Top 3 Ways You Make Yourself Poor

1. Try to make yourself look rich to others. The best way to destroy tour wealth is to buy all of the luxury crap that you can, even if it means putting it on credit card. Some of the most wealth destroying things you can tell yourself are:

• You earned it!
• You deserve it!
• So and so has one, why can't I?

2. Maximise your paycheque. As long are earning at least $25,000 per year, it is much more important to focus on how much your net worth is going up than how much your paycheque is going up. This is because your paycheque only focuses on one of your wealth factors. The wealth factors are, in order:

• How large is the return on your investments
• How well do you minimise your expenses, including taxes
• How large is your paycheque

3. Give your investment money over to the friendly person at the bank to look after for you. Most people spend more time looking for deals at the supermarket than they spend looking for ways to maximise their investment returns. While this may make sense if you are earning under $25,000 per year, it makes no sense at all once you are beyond this point. The earlier you can get the power of compound returns working for you, the better.

How to Be Very Wealthy By 67

Current Net Worth: USD 1,038,557

As a resident of Europe, I have to admit that consumer financial system here is designed to make it a workers paradise.  When it comes to increasing your wealth, it seems to be entirely focused on getting very small, but guaranteed returns to supplement a very generous state pension

I currently am trying to help a friend of mine, who recently received a cheque for USD 10,000, invest in stocks. Wow, I never thought it would be so difficult. Online brokers are apparently non-existent in this country. The only way to easily “invest” is to hand your money over to an insurance company to give you small (1-3%) return. What kind of a deal is that? If we are looking at 20 to 50 year investment horizons, it is a HUGE mistake to take the guaranteed returns.

Here is an example:

Let’s assume that someone wants to invest USD 10,000 every year starting at age 24. The amount of the savings is increased by 2% every year as the 24-year old gets salary increases.

Option 1: You invest with the insurance company at 2% per year until you retire at 67.

Total Value of Savings:  USD 1,394,995

Option 2: You invest in small cap value companies at 15% per year until you retire at 67.

Total Value of Savings:  USD 50,861,645

The “entrepreneurial” option pays off about 36 times more than the “nanny” option. 

There is absolutely no doubt I will let my friend hand his money over to an insurance company. I will post an update when he finds a way to productively invest his money.

How Do I Control My Animal Sprits

Current net worth USD 1,027,000

The bad news...

Ok, so for the past 3 weeks I have a net worth of over USD 1 million, so maybe I will actually stay above this threshold from now on. But, who knows. One thing is for sure - I had no idea that having all this money would come with such a great amount of anxiety. I know that my investments are right for long term growth, but I still can't help feel anxious a great deal of the time. In fact, if I don't make at least USD 1,500 on any given day on my investments, I have sense of failure, forbidding, etc. All of this is very strange, since I like to think that I am a very rational person, who knows exactly why I am feeling anxious BUT that does't mean I don't feel anxious. If i feel bad about losing USD 7,000 in one day, what would happen if my net worth dropped by 40% or 50%. I mean this has happened to the stock market twice in the past 15 years, once in 2000 and the other in 2008. I personally managed to escape both of these with only a small dip in my net worth (due to luck, not skill) but I am fully exposed now. I'll let you know how this anxiety does or does not progress in further posts.

The good news...

I am all set to be able to technically retire in about 2 to 3 years and live off my investment income, BUT I am not a single man. I actually have 2 retirements and 4 university educations to pay for, so I will need to work for a while yet - or at least a combination of my wife and I will have to work. It does feel good that I will soon be in a position that I am no longer chained to my work.

Passed USD 1 million (again) Yesterday

Today's net worth USD 1,006,182

Well, for the second time my net worth has exceeded USD 1 million for the second time. The last time was in September of this year, when my status as a millionaire only lasted for a few days.

I have to admit that I am secretly oozing with serotonin today. Let me explain, for those of you that are not aware, serotonin is one of our feel good hormones. We create serotonin whenever we perceive our star is rising. Its a key chemical that any serious investor should be aware of. While its great to feel your sense of status rising - thanks to serotonin, you need to be aware when it works against you as an investor. For example, you will get a serotonin boost when you buy a new shirt, especially if the label is on the outside and everyone will be aware that your shirt was expensive or exclusive - or at least you believe that they will be aware. But should you have kept wearing that old shirt from last season and bought a share of P&G instead.

Ignoring My Instincts

Today's Net Worth $979 420

I have decided to load up next week on General Motors common stock. The vast majority of major analysts agree it is undervalued, and my own analysis shows the same. It also is trading at over 90% of book value right now, so the safety component is also high. The only problem is that they went BANKRUPT about 5 years ago. Yowsers! I can't imagine loosing all that money if we get another financial crisis and they go BANKRUPT - again.

Are harmful animal instincts getting the better of me? Do I dare risking buying heavily into a company that has only just recently been re-floated?

I decided to use all the cognitive neuroscience tricks in my arsenal to determine if my prefrontal cortex was the boss or my reptilian complex was ruling the roost.

1. I meditated for a few minutes before finalizing my decision. If after 10 minutes of mediation it still seemed like the right decision, then it probably was.
2. I visualised, in MS Excel, what my new portfolio would look like as if I had already bought the shares. I asked myself things like:
• What would the new book value of my portfolio be?
• What would the forecasted portfolio earnings be in 5 years?
• What would my portfolio look like if I left it the way it was, or bought something else. All of this helped me get unstuck from the current state.
3. I asked myself what my financial idol, Warren Buffet, would do in my place? His advice was clear, "be fearful when others are greedy, and greedy when others are fearful." I firmly believe that this is a situation where many people are still jittery about GM, hence I should be greedy.
4. I will sleep on it a couple of nights to make sure I am not letting any sub-concious (i.e. greed) emotions take over.
5. The most important thing I did was to confirm that it met all my investing rules. For me, it is expected to trade shares, but only to maximise the execution of my investing strategy - not because i am just reacting to recent events.

Well, I let you know how it goes. Hopefully this decision will take me a couple hundred thousand closer to my goal of $5 million.

Globe and Mail Financial Facelift 18 October 2014 Commentary

I love reading the Globe and Mail's Financial Facelift every Saturday. Although I have read so many, I rarely pick up any new ideas, I still like to peer into the financial world of others. I wish I could give them some of my own advice, but I was never asked. (Tut tut, mutter, mutter)

This Saturday's Financial Facelift seems like it's spot on advice for the client in question. Of course there is a "but" coming. The client in question is very anxious about her finances. Fear and anxiety, in most cases, are not useful unless there is something you can do. The good news, is that there are some more things that she can do that the advisor never pointed out:

Life Insurance $245 per month

My concern with life insurance is that many people seem to buy a product that is part life insurance and part lottery ticket. Let me explain... Insurance should be there to cover things that you could never do with your existing safety net (money, friends, family, etc). You should have insurance to cover these things catastrophes, but, in my option, many people buy life insurance way beyond this - a sort of grim lottery ticket. The advice that I give myself is to imagine that I or my wife were to die tomorrow, what would happen? Then ask, what would you absolutely not want to financially happen and then build up how much coverage you need, and do not go beyond!!! Anything beyond is comfort/guilt money - a form of grim lottery ticket. If you are over the age of 40 and have good savings, you may not even need life insurance. Remember that you will be needing your RRSP/401k anymore, your family can now use it.

Car & Home Insurance $400 & $100 per month

My advice, for the vast majorty of people, is to get the highest deductible possible and forgo any insurance extras. The money that you save by going this route should go into a TFSA/IRA. If you do, have an accident, you should have plenty of easily accessible cash to cover your deductible (thanks to your monthly saving).

Telecom/TV/Internet $215 per month

Wow, at $215 per month, this seems like a lot. Do you have 200 channels, but nothing is on? You could run an experiment for 6 months by canceling your cable subscription and only watching local TV or what is available for free on the Internet. Your local library probably also has loads of DVDs to borrow for free, or perhaps for $1 per week. Of course, the savings from this should go right into your TFSA. I bet after 6 months, you will wonder why you had't switched off the cable sooner.

Groceries $1,500 per month

For a family of four with two teenagers this does not seem unusually high, but if the client is really anxious about her finances, there is probably a goldmine of savings in here. My advice would be to start switching to lower cost brands for things that you family doesn't care much about anyhow eg bleach toilet paper, vinegar, dish soap, etc. If they don't moan too much, you can start moving up the chain to things like cookies and ketchup. If your family really cares about your anxiety, they should be able to live with store brand ketchup.

Cash in Bank $25,000

TWENTY FIVE THOUSAND DOLLARS IN CASH!!!!!!!????? Ok, maybe this is just moving through your bank account to tuition or something, but if you want to be on the road to stress free retirement, all your money needs to be working up a sweat for you. The only one benefiting from this cash is the bank - cash deposits are the cheapest source of financing for them. They should be sending you a Christmas card each year!

If the cash for an emergency, then it could go into an TFSA/IRA. If is for retirement, it could go into your RRSP/401k. 

Can I Trust Analyst Estimates?

Today's Net Worth $950,800

It's been a pretty wild week on the stock market. I haven't made any trades, and have been very impressed by my lack of concern on the bad days this week, when my loses were in excess of $20,000. For me, as long as the earnings estimates stay on track, I don't mind if the daily stock price fluctuates. Which leads me to a question that I have not found any answer to yet on the Internet.

Just how much Can you trust analyst earnings estimates?

I can imagine that the analysts have more training an resources than I do, so they must be able to fairly accurately predict future earnings and hence the inherent value of today's trading value. Or do they?

When I see that "14 analysts have a consensus earnings estimate of $0.25 per share" how do I know that this can be relied upon as a fairly good indicator? What if 10 of the estimates are at least 6 weeks old and the other 4 analysts are ready to be sacked for poor performance?

Is there a ratings agency for analyst estimates? I can't find any indication on my internet searches that this is the case. I also can't even easily find out which analysts made what estmate at what time. It doesn't exist anywhere. Even this simple info would add a lot of value to understand what "consensus estimate" really means.

I will keep looking on the internet for better info on these "consensus estimates" but if anyone can shed some light on this, I would appreciate it!

My Goal To Be A Very High Net Worth Individual VHNWI (starting from negative USD 10,000)

I have to admit I am a bit nervous starting this blog. Money seems to be one of last 2 taboos of the Western world - the other being sex, in case I need to point it out. Most people only really seem to find it socially acceptable to be in the middle part of the spectrum for both taboos. Any deviation and you are going to subject yourself to ridicule. But, here goes anyway...

I have a goal* to be completely financially independent for me and my family. To me, that goal is to have a net worth of at least USD 5 million. This status has a name with it as well. Its called a VHNWI (pronounced Vee plus Henry with a w instead of a r). With a net worth of USD 5 million I can't conceive it would be at all necessary to generate income for my family from my labour any more and should be able to live entirely off the income from the USD 5 million capital.

In case you want more info on this, one of the main socio-economic classifications is the HNWI tiers:

1. HNWI (High Net Worth Individual) Someone with a net worth of at least USD 1 million, excluding primary residence, collectibles, cars, possessions, etc. (I have already been a HNWI for a couple of days this year (in September 2014) before the USD dollar leaped in value and stocks dipped, so having this as a goal at this stage seems a bit of a cop out)
2. VHNWI (Very High Net Worth Individual) Someone with a net worth of at least USD 5 million, excluding primary residence, collectibles, cars, possessions, etc. From a wealth perspective, this is the entry-point of the Transnational Capitalist Class (TNC), although at the very wide-end. (This is a goal that is challenging, but I can reasonably expect to achieve in my lifetime)
3. UHNWI (Ultra High Net Worth Individual) Someone with a net worth of at least USD 30 million, excluding primary residence, collectibles, cars, possessions, etc. From a wealth perspective, you are definitely well into the TNC. (Update as of 17 Oct: Credit Suisse has now increased the lower limit for a UHNWI to USD 50 million)

This blog is about my journey to be a VHNWI. I will tell you about my progress and things that I learn along the way.

Why do I want to be a VHNWI? Well, I am not power hungry, in fact quite the opposite - office politics sucks the life out of my soul. I want to be a VHNWI because of the freedom to do many things full-on that I can only do sparingly now - either from lack of time or lack of money. More time to spend with my family (I have 4 kids), more time to travel, more financial security, etc...

Who am I? I'm a 40-ish year old Canadian citizen working for a company in Europe, who is making an OK income, but it wasn't always that way. My childhood was, what I would consider, in the established working class - my parents were never unemployed, but I certainly felt like one of the less well-off kids in the class in what was a VERY rural state school. (In later years, I checked to see that my high school was in about the 30th percentile of the national rankings.) I graduated from university with about CAD 12,000 in student debt and zero assets.

This September I joined the ranks of the HNWI class for about 2 days and it felt pretty odd. I have usually been a fairly diligent saver (although I have fallen off the waggon occasionally, (unlike, it seems Mr Money Moustache); I also do not make the salary of a CEO or investment banker (well maybe on par some of the not-very-good investment bankers). I have 4 children and my wife has been a full-time mum for over 10 years.

* I have other life goals as well, (I'm not that one-dimensional) but I won't be blogging about them here.