Those of you who show up here on a regular basis know that your boy Nelly here isn’t very generous with the guest post spots. In fact, I tell most of these people to kiss the hairiest part of my ass.
But today, you kids are in for a real treat. Paul from Asset-Based Life is one of the finest finance bloggers out there. Handsomest too, or at least I’m assuming. He consistently posts some of the most entertaining and thought-provoking stuff out there, and he’s not a douche despite having a blog name with a hyphen in it. It’s criminal he doesn’t have more readers.
Paul and I decided to do a “dueling banjos” type of post, whatever the hell that means. He’s going to take one part of an interesting personal finance argument while I take the other. The winner will feast on the warm brain goo of the loser. We do not mess around.
The topic? It’s about going to college. To put a further twist on the topic, I’m going to argue the pro-college side of the argument despite consistently saying college is hella overrated, while Paul, who’s presumably more edumacated than a penguin dressed up with a bowtie, will take the anti-college side of the argument. Make sure you go check out Asset-Based Life for my side of the argument.
Without further aideu, here’s Paul. Make him feel welcome by tossing some rotten tomatoes his way.
There was something truly decadent about going to college. My parents were quite frugal and passed it down to me, but somehow financial discipline was thrown out the window when it came to college. I was told over and over, “We’ll pay for wherever you get in.” I managed to get in a very good and very expensive school. So much for the ol’ ROI.
College opened up many career paths. I learned a lot and had some fun. But as a cold, pragmatic investment decision, college was highly suspect when I went. It’s even more so today.
College Costs Too Much
A degree from my alma mater, if you started today, would set you back a cool US$280,000 (if you grew my actual cost back from dinosaur times by 7% p.a., it’d be about $360,000).
That is a lot of money.
If you consider your career a quest to build a big pile of financial assets (not a bad way to view it), college can start you off with a huge crater to fill.
There is certainly a premium in going to college, and a further premium to a great university. I just feel that the premium is rarely worth the cost.
Even if you’re able to go to college on the cheap, or even free, there’s still a big opportunity cost to the time you spend there. Which brings us to our second charge against college.
College Takes Too Long
You can accomplish a lot in four years. You can earn a full four years of wages (trust me – I went to college). You can learn and master a trade. You can start a business and see it thrive.
There’s a long-running quip that a bricklayer who stays busy can outearn (net of school cost) a doctor. Add in a high saving rate, compound interest, and perhaps a little entrepreneurship, and their tortoise v. hare race isn’t even close.
If I had simply learned a trade out of high school and started working and investing, there’s a great chance I’d be ahead of where I am today.
But What About the Learning!
I learned some really interesting things in my college coursework.
I had an Anthropology 101 class that was fascinating. But you know what was far more fascinating? Just about any Jared Diamond book I’ve ever read.
I had a great Philosophy course where we proved we do exist. That was definitely worth a semester of my time, and I feel sorry for you non-college grads who are still struggling with that question.
Almost everything I learned in class could have been picked up from a book (and funny fact, we actually used those “books” in our classes). Today it’d be even easier with all of the cheap or free online teaching resources.
As a business major with post-college jobs in finance, I was rather shocked how little of my coursework I used. In those rare cases I did, I always needed a refresher to remind me what I (sorta) learned.
Notwithstanding that, I did need a college degree for my first job in financial consulting, and that brings me to…
College Is An Incredibly Inefficient Filter
It’s hard – sometimes very hard – to get into college. That can make college a useful filter for employers. Since the schools have gone to all of that trouble to identify top test takers, high achievers, and whatnot, lazy companies can use that as their own screen for hires.
The only problem with this Rube Goldberg machine is that it requires students to then sit through four years of classes, many (most) of which they’ll never actually use. Plus there is the real risk of finding after four years that you should have gone a non-college path. Sorry about that.
Can’t we design a near-instant filter similar to college admission? Is it really that hard? I know of some companies who rely heavily on IQ, behavioral, and knowledge tests and don’t really care about your pedigree. I think that trend is just starting.
If college was and would always remain a ironclad filter for great jobs, I’d probably favor it more. But we’re shifting to a more meritocratic world where your college degree union card isn’t as important. The role of college as a filter may be nearing its end.
The Move to Meritocracy
Nelson (feeling charitable) and I (ambitious!) have both decided to write these guest posts today. Somehow we both felt it was a good use of our time.
Are you going to measure the quality of our posts based on how much we spent on college (fingers crossed)? Or are you going to judge them based on the quality of the writing (boo)?
There are many fields where college just isn’t relevant anymore, and there are many a millionaire and billionaire with no degree. If an orangutan was a world-class programmer, he’d have a job at Google tomorrow.
There are professions where college is still a required credential, and if you really want one of them, then have at it. Just know we’re shifting more to a world of merit. If you just want a big pile, college may not be the best route. I’ll tell you what is.
The most lucrative career paths have always involved entrepreneurship. If you want a shot at being truly rich, start your own business.
It’s a scary path with uncertain prospects, but one thing is certain: You do not need a college degree to become an entrepreneur.
On the contrary, I think a college degree can inhibit entrepreneurship. College debt, a comfortable salary, and a personal brand of “college grad” can lower your risk tolerance and turn up your nose to many simple but great business ideas.
As an entrepreneur, if you ever need skills that might come from college, you can simply hire those folks. When they sniff that you don’t even have a degree, you can tell them to go make you some more money.
I’ve always wanted to be an entrepreneur. While my current effort (strategy consultant) levers my college and MBA degrees, I have no doubt I could have found one that didn’t need a degree at all.
Wait! College Is So Much More than Career Prep
I had a wonderful university experience. The social aspect was really fun. I made great friends and had many a good time. I even spent a semester in London, which was culturally amazing for a simple Texan lad.
But here’s a sneaky little secret. Did you know that people who don’t go to college are also allowed to have fun? You may not get do it in a Hogwarts-like setting, but you can have many of the same incredible experiences. You can even visit foreign countries and cultures – they let in non-students too. And you can do it much, much cheaper.
Can your genius reach its full potential without being tested in the crucible of college? I’m gonna go with yep. Many brilliant minds are forged outside of college. Colleges mass-produce pseudo-intellectuals, but I don’t know that they craft real genius.
College Isn’t Completely Worthless
College is a safe and well-trodden path from high school. You don’t need to pick a career; you just need to make it to your 9am class. Your professors will help you learn, the administration will help you pick courses and majors, and recruiters will come right to you on campus.
All of this outsourcing doesn’t come cheap, though.
I didn’t even think about careers in high school. With my parents’ full support, I just moseyed to college ‘cause that’s what one does. Had I sat down and grasped I was at the start of a great adventure, with college as one of many options, I might have gone a totally different and more lucrative route (esp. if my parents gave me my tuition as seed capital!).
College is clearly worth something. It’s just often not worth the cost in money and time. It’s an incredibly expensive luxury. In a word, it’s overrated.
As I outlined in the post RIPPING business owners who think you should shop local TO SHREDS, I’m convinced a full 90% of small business owners are disgruntled ex-employees who decided that they were going to be the boss, dargbloomit.
Because these folks aren’t entering the venture with the proper mindset, they make a lot of mistakes. Ultimately, they boil down to the same handful of things over and over (and over) again.
Here are 5 of the most common mistakes business owners make.
A local photography shop personifies this common business mistake.
They’ve got a nice studio and are only one of three locations in town that can take passport pictures. They do a reasonable passport business and a few family portraits, too.
Desperate to increase their business, the photography place decided to expand into retail. Soon the front of the studio was filled with used DVDs and other such nonsense. It’s not even photography related!
Why this place wanted to expand into retail is beyond me. Then, friends of mine went to ask the photographer for engagement/wedding photos. They had a budget of $500 for engagement shots and $2,500 for the wedding.
The response? “I’m not interested in dealing with Bridezillas.”
So to review, instead of expanding into the wedding picture business with 10 times the margin of passport photos, this photography studio decided to sell junk. Why expand into something you’re not good at when there’s a big opportunity in your core business staring you in the face?
This brings me to point two…
There’s a really easy way for the average small business to put themselves head and shoulders above the competition.
Be good at what you do.
An example? Don’t mind if I do. Most of the time, interactions with small business owners go something like this.
“Hey, I’d like (item). Can you get it in for me?”
“I don’t know. Can you give me a little time to check and I’ll call you?”
(two weeks later)
“Hey, did you look into that item for me?
“I’M WORKING ON IT. GOD. STOP HASSLING ME.”
If you’re providing a service, the way you present yourself is equally as important as actually doing the damn job. In Alberta, right now there are thousands of former oilfield employees who have decided to become handymen. Most of them struggle because they aren’t professional. They do things like providing verbal instead of written quotes and don’t show up when they’re supposed to.
There are a million ways to differentiate a business from its competitors. You can be cheaper than the rest. You can do a better job. You can offer a unique spin on a product or service. And so on. But — and this is crucially important — you can’t do all those things. Pick one and become incredibly good at it. Expansion should only be considered once you’ve mastered the original business.
A word of caution before committing to be the lowest priced operator. This is much tougher than you’d ever imagine. There’s a reason why your competitors charge what they do.
Easy payment solutions
I can’t believe how many businesses don’t make it easy for customers to pay them.
Getting back to the contractor example above, an incredibly straightforward way for a handyman or plumber to differentiate themselves would be to accept credit card payments. A good way to accept payments is with Paysafe, as they have everything you need to accept and process payments globally. Technology makes doing this incredibly easy. All you need is a smartphone reader and a 20-minute lesson on how to use the software.
It’s not just about credit cards, either. If none of your competitors offer payment by cheque, do that. Ideally, the more options you can offer, the better.
Don’t make it difficult for customers to pay you. It’s that simple.
Skipping on marketing
This was one of my big problems as the World’s Worst Mortgage Broker(TM). I assumed people would just find me because I was the only broker in town.
This was not a smart way to do business.
Here’s the math I didn’t get back then. Say the average mortgage paid me $1,500. If I spent $300 per mortgage transaction on marketing, I’d still make a net profit of $1,200 for approximately 5 hours of work.
Instead I dabbled in free stuff. I built a Twitter and Facebook page before abandoning both after a month. I started a mortgage blog that lasted about six posts (and wasn’t read by anyone except me, either).
Spend a minimum of 20% of revenue on marketing. Don’t have 20% to spare? Then you need to get into a better business.
Follow a simple rule when it comes to spending your precious capital. Track the return of every dollar meticulously.
Say it cost you $20,000 to open your own hair studio, cash that was borrowed at a 10% interest rate. Anxious to pay off the debt, you throw every extra nickel towards the $20,000. In a year, that bad boy is paid off.
But at what cost? Say that $20,000 could have been invested in fancy machines that do perms (Do ladies still get perms? Serious question). Those machines generate an additional $10,000 in annual profit.
Paying off the debt immediately saves our hero $2,000 in annual interest. But it comes at the cost of $10,000 in missed profits. As long as subsequent investments generate more than $2,000 each year in profits, the debt should remain as long as possible. Even at 10%.
Let’s talk a little about investing with Investors Group, which is one of Canada’s largest wealth management companies. It has approximately $130 billion in assets under management, or about what I have hiding in the couch cushions for a rainy day.There are some 5,000 Investors Group
advisors sales people spread out across Canada.
The investing process starts with a financial plan, which goes over all parts of your finances from your mortgage to your insurance to your investments. The client is told the process is so their needs can be fulfilled in the best way possible. This is a lie. It’s a sales process, nothing more.
Recently, Investors Group has been in the news for a couple of main reasons. The first is the company’s opposition to Canada’s new mutual fund disclosure rules. Before, disclosure of fees in a percentage form was fine. These days, fees must be disclosed as an actual dollar figure.
The company also made headlines for announcing it was doing away with deferred sales charges. This meant investors who get out of Investors Group mutual funds before a certain time period (usually 5-7 years) don’t have to pay huge penalties any longer. Such generosity! The company also cut fees on many of its in-house mutual funds.
Investors Group is actually really excited about this. Veteran investors know you should never invest with Investors Group, but there are literally millions of Canadians who don’t know any better. This post is for you.
An apples to apples comparison
Let’s take a closer look at one of Investors Group’s largest funds to see just how serious the company is about cutting fees.
The largest IG mutual fund is the Investors Dividend Fund. Because this company likes making things complicated, there are about a million different slightly different iterations of the same damn fund.
After a little clicking around, I’ve come to the conclusion that you’d be most likely to be sold is the Series B. It no longer has a deferred sales charge and the prospectus breaks down what the advisor gets paid in great detail.
The fund has 88% of its assets in Canadian equities, with the remainder in bonds and cash. It has a total of 125 different positions, but 57% of assets are in the top 10 stocks. Top positions include:
- Royal Bank (8.4%)
- Scotiabank (8.1%)
- TransCanada (6.0%)
- CIBC (5.7%)
- Power Financial (5.6%)
- Bank of Montreal (5.5%)
The management fee? It was 2.48%, but the company SLASHED it, proving once and for all Investors Group cares about its investors. The new fee? It’s 2.38%.
OMG YOU GUYS I’D BETTER GET THE FAINTING COUCH.
In 2016, the fund paid a distribution of $0.77, giving it a yield of just over 3%.
Now let’s compare it to the largest Canadian dividend ETF, which is the iShares Dividend Select ETF (TSX:XDV). It has 100% of assets invested in Canadian stocks. The largest positions include:
- CIBC (8.2%)
- Agrium (7.6%)
- Royal Bank (5.8%)
- Bank of Montreal (5.7%)
- Scotiabank (5.0%)
59% of XDV’s assets are invested in the financial sector. The Investors Dividend Fund has 57% of its assets invested in financials. There’s a lot in common between the two funds, not just that. They’re not identical, but damn close.
XDV has a trailing yield of 3.7%, a full 20% higher than the Investors Dividend Fund.
Where XDV really shines is its management fee. Investors are paying 0.55% annually to own XDV. That’s a full 78% less than owning an equivalent product with Investors Group. (And 0.55% is a little expensive in the ETF world. You can find ETFs for less than 0.10%).
We could look at other fund categories, but it would yield similar results. If you invest with Investors Group, be prepared to pay a hell of a lot more for something that can easily be replicated with a cheaper ETF.
Just don’t invest with Investors Group
Investors Group does a great job of presenting themselves in a professional manner and the average advisor will instill a sense of confidence into a newbie investor.
But ultimately, that comes at a huge cost to the client. A 2% difference in fees will make a huge difference in your retirement.
The bottom line? You’re better off to choose a simple ETF portfolio on your own. You’ll save tens of thousands of dollars in fees (if not more!) if you don’t invest with Investors Group.
Those of you who show up here multiple times a day (God bless your pathetic hearts) have probably noticed that I didn’t post any content on both Tuesday and Wednesday. Well the joke’s on you, because I really did. I just posted it with invisible ink.
Back in August, I made the decision to update this here blogening every weekday, for a number of different reasons. The biggest was I wanted to turn Financial Uproar into part of your daily routine. The Canadian finance blog-o-net is really missing such a thing. It seems like everyone else has embraced the less is more business model.
The plan was to eventually up the traffic to the point where I could sell premium products. And for a while, it was working. Between August and February, traffic was up 125%. People actually started to comment and email and ask me questions on Twitter. It was a fun time, albeit a little exhausting.
Naturally, the time commitment went up too. I went from spending ~5 hours a week on this thing to 15-20 hours. Which was fine. I had the time, and it was mostly enjoyable. It still is, actually. Talking to you guys without a filter is fun. Damn ass hell bitch fun.
There was just one problem. The Uproar didn’t make any additional money.
I found myself in an interesting conundrum. I needed to hire somebody to write blog content so I’d have time to create premium stuff. Except the blog wasn’t making enough money to do that. Besides, I make my living writing stuff for other people. I’d be paying people to do my job.
I could hire people to try and really supercharge this thing and turn it into a business. Or I could step back and spend more time on the websites that did pay me. The choice was risk capital for a large potential reward or take the potentially smaller reward today. I chose the coward’s way out.
So what’s next?
I’m not going to abandon you kids. Financial Uproar will still be active. It just won’t be every day active. In fact, there won’t be any set schedule. I’ll just post whatever I want, whenever I want. There will be more of a focus on my own personal decisions rather than generic SEO-type stuff.
The plan is to spend the 10-15 hours a week in extra time I’ve created searching for new income streams, focusing on the kind of stuff that requires semi-active management. I figure this will make fun blog fodder and will be a good use of my time all the same.
In short, Financial Uproar will go from being a business to the place where I talk about my other business. I’ll do a write-up when I buy a new stock or buy a piece of real estate or whatever. I won’t keep up the weekly link dealies, but I’ll probably do one every few weeks rather than every week. It’s much easier that way.
And that’s about it. See you kids next week.
Oh boy! It’s my click-baitest title ever!
Now before all you kids pelt me with soft, over-ripened tomatoes, allow me to explain. OH GOD WHY WON’T YOU ALL LET ME EXPLAIN.
Many people (myself included) think reading is a huge part of one’s success. A book is one of the best investments you can possibly make. For a price as low as zero dollars (thanks library!), you can get lessons it took great men decades to learn condensed down into a chapter or two. All it costs is a little time, which probably would have been squandered anyway.
What a fantastic return on investment.
There’s just one problem. Books promote a culture of inactivity. There’s an army of people who are nose deep in a book right now, trying to discover the true secret to getting rich. If only they read enough, they say, they’ll figure it out. It’s gotta be in here somewhere.
It won’t be. No book will ever contain the true secret to getting rich. Because ultimately, getting rich involves one thing.
There’s definitely a correlation between reading and becoming wealthy. There’s no doubt about that. Buffett reads a ton. So does Charlie Munger, Bill Gates, Charles Koch, and most other billionaires.
But there are notable exceptions. Let’s start at the top.
“Well, you know, I love to read. Actually, I’m looking at a book, I’m reading a book, I’m trying to get started. Every time I do about a half a page, I get a phone call that there’s some emergency, this or that. But we’re going to see the home of Andrew Jackson today in Tennessee and I’m reading a book on Andrew Jackson. I love to read. I don’t get to read very much, Tucker, because I’m working very hard on lots of different things, including getting costs down. The costs of our country are out of control. But we have a lot of great things happening, we have a lot of tremendous things happening.”
Yes, that quote is from the leader of the free world.
Much as we crap on Donald Trump, and much as Trump deserves it, he has been remarkably successful in his life. After becoming the most famous real estate developer in the world, the guy became a best-selling author (despite not even writing the damn book!). He followed that up by becoming one of the biggest stars on reality TV. And then, as an encore, the dude became the president of the freaking United States.
Trump’s secret to getting rich wasn’t reading or waiting for the best opportunity to strike. He simply went out and did stuff.
There’s an old expression about overnight successes. It takes 20 years of toiling in obscurity to become an overnight success. Guys like Donald Trump may have accelerated the process a little, but the point is still valid.
Here’s what happens. Somebody works hard at something, and then they get a little success. They keep on going and get a little more momentum. They keep building and building until these small successes start becoming medium-sized. And so on. By the time any of us notice, this person has already moved up to big things.
Meanwhile, the voracious reader is stuck at square one, still searching for the magic bullet. If only he read more books! Then he’d find the true secret to getting rich! It’s gotta be in one of these books somewhere…
There’s no secret to getting rich
Look, you all aren’t stupid. You’re smart people who are ambitious enough to try and improve your lives. You’re the best people, and I’m not just saying that because y’all read my thoughts every day.
Everyone reading this knows how to get rich. The secret is no secret. You have to create capital and put it to work in interesting opportunities. That might be through an index fund. Or it could be buying a trailer park, investing in private mortgages, or starting your own business. Part of the fun of this whole exercise is there’s no set path. There are just a number of similar guidelines everyone follows.
The closest thing there is to a secret is to just go out there and do stuff. If you already have the tools, it all comes down to execution. Don’t be the person who doesn’t do anything, paralyzed with his nose in a book. Research is encouraged, but all the research in the world doesn’t matter without taking risks.