has made the world more hostile to millions of “left behind” voters. It has seemingly given power to cigarette manufactures in Africa, or created unfair and uncompetitive “tax free zones” in South Pacific nations. It has fostered sweatshops in Sri Lanka, dangerous factories in Bangladesh, all at the expense of industrial workers in Western developed nations. In Europe this internationalism is blamed for feckless leadership on humanitarian, fiscal and bureaucratic issues. In America it is blamed for the rust belt through the mid-west.

The response to the growing frustration on all these issues has been a resurgence of nationalism and political “strong-men”. Putin’s Crimea grab was as much about returning pride to Russia as it was about diverting attention from his own domestic issues, reestablishing  Russia’s place as a significant regional power. Across Europe there are rumblings, both of renewed regional nationalism from within countries, as well as growing concern that a “leave vote” in Brexit could destabilize the entire EU experiment. In the United States these issues have given power to the Donald Trump populism, but have also fired the Bernie Sanders campaign.

Energy to these issues have undoubtedly been fueled as a result of 2008, a disaster so wide reaching and so disruptive to the Internationalist narrative about the skill set of the political and corporate classes that it shouldn’t be surprising that millions of people seem ready to do irreparable harm to the status quo. The subsequent inability to provide a strong and sustained economic recovery like some recessions of the past has only made matters worse. Every ill, every short coming, every poor decision and every injustice inherent within the structure that we inhabit is now expected to be resolved by setting the whole thing on fire and assuming that the problem is solved.

I am constantly surprised by how little people actually want to see changed by referendums like these. During the Scottish Referendum, the expectation was that Scotland would continue on exactly as it does, but without any association to London. The Leave campaign in Britain is quite sure that while Britain will no longer be part of the common market, a deal can be worked out that will allow free trade to continue unabated and for British people who live in places like Spain and Italy to continue to do so without visas or travel restrictions. Donald Trump is quite convinced that he can have a trade war with China without upsetting American business interests there, and the host of smaller countries like Venezuela or Turkey can slide into despotism without adverse impacts to their international reputation.

We’re at the edge, with the mob pushing for change (any change) with little real understanding of the consequences. It is little surprise that the technocrats and political establishment are so unlikable and so uninspiring in the face of the radicals and revolutionaries that want to see a sizable change that can’t be brought about until everything is torn down. And while it is true that the status quo can’t remain, it is equally unlikely that the end of the EU, or a British exit will stem the tide of migrants from Eritrea, or that tearing up NAFTA will return factories to Michigan, or that Marine Le Pen can turn the clock back on France and bring back the beret.

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I expect market volatility over the next while as investors and deal makers try and figure out the correct response to either a leave or remain vote. If Britain does leave, the next 100 days will be telling as pronouncements will be made to try and smooth the troubled waters. But the real work will come in the next 2 years, as negotiations will begin to do all the hard work that the referendum creates. You can’t just burn it all down, you have to build something in its place. How successful the reformers are at the latter will be the real test of the new nationalism.

 

This House Kills the Middle Class

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This house sold for $1,000,000 in Vancouver. Is it houses that are in demand, or land?

In the mountains of articles written about Toronto’s exuberant housing market, one aspect of it continues to be overlooked, and surprisingly it may be the most important and devastating outcome of an unchecked housing bubble. Typically journalistic investigation into Toronto’s (or Vancouver’s) rampant real estate catalogues both the madness of the prices and the injustice of a generation that is increasingly finding itself excluded from home ownership, finally concluding with some villain that is likely driving the prices into the stratosphere. The most recent villain du-jour has been “foreign buyers”, prompting news articles for whether their should be a foreign buyer tax or not.

What frequently goes missing in these stories are the much more mundane reasons for a housing market to continue climbing. That is that in the 21st century cities, like Toronto, now command an enormous importance in a modern economy while the more rural or suburban locations have ceased to be manufacturing centres and are now commuter towns. Combined with a growing interest in the benefits of urban living and the appeal of cities like Toronto its no surprise that Toronto is the primary recipient of new immigrants and wayward Canadians looking for new opportunities.

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Toronto itself, however, has mixed feelings about it’s own growth. City planners have made their best efforts to blend both the traditional idea of Toronto; green spaces, family homes and quiet neighbourhoods, with the increasing need of a vertical city. Toronto has laid out its plans to increase density up major corridors while attempting to leave residential neighbourhoods intact. Despite that, lots of neighbourhood associations continue to fight any attempt at “density creep”. Many homeowners feel threatened by the increasing density and fear the loss of their local character and safety within their neighbourhoods, at times outlandishly so. Sometimes this comically backfires, but more often than not developers find themselves in front of the OMB (Ontario Municipal Board) fighting to get a ruling that will allow them to go ahead with some plan, much to the anger of local residents and partisan city councillors.

The result is that Toronto seems to be growing too fast and not fast enough simultaneously, and in the process it is  setting up the middle class to be the ultimate victims of its own schizophrenic behaviour.

High house prices go hand in hand with big mortgages. The bigger home prices get the more average Canadians must borrow for a house. Much of the frightening numbers about debt to income ratios for Canadians is exclusively the result of mortgage debt, while another large chunk is HELOCs (home equity lines of credit). Those two categories of debt easily dwarf credit cards or in store financing. This suits banks and the BoC not simply because houses are considered more stable, but because banks have very little at risk in the financial relationship.

To illustrate why banks have so little at risk, you only need to look at a typical mortgage arrangement. Say you buy a $1 million home with a 20% down payment, the bank would lend you $800,000 for the rest of the purchase. But assume for a second that housing prices then suddenly collapse, wiping out 20% of home values, how much have you lost? Well its a great deal more than 20%. Because the bank has the senior claim on the debt, the 20% of equity wiped out translates into a 100% loss for you, the buyer. The bank on the other hand still has an $800,000 investment in your home that must be paid back.

Bank vs you

By itself this isn’t a problem, but financial stability and comfort is built around having a set of diversified resources to fall back on. In 2008, in the United States, home owners in the poorest 20% of the population saw not just their home prices collapse, but also all of their financial resources. On average if you were part of the bottom 20% you only had $1 in other assets for every $4 in home equity. By comparison the richest 20% had $4 in other assets for every $1 in home equity. The richest Americans weren’t just better off because they had more money, but because they had a diversified pool of assets that could spread the risk around. Since the stock market bounced back so quickly while much of the housing market lagged the result was a widening of wealth inequality following 2008.

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The impact of 2008 on household net worth by quintile. From House of Debt by Atif Mian and Amir Sufi

In Toronto the situation is a little different. Exorbitant house prices means lots of people have the bulk of their assets tied up in home equity. Funding the enormous debt of a house may preclude investing outside the home or building up retirement reserves in RRSPs and TFSAs. A change in interest rates, or a general correction in the housing market would have the effect of both wiping out savings while simultaneously raising the burden that debt places on families.

The issue of debt is one that the  government and the BoC take seriously, yet despite the potential impact of high debt levels on Canadians and the looming threat it poses to the economy the mood has remained largely indifferent. The BoC, under the governorship of Stephen Poloz, has said that it isn’t worried too much about Canada’s housing market. This isn’t because there isn’t a huge risk that it could implode, but because even if it does it is unlikely to start a run on the banks. By comparison the view of Stephen Poloz on the debt levels of Canadians is that its your problem. A curious stance given that the BoC’s position has been to try and stimulate the economy with low borrowing rates.

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There will probably never be as full throated a reason for my job than the burden the Toronto housing market places on Canadians. From experience we know that concentrating wealth inside a home contributes to economic fragility, potentially robbing home owners of longer term goals and squeezing out smart financial options. But far more important now is that city councillors and home owners come to realize that the housing market is more prison than home, shackling the city to ever more tenuous tax sources and weakening the finances of the middle class. Until then, smart financial planning alongside home ownership is still in the best interests of Canadian families.

The Blind Men & The Elephant

1280px-Blind_monks_examining_an_elephantMarkets have reached six or seven week highs, (HIGHS I say!) and questions are arising as to whether this represents a sustained recovery.

The crystal ball is decidedly opaque on that question, not simply because there is an abundance of conflicting data, but because more of it is produced everyday. Add to that the fact that the “mood” often dictates much of the day’s trading, plus the often counter-intuitive reality that sometimes sufficiently bad news is considered good news in its own right.

Take for example China’s financial woes. China’s economy is definitely slowing, and the tools used in the past to spur Chinese growth are no longer useful in the same way. To summarize, the Chinese economy got big by building big things; cities, ports, factories, and other big infrastructure to facilitate its role as a manufacturer to the world. In turn the world sold China many of the resources needed to do that. Now the Chinese are up their eyeballs in highways and empty cities they must “transition” to a service economy, essentially an economy that now serves its people rather than the rest of the planet.

Such a transition is no easy thing, and to the best of my knowledge there is no law that says the Chinese government is somehow more adept at managing such a transition. But every bit of bad news may either make investors nervous, or give them hope that the Chinese government may be encouraged to do more economic stimulus. Moody’s, the ratings agency, recently downgraded their outlook on Chinese debt from stable to negative, and downgraded their credit rating. The market’s response?

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That big jump is after they received the downgrade! We see similar patterns out of Europe and the United States. Raising US interest rates has been widely decried by various financial types and talking heads, urging the Federal reserve chairman Janet Yellen to either reverse, stop or even consider negative rates to help the economy. Why such panicked response? Because it has become a common thought that raising rates is now more damaging that the requirement of lowering them!

This has less to do though with distortions in the market and more to do with people trying to accurately read and project from various data points, even when many of those reports conflict. In the short term the abundance of conflicting news creates a blind men and the elephant relationship between investors and economies. Everybody is feeling their way around but all coming back with wildly different descriptions of what is happening.

Janet Yellen
Janet Yellen has raised interest rates and has said she expects to raise rates four more times this year. She has met serious opposition on this matter from many within the financial sector.

What we do know is that there are some big problems in the markets and economies, and the threat of a global recession is very real. What day traders and analysts are looking for is confirmation on whether this threat is easing or not. So, if we suddenly read that managers see a contraction in oil production we might see a sudden rise in the value of crude oil. That news has to be weighed against that fact that global oil supply is still growing, and whether it still makes sense to price oil by its available supply, or against its expected future reduced production.

And that is the challenge. Big problems take time to sort out, and in the intervening period as they are addressed the blind men of the markets make lots of little moves trying to bet on early outcomes, attempting to assess the correct value of a thing often before a clear picture is actually there. For investors the message is to be cautious, both in making large bets or by trying to avoid risk all together. It is a mantra here in our office on the benefits of diversification and risk management, precisely because it reminds us to hold positions even when the mood has soured greatly, and shy away from investments that have become too popular. The goal of investors should to not be one of the blind men, guessing about what they touch, but to make irrelevant that shape of the markets altogether.

 

 

Sunlight Is Still The Best Disinfectant

Yesterday a disturbing article came across my desk. From Bloomberg, it was titled “It Just Got Even Harder to Trust Financial Advisors” and is a brief summary of a new report out of the United States that suggests that there is wide spread misconduct within financial services. Far from being an isolated number of financial advisors, the scale of the disciplinary actions is extensive and has encompassed some of the largest banking institutions in the United States (for those mistrustful of the Wall Street crowd that may not be a big shock) including some well known names like Wells Fargo and UBS.

Being disciplined within the world of financial services is controversial and being reprimanded does not necessarily denote contrition from advisors. The two chief complaints from investors, both in Canada and the United States, revolves around suitability of investments and subsequent fees. Those might seem like straight forward complaints to have, but many investors have a difficult time wrapping their heads around “risk”, showing great comfort in investments that can rapidly rise, while expressing dismay when they fall just as rapidly back to earth. Thus investors and advisors can mistakenly assume that they are on the same page with each other, only to find that at a later point that they have badly misunderstood one another.

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This will be so awesome if I don’t fall!

Regulators have correctly understood that the problem is a misalignment of education and comfort. If investors knew more about investing they would be better at understanding risk. If that were the case though investors would be unlikely to need the services of financial advisors. Thus financial advisors are expected to treat their clients as though they know little, and should be expected to challenge investors, even reject investor requests if the investment is deemed too risky by the advisor.

What regulators want is for advisors to understand their role now as “risk managers” rather than product floggers and order takers. In an industry where the average age is north of 55, most advisors got their start and built their business around exactly that, selling interesting and exciting ideas. The transition from that to telling investors that they can’t do what they want with their money (it’s their money after-all) has not been simple.

Screen Shot 2016-03-02 at 1.53.16 PMOne move, cited in the article, is to move to a fiduciary model to rectify outstanding issues around fees in particular. There is a persistent fear that advisors might choose high fee-low returning investments when cheaper and better performing options exist. Curiously, in Canada at least, there is not much evidence to suggest that this happens. But even if this avenue resolves such a problem many within the industry fear that “high fee/low return” will not be apparent until well after the fact, opening up practitioners to hindsight litigation.

The simple fact is though that regardless of the nuances and difficulties that surround properly managing and regulating the financial services industry, no good can come from a growing sense of mistrust in an industry that has become so essential to the retirement plans of so many. So what should investors know that will protect them from bad decisions or unfair fees?

First, be familiar with the nature of fees:

  • There is a tendency to assume that the best fee is the lowest, but costs frequently correspond to the complexity of the investments, the size of the assets under management and the support around the product. Be sure to find out what the MER (management expense ratio) is and find out whether it is comparable to other similar products. It’s fair to have questions about what products cost and whether those costs make sense.

Second, be more than a number:

  • The article contains one of those slights of hand when people try and diffuse blame, pointing out that it isn’t “just small dealers” that have been guilty of misconduct. This suggestion that small is typically the problem seems challenged by evidence. Big problems require scale, and it isn’t uncommon for some brokers in the banks to have thousands of clients. Brokers aren’t happy with that arrangement and neither are investors, but it is very common. It shouldn’t be surprising that misconduct can come from large banks seeking easy solutions with proprietary product.

Third, independent options are better than proprietary ones:

Fourth, be Canadian:

  • The concerns of America and Canadian regulators are very similar, but the good news is that Canadians have a better system. Despite complaining Canadians have some clear advantages. First, performance disclosure rules favour investors here. Rather than show returns with costs yet to be deducted, returns in Canada are shown net of all costs, meaning you see accurate performance. Second, the use of commissions and deferred sales charges, the source of ire for regulators and critics, have been dropping for years. Many financial advisors now rely on exclusively trailers or disclosed fees. Third, even trailers aren’t that bad. Where as there has been an outstanding concern is that embedded trail fees could unduly influence advisors to make poor choices. But while there is some truth to this statement, the vast bulk of investments within Canada have standardized their fees, with companies paying bigger payouts to entice sales having become the outlier.

Fifth, be with us:

  • As part of a small and independent firm one of the things we pride ourselves most on is to be in the right place to help Canadians. An open shop, we have both the luxury of picking the best investments from across the industry while offering investors competitive fees. But most importantly, we value transparency and clarity in managing your retirement savings.

As a family business that has been around for nearly a quarter of a century, the essential difference between being a number and receiving personal care is whether you have someone to work with that doesn’t just know your name, but comes to know you as well.

Also they should have a blog.

Give us a call if you are looking for some personal guidance in dealing with difficult markets or have questions about protecting your accounts.

 

The Secret Meaning Of Numbers

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This week a curious thing happened. A bank said that Canadians were hoarding too much cash.

Being chastised for having too much money on the sidelines and not invested is one of those things that raises suspicions about whether the financial talking heads really do have our best interests at heart. After all, hasn’t this been the worst beginning to a market in memory? Aren’t there countless problems across multiple markets right now? Are we not worried about the global economy? Have we not just ended a dismal 2015?

In fairness to CIBC and it’s chief economist, it is understandable why they are concerned about the reported $75 billion sitting on the sidelines. Cash doesn’t grown and historically market timing works out badly for most practicing it. People sell when the market is down and neglect to get back in as it goes up, crystallizing losses and missing out on the gains. Smart investing means riding through the markets, rebalancing and being patient. That’s the Warren Buffet way.

Except..

Except people aren’t Warren Buffet. RRSPs and TFSAs and other investment accounts are not here to fulfill the larger ambitions of Berkshire Hathaway. They are here to facilitate people’s retirement, a date the looms much larger for more people than ever before. Just consider that if you were 37 in 1990, you were 48 when the market had its first big drop in the early 2000s. You were 55 in 2008, and today you’d be 63. You’re tolerance for risk has decreased significantly in that time as you hurdle towards the date that you will have earned the last dollar you’ll ever make. Under those circumstances taking money to the sidelines may be as much an act of self preservation as it is investment heresy.

I could end this article here, but what is so interesting about the $75 billion number is who is actually hoarding that money and what it may actually be telling us about Canadian finances, because it’s not what you think.

Excess Cash

Above is the cash position compared with the historic trend line dating back to 1992. In keeping with both the aging population and the ongoing volatility in the markets growth in the cash positions is understandable, if not always desirable. But look what happens when we look at who is hoarding cash.

Who has the excess cash

Bizarrely it is people under the age of 35 who have the largest percentage of wealth in cash, close to 35% of their available money. Now, if you are over the age of 45 the average cash position is 15% (roughly) which would account for the vast bulk of the derided $75 billion. But even if the under 35 set have less money, why are they holding onto so much of it?

The answer I suspect is both disheartening and concerning, a blend of uncertain finances, savings for down payments on property and the result of bad financial advice. The first two are well documented, both the challenges of making ends meet and the unfavourable housing market towards first time buyers. But the last issue should make us all perk up our heads, for it represents a failure of the financial community to help young investors get good advice.

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I do everything on my phone!

How does the millennial generation do things? On their phones mostly. Cue the eye roll from anyone under 30 at this gross simplification, but it holds up. The rise of smart phones as a staple of doing things has provided a veneer of knowledge on numerous issues, while encouraging a culture of DIY so long as there is an app to facilitate it. This shift is so profound that back in 2011 Rogers Media applied to start its own bank (which came to fruition in 2013). Why? Well what else do you do in an age where everyone is looking for the cheapest credit cards and the best loyalty program when you control just over 30% of the wireless market in Canada?  If you can pay for things with your phones, why couldn’t you also manage your retirement with your smart phone too?

Young people also don’t have that much money, which has created an indifference from much of the financial community. Rather than cultivate young investors they have been relegated to the sidelines, encouraged to do business with one of the rotating in-store financial advisors, or have been asked at the counter to make a spur of the moment investment decision. Some may have given tried to use the “robot-advisor”, while some will try and do it themselves and many more will do nothing at all.

Profitability drives much of the indifference from the business community, while societally there hasn’t been much for young people to look forward to in the investing world. Far from the heady days of the 1980s and 1990s, the 2000s have been tumultuous and filled with cynicism. The crash of 2008 may have left many investors shaken but it’s also likely put off a number of young people who see no value in it and assume (if the popularity of Bernie Sanders is proof of anything) that the game is rigged against them.

I’m already of the opinion that much of our society is too geared towards helping out the “senior” demographic, but this isn’t a competition between generations. Instead it’s about making sure that we aren’t just looking to satisfying immediate needs but managing to the needs of the future as well. The lessons for a younger generation if they are ignored by financial professionals will not be the ones we want. The help and hands on guidance that has been a cornerstone of sound management for the past thirty years in Canada is not some natural order set in stone. It is the product of outreach and continued effort to develop good habits in both saving and investing. Ignoring a generation will be at our peril and theirs.

You don’t need lots of money to begin saving to have lots of money. We’re taking on young investors. Give us a call and benefit from our personalized and dedicated approach that has defined us for 22 years!