Friday, March 21, 2008

Investment blues

So this whole "economic meltdown" that we seem to be in the middle of is interesting. You know, in the way that car wrecks tend to be.

Here's what makes it interesting. The last significant economic downturn, most economists agree, was in the early 90s. And before that it was in the early 80s. The one in the early 80s I barely remember because I was 11 years old and you don't trend to remember these things unless you were hammered by it directly. Both of my parents were working with decent jobs, so iI didn't really notice it, although I'm sure there were tough times for them.

As for the one in the 90s, well, I was in university. So I was expecting to be poor most of the time. I was living at home and able to save money from my table waiting job. I wasn't rich, but I was certainly doing better than many of my friends who were practically prostituting themselves to student aid to get enough money to survive.

And now we have another one on the way. And so far, knock on wood, we're doing fine. We both have good jobs and Iqaluit tends to be a bit of a bubble. The way things are right now, the U.S. is getting hammered, but Canada is managing to duck it, so far. But it'll likely move north and hit Canada. And then at some point it'll move up here and hit us. But right now, things are fine.

I think the difference this time is we have to consider the very grown-up reality of our investments. I never had to worry about how a downturn in the stock market and economy would effect my investments. I had no money for investments when I was in my early 20s (other than my comic books). I still get a kick out of all those commercials that come out at RRSP time that say if you invest a couple of thousand dollars when you're 25, it'll pay off much better than if you start contributing when you're 35.

I don't know many 25 year olds with a couple of extra thousand dollars kicking around to invest, honestly. Most are trying to feed themselves or pay off student loans. RRSP investments are a fantasy.

Anyway, we find ourselves with investments. We have RRSPs. We have a rainy day fund (or a snowy day fund, I guess). I think we're content to let both ride out as is. We don't really know enough about the stock market to start messing around with things. Which is probably shocking, but I suspect we're not alone in that. It's diverse enough that I don't think we're going to lose our shirt.

The question becomes....what next? We'll be getting our tax returns back soon-ish. We normally just plunk it into RRSPs. This year, not so certain that's a good idea. For that matter, before Christmas we were thinking about increasing the rainy day fund. Again, not sure that's such a good idea. I'm tempted to stick it in a bank account until things calm down a bit. We won't be making anything off of it, but then again, we won't lose it all either.

I know this means I'm going to have to bite the bullet and actually doing some research into investing. Which I know I should do anyway, but I find it about as exciting as reading computer manuals. But since I have a readership here, presumably with a wide knowledge base, anyone have any free advice to offer up?

Last Five
1. C'mere - Interpol
2. Vince the loveable stoner - The Fratellis
3. Sea shanty - The Pogues*
4. Hammering in my head - Garbage
5. Bullet the blue sky (live) - U2


Mireille Sampson said...

You know how you find it a little spooky that I actually know a little something about the financial markets? Zweig is a good writer who can relay the info you need (as an average-non-financials-person) and he's even funny. Pay attention to things like re-balancing, dollar cost averaging (investing every paycheque or month) and to the fact that he says no average investor needs to spend more than a couple of hours a month on their investments.

I moved most of himself's investments more than a year ago so that most were in GICs. Yes, they were paying crap, but there had been an unprecedented bull-run on the TSX, it's the buy-low/sell-high thing. I had left 25% of the money in the market, but moved that too once the market did it's summer dip and rise - I figured the rise was just luck we were going to run out of;) The GIC's pay crap, but it's better than inflation and it's better than losing which is what's going on and will likely continue for a while.

But, yeah, keep saving. Once the market has lost a lot it has no where to go but up, so you want to have money to invest when that happens.

John Gushue said...

Hi Craig -

Regarding the 25-year-olds and RRSPs. Regardless of what cash they have on hand, and I doubt it's thousands, there's also the issue of WANTING to save money. I started chipping in to RRSPs in my early 20s, and never regretted it. I was hardly swimming in money at the time, but made a point of putting at least something away. Two decades-plus later, I'm very grateful.

As for whether 25-y-os have something to save ... I do note that many never seem to have problems getting cooler sneakers than I ever have, slimmer laptops, cooler gear ... My point? Priorities, I suppose.

And recognition that the future is not as far away as anyone thinks.


John Gushue

colette said...

Okay, I'll say it because I know someone out there is thinking it. You had money for comics. :^) (And now let me say for the public--TB is an impressively frugal person actually and was in university as well. And depending on the comic, some may well pay out a pretty impressive return if he sells. Not as good as a RRSP, admittedly, but better than some stocks.)

A 25 year old doesn't need "thousands" to put by. Even a hundred or a few hundred in the run of a year makes an appreciable difference down the road. And that's a problem of mindset--at 22 or 25 you're generally not thinking in those terms and it's easy to get discouraged when people start talking about putting away a few thousand. But the price of one latte a day or two beer a weekend (or hell, even your pocket change), saved over the course of a year and thrown into a RRSP really will add up by the time you're 60/65.

And yes, I had student loans etc. etc. I could still manage $260 a year in contributions at age 25, and like John, I'm glad I did. (I'm also the same age as John too, so I know about how much difference that's made.)

colette said...

I forgot to answer your other question: what to do with the tax refund.

Don't put it into RRSP's because there are penalties if you have to withdraw the cash and it sounds like you're thinking about having cash to hand. You've got a start on those already and both of you will have government pensions from your time up north (although probably not much but it's a start).

Quite frankly TB, I think it's time you two started thinking about life post-Iqaluit. You're going to need money to get established down south. You're probably going to run into a bit of sticker shock having to adjust to salaries down south, paying for your own accommodations, higher fuel costs, losing your tax write-offs etc. I know that financially, it's not all wine and roses up north but you do derive certain financial benefits. My co-worker who just came back from Iqaluit (background in HR BTW) is doing some adjusting now to his cut in pay and increased expenses.

My advice: start your Down South Adjustment fund now. Start putting aside your money for three months' rent on an apartment or down payment on a house, living expenses while you search for a job, money for a car etc., etc. Place it in an account/short-term investment certificates with a decent rate of return and commit to not touching the cash for anything.

towniebastard said...

I actually did have a nice chunk of money back in my early 20s. A combination of being able to live at home and a good job waiting tables. But it never occurred to me to put money away for RRSPs. And I like to think I was pretty good with my money (aside from the comic habit) and my dad is good with money. But it just never occurred to do that kind of investing.

And I suspect you guys are the exception and not the norm when it comes to putting money away into RRSPs. I certainly never heard many of my friends at that time talking about salting away money for their retirement.

There's an argument to be made about Basic Financial Management being taught at either university or in high school. Too many people don't know how to manage their finances and it starts young.

I'm hardly perfect, but I always operated under the principle, "if you think you don't have the money, you won't spend it." Which is lovely and all and kept me out of serious financial trouble most of my life. But it certainly didn't help with investing for my future.

Mireille Sampson said...

Further to Colette's advice to stick some money away in non-RRSP stuff, ING direct canada has a good interest rate on savings accounts (compounds monthly too), with no fees. It's about the same as a short-term GIC and you can move the money on-line from your other accounts into the ING, move it back when you need to spend it down south.

And Ottawa is expensive. Consider I moved there from Vancouver, I was expecting an improvement in what things cost. Sure, if you wanted to buy a house it was actually less expensive, but the tickets were still quite big. We were renting and it's high there because there are so many people renting (all those people who live elsewhere in the country who go to Ottawa because they've been seconded and the like). They tend to want a lot of money for dumps even. Of course, we were told the same thing about Van, I think we just lucked out with a good place. Lots of weird things were more expensive in Ottawa- I was completely annoyed at the cost of the restaurants compared to my favs from Van, and they weren't terribly cheap.

I was reading the other day that housing prices tend to go down about two years after a major stock market downturn . Though it was housing prices that kept the economy afloat after the dot com...that was Alan Greenspan. Himself's best friend in the UK said that in the early 90s his house went down 50% from its high - fortunately he didn't buy it at its high, he'd owned it for quite some time. Anyway, I suspect that by the time you two move down south you may have a buyer's market to play with, though I don't think 50% discounts are normal, it's at least something in this mess that may be useful to you.