He’s coming for you. Not me, I’m immortal because God loves me extra much.
Now that I have a lady to take care of, I’ve started thinking about things like life insurance. I want to make sure that if I kick it (from natural causes, like a pair of scissors into my back), that she won’t have to burden the world by having to go on social assistance or anything like that.
Also, she will never love again.
For most people, the easy way to do this is via life insurance. You go see an insurance agent, fill out an application form, get a quick medical test (maybe even one with a finger up your ass!), and you’re in business. You can buy terms that go for 10, 20, or 30 years pretty easily and cheaply, especially if you’re under 30. A 20-year term policy for $500,000 will cost the average 25-year old about $60 per month, give or take.
If you’ve just undertaken some big commitments like buying the average overpriced Canadian house or getting your wife pregnant (high five!), it’s pretty easy to make the argument to buy some insurance. After all, what kind of BIG FAT JERK leaves his wife with all sorts of liabilities if he kicks it unexpectedly?
So I get it. There is very much a need for insurance.
And yet, I don’t have a dime of it. I don’t have life insurance, disability insurance, or anything. Hell, I’ve barely insured my car. Should I be getting some now that I’m officially part of a twosome? I don’t think so. Here’s why.
Remember the point of insurance
The whole point of insurance is to provide for somebody who isn’t capable of providing for themselves.
For the most part, that involves one of two groups of people. Either it’s there to provide for children or a spouse. Sometimes the spouse doesn’t work, but most of the time it exists because the one spouse can’t continue to service debt or maintain a lifestyle on their own. So the life insurance makes the debt go away, which makes it easier to live large, yo. Kids are going to be leeches no matter what, at least until the Conservatives pass that child labor law they’re kicking around (I get my political facts on Facebook!).
But what about that time in a man’s life when he’s freshly married with no big liabilities?
That’s exactly where I’m at. We’re currently renting a place that is probably unaffordable for my lady on her own, but she could very easily hire people to help her move into a place that costs less. Other than that, we have no major liabilities each month. We don’t have a car payment or any other debt.
If she can pretty easily downsize to a smaller place, why would I buy life insurance?
The answer given by insurance agents is you should buy insurance anyway, on the off chance that you become uninsurable in the future. I’d love to see the stats on how often that happens, because I’ve yet to see them. Anyone? I am 100% serious; if you have the stats, I’d love to see them.
It’s silly to protect for something that we don’t know will ever be needed. Maybe my years of keeping my laptop square on my junk have made my sperm more useless than a teenager at work. Or maybe I’ll just repeatedly punch myself there after watching my friend trying to reason with his two-year old for the 93859th time. This is a very real possibility.
Newsflash: not taking care of kids is easy. And fun.
That’s where I’m at now. My estate easily has enough in cash and investments that my lady will have enough to bury me and hire friends to cry at my funeral. She can then take the rest of the money and throw it in index funds (or try to invest it actively), and it’ll be enough that it’ll grow to a few million by the time she’s ready to retire.
Insurance is a valuable part of financial planning. But it’s not for everyone. If you’re single, or just recently coupled up with very little in liabilities, it’s pretty easy to argue that buying life insurance doesn’t make much sense.
Let’s do a little what-if roleplay situation. NOT THAT KIND OF ROLEPLAY GEEZ.
You go and look at an apartment to live in. You walk around, like the place, and think it’s a pretty good value for your money. But while you’re there, something seems a little off about the guy showing you the place. He’s very concerned about you, what you do for a living, and so on. It takes you 45 minutes to get out of there because he has so many questions for you.
Compare that to situation B. You call up a property management company with hundreds of properties underneath them. They ask you a few questions, maybe pull your credit or request a couple of references, and you’re in business. It’s an easy transaction, because like hell they have time to ask you a billion questions.
Which landlord should you go with? Well, sometimes you don’t have any choice. You’re stuck going with the one who will give you a place to live because the market is hot or you’re in a hurry to find something. But if you do have a choice, you need to stay very far away from the amateur landlord. Here’s why.
Amateur landlords are crazy
There’s one really big reason why you should never rent from an amateur landlord.
They’re crazy. Not regular crazy either. Like ex-girlfriend crazy.
Look at it this way. If you had a whole bunch of your life savings stuck in one asset, you’d probably protect it pretty aggressively too. It’s human nature.
Unfortunately, that very situation makes for a poor landlord/tenant relationship. The landlord is going to be suspicious of your every move. He’ll do things like invent reasons to come over and take a look at things. Maybe he’ll insist on putting new filters in the furnace instead of just leaving it up to you. Or maybe he’ll just give notice and show up one day. It is within a landlord’s rights to do that, but professional landlords don’t usually bother. Again, they’ve got better things to do.
Amateur landlords don’t have much knowledge of the laws either. Here in Alberta (WOOOO LET’S MURDER A COW AND THEN FORCE FEED THE MEAT TO A HOMOSEXUAL, WHO WE ALSO HATE) the Residential Tenancies Act is pretty loose. Unlike in places like Ontario, you can tell someone they can’t have a pet or smoke in the place right in the ad.
And yet, I’ve still seen hundreds of rent ads in my day that blatantly break the law. The biggest one is racism (“Indians preferred” or “Canadians preferred”), but I’ve seen other things as well. You can’t say “you must have a job to rent my house,” yet people do it all the time.
If you’re a smart tenant who knows the rules, you want to rent from an amateur landlord all day long. They’ll make stupid mistakes like not doing an inspection report when you first move in. Professional tenants (AKA scammers) can spot an amateur landlord a mile away, and will exploit the hell out of them.
But if you’re not that smart, it’s better to deal with a bigger company. Or at least somebody who has many units.
How to avoid an amateur landlord
Okay, we’ve established that amateur landlords are crazy. How do you avoid even phoning one in the first place?
There are all sorts of warning signs. Let’s start with the ad. Professional landlords will never bother to exclude anybody in the ad. This means that anything from “No darkies allowed” to “quiet, professional couple preferred” in the ad is most likely from a amateur landlord. A lack of pictures and a terrible description also scream amateur hour.
When you’re looking at the place, a professional landlord will be more likely to ask you to actually fill out paperwork, while the amateur will be the one asking you a million questions. The professional wants everything in writing, while the amateur will be more concerned if he can trust you. Thus, your word is more important to the amateur.
A professional landlord may or may not check your credit or phone your references. Usually, they can tell a lot from the type of job you have, the clothes you wear, or the car you drive. The amateur landlord usually won’t even ask for a credit check or references. Sometimes they will ask, and sometimes they will call, but it’s not terribly likely.
The other easy way to figure out if you’re dealing with a pro or an amateur is to straight out ask. Work it into the conversation somewhere. It’s really not that hard. The amateur will be especially eager to tell you about his grand plans to get big into the business.
If you really know the laws, you should be looking for an amateur landlord to exploit. Lord knows, the amateur will eventually make huge mistakes. But if you’re a regular person, stick with the person who is a landlord for a living, whether it’s a property manager or a big owner. Everything will go much smoother, which is really all you’re looking for.
In the world of personal finance, just about everyone wants the masses to convert to our “religion.” It’s lonely seeing the light, apparently, so we need as many followers as possible. We’re like David Koresh, but without the terrible 90s glasses.
So we do what any good religion does, and that’s indoctrinating the children. Yes, Mrs. Lovejoy, somebody IS thinking about the children. We relentlessly stress for financial education in schools, even though evidence argues it might be a waste of time. We post financial tips on our blogs, with some of them even being useful. And I guarantee a full 96% of us would actually cream our drawers if somebody showed up and wanted us to be our personal finance mentor. (Not me. I don’t have time for that crap. Figure it out on the internet like I did, champ.)
This is all well intentioned, but I think ultimately misguided. I not only think that the vast majority of this stuff is a waste of time, but that we should go even further. We should encourage people to actively not take an interest in personal finance.
Only so many opportunities
In the world of value investing, there are only so many cheap companies. And out of those cheap companies, the majority of those are trash. They’re either in a secular decline, or they have too much debt, or whatever. There’s a lot of crap out there, especially in the value world. Think of the whole exercise as turd mining, actually. You fish through a lot of turd to find something decent.
This extends to other personal finance options. Think about something like an emergency fund. If everyone had an emergency fund, banks would be flush with cash, and they wouldn’t have to issue so many bonds. So they’d pay deposit rates for the cash, while people would borrow a whole lot less than what they do now. Lower volume equals higher interest rates, plus less jobs in banking.
In a world where everyone buys less junk, the retail industry would be decimated. People would make their own beer and only buy lentils and whatever meat the grocery store had on sale. That’s probably good news for Walmart, but terrible news for luxury retailers. Nobody is buying a Tiffany’s necklace in this new world.
Even think about cars. Everyone would drive a Honda Civic or a Toyota Camry, because the luxury car segment would barely exist. And since car companies wouldn’t have luxury models to pad the bottom line, the price of a Camry would be more than what it is today.
And finally, there’s the world of regular investments. If you think the market is expensive now, imagine how expensive it would get when you add trillions in cash that isn’t getting spent on gadgets, fancy sofas, or credit card interest. There’s only so many investments to go around. And remember, stocks like Coca-Cola, McDonalds, or Nike wouldn’t be very attractive at all, since every consumer would be drinking delicious tap water and making their own hamburgers.
Our entire economic system is based on people buying stupid crap that they don’t need to impress people they don’t care about. We all think it’s stupid. But without it, the world gets a whole lot harder to compete in.
It gets worse
Imagine a world where everyone took our advice completely to heart and successfully implemented it.
Forget about the economy for a second, even though it would be completely different than it is now. Just look at something like employment. We’d be full of overachievers that are sitting on huge emergency funds, just waiting to switch jobs because something better comes along. There would be no under performers, because we’re all working hard so we can eventually retire early.
How is the average performer supposed to get ahead in a world like that?
In Canada, one of the driving forces behind our economy is people borrowing against their houses to consume. What happens to the economy if we don’t do that?
People think that if we take away the consumer-centric economy, that money will automatically flow into investments and people improving themselves. We’ve already debunked the myth that more money into investments is automatically good, so let’s squash the other myth.
Frankly, it’s laughable that the average person is just a better financial situation away from accomplishing something great. If the average person has his financial poop in a group, he’s not going to create the newest internet business. He’s going to spend more time staring at the TV (Netflix, of course). He’s just not smart enough.
Let’s face it. Most people who would create cool new things are already doing it. If Bill Gates had credit card debt, would that have made him less good at computers? Somehow I doubt it.
If you want to get ahead, you need to do it by stepping on the figurative back of someone else to get there. If everyone had the same goals as the rest of us, being wealthy wouldn’t be extraordinary. It would just be the expected outcome, like pinching one off after a big meal. What a terribly boring world to live in.
Fortunately, this will never happen. Consuming makes people happy. That stupid diploma on the wall apparently makes up for the $50k in student loan debt. And the new car makes people feel good too. But in reality, this is all moot. No matter how much people like me claim we’re smart and do all the right things, the fact is PF nerds buy stupid crap all the time. And if PF nerds do it, what chance do regular people have?
If you really want to get ahead, you should be cheering for everyone to get further behind. Less competition is a good thing.
“We’re not wearing anything under these robes.”
Oh hey, new graduate.
Congratulations on finally getting yo’ ass a diploma. I know it’s probably attached with an assload of student loan debt, but hey. At least you finished. Imagine being that guy who has a bunch of debt and works at Starbucks who doesn’t even have his degree. At least you have bragging rights.
You might not remember, but delivering these messages is kind of a tradition around here. I did one in 2013, which urged you all to pay off your debt at all costs. I followed it up last year with another one, which said that y’all should work smart and take alternate paths. I’m sure they were all forwarded to dozens and dozens of grads, where they were promptly ignored because if there’s a group of people who think they know it all, it’s 22-year old college grads.
So let’s keep the party going. After the last four years of being circle jerked in your little protective bubble, frankly, you all could use a little cold water splashed on you.
Let’s get the basics out of the way first. You know how all your teachers and guidance counsellors and your mommy and daddy told you that all you needed was your degree and you’re all set? Yeah, that’s not true. Sure, having that degree helps, but at this point all it really shows employers is that you’re capable of making it through school.
Your first job will suck, which is exactly what should happen. Brenda from accounting will be a major c word, and you will totally get passed up for promotions that you deserve. The office hot chick/funny guy will get perks like you cannot believe, while Bill Lundbergh shows up at your desk four times per day bitching about TPS reports.
Oh, you’re going to avoid all that? By going to work for a start-up? Don’t make me scoff. There are a million startups out there that think they’re reinventing the wheel who have found some venture capital guy with more enthusiasm than brains and a bunch of investor cash. It’s all a giant bubble and it’s all going to end badly.
At least none of you think you’re the next Zuckerberg, right? Oh God. Look, don’t even think about it. Somebody who has never held down a full-time job has no business starting their own company right out of college. You’ve already raised money? Just give it to me, and we’ll light it on fire together.
Look, I know you’re full of piss and vinegar and probably some recreational drugs, but the real world doesn’t work like that. If you want to show the world you can build a better do-dad, go and learn the ropes while somebody is paying you. Become a really good employee before you even think about going out on your own. Get a promotion or two under your belt first, and then we’ll talk.
I know that you want to change the world, or start doing really cool things. And hey, maybe you’ll get around to it. But graduate, you gotta stop being so damn impatient. The world is a really difficult place, and chances are you’re lazy. Besides, I’m pretty sure most super achievers didn’t get a B in intermediate statistics. Oh, sorry, a B+.
At a minimum, your first decade in the workforce should be spent trying to learn the ropes. I’ll be 32 in about six weeks, and let me tell you from experience that most 22-year olds don’t know a damn thing. And if you’re 18, I suggest shutting your mouth for a few years and just listening to the grown-ups.
Sure, Bill Gates accomplished a lot during his 20s. So did Elon Musk and that Zuckerberg guy. Fine, I’ll give you those. But there’s no way you can compare yourself to them. Let’s temper expectations a little. They’ve already gotten four hours worth of work done, while you’re procrastinating by reading this blog post. And by setting your expectations too high, you’re all but ensuring a lifetime of disappointment and failure.
For the next five years, here’s what I want you to do.
One, put your head down and work. You’re young and have the energy. If work doesn’t give you the chance to exchange extra hours for extra money, start a side hustle. Instead of the side hustle aiming for the stars, do something practical. Don’t try to invent the next Snapchat. Do ref sports, or something else from this list.
Secondly, learn everything you can about the world around you. Sacrifice time you’d normally spend with your bros and crack open a book or ten. Your bros are probably dumb anyway.
And finally, I want you to embrace the ordinary. Accept the fact that you’re not gonna change the world. Accept the fact that you’re mostly average. Accept the fact that, like most people, you’re going to value time with your family more than you do work.
By tempering expectations, you’ll create a life where you celebrate accomplishments instead of getting down on yourself because things haven’t happened as quickly as you’d like. But most importantly, you’ll create the temperament to just keep chugging along.
Warren Buffett made 99% of his wealth after his 50th birthday. So did Sam Walton, Ray Kroc, and millions of other successful people. Do you think they lamented how they were 29 and still hadn’t accomplished all their dreams? Do you think they had a “quarter life crisis”? Hell no. They were out working. They were doing the little things that get no credit.
You have to be incredibly lucky to change the world. But to get rich, have a great career, or do some cool stuff, there’s not a lot of luck involved. You just have to do the right things every day, and repeat them for decades. Most people just can’t pull that off, which is why they’ll only be mediocre for the rest of their lives. Conquer this impatience and realize things take time and an assload of work. Once you figure that out, the sky truly is the limit.
How many times have you heard something like this?
“Here’s how you become a successful investor. You buy a company like McDonalds NO MATTER WHAT THE PRICE, and you hold it for 50 years. I guarantee you’ll be rich. Just look at the last 50 years.”
Not only are these people falling victim to hindsight bias, they’re also guilty in assuming the next 50 years for McDonalds (or Coca-Cola, or Philip Morris, or AT&T) are going to be just as great as the last 50. The stock is going to be able to return 12% per year and outperform the market simply because it has a history of doing so.
But when you actually crunch the numbers, you’ll realize how ridiculous it is to blindly invest in a company like McDonalds for the next 50 years.
In 1965, McDonalds became a publicly traded corporation. Say you invested in the stock in 1980, which is 35 years ago. On just share appreciation alone, you would have made about 13.7% annually. Let’s go with that as a return, because it gets our point across nicely.
In 1980, McDonalds opened up its 6,000th restaurant in Munich, probably close to where Hitler used to hang out. These days, there are approximately 35,000 restaurants around the world. That’s a growth rate of 5.2% per year for the stock to grow 13.7% per year. If we assume the same overall growth to new restaurants ratio, McDonalds will have to increase its store count by 3.8% annually to grow the stock price 10% annually.
If McDonalds could do that, it would have nearly 130,000 restaurants around the globe by 2050. I know there are plenty of places around the world the chain has barely cracked, but another 100,000 restaurants? For reals? The world is supposed to have more people, but only about 50% more than we have now.
Where’s the growth supposed to come from? It’s not like the 1960s and 70s when McDonalds practically grew unopposed. We probably eat out more than we did back then, but there are hundreds of new chains that have opened, most of which are better than what my buddy Tony calls McDumpsters.
If there’s one thing I’ve learned being an investor, it’s that the leader isn’t always the leader. It can and will get replaced, especially as the market around it changes. It’s obvious the strategy of buying and holding McDonalds forever isn’t going to work as well for the next 35 years as it did for the previous 35.
Song I like and therefore you should too
German heavy metal? Sure, let’s go with that.
Fun fact: if you listen to more than 20 hours of Rammstein, there is a 100% chance you will turn into the next Hitler.
The Office quote
Dwight: I can’t believe you came.
Michael: That’s what she said.
What you might have missed
I think Friday’s post was good for a few chuckles, but chances are you didn’t miss that one. Unless you were slacking like some sort of LAZY MEXICAN. Stereotypes are fun!
Are you one of those bastards with a gold-plated pension? Not only do the rest of us who actually have to save for retirement hate your guts, but it turns out your pension might not be as good as you might think. Is that disturbing enough for you?
Nelson’s so funny
I have changed my Twitter avatar to Stephen Harper kicking the air while the mascot of Quebec’s winter festival looks on. It is the greatest picture I have ever seen.
I’m like the clap. You’ll never get rid of me.
The more you know
This is the only part of the blog which is even remotely educational. I assume you’re all here for the scantily clad ladies, right? If you are, you’ve already scrolled past this without reading it.
Robert Anderson Cooke (1880–1960) was an American immunologist and allergist.
In 1916 Cooke and Albert Vandeveer demonstrated the role of heredity in the origins of allergy. According to Cooke, 48% of his allergic patients had allergies in theirfamily history. While the trait of allergy is transmitted through heredity, parents and children may be allergic to different substances.
In 1918, Dr. Cooke suggested a mechanism of action for allergen injections as a “desensitization or hyposensitization,” analogous to tolerance achieved in experimentalanaphylaxis induced in animals. This concept suggested that the injections of an increasing amount of allergen or antigen slowly neutralized those antibodies responsible for the allergic reaction.
This seems obvious now, but in 1918 that was some breakthrough crap. My new lifelong goal is to come up with something really awesome that won’t seen very impressive at all when I brag about it to my grandkids.
Kevin O’Leary’s stock pick
Each week current BNN personality and Shark Tank investor Kevin O’Leary is kind enough to give us his favorite stock pick.
My stock pick this week is IBM, because it pays a dividend and trades at a low P/E, and I just look at those two things and declare myself a value investor.
I’m sure you all heard the news about both David Chilton and Arlene Dickenson leaving Dragon’s Den shortly after your’s truly did the same thing. What a bunch of copycats, just doing that thing I did first. I hope the next woman they put on the show isn’t as whiny as Arlene was. I made her cry 14 times one year. Jim Treliving even gave me a trophy to commemorate the occasion. The trophy was pizza.
After CBC execs called me and BEGGED me to go back on the show, I agreed to meet with Hubert T. Lacroix to discuss my demands. After some B.S. about how the show couldn’t afford my very reasonable salary of $2.5 million per episode, I did what was necessary. I went to his house, murdered his dog and then drank its blood.
Babe loosely related to finance
Happy belated Valentine’s Day to all the fellas in the house!
I’d post something for the ladies, but we all know they collectively did much better in the Valentine’s Day present department than the gentlemen did.
Time for links
Let’s start things off with an investing piece written by Captain Sexy here, me. If you’re looking for dividends, I’d suggest avoiding these 3 stocks. And then, just a few days after I wrote it, one of the stocks cut its dividend. I’m so smrt.
Over at LowestRates.ca, I took a closer look at what happens when you cancel your car insurance. It can be a good idea, assuming you’re careful about it.
101 Centavos profiles a relatively tiny British processed food company which is doing its best Wal-Mart impression, squeezing suppliers. Click on over to see whether he put any money into it.
Holy Potato gives a great walkthrough of how to defer your RRSP tax deduction to another year. That’s a useful tactic if you’re pretty sure you’re going to make more money in the future but have RRSP room now.
Hate paying bank fees? You could go to Tangerine, but I think there are various benefits to a) having a relationship with your banker and b) being able to pop into your local branch and get a problem taken care of. Luckily, Liquid Independence tells you how most anyone can get effectively free banking.
Vanessa took a close look at You Need A Budget, software that tracks your spending in exchange for $60. Or something, like I’m going to google that and look. See whether she enjoyed it or not.
And finally, I provided an update of the previously hosted at this blog Uproar Fund over at my new site, Canadian Value Investing. Last week was an exciting one for the fund; you’re not going to want to miss that.
And that’s about it. Have a good week everyone.