If I had a nickel for every time a so-called “personal finance expert” (i.e. some windbag financial planner type with a desire to grow assets under management) told the masses to stop drinking coffee and invest that money instead, I’d have enough to buy the entire Canadian economy. Or something like that.
Many people have debunked the latte factor over the years, including the handsomest finance blogger out there, yours truly. They correctly point out that having takeout coffee a few times a week isn’t really that big of an expense compared to stuff like getting a place in a major Canadian city or paying off student loans on an education that continues to increase in cost faster than inflation. And sure, while the little things have a way of adding up, they’re still little things.
Anyway, good news coffee drinkers. Feel free to imbibe all you want. Because there’s another liquid that I think you might want to start avoiding instead.
The booze factor
The thing about coffee is you usually only have 1-2 a day and I’ve yet to meet anyone who has ingested a few cups and started acting like a jackass. But alcohol is a whole other story.
One beer with the buddies quickly turns into three or four. For some reason we tip bartenders much more than we do baristas, so $5 per beer is really $6. Add in some greasy bar food and you’re looking at a $35 tab.
Do that once a week and we’re talking serious money here. Do it twice a week and it’s a $3,500 annual bill. Ouch.
Getting drunk has other downfalls, too. Only a maroon drives home after a handful of drinks, even if they’re spread out over a few hours. Uber might be losing a boatload of money, but their rides still aren’t free. Drunk people are talked into other dumb decisions, too. I have an autographed piece of hockey memorabilia I purchased at a charity auction (I use the term charity here loosely) that seemed like a good idea after four drinks. A decade later and I’d still rather have the $300.
Sure, alcohol does have some benefits. It can allow a shy guy to turn into one of the group for a few hours or give us a little encouragement to do something we just don’t have the nerve to do so sober. But it’s a really fine line between being the boisterous life of the party and being a drunken jackass. And I’d argue if you need a shot of liquid courage to do something, that’s your brain telling you maybe it’s something you shouldn’t be doing in the first place.
Alcohol is such an ingrained part of our culture. You’re going to get some resistance if you tell your friends you’ve given it up completely. These folks believe you really can’t have a good time unless you get hammered, which is a pretty big buzz kill for the folks in the room that don’t get completely sloshed. So mission accomplished, I guess?
This all really doesn’t matter
Look, at the end of the day I don’t really care what you spend your money on. As long as you’re saving enough to meet your long-term goals then do whatever you want.
If you want to go to McDonald’s, Timmy’s, or even (gasp!) Starbucks every day for your cup of joe and you can maintain a 25% savings rate, then knock yourself out. You’ve earned that luxury.
Hell, I’d even argue that the average Financial Uproar reader has the opposite problem. They’re saving too much today, worried about a future that will be much more rosy than they ever imagined. It’s hard to go from a huge savings rate to something much more manageable. I’m having a hell of a time telling myself to spend more money now that I’ve made it to FI.
So if you’re looking for something to cut to increase your savings rate, let me recommend booze instead of coffee. But if you’ve already taken care of the big stuff and have a good savings rate today, feel free to indulge in both. Just don’t call me when you’re hammered, drunky.
God, you people are all cheap bastards. Every last one of you. Y’all make me sick.
Sorry, I was talking to the teens that have camped in my backyard. Do you guys have any ideas of how to get rid of them? I’ve tried nothing and I’m all outta ideas!
Many nearly-financially independent folks who JUST CAN’T TAKE WORKING FOR THE MAN ANYMORE, DAMMIT do themselves a little geographic arbitrage, moving from an expensive city (like Toronto or Vancouver) to somewhere like Thailand. Or Mexico. Or Costa Rica. As long as it’s warm, cheap, and filled with many beautiful ladies, you’ll find a good supply of retirees of all ages regularly soiling their Depends. Yes, I am implying a 30-something retiree wears Depends. Are you really retired if you don’t?
But a lot of people don’t want the aggravation of moving to a whole new country. You have to deal with a long and annoying immigration process. Simple stuff like going to the grocery store is suddenly more difficult. Hell, even navigating streets that are all labeled in some weird language is a pain in the ass.
So let’s look at geographic arbitrage another way and see just how inexpensive you can live without leaving the country. Just where is the cheapest place to live in Canada, anyway?
According to my crack research squad (four parrots who only know swear words and a dead kitten), the cheapest cities are located in the eastern part of the country, primarily eastern Quebec and New Brunswick. Ah, New Brunswick. We meet again.
Like Shawinigan, Quebec. The small city in eastern Quebec has approximately 50,000 people and is a short two hour drive from Montreal. It boasts industry like an Alcan aluminum plant and a pulp and paper plant. Unfortunately, the city has been slowly shrinking since the 1950s.
But we don’t care about that. All we care about is cheap living, baby! And Swawinigan delivers, with average rent for a two-bedroom apartment hovering at just $476. I did a little Googling and it’s hella easy to get into a half-decent place for less than $500 per month.
Seriously, Quebec. You guys need to list your real estate like the rest of us. If it has three bedrooms, just call it a g.d. three bedroom place. This isn’t hard.
Other places in Quebec are pretty damn cheap, too. In St. Georges the average two-bedroom place will set you back a mere $515 per month. Victoriaville’s average is $525 per month. Trois-Rivieres (more like manage-a-trois AMIRITE, GUYS?!?) offers an average price of $587 for a two-bedroom apartment. And so oh. These small cities are hella cheap.
Okay, but what about a real city with public transport and whatnot? The cheapest of the six largest metro areas in Canada is Montreal, but the average two-bedroom place is going to cost you north of $1,000 in Canada’s most European city (sorry, Guelph, but Montreal just edged you there).
Without a doubt the cheapest place to live in Canada will end up being some obscure small town nobody has heard of. I don’t doubt you can get your own place for less than $300 per month in some little bullshit place on the prairie that shouldn’t even exist. $300 in Toronto doesn’t even get you a shitty parking spot in Scarborough.
Here’s an 848 square foot house located in Hanna, Alberta, for the low price of $49,000. If you took out a standard 25-year mortgage to buy the place your mortgage payment would be approximately $200 per month. It’s a 15 minute walk from a grocery store (but only five minutes to a liquor store!), and it’s super close to the hospital and arena if you’d like to get a little part-time work action to further stretch your retirement dollars.
But we can get cheaper! Here’s a three-bedroom house in Heisler, Alberta, a place I assure you actually exists, for the low price of $29,900. That includes the lot and everything. Sure, it’s not a great place — the 70s called and want their wall paneling back — but do you really care if you get a whole g.d. house for the price of a car?
Yes, it’s in the literal middle of nowhere. It’s 45 minutes by car to the town of Stettler or the city of Camrose. The nearest grocery store or hospital is like 20 minutes away. But we have Amazon Prime and Walmart.ca. These websites will ship all the necessities of life right to your door. And for free, too! Assuming you hit the $39 minimum, that is.
Think about how little you’d spend if you lived in Heisler. You’d have no mortgage payment since only the poors can’t scrounge up 30 grand. I know you’re not poor because the FU servers automatically punt such people. Utilities would be $500/month, max. Property taxes would be $75 per month; house insurance would probably be around the same. (Remember, house insurance is optional when you don’t have a mortgage.) Even including a weekly trip to Camrose to keep you sane (they have strippers) I think you could still live for $1,500 per month for everything. Easy. You could even be cheap and get it down to $1,000.
Want more? I saved the best for last. $27,000 gets you this fixed up two-bedroom bungalow in Prelate, Saskatchewan, a village of 126 people located 12 km east of Leader. Leader has all the amenities an early retiree needs, like a couple grocery stores (gotta comparison shop, yo), at least one gas station, and a hospital. Prelate is also home to the Islamic Academy of Saskatchewan, which is home to approximately 100 male students looking to learn the ways of Allah. No, rural Saskatchewan isn’t an odd place for such a thing. Why would you even bring that up?
It’s time to end this
The cheapest place to live in Canada is undoubtedly some tiny village in the middle of nowhere, which comes with its own set of problems. But we don’t care about that, at least for this blog post. All we care about today is getting your cost of living down to virtually zero.
It turns out it’s possible to live on a third-world income without even leaving Canada. And let me tell you from experience, these villages are tight-knit groups. They take care of each other. Will you get the same thing in Bangkok? I doubt it.
Let’s talk a little bit today about one of the major risks that could impact your retirement, and there’s nothing you can do about it.
Well, besides a sale down at the glitter store. SHUT UP I LIKE GLITTER, OKAY?
This big risk is what happens if the economy stays stuck in a rut for years and your investments stay stagnant for the better part of a decade? Or even longer?
Some might laugh at the sheer notion of a lost decade or some other such nonsense, usually folks who have little investing experience outside of this current bull market. But these things happen. And more often than you’d think, too.
It took the S&P 500 a full 12 years to surpass its all-time high (set back in 2000) in a meaningful way. U.S. stock markets also famously languished for more than a decade from 1968 to 1982. Japan has seen the Nikkei fall some 40% since all-time highs set in 1989. And so on. Like I said, these lost decades happen. All the time.
So what’s an investor to do today, as worldwide markets bump up against all-time highs again? How should you plan for another lost decade, which does tend to happen after long bull markets?
Focus on what you can control
You can’t control what the market is going to do over the short-term or even the long-term. All you can control is how much money you put away, what you spend, your asset allocation, and your proximity to the glitter store. A glitter sale? I’ll see you guys in three months!
Dude, enough with the glitter jokes.
Nah. I figure I’ve got another three decades until those stop being funny.
Your savings rate is the big one, of course. A high savings rate can erase a lot of other sins. Which is a good thing, because index funds might not be the best investing choice going forward. How well is an index fund going to perform if underlying stocks don’t go up? I’m no mathematician, but I’m going to guess the answer is not great.
But if you keep shoveling money into the market, eventually stocks will go up again. There’s a reason why every financial commentator this side of Nairobi advocates dollar cost averaging — because it works. And I’m happy with my dividend portfolio, churning out ever-increasing income each year, no matter what the market does. Unless the market really goes to shit, of course.
You can also diversify your portfolio outside of the stock market. Bonds are the easy choice, and they come with the bonus of holding up pretty well if stocks don’t. You could invest in real estate (either via physical property or REITs, although the latter is at risk of rising or falling with the overall market) or private mortgages. I know when the market was crashing hard back in the fall my private mortgage portfolio didn’t see a cent of decline.
And so on. There are a million asset classes out there. Take your pick. I suggest
glitter Beanie Babies. I hear those things are making a comeback.
Keep on chugging
It’s challenging to consistently put cash to work during times of market weakness. It’s one of the reasons why I’m not a big fan of doing up my net worth on a monthly basis. It’s too easy to get discouraged during a tough period, although it’s pretty fun to do when markets go up a lot.
If you just focus on saving enough and investing those savings in an index or what you view as great businesses, then you’re bound to get ahead in the long-term, even if there’s some short-term pain in the meantime.
Back when I used to troll the dividend growth crowd over in the comments section of Seeking Alpha, a tried and true way to really get somebody’s goat was to just point out how their dividend portfolio didn’t beat some index, usually the S&P 500.
These folks would inevitably respond with how they didn’t care about beating the S&P 500 and how all they worried about was investing in good companies that increased their payments each year. Getting trolled in a comment section was just a bonus, I guess.
Your boy Nelly, meanwhile, was confident his deep value portfolio filled with the trashiest (but cheapest!) companies out there would outperform. Sometimes I did extremely well, like that time I loaded up on Cloud Peak Energy (a coal miner) and tripled my money. I got out right as Trump won, within a dime of the stock’s high. I also made nice gains with trash like Yellow Media, Automodular, Dover Downs Casino, Village Farms, and so on.
But these paled in comparison to some of my losses. I got my ass handed to me on Corus, which is still down more than 50% over my average price. I even averaged down twice on that stock. Winnipeg Free Press lost 90%. Danier Leather at least salvaged something during the bankruptcy process, and I once invested in a Chinese fraud that went to zero. There are more examples but I’ve successfully blocked them from ever entering my consciousness again.
Such a portfolio didn’t have much correlation to the market, which should have made it easier to outperform. At least in theory. But it was also filled with a lot of trash. These were shitty businesses that just needed a small change in sentiment to achieve a satisfactory investment outcome. Except that often didn’t come. Because they were shitty.
This all seems so obvious in hindsight, but younger Nelson actually believed it. Poor guy.
Beating the market
After stubbornly holding on to this trash portfolio for a few years to try and be different from the masses, I finally got smart and switched to owning a diverse selection of blue chips with a bit of a value bias. It’s working much better.
Let’s compare my portfolio to the TSX Composite. My portfolio has one lingering retail stock, exposure to the U.S. tech market (no Canadian names), energy exposure only through pipelines, and not a nickel invested in any mining or materials companies. This avoidance of sectors is quite intentional. I view them all as crummy businesses without any pricing power. It’s exactly what I don’t want to own.
The TSX, meanwhile, has exposure to all these things.
So what happens if gold and oil soar, while the rest of the economy tanks? These two things generally move inversely to each other, remember. If this happens, my portfolio underperforms the market.
You can probably guess what happens if the opposite occurs. If gold and oil continue to be in the toilet, my portfolio kills the TSX Composite. It’s really quite simple.
So my “outperformance” (or lack there of) depends on two sectors I refuse to own. Nice. Real nice.
Should I compare to another index?
Canada has a number of dividend ETFs that focus on delivering plenty of income while minimizing the impact of a dividend cut. Perhaps I should compare my portfolio to one of those.
My favorite dividend ETF has consistently been ZDV, the BMO Canadian dividend fund. It pays a nice yield — the current payout is 6.5 cents per unit each month, good enough for a 4.75% yield — and it comes with a low management fee of 0.35%. I own five of its top ten holdings and 17 of the 50 total holdings (I guess 18 of 51, since we both have a small cash position). It’s probably the better fund to compare my portfolio to.
But at the same time, perhaps this isn’t the best method. Maybe whichever underlying index I choose loads up on some hot new stock that delivers nice gains. Maybe it gets lucky with a takeover or three. Or maybe I get unlucky and one of the biggest positions in my portfolio blows up. This kind of stuff should even itself out over the long-term, but can have a big impact on year-to-year results.
I think the solution is I track my portfolio versus ZDV or one of the equivalents. But I’m not going to be super serious about it. As long as I’m posting consistent gains and my dividend income keeps going up on a year-over-year basis, I’m good. I’m not going to sweat the small stuff.
Wrapping it up
If I do underperform but I still end up being worth $5 or $10 million, does it really matter? I’m already at a point where our family spends about 80% of our passive income and saves 100% of our active income. Can I call that a 120% savings rate? I WILL NOW.
Remember, a high savings rate can cure a lot of other sins.
As long as I go forward each year, I’m good. And I know that by loading up on large blue chips I’m not going to deviate from the market that much. And as much as it pains Nelson of five years ago to admit this, blue chip dividend growers have a history of outperformance. So I suspect I’ll probably do about as well as ZDV, even if I’m not religiously tracking it.
Which, of course, begs the question. Why not just buy ZDV and be done with it? But unfortunately we’re out of time.
Just like this blog post. HEYO.
Uh, I make the jokes around here, Italics Man. Your role is to go straight to hell and stay there forever.
One of the things about being a sometimes-personal-finance-and-often-investing-blogger (or NAMBLA for short) is you sometimes feel pressure to do stuff so you have blog fodder. A finance blogger most of you have heard of told me that very thing one day, and I didn’t immediately dismiss her as crazy. That came later, when she demonstrated that she was, in fact, batshit insane.
If I ever felt this pressure (don’t worry, the only pressure I feel is CRIPPLING CHEST PAINS), I can easily get away from it by buying a few stocks and then telling you guys about it. I’m steadily adding money to my investment accounts and then putting it to work. I try to diversify much more these days, which means I’m constantly buying smaller or medium-sized positions in what I view are great companies. The diversification part is in case I’m wrong, which is entirely possible.
But what’s a fella to do if you’re not into active investing? There’s nothing exciting about making your monthly contribution into two or three index funds. And saving 20% of your income each and every month is about as sexy as your grandmother trying on new underwear. IS THAT A THONG? GRANDMA!
Hell, getting rich the old fashioned way might be the most boring thing outside of a computer-generated image of a black hole. NOBODY CARES, NERDS. CALL ME WHEN YOU FIND ALIENS. You save 10% or 20% or whatever percentage of your income, slowly put it to work, and repeat 40,000 times. No wonder people get bored and feel the need to spice it up with all sorts of nonsense that will make you richer slightly faster.
But the boredom should be embraced. It’s a desired side effect, not some complication that needs to be addressed. Keep your finances boring and add the spice to other parts of your life. Like have you ever considered unprotected sex with strangers? I hear that’ll get the ol’ heart pumping.