Trevor Abes: Writer

Young Canadian Investor #13 — The Benefits of Delayed Gratification

Far be it from me to tell you to not indulge in the pleasures of youth, whatever those amount to for you. You need to fill your time with experiences now to be able to look back fondly on them later when energy, passion, and priorities have evolved you into a different person. Don’t worry, I’m not here to be a wet blanket.

What I’m here for is to illustrate how investing is the bridge between your horny, idealistic, sleep-deprived self to the person you’re going to become after you’ve lived your fair share. It may not be immediately worth it, but investing now can lead to opportunities that aren’t presently available to you.

“The answer is dreams” — Haruki Murakami, Sputnik Sweetheart.

If you follow through on some of my suggestions about saving money, invest in stocks for at least a decade, and stick to making regular contributions, that extra 40 or 50 grand just lying around, while unimaginable now, will be available for you to take the next major step in your life. That may be starting a business, starting over somewhere new, or putting a down payment on a house, really any fantasy turned into tangible reality due to the benefits of compound interest and living below your means.

If I may get a little heady and sentimental, what do you dream about? If I may get a little more to the point, you already know that time is an inexorable progression toward pushing daisies, so what are you waiting on to move closer to the life you want?

It’s really all about rustling up your first $1000, investing it in a TFSA, and contributing to it from there until you reach your target number. If you think this investing business is too complicated for you, I beg to differ. My new book, Nine Steps to Successful Investing: A Guide for Young Canadians, will walk you through the process in plain language in no more than an afternoon. Give it a go if you’re ready for your nest egg to grow at a considerably greater clip than the pennies your bank throws into your savings account every month.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #12 – How to Save $1000

The smallest amount of money you can invest in Canada without having to pay a fee for the privilege—usually $25 per quarter—or commissions on transactions—$5-$10 a pop—is a grand at a brokerage house called Questrade. A brokerage house simply provides a platform where investment buyers and sellers can make their orders.

The problem here is that, if your investments fall below $1000 in any given quarter, Questrade will charge you the fee unless you make one trade in any amount. To avoid all this time wasted monitoring your balance, what you really need is to start investing with an amount that could fluctuate in value, due to the ups and downs of the stock market, without much of a risk that you’ll fall below the threshold. Seeing as 50% drops occur about once every decade or more, this post should be called How to Save $2000, stock market history considered.

If you have cable, you’ve probably seen Questrade’s commercials where young 20- or 30-somethings sass some sense into older, crustier financial advisors for their high fees. As the broker with the lowest minimum in the land, this is entirely by design. Compared to the big banks, where $5000, $10000, and $15000 minimums are prohibitively in place, youngins have nowhere else to turn. To be fair, you could invest in a TFSA at CIBC with no fee and a $500 minimum, but you’d still have to pay $7 per transaction. Question is, how do you get that two grand in your hand in the first place? Ponder my suggestions below.

  1. If you receive a regular paycheck, shift 5%-10% of it into a savings account each time. The amount should be small enough that you won’t feel like it’s missing.
  2. Think about the money you spend on personal entertainment like books, music, games, and eating out, and make small cuts such that you end up with a reasonable bit of cash, say $100, by the end of three months. Obviously up the amount if you are able.
  3. If you eat out as a matter of course, learn to cook. Seriously, be willing to mess up, experiment until you find your comfort zone, and it will pay off. When you cook from home, you don’t charge yourself extra to pay for rent and staff salaries. That means your fried chicken dinner will cost you $5 instead of $15.
  4. Remove brand influences from your life by shopping for generic brands and netting yourself the savings, which can be 25% or more.
  5. Consider subjecting yourself to ads and using the free version of Spotify for a good long stretch. You could also cancel your Netflix or Crave subscription and opt for your local library’s free streaming service. You’ll probably only get to stream a limited number of recordings per month, so complementing your viewing with creative YouTubing would become a must.
  6. Adopt a big-picture perspective and identify things you spend money on but don’t use and/or need. Beyond mere entertainment, this could include balance protection insurance on your bank account, a gym membership, or extra cellphone plan features bloating your monthly bill.
  7. Give yourself time to accomplish this goal, even if it’s a year or more. Your means are what they are and improving them requires you to simply begin.

While this list is by no means exhaustive, it should add up to meaningful savings over a reasonably short timeframe if you put it into practice as a whole.

If you’re curious about investing and have been searching for a short, no-nonsense guide to help you get started, have a look at my new e-book, Nine Steps to Successful Investing: A Guide for Young Canadians.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #11 — My New Investing Guide for the Youngins (of Which I Am One)

Quite thrilled to announce that I have a new book out called Nine Steps to Successful Investing: A Guide for Young Canadians. Its purpose is to walk you through the investing process, from figuring out what you’re saving for, to opening an RRSP or TFSA, to putting your money to work in the world’s stock and bond markets through index funds.

I tried to be efficient with words and not wander down many rabbit holes to avoid trying your attention with subject matter that tends to put most youngins to sleep. Explanations are just as long as they need to be with links to digestible sources for anyone interested in learning more.

If you’ve been thinking about investing, have the sense that you’d like to approach it yourself—as opposed to hiring a financial advisor—and prefer a lean primer as opposed to 300 pages of fluff, this book will put you on the right track in no more than an afternoon.

You can find copies here.

 

I have three fiction pieces in The Temz Review!

Catch me with some flash fiction in the latest from The Temz Review out of London, Ontario. Read it here.

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Past Contributor Reading Series: Trevor Abes

Here I am reading my poem, “Oh, Just Browsing”, as part of untethered magazine’s Past Contributor Reading Series. The poem is included in my prose collection, The New Frontiers of Conceptual Art, which is available through the ‘Shop’ tab above.

untethered magazine

Today in PCRS, Trevor Abes reading his poem “Oh, Just Browsing” from untethered vol. 2.1

Trevor Abes is an artist from Toronto with a fondness for writing essays and poetry. He was part of the winning ensemble at the 2015 SLAMtario Spoken Word Festival, and competed in both the National Poetry Slam and the Canadian Festival of Spoken Word as part of the Toronto Poetry Slam team. His work has appeared in Torontoist, (parenthetical), untethered, Sewer Lid, Spacing Magazine, Descant Magazine, The Rusty Toque, The Theatre Reader, Mooney on Theatre, The Toronto Review of Books, Hart House Review, and Sequential: Canadian Comics News & Culture, among others. His first full-length collection of prose, The New Frontiers Of Conceptual Art, is available through trevorabes.com. Find him on Twitter and Instagram @TrevorAbes

Watch and read this piece below!

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New Book Out Today: The New Frontiers Of Conceptual Art

My book of fictional ekphrases, The New Frontiers Of Conceptual Art, is now available as a digital copy.

It’s inspired by the people I met while working at the gift shop in Toronto’s Mount Sinai Hospital.

In case the term is unfamiliar, an ekphrasis is a literary description of or commentary on a work of art. In the case of NFCA, the artists and artworks are fictional but based on real people.

You can read sample pieces and grab your copy here.

nfca cover

Young Canadian Investor #10 – Common Investing Questions Answered

1. Don’t I need to already have a considerable amount of money to invest? Not anymore. It used to be commonplace for funds to have $1000 or $2500 minimums to invest, but you can now buy ETFs for free on Questrade without a commission, even if it’s one share at a time. And just for reference, the Vanguard FTSE All Cap Canada ETF, which invests in a basket of stocks meant to represent the entire Canadian stock market, currently trades for $26.03 per share.

2. What’s wrong with enjoying myself and my money now if life is short and you never know what could happen tomorrow? Nothing at all. In fact, another way to look at investing is as a way to prolong your enjoyment of life until the very end. It’s a trade-off, really, between putting a few dollars away without sacrificing too much in the now, and risking going broke when you can’t work anymore. Whether that means saving $100 a month or $10000, the point is that your future self will really appreciate it. 

3. This investing stuff is way too complicated for me. Has anyone put it all into plain language so I can educate myself at my own pace? Yes, indeed. Behold.

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4. If investing in the stock market is so great over the long term, and helps set you up for a more comfy retirement, why do only about half of Canadians engage in it? Because holding stocks for decades requires a strong stomach. It isn’t easy to watch your globally diversified investment portfolio drop by 20% about every five years, and by a third to half or more every decade or so, on its way to providing you with an average 7% return.

5. What’s inflation? Inflation refers to the sustained rise in price that most goods experience over time. In Canada, it’s 2% a year or so, meaning that the 7% return mentioned above is actually 5% adjusted for inflation.

6. Isn’t a house a better investment than putting money in the stock market? No, because of the money it costs you to maintain and live in it. Here’s a detailed breakdown courtesy of Ben Felix, an investment and financial planning professional based in Ottawa.

7. Can’t I just save money instead of investing? Sure, so long as you’ll be able to give yourself the life you want when you’re older. If you save $300 a month for the next 20 years, you’ll have $72,372 by the end of it. If, instead, you invest that money, and earn a 7% return over the same period, you end up with $157,489. Give this compound interest calculator a whirl and figure out how much money you’ll need to lead your idea of a good life.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

 

 

Young Canadian Investor #9 – Useful Investing Tidbits

1. Why own stocks? Because owning one is equivalent to buying into the productive power of that company’s employees to sell products/services and make money. The better they perform, the higher the stock’s price, the more wealthy you become, and the quicker you can do as you please with your time.

2. Talking heads on financial television always come with an agenda, whether that’s sugar-coating the strengths of an investment they already hold or plan to, or supporting federal or monetary policy they would end up benefiting from. The same goes for interviewees espousing the benefits of spending within your means and making regular contributions to a retirement portfolio of stocks and bonds. One avoids being whipsawed by conflicting advice by having a financial plan and sticking to it.

3. Anytime you hear anybody make a prediction about where the stock market will be in the future, you can be sure that they’re mistaken, or lucky if they turn out to be right, regardless of the credentials they hold. Consistently predicting the future isn’t within the purview of human intelligence.

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Technical analysis at work. Courtesy of wallstreetbets.

4. Unlike the USA, where buying stocks commission-free has been widely adopted, Canadians still pay anywhere between $5-$10 per buy or sell order. The best exception here is Questrade, where you can buy ETFs for free.

5. Much maligned for offering mostly super-expensive mutual funds, and fees for advice that only the gullible or misinformed should pay, Canada is slowly improving in terms of providing everyday people with access to fairly-priced investments and the information they need to understand them. Common Sense Investing and The Plain Bagel come to mind as two sources worth your eyeballs. If you’d rather read, MoneySense is a good place to start.

6. The worst thing you can do with your stocks is find yourself having to sell them when they’re down because you need the money. Another way to put this is that you should only invest money you don’t need to cover your expenses, including emergencies. That way, you’ll be able to hold on during good markets and bad and take advantage of compound interest.

7. Technical analysis, or investing based on the price movement of assets like stocks and commodities, is the financial equivalent of LARPing, or choosing to inhabit a world that runs by whatever principles you choose. Its basic premise, that you can predict buyers’ and sellers’ motives by studying price charts, refers directly back to numeral 3. 

8. If you’re interested in picking individual stocks as opposed to or in addition to owning index funds, you need to be willing to dig into companies’ financial statements. In Canada, you can find them on SEDAR, or the System for Electronic Document Analysis and Retrieval.

9. Canada’s economy is made up of roughly 35% Banks, 20% Oil and Gas, 10% Industrial Manufacturing, and 10% Basic Materials like lumber and metals. Technology is only around 4%, with Health Care bringing up the rear at 0.5%. In the USA, on the other hand, Technology represents about 20% of the economy, and Health Care is 15%, which demonstrates the benefits of diversifying your investments beyond your home country.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #8 – The Downsides of Index Funds

Thanks to the efforts of the late, great, Jack Bogle, index funds have opened up the world of investing for everyday folks in a simple, cost-effective way.

Now, pretty much anyone can open a brokerage account, invest commission-free in a handful of index funds that own stocks all over the world, and thus piggy-back off humanity’s industrial might to improve their financial futures. 

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Tell em Queen.

That said, these funds are not panaceas. Even though they’re the best option around for %99 of people fortunate enough to have spare cash lying around to invest, they are not without their faults.

1. Most index funds that track the stock markets of entire countries are market-cap weighted, meaning that the more a company grows in value, the more of its stock the fund will have to hold. The problem here is that, since stock prices are not only based on company performance but also on investors’ expectations about how companies will perform, investors’ expectations can and do frequently lose sight of how well or poorly a company is doing. That means stocks are often cheaper or more expensive than company performance merits. But the market-cap weighted index is designed to ignore these discrepancies and simply buy or sell in line with investors’ expectations without stopping to question them. One workaround is to integrate valuation into your investing process by considering which countries are cheaper or more expensive than others at any given time.

2. Because indexing has become so popular over the last decade, the investment companies that offer these funds have become increasingly larger owners of the businesses held by the funds. Right now, Vanguard, BlackRock, and State Street (The Big Three) own a little over 20% of the S&P 500 (the 500 biggest companies in the USA). That’s an issue because shareholders get to vote at company meetings to choose boards of directors and have their say regarding future plans. If you invest in an S&P 500 index fund, it’s the fund provider and not yourself that gets to vote for the 500 companies. If three investment companies basically have the reins of the USA’s capitalist machine in their hands, that smells of antitrust, and government intervention can’t be too far off. The Big Three vote in line with company management, so there’s been no rocking of the boat, but the door is certainly open for them to. We’ll see how long that lasts.

3. Another flaw to be mindful of is that index funds concentrate investor behavior. If you’re a stock picker or active investor, you’re going to own a handful up to maybe a couple hundred stocks based on your analysis of what a business worth owning looks like. If you buy into broad indexes, on the other hand, you buy into entire stock markets, including the outstanding businesses, the mediocre, and the ugly. So if an index fund investor decides to buy or sell a portion of their globally diversified holdings, they are essentially buying or selling a tiny part of every stock in every major index in the world, whereas the stock picker would only be buying or selling the specific stocks they own. In times of market distress, such as the virus-induced stretch we’re currently living through, it’s easy to see that a wave of selling from index investors can have an outsized effect on the markets simply because they own all of them. The more people index, the more pronounced this effect will be, and the more important it becomes to brush up on your investing basics so you never let fear get the best of you, and you recognize that, when index fund prices drop, that means they’re on sale, so you should buy more shares if you can instead of running for the hills.

In spite of their flaws, index funds still guarantee you the returns of the markets they track minus very low fees. They’ll also beat the vast majority of stock pickers over the long term, so long as you maintain regular contributions, choose an appropriate time horizon and risk tolerance, and keep your emotions in check. There is no doubt that everyday investors like you and me would be way worse off without them.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

 

Young Canadian Investor #7 — Some Context to Minimize Panic

Arguably, the hardest part of investing for the long term in individual stocks as well as broad stock index funds—this includes funds that track the Total US Market, Developed International Markets, Emerging Markets, or the Global Stock Market— is keeping your psychology in check during market extremes. 

When funds have been going up for a handful of years, most of us think the trend will continue and want to buy more shares. Even though we have to pay an increasingly high price to do so. 

When funds have been dropping for a long stretch, most of us figure it’ll get worse and feel we should sell. Even though prices haven gotten cheaper and thus more appealing.

Why do we act like this? Human nature.

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How do we fix it?

One. By setting a range for how high and low stock markets can go, as per the historical record, to get an idea of good lows to buy more of, and good highs to dollar-cost-average into until prices improve. Selling investments should be limited to the reason you invested in the first place. 

How much can markets rise before a recession knocks them down to fair value? Australia’s stock market went more than a quarter century without one.

How much can a country’s stock market drop, and how soon? Eighty percent is a reasonable worst-case scenario. This happened in the US over two years in the late 1920s and early 1930s with the market taking over 25 years to recover. It happened again, this time over a couple decades, during the double-digit inflation of the 1960s and 1970s. 

Historically speaking, though, any time a broad index is down double digits (over 10%) constitutes poor performance and thus a buying opportunity/sale/good deal. This with the knowledge that it could drop another 50% or more and get that much more affordable.

Two. By remembering that, excluding problems with the fund’s management or issuing company, a broad market index fund going to 0 would require the industrial complexes of the countries it tracks to go out of business too. And it’s next to impossible for that to happen, whether in Canada or Spain or South Africa. Barring an apocalypse or investment company bankruptcy, dips in your index funds’ prices per share will eventually recover. It may take many years, so it’s up to you to ensure an appropriate time horizon.

Three. By holding firm that, to benefit from investing in stocks over the long term, i.e. make money, you have to invest regularly and stay invested—continuously— in a globally diversified portfolio for a minimum of five years but ideally for a few decades or more.

That’s essentially how you watch your index funds drop in value without panic-selling to avoid the stress. Easier said than done? Perhaps. 

But when you compare how inflation currently cuts what you can buy with the money in your savings account by 2% per year, every year, with a globally diversified portfolio’s long-term expected return of 7% per year, giving into fear looks a lot like very slowly going broke.

You can learn more by reading my introduction to investing for young Canadians.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

 

 

 

New Prose in The Northern Appeal

It’s always a joyous thing when a venue finds space for my work. You can read four short prose pieces of mine in the recently released 7th issue of The Northern Appeal, which runs out of Muskoka and Simcoe County.

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Young Canadian Investor #6 – Know What You Own

Say you’re 30 years old and you own four index-based ETFs that track stock markets across the world. One of them tracks Canada, another the US of A, another Developed International Markets (Japan, Europe, Australia), and the last Emerging Markets (China, India, Brazil, South Africa, etc). Suppose further that you allocate 25% of your money to each for an even split.

Now, since you need to own ETFs for the very long term to let them grow—minimum 5 years, but ideally a couple decades or more—it pays to know how much a given stock market could drop. That way, you can calibrate expectations and avoid selling your investments due to a drop you should have been prepared for. 

Thankfully, a data provider called Morningstar offers access to this information all in one place. All you have to do is:

  1. Type a broad market ETF ticker symbol into the search bar and click on the appropriate result
  2. Click on the ‘Performance’ tab
  3. Click on ‘Show Full Chart’ on the top left of the chart
  4. Click “Max’ to see the full price history

Here are ticker symbols for four popular ETFs so you can try this out for yourself—VCN (Vanguard FTSE Canada All Cap ETF) for Canada, VUN (Vanguard US Total Market ETF) for the USA, XEF (iShares Core MSCI EAFE IMI ETF) for Developed International Markets, and XEC (iShares Core MSCI Emer Mkts IMI ETF) for Emerging Markets. Historical results are, of course, no guarantee of future performance, but they’re the best indication we have to determine the bounds of what is normal.

If it hits you that the four investments linked above have all been in existence for less than 10 years, and you’re curious about previous historical drops, have a look at the worst market plunges in US history. It should quickly become apparent that a stock market crash could be anywhere between 20% to over 80% according to past data. And if you lose 3/4 of your investments in only a couple of years, it may take the next decade for you to get back to even.

That’s why it’s so important to know your risk tolerance and calibrate it by owning an appropriate percentage of bonds. The more bonds you own, the less your portfolio will fall during the next stock market crash. To see this dampening effect in action, check these Vanguard portfolios out and focus on how the lowest 12-month return gets bigger the more stocks the portfolio contains.

As a 30-year-old, you have many years to recover from down years in the market, meaning that these down years are actually opportunities for you to invest at lower prices. But as you grow older, you’ll want to transfer an increasingly larger percentage of stocks to bonds to keep your money safe for retirement.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

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