Staying Calm in Turbulent Times

Canadian seniors need to make robust retirement plan to combat turbulent financial times.

We’re living in turbulent times. When things get scary I find myself relying on tried and true solutions. One is a little gem of an investment guide, aptly titled “The Only Investment Guide You’ll Ever Need.” The author Andrew Tobias tells us in the 2016 preface, the tenth iteration of this book, that it’s been 38 years since his little guide first appeared and “the world has spun into high gear.”

Think about it.  In 1978, I didn’t own a RSP, certainly not a TFSA.  There were no ETFs, no home equity loans. According to Tobias, “the largest mutual fund company in the U.S. offered a choice of 15 different funds.”  I didn’t even have an investment account.  Instead I stored Canadian Savings Bonds in my safety deposit box at the bank, money I’d squirreled away from my university scholarships while at graduate school. That’s how I lived back then: below my means and risk free.

The concept of running my own online trading account was inconceivable.  After all, there was no Internet, no broadband, no thousand-cable universe, no mobile phones, and no personal laptops. No Facebook or Twitter.

These days, I rise every morning to Bloomberg Forward Guidance newsletter, which pops into my email for free before I wake. I particularly rely on“What Joe’s interested in this morning,” a remarkably clever and succinct analysis of the impending developments for the day. Next I check my online trading accounts and wonder if the outcome of the American election will upend my hard-won gains. At my age, there’s a narrow horizon to regain what I might lose.

Yet Tobias’ argument is that the basics of personal finance haven’t changed and if we stay the course, and not allow our judgment to be altered by the crisis of the moment, the average investor can turn his or her sail to the wind, even in uncertain waters.

“The thing to remember these days is that interest rates will rise, making bond prices fall and stocks less attractive,” counsels Tobias. “Maybe not today or tomorrow, but eventually.” The best way to prepare is to live at or below our means, which is exactly what boomers aren’t doing, myself included.

Here are some of Tobias’ tips to help us stop worrying about finances and chart a clear course throughout retirement. I’ve checked my own behavior against his advice to show where I’m on track and where I’m veering off course. You can do the same.

1.       The simplest, safest, most sensible way to earn 18% or 20% on your money is to pay off your credit cards. Make your cards pay you. Use cards that give you cash back at the end of the year, or points.  Check although sometimes I maintain a small credit card balance to keep myself from spending more. I should stop with the silly tricks.

 2.      Don’t finance your car with a car loan. If at all possible, pay cash. According to Tobias, you should not pay off your mortgage and then finance your car. Paying down a 2.9 per cent mortgage is not a bad investment, he says, but a car depreciates in value while homes hold their value or better still, rise in value. Check although I still worry about my mortgage, being that I’m not paying it down faster than required by the bank.

3.       Buy a used car, and one that is economical. After driving 75,000 kilometers, you’ll have about $4000 by saving substantially on the price, on insurance, on gas and on maintenance. Nope. My Hyundai Sonata, purchased five years ago for $30,000 new was pricey although I paid off the car loan in three years rather than five. The good news is that it is extremely reliable with low maintenance costs. I hope to keep it running for another five years.

 4.       According to Tobias, if you can’t pay cash you should “finance your car with a home-equity loan that carries much lower interest rates than credit cards and somewhat lower rates than car loans.” His caveat is that a home equity loan requires discipline. Check, I don’t have a home equity loan yet, but I’m certain I will after I stop working part time.

 5.       Cancel your landline, cable and subscribe to Netflix. Drink tap water. Buy store brands. Wait for the sales. Yes about cancelling my landline and no, I truly believe I can’t survive without HBO. About waiting for the sales, online shopping makes that easy.

 6.       Tobias’ investing advice is straightforward: “Unlike bonds, stocks offer at least the potential of keeping up with inflation, even if that potential is by no means always realized.” Check, I’m still 60 per cent invested in equities with 40 per cent in bonds, a high percentage of stocks for my age. I let CPP and my employer pension take care of the monthly benefit.

If you work through this check list, you’ll probably figure out where you can save money or where you can make your investments and home equity work in your favour, in good times and bad.

Knowing where and when to save and how to spend or borrow wisely, makes us feel less vulnerable in uncertain times. During the 2016 American election, psychologists reported a significant rise in anxiety in their clients. Folks feel nervous, and for good reason.

The final outcome of the election probably won’t diminish that feeling.  Fear tends to linger. But there are solid ways to insulate yourself from what I call “global angst,” the impression that it’s all too much and you’re just a tiny speck in the universe with no real agency over your well being or that of your loved ones.

It isn’t true. Those of us lucky enough to live in developed small-l liberal democracies have more choices than citizens in past generations. In 1941, there were only nine liberal democracies in the world. You only need listen to Jennifer Welsh’s 2016 Massey lectures The Return of History (on the CBC or iTunes or read her book of the same name) about the fragility of democracy to realize how fortunate we are and how much of the world survives in daily peril–unlike ourselves– which might account for our spending habits.

In financial terms alone, we can live above or below our means. We can accrue credit card debt or not. Most recent retirees have work or government pensions when retiring and can even negotiate the date of retirement.

We can also play active roles shaping our communities, working for the kind of government we believe in, or against the one we’ve inherited.  If the Chicago Cubs can win the World Series after 108 years, it’s way too early to give up.

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