Category Archives: Education

Nearly Everything I Learned About Investing I Learned From My Father, Revisited

Happy belated Father’s Day to all the Dad’s out there. This is an older post that I have edited, expanded, and added to.

My father is not an investor or “bank guy” by any means. But thinking back upon childhood and beyond, I realize that a good amount of the things that are important to investing, are the same simple life lessons my father tried to instil in me when I was young.

They are tidbits of wisdom that seem to have limitless application. Here’s a few that come to mind:

Use the right tool for the right job

Whenever my dad caught me trying to hammer something with the handle of a screwdriver, or unscrew something with a butter knife, he used to stop me and tell me to use the right tool for the right job. Taking the 30 seconds to grab a hammer was far better than breaking the screwdriver and being out the time and money that it would take to replace.

The same can be said about investing. We have a variety of products we can choose from, and several of them have their specific purpose. Use a TFSA if you want to save up for a car, not your RRSP. Use an RESP to save for your child’s education, not your un-registered account. There are benefits to using the right tool for the right job, and penalties for not.

knife for the peanut butter, spoon for the jam

I think this advice was brought to the both of us from either the Flintstones or Sesame Street, but my dad would repeat the jingle if we were going to make a peanut butter and jam sandwich. It’s a simple life lesson: be cleanly and organized.

If you are in the fortunate position to have “extra” cash to play with, or if you “have a hunch” that a stock is going to move, hey, more power to you. Take the plunge, if you see fit. But don’t get your ultra-risky speculations mixed up with your legitimate investments that should be the foundation of your savings.

Simply put, don’t take the money you are planning to use for a down-payment on a house and put it all in the latest IPO. If you can take a gamble, set up a separate account and keep only a small portion of your wealth there.

More importantly, it is linked to the “use the right tool” section above: It is important to keep certain accounts separate, even if you don’t invest in individual stocks. We need to remember time horizons when investing, and use the appropriate vehicle.

Do it right the first time

Nothing upset my father more than when he asked me to do something and I did it half-heartedly. Inevitably, he would make me re-do it. It taught me to put the effort into getting it right the first time.

This doesn’t always work with investing; we all make a bad decision from time to time. But if you can make the effort to make sound decisions, you won’t have to try to make up lost ground in the future.

Creating an investing plan for yourself, deciding an asset allocation, and following the plan is far more important that finding the next Microsoft. The fact of the matter is that most of us will never find the next Microsoft early enough, nor would we sell it when it should be sold. But following an asset allocation plan is something that we all can do… easily.

Keep your head up

This was a hockey lesson. I remember forgetting this advice once, and skating full speed into another kid behind the net. My tailbone hurt for a week.

If you are a do-it-yourself investor, then you will have to keep on top of things, especially if you are investing in individual stocks. Buy and hold is a legitimate strategy, and one that I tend to follow. But if you are not reading up on your companies, then you may be left holding some useless Enron stock, which may hurt more than your tailbone.

For indexers, it is important to keep marginally informed, and take care of re-balancing when your holdings get out of whack by a decided percentage, or at decided intervals.

Another day another dollar

More than advice, this is something he would say (still says to this day, in fact) when he got home from work and I would ask how his day went.

I’ve said in another post that I view my human capital as my most important asset, and it really stems from this saying. As long as you can keep working, you can keep earning, which means you can keep saving. It also means that you can spend when you need to, knowing that you have this powerful asset in your portfolio.

I prefer Steve Martin’s version, though: “All I’ve ever wanted was an honest week’s pay for an honest day’s work.”

Do as I say, not as I do

Probably the most frustrating to have to hear, but one of my favourites now, I would get this line thrown at me when I caught him in some sort of seemingly questionable situation where he told me one thing, but wasn’t following his own advice.

This is as important in investing as it is in life. There is a lot of good advice and wisdom out there from several people who know a lot more than you or me. It doesn’t mean that we need to do exactly what they are doing, especially when scale is an issue.

Warren Buffet is very good at recognizing value in stocks and whole companies. But he has said that the majority of investors would be better off by buying a basket of index funds.

Check your base

Living on a farm, ladders were constantly in use. Whether it be for changing light bulbs, painting barn doors, re-shingling the roof, cleaning the eaves or picking cherries, we were always up on them. No matter how many times I would climb the ladder,  he used to always tell me to check the footing before climbing, and then again on the first rung or so.

A solid base to a portfolio should be able to avoid (or lessen) the impact of a hard fall from market heights. This helped me when the market was approaching 15,000 (I put the brakes on at about 14 and change in June of 2007). The ladder started to feel wobbly, so I stopped climbing, re-checked my base, stockpiled cash, and had a nice cushion to fall on.

If the ladder starts to feel unstable, check the base, or grab another ladder. High stock prices may offer a great time to move some money into bonds, for example.

Don’t waste Your Money

Kids always go through phases and fads. Often these fads cost money. Whether it is video games, rap music, Pokemon cards or BMX bikes, the truth is that most of these things will be forgotten 10 years out.

My father’s words (and disappointed eyes when I wasted my money on something foolish) have had a lasting impression. I don’t often buy shiny things, and save a very healthy portion of my income.

Put your things away

Whether it was my toys when I was little, tools on the farm, or the jars and packages after making a sandwich, my father always insisted that I put things away when I was finished with them.

Not exactly investing, this mentality has left me with a very organized system for recording income, expenses investments, dividends etc. Good accounting practices are very helpful come tax season.

I’m sure there are several more of these little gems that can be found. Feel free to add some in the comment section.

A 50% Service Fee!?

Consider this to be a “What not to do” lesson in personal finance.

I’m usually pretty much on the ball when it comes to our finances. But recently I had a slip-up that cost us 50% in fees.

We have most of our Canadian financial assets with one financial institution, which are spread over a number of accounts. The bulk of our cash savings are sitting in a high-interest account with the bank. I’ve also had my main credit card at that bank for about 13 years.

I have never had any problems transferring money or paying off my credit card because there are no fees to worry about when moving money from one account to another within the bank.

I applied for a new credit card in January with another financial institution, however, and recently set it up to make a monthly donation to a charity. When my first bill came in, I went online, set up a new payee, and paid off my credit card… all $10.00 of it… from our high-interest account. I checked my new card a few days later to confirm that the payment went through, and thought nothing more about it.

Last week I was going over my April transactions and noticed that right after my $10.00 credit card payment, there was a $5.00 service fee for a payment to an outside account.

Ouch!

Okay, I admit that 50% sounds worse than $5.00,  but it’s still a hard pill to swallow.

On one hand, I want to leave it as-is, as a bit of self-punishment; a 50% stupidity fee, of sort (I long ago read and knew about the fee, I had simply forgotten). More likely, however, I will call the bank and ask them to reverse the charge.

Hopefully they will allow me to leverage my very long history with them against my very recent stupidity.

Scholarships, Bursaries, and Used Books

I studied at university for a total of seven years, earning two degrees in three fields, and a few letters to put behind my name.  I have perhaps only two regrets from my university days: I didn’t make full advantage of the scholarships and bursaries that were available to me, and I didn’t buy used books for the first two years.

From e-mails I have received, I know some of my readers have children that are either at or near university age.  I understand that tuition fees have been on a relentless charge upward (even during my time, tuitions fees were up 90% from my first year to my seventh) but there are ways for students to either gain or save a few bucks.

Buy Used Books

My first mistake was buying all my textbooks new from the university bookstore. I think my first year I paid about $400 for general textbooks ranging from theatrical theory to psychology to astronomy. By my second year I had switched to a double major in English literature and psychology, and my university bookstore bill had ballooned to about $800 –  buying $80 to $100 textbooks on abnormal or applied psychology (plus all the supplemental reading), as well as a few shelves worth of American, Canadian, and modern literature.  I think the Norton Anthology of English Literature alone  set me back about $150.

By my third year I had clued in to the fact that buying used was the way to go (which was ironic, actually, because the majority of my personal/leisure library was bought from used book shops). Buying used cut my book bill by at least half, depending on the courses that semester. As long as there wasn’t a new edition of a psychology text, I could buy it for about half price. For my English lit. books, I bought a used copy from the university store, or went to a used bookshop in town. There is no reason to buy a fresh copy of Shakespeare or Swift, as they haven’t made any revisions recently.

(Edit: I have been reminded by a close friend that I bought the above mentioned astronomy text used… from him. So I guess I was slightly on the ball in my first year.  I have also received an email from another close friend who happens to be an English professor. She makes a valid point that there is much to be had from revisions to the introduction or commentary on literature; there is always new research and theory. So quite often it is a good idea to have the same edition as the course requires, especially if it is a translated work… but you still might be able to find it used.)

Apply for Scholarships and Bursaries

My second mistake was not applying for a wealth of scholarships and bursaries that I could have possibly received. Usually when one says “scholarship”, we think of exceptionally high grades as being required. That is not always the case. I received several scholarships through my program for having an average over 80%, but I never had to apply for these awards. That meant the only work on my part was to earn the grades. But there was much more that I should have been on the ball about.

Quite often you can find small bursaries from alumni of, or local residents around, the university. Many of these bursaries may have a certain grade requirement, but others merely stipulate the student must be in need of financial aid. Take a look at this not-so-randomly selected list of Donor Awards from Brock University. Some are related to grades and program, some are related to grades and varsity sport, others are awarded based on parental employers or the student’s high school.

It is these awards that can really help offset the cost of a university education. (One donor scholarship, for example, is worth $17,600 over four years. The requirements? An average of over 75%, financial need, and meet some residential requirements.) The competition for these ‘application required’ awards and bursaries was often quite low, as students either didn’t know about them, or didn’t get applications in on time.

Because of this, it could be a good idea as a parent to take a look at your child’s university website. Take a look at what your child could be eligible for, and get them to fill out the application. It will only take a few minutes, and it will be in both of your financial best interest.