Fear No Evil
When I punted a Victoria realtor last weekend for using the blog to drum up sales leads, then trash this site elsewhere, I almost felt remorse. Almost. After all, I like entrepreneurs and go-getters. It takes a contrarian streak to come here and try to sell houses, especially in a city with the economy of a glorified car wash, a population of advanced wrinklies and real estate selling for about double what it’s worth.
I indulge a lot here. Idiots who refresh their screens for three hours so they can type ‘First!’ Metalheads and conspiracists. Doomers and house pumpers. Hot, young women who won’t stop following me. And, yeah, realtors who’d like to contribute to my memorial fund.
But those who truck in fear and misinformation are unwelcome. Especially now, when we have a personal financial crisis brewing.
For example, this week the Commerce released a survey of retired people which seemed all ponies and sunshine on the surface, with 69% saying they’re living the retirement they’d expected. This is news, since this year for the first time in Canadian history a half million people will turn sixty. It’s just the start. Another 500,000 Boomers will hit that mark every year for the next seven, most of them owning real estate.
So here’s the problem. A third of Boomers are now retiring with a mortgage. Worse, of the people the bank surveyed, a majority said they’re not in healthy enough financial shape to handle unexpected expenses. In fact 54% confessed that a new monthly payment of $500 would be “unmanageable.”
This is what happens in a nation of money illiterates (and it’s worse in the US, where 60% of the population has savings or investments of less than $25,000). In Canada seventy per cent of people own houses, but an equal number have no pensions. Over 80% of the money in TFSAs today is in savings accounts or GICs paying less than 2%. The savings rate is pitiful and household debt’s at a new record. Investment companies like Canaccord are slashing offices because most households spend all they earn and have nothing left to sock away.
A decade of romping real estate values led a majority of people to think that buying a house was a financial plan, and it was perfectly okay to shovel every cent of net worth into property. Now that we’ve had just three years of 3% mortgages, people think they’ll last forever. A media poll this week found over 70% believe rates will stay put for years and years and years. Meanwhile financial ignorance is on daily display on this pathetic blog, as the disbelievers trash equity markets, economic growth, leading indicators or the very fact you can earn more than 3% without being a hooker or a thief.
We have a retirement crisis brewing today simply because most people made the wrong choices with their money. They equated houses with security, when they’re not. They grossly underestimated the amount of liquid wealth they’d need. They crazily believed public pensions would support them in old age. And they completely misunderstood risk. They feared loss, when they should have feared poverty.
This is just the start of the problem. And, sad to say, the Boomers’ kids are following right behind, trundling down the same path to the same unhappy destination. Once again we have a generation of 30 and 40-year-olds who eschew investing in liquid assets because they lust for real estate. But this time, with houses so expensive and rates about to move in one direction only, the outcome will be worse.
So this blog has tried to show that paying off a 2.5% mortgage when you can earn 7% on liquid assets instead makes no sense. That nobody needs to buy volatile stocks or high-rate mutual funds in order to double their money every seven years. That you must collect twice as much rent as dividends or capital gains to keep the same money. That tax-free savings accounts aren’t for saving. That houses can turn illiquid while financial assets are cashable in seconds. That diversified and balanced investing carries less risk than a house in Vancouver. And, above all, what most people do is wrong. But don’t believe me. Look around.
The punted realtor, like so many with something to sell you, perpetrates the usual myths. Stock markets are toxic. Houses are safe. A return of seven or eight per cent is impossible without big risk. Garth will lead you into the valley of the shadow of death.
It’s a sad refrain, heard endlessly. And look what it’s yielded. Sixty-somethings who drank the Kool-Aid and are now hooped by an extra five hundred a month.
Too late for them. How about for you?