Book Review: The Naked Investor

I recently finished a book that chilled me to my bones with some of its stories. The Naked Investor by John Lawrence Reynolds has the subtitle ‘Why Almost Everyone But You Gets Rich on Your RRSP.’ It’s a good description for the book.

The book starts with a near near miss by the author with a financial advisor whom could have wiped out half of his RRSP’s savings with his proposed investment plan. The incident got the author thinking and it produced a scary look at the investment industry in Canada. The book tells several tales of advisers investing in completely inappropriate funds for clients to line their own pockets. The real scary part is when the clients try to get some money back when their instructions were ignored or out right fraud took place.

Often they never see a dime or they end up with a tiny portion of their money back and a gag order with the settlement agreement. But that’s only for the investors who take the time to chase justice through a labyrinth of self regulated agencies and slow acting government regulators who make a sloth look like a sprinter. We are talking about a decade in some cases for a retired person to get any results.

I have to admit I always was a bit nervous around financial advisers for some reason I could never explain. This book has firmly changed the nervous feeling to out right paranoia about some things, but to be fair the author does point out there are some good financial advisers that are out there. They are just hard to find.

Perhaps the only draw back to this book is a lack of advice on what to do about the problem. The author repeatedly mentions the industry should go to a fee based structure rather than commissions, but offer no pratical advice on solving the issue. The only useful advice the author does provide is some general RRSP tips of buying index funds.

Overall I thought it was good read, but I would suggest you borrow a copy from your libaray rather than buying the book. The book lacks the content that would make it a useful reference.

Book Review: Your Money or Your Life

As I mentioned on Friday’s post, I was reading a new book. The book was Your Money or Your Life by Joe Dominguez and Vicki Robin and I have to say this should be mandatory reading for anyone looking at early retirement or financial independence.

The authors start out with overhauling your ideas about money and all the emotions we have around it. They introduce the concept that money is exchanged for a part of your life energy (or the time you have on this earth). Then they get you to calculate your ‘real’ hourly wage by getting you to deduct your work related expenses from what you earn and then include the extra time it takes you to commute to work and unwind from work in your hours worked. This significantly drops your hourly wage and makes sure if your job is actually earning more than $4/hour.

The one concept they introduced that I really enjoyed was the Fulfillment Curve. This explained to me something I always knew, but could never really explain. It explains why people who buy every new gadget and toy are never happy. In a brief summary, you get your requirements for survival and have a small measure of fulfillment, but as you get past comfort items and into luxuries you hit a point of optimum fulfillment. If you keep buying stuff you actually start to have your fulfillment level go down. The trick to riding the curve is to know when you have enough and stop near the top, which they cover in another chapter.

A great section for anyone trying to reduce your cost of living is chapter 6 where they present 101 ideas on saving money, which I figure I’m already using over half of them.

I actually enjoyed almost the entire book. My only problem with the book was the last chapter where they suggest your entire early retirement nest egg should be in long term government bonds, which might be an option for someone living in the US (since they can be tax free), but a completely useless one for those living in Canada (since we get taxed at our marginal rate).

Overall I still felt it was a great read and suggest you find a copy from your local library.

Saving Money – Part III

Ok, I didn’t really mean to turn this into a series this week, but I’ll blame the book I’m reading on this (I’ll do a book review next week on it). Today on saving money I’m going to touch on suggestions for housing and what makes up a really great place to live that will save you money.

1) Rent or buy near where you work, if possible. That way if you can walk to work think about all the cash you can save.

2) If you can’t rent/buy near work, can you do it near public transportation. In my case I’m only two blocks from a cross over point of several bus routes of which one runs with in a block of my work building. I currently car pool to work, but some days I still take a bus when the pool isn’t running. (A note for renters, if you always pay on time and have a great set of references ask for extras. I once got an apartment held for me for two months rent free because the landlord really wanted me in the apartment block).

3) Buy in a neighbourhood where you feel comfortable. If you don’t feel comfortable when your viewing the place, trust yourself to find something else.

4) Never buy in the ‘best’ part of town. Prices tend to be high and you don’t get a lot more house. Your basically paying more for a home for the name of its neighbourhood.

5) Layout is more important than the number of sq feet. My current house is only 186 sq feet bigger than my first home, but it feels huge all because of the open layout and the smaller bedrooms (where I never spend any time when I’m awake anyway). Also excessive sq feet just cost money to heat and more time to clean.

6) Buy the worst house on the perfect block for you. You can usually get it 10% cheaper than the rest of the neighbourhood and then you can fix it up to what you like for 5%.

7) Use an real estate agent when buying, but avoid one when selling. Real estate agents are very handy for buying a home because they cause you nothing, but don’t forget to check out private deals on your own. Obviously avoiding an agent when selling saves you thousands of dollars in commissions.

8) When you do sell your home. Make it spotless and clean up the clutter. Remember your not actually selling your house, your selling the dream of a perfect show home. 80% of people can’t see past the furniture to realize they are only buying the walls. If you do it right you can sell your home faster and for more money.

9) Also when selling your home don’t get greedy with the list price. A lower list price can spark bidding wars and ensure you house is off the market faster. Remember it does you no good to have a house on sale for a extra month just to get a few more thousand dollars. Your time is worth something.

10) Take your time. Find good housing is difficult, so don’t rush into anything if you can avoid it. Every problem I ever had with a place was due to me rushing in. So now I like to take it slow if possible.

Have a great weekend,

A blog about early retirement and happiness