ETFs and Funds

Potential Risks of Canadian High Interest Savings ETFs: PSA & CSAV

I have cash I need to tuck away for a while. I’ll probably need this cash in under two years (could be in 2 months, could be 2 years…timing is unpredictable in this case). So what do I do?

Standard Bank Accounts Pay Crap

Deposit rates for standard accounts at the major Canadian banks are minuscule. So that’s not an option, unless I want to see my cash get eroded by inflation (recently reported as 2.4% in Canada).

My next option is some of the bank alternatives like Motive Financial or Simplii Financial. If you time it right you can open an account or GIC with a big-bank alternative and get a rate between roughly 2-2.8%. B2B Bank seems to lead with a 3.3% rate on a savings account.

I think these are all excellent choices. However, opening an account and transferring money can be a bit of a hassle. Moreover, accessing large amounts of money (i.e. more than allowed at most atms) from these accounts probably either requires linking accounts or using cheques. It’s no Manhattan Project, but it does require time and effort. I just want to park my cash, earn a little money and withdraw the whole lot when I need it.

Introducing: PSA and CSAV

I found two other options I can easily access within my existing online discount broker. No account openings required. Simply buy/sell an ETF. The two ETFs I’m referring to are PSA (Purpose High Interest Savings ETF) and CSAV (CI First Asset High Interest Savings ETF).

These two ETFs are similar in many ways. They both pool investor money and invest in high interest savings accounts at various financial institutions. Because of the volume of cash at play, I presume they have negotiating power and can get decent rates. While they don’t yield as much as some bank alternatives, they do produce a respective cash flow, as shown in the table below.

[table id=2 /]

Risk of Underlying Insolvency?

The ease and speed of accessing high interest savings yields via a simple trade appeals to me. However, I wonder if there might be a downside.

Because an ETF (an institutional entity, as opposed to an individual) is putting money into various bank deposits my understanding is the underlying deposits do not qualify for CDIC insurance. So with the very small risk that an underlying bank becomes insolvent there is a remote chance that an underlying deposit is not honoured.

While this is a small probability, it can also be a catastrophic risk for someone putting a large amount of their wealth into one of these ETFs.

One only has to go back a decade to find a time when banks were teetering on insolvency. So insolvency is a non-zero possibility. With CDIC insurance, deposits are back-stopped by the Federal Government (indirectly the printing presses at the Bank of Canada). Without CDIC insurance, depositors are left on their own.

One way to mitigate this risk is to diversify. It’s no different than diversifying away idiosyncratic risk of individual companies in a stock portfolio. If one holding blows up, hopefully the others remain intact.

The pie charts below show the latest holdings breakdown of PSA and CSAV, using their most recent Fund Facts documents. As you can see, PSA has a disproportionate amount (80%) in just two financial institutions – National Bank and Scotia Bank. In contrast, CSAV holdings are evenly distributed across five banks. I think it is fair to question why PSA is so concentrated.

Don’t get me wrong. I’m not saying either of these ETFs are particularly high risk at the moment. However, I do think it is noteworthy that 1) these types of investment structures are untested during a financial crisis, and 2) the asset allocation profiles of these two ETFs are so different.

Canadian banks appear to be well capitalized and stable. But with the extremely high debt-to-income ratios within Canada I fear something could someday unravel, leaving banks vulnerable. Are banks and uninsured depositors prepared for a tail-risk event? That’s another fair question.

Risk of Run on Deposits?

PSA and CSAV have a combined $3.7 billion in deposits (CSAV alone has gathered $1.3b in assets since June 2019) at a variety of banks. These asset levels are growing rapidly because these ETFs are popular.

I wonder if there could eventually be a mis-match of liquidity (remember, banks use deposits to fund their operations and are reliant on the assumption that depositors won’t all withdraw at the same time) if investors were to suddenly sell the ETFs en masse.

New to Start Here.

While such a scenario is unlikely, bank runs do happen. The ease at which investors could sell their ETF holdings almost instantaneously could pose a risk to the banks that provide deposit services to the ETFs. This is a long way of saying that I believe Canadian security regulators may permit these ETFs to suspend redemptions if the redemptions pose a systemic risk to the Canadian financial system via a run on deposits at a particular institution. This is another improbable but very inconvenient risk if it were to occur.

In the end I decided to still use both these ETFs (in addition to a short term bond ETF) to park my cash while I investigate the risks further. Maybe I’m wrong but I believe the questions raised in this article deserve answers. In fact, I really hope someone shows me that the real risks are a lot lower than I suspect, because I think these ETFs provide good value to investors looking to park cash. The ability to easily and quickly invest in a range of high interest savings accounts really is quite innovative.

I will update as I uncover more answers. Stay tuned…


Stocks Don’t Always Rise Over the Long Term

Ask any investment professional about the risk of investing in stocks and they’ll likely say that given enough time stocks always rise.

Well, the Japanese stock market proves that stocks can indeed decline for decades. As you can see in the chart below, between 1989 and 2009 (20 years for those who can’t do the math) the direction of the Nikkei 225 was down. In fact, it has been 30 years and the Nikkei still is roughly half of it’s 1989 peak. So much for stocks always rising over the long run.

Nikkei 225 Index (Japanese stock market)

OK, but Japan is a special case, right? True, there are big cultural and economic differences between Japan and countries like America and Canada. But does that really mean US stocks can’t have a similar experience?

History as a guide.

Let’s look at inflation-adjusted total returns for the US stock market going back to 1872.

The table below shows how frequently someone investing in the US stock market would have experienced a negative real return over a 5, 10, 15 and 20 year period.

As you can see, there have been plenty of historical 5, 10 and 15 year periods where the US stock market experienced negative real returns. While there are no 20 year periods with negative returns, there was still one 19 year period (1943-1961) with a negative return.

Imagine investing your money today and barely breaking even after accounting for inflation by Christmas 2039. It has happened and it can happen.

[table id=3 /]

Moral of the story: There is no rule saying the US stock market always has to rise over long periods of time. And history proves this. Even if your time horizon is very long, investing is still risky. Of course, the chance of a poor outcome diminishes with time, but you must still consider the possibility. Still, one has to also consider the alternatives during periods in which stocks perform poorly. It may be that stocks remain the cleanest dirty shirt during these periods – i.e. the best of a range of poor investing options.

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Wealth Work

Tales of the Working Poor

Perhaps you make $75k. Or perhaps you and your spouse make a combined $100k+. It sounds like a lot when you say it out loud. It’s probably more than you ever imagined you’d be making when you were a kid.

So why are you always broke?

You are not alone. Especially if you live near a big city like Toronto or Vancouver or are a recent college graduate. This is a real problem and it’s going to have lasting impacts on society.

Here are some real tales of the working poor in Canada, as described by a variety of Reddit users:

User: timhortonsbitchass

I left a really long, thought out comment agreeing with you and giving my own experience of how it’s getting impossible to keep up. Then I remembered what sub were on and remembered that I was basically just inviting people to nitpick every decision I’ve ever made, gaslight me about my costs and life circumstances, and tell me I’m a big dumb moron who spends too much on rent when I should just move to ass-nowhere Saskatchewan and somehow keep my high salary, and a lavish spendthrift for having a 2014 used Toyota instead of a 2004.

You’re not crazy. Things are getting more expensive and a middle class lifestyle more unattainable. Read the newspaper, countless articles will explain the evidence. Many people are still thriving despite this, and this sub will act like those thriving people are 100% of non-idiots. But please trust that you’re not alone, and it very likely is not “all your fault”.

What is all about?

User: mhermetz

I posted a topic maybe a month ago wondering how people are not in massive debt just to live. It turned into a mix bag of “Your family is not making enough (140k combined)” to “How do you have a carpayment that’s over $300?!?! Are you insane”. No I’m not. It’s called a family of 4 with a dog. Ooh forgot the other thing. A few actually wanted me to put down my dog for savings.

All the while they all forgot I said I was doing fine. Needed to be careful because wife is on mat leave but we’re fine. The missed completely the point that we are making 140k a year and needed to be careful. How the fuck are people single or making less than that doing it??

I’m strongly starting to believe Canada is in for a major crash in the near future. This is not sustainable.

User: OldnBorin

It’s friggin nuts. My husband and I make a lot of money (currently) and I still can’t believe how much basic things like groceries cost. How can the average Canadian family afford to follow Canada’s food guide?? A half pint of blueberries costs $6! My 4 yr old can pound that back in about 5 minutes.

Seriously, if anyone has any tips of feeding a family healthy foods for cheap, I’m all ears.

User: dexzappa

This sounds strangely familiar. Family of 3 with 2 cats. Income is a little higher, but wife is also on mat leave. If we’re both working full time, it’s probably 185K or so, but with daycare costs. Car payment is thankfully only around for another 14 months at $425 per month. It’s a nice, but not fancy sedan. Bought a house 4 and half years ago, value’s up 200K or so. No other debt. GTA – sort of I guess.

We’re not struggling, but it’s not easy, and have areas we can cut down on, dining out went down, but baby food / diapers etc. costs went up, still can save a little every month for RRSP’s and TFSA’s, but everything I read, I keep seeing us in the 15-20% highest income, 15-20% highest net worth families, and I’m just wondering as to how half the population with much lower incomes, similar / slightly lower housing costs and many of the same costs is getting by. Many friends – they’re living a little more frugal but similar lifestyles, but their income is so much lower – I don’t know how they make it work.

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User: CrankyCanuck92

I’m 27 single, work at auto plant just outside of the GTA, live in the Niagara region. Hour long commute both ways, more if there’s traffic. Make $27/hr now will make 34ish in 5 more years. Make $55k+ depending on how much overtime I work. Shift work 2 weeks alternating 6am-4:30, 5:30pm-4am. I live a one bedroom basement apartment $1100 a month. Drive an 08 Ford Focus I paid cash for. Other necessary expenses are auto insurance, internet, cell phone, gas and groceries. I don’t really buy things I don’t need, have no social life so I don’t go out. Don’t buy expensive brand name clothes or anything like that. Work come home, shower eat , chill for an hour or two then go to sleep and repeat.

I have a good job but I don’t know how people making $15 an hour are affording to live and raise kids etc.

User: MagnaCumLoudly

I thought I was the only one but every time I say something in Canadian boards I get these super anal people dissecting every word.

I left Canada a while ago and basically kept on saying that I couldn’t make ends meet there and I’m an engineer. Well you can imagine the reaction here.

I did everything right. I bought a used car, I bought a fixer upper house, I did the renovations. I did all the maintenance on my own car. I would almost never go out to eat or drink. No cable or phone line. Just home internet, Netflix, and a cell phone. When I looked at my finances I could see I would never reach retirement. At least I had no debt. But the bottom line is the income is subsistence salary and the taxes are heavy. The house would take forever to pay off and retirement was gonna be frugal living for the rest of my days.

I know it’s not an option for everyone but I don’t see much opportunity in Canada if you can find a job elsewhere jump ship. Canadians have a good rep in the world and the passport will give you access to most countries. Doesn’t even have to be the US. Europe or Asia has great opportunities.

User: gypsyblue

I left Canada for Germany more than four years ago, and my single regret is not jumping ship sooner, because I would have saved myself YEARS of financial struggle. I will always be happy to have grown up in Canada, but as a young adult starting out on your own, it’s brutal. I’m sure it’s great if you have a family that can put you through university (or let you live at home through university) and help you with a downpayment, but if you don’t have that, this country just throws you under the bus.

My standard of living in Berlin is so much higher than my standard of living in Vancouver that it’s crazy. As a grad student, I was living comfortably on a (German) government scholarship and part-time research job. In Canada, I had scholarships and a part-time job and still took on close to $30k of student debt. (Which sounds literally unbelievable to my German friends, who have never paid tuition, and benefited from quite generous government support to attend university if their parents were unable to cover the full cost.)

Now as a graduate in Germany I make good money and pay about 1/6 of my net income for rent. I get 30 days of paid vacation per year, plus the statutory holidays, and travel all the time because it’s so cheap. Groceries are cheap, going out is cheap, there’s no need to own a car, and my employer even pays for my transit pass. Taxes, health insurance, and social contributions are much higher but the trade-off is so worth it.

If I could go back in time, I’d tell my 18yo self to get my ass out of BC. I grew up there and love it, but the financial pain of living there as a young person was just not worth it.

User: dowdymeatballs

I’m somewhere in this description; solidly in the middle class and on the verge of “thriving”. But I still budget and I still have to cut costs.

The thing is, I’m actually mid to senior level employee at a Toronto based consultancy and my spouse is an executive level employee for christ sake. We should be rich as fuck, but we’re not. We’re solidly middle class.

Therefore now I think, what the fuck are all the other middle class workers doing who aren’t making 6 figures? Again on paper they should be fine, but there’s no way they can be, because I’m literally clipping coupons and price matching on Flipp App.

We both drive 10 year old cars. We mostly eat at home. We barely drink alcohol. We shop around our insurance every year. We shop around our mortgage. We use free banking. We do most things people think of as frugal. But the one place we spend is on our house. We have a 2 year old and want something nice for our family.

This is not a woe is me post, we’ll be fine. But my post is more of a what the fuck does this mean for everyone else who should be ok, but are falling further and further behind middle class. It’s very unfair, and quite scary as to how this will all end.

The world is fucking nuts and it’s honestly way harder for younger generations who are trying to get a start in life.

User: timhortonsbitchass

I’m a young millennial and I actually earn a pretty good salary for my age (25, $70k), and my husband is almost finished his software engineering degree, which should garner some good job offers. But we still live in a crummy basement studio (300sqft) and drive a used Yaris. Neither of us drink at all (I’m allergic, so it’s less virtuous than it sounds lmao), I’m an avid home cook, and we have only ever been on one vacation, a domestic road trip. If my husband gets a junior developer job he can expect to maybe pull in $60k, $70k at best, and we’ll be able to upgrade to a one bedroom. Which will be great. But we still can’t buy a house. And people on this sub act like every software development grad gets a $100k salary the day they write their last exam.

From what I’ve seen, the way most millennials earning less than us make ends meet is by living with their parents. Every single one of my friends lives with their parents — and that sample includes a geologic engineer, an electrical engineer, and a sous chef at a fancy restaurant. All of my young coworkers (finance) also live with their parents.

User: AL_12345

You’ve got to love how they say that Millenials can “catch up” by getting inheritances from their parents and saving… 🤔🙄

I know my parents are planning to reverse mortgage and use it all up before they die. I have friends whose parents plan to do the same. Thanks boomers! (My parents received a large inheritance, so they were happy to receive it, but they’re selfish and don’t plan to pass any on) 🤷

One of my biggest goals is to plan better for my own kids. RESP’s and try to set them up so they’re able to get a good start. I expect that they’ll be forced to continue to live at home until late 20s or 30s and I want them to feel as comfortable living at home as young adults and build some autonomy even while living at home.

My parents made my life hell while I lived at home until my mid-twenties. They treated me like a child and didn’t give me any space. I think we’ll be moving towards multigenerational households if housing prices continue to rise.

User: crfulton2019

We’re in our late 30s. Between wasting our 20s on college/university and wracking up student debts, only to get minimum wage jobs for years. We finally got to a decent wage/career….but we still make less than $100k between us. Add in childcare for 2 and we’re barely breathing. It’s just ridiculous, and I can’t even imagine how anyone with children can survive on the minimum wage. With rising prices on everything from food, to housing to childcare. It’s only getting worse. Keep hearing about how “amazing” the economy is doing…I don’t see the struggle getting any better! Thank you for your post and letting me vent!!

User: MissJayMo

I am half of a dual income no kids family in a generally LCOL area. We are both professional engineers, and are 5-6yr out of school. We are saving for a house and every year prices go up, and up and up. It sometimes confuses me how we (generally bringing in over $150k) are getting priced out of the market. Sometimes I think, if we are getting priced out, how the hell is ANYONE buying a house these days.

User: PUnitThugLife

My wife and I are around the same income level and upgraded from a condo to a starter house 3 years ago. The condo mortgage is too far underwater to sell it ( bought in 2007 Edmonton) so we are reluctant landlords. We are paying out of pocket $80/ month as long as we have a renter, which is workable, but not really what we expected when we bought a condo. Months we don’t have a renter its zero extracurricular activities and KD and /or hot dogs several times a week.

We don’t live an overly extravagant lifestyle but man the costs of homeownership really wear on you after a while. Hot water tank springs a leak, that’s $750 if I install it myself. Washer solenoid valve goes, thats $200. Front door lock stops working that’s $100. I don’t have a pension but my wife does so I try to save 25% of my take home but unexpected shit keeps eating into that.

I guess what I’m saying is that shit can feel worse after you buy a house. Who knows what shape Alberta will be in 10ish years when we would like to sell this place.

All our friends and family think we are rich because we have good jobs and live a modest lifestyle. It really makes me wonder what all these other people are saving for retirement.

User: splendidgoon

I wouldn’t be where I am now without my grandad. He let me live with him til I was 25 (about 6 years ago). I tried to pay him rent but he always found a way to give it back to me lol. He was such a great man.

I got married and was able to buy a house immediately because of him. Sadly my house has probably dropped 50k or so in value… But still paying less than rent. If that was a good choice or not is the subject of another discussion….

In Alberta, single income able to have 2 cars and my wife can stay home with our two kids. Overall I feel pretty good about my situation right now. Not saving as much as I’d like, but still enough that I’m not worried about the future.

User: tundra_punk

Sending lots of empathy your way. In my case I’m part of that elder millennial cohort that graduated into the 2008 recession. “There was lots of work, just no jobs”, I hustled my butt off, leaned on my network, lived well (aka enjoyed my 20s!) and never really thought about money, but also had zero job security or benefits.

I eventually went back to school only initially earn $12/hr in Toronto after a 6-mo job search. We had a shoebox 1br apartment walking distance to the TTC that was a rare unicorn: above ground for less than $1000/mo. Our HR manager actually recommended moving back in with parents when we discussed how impossible the wage was. I was so insulted and told her as much. Now, I’m pretty ace at stretching a dollar (DIY Punk ethic, bike mechanic, and at times dumpster diver), but I seriously considered visiting the food bank on several occasions during that time as I was earning just enough to have to start paying back my student loans.

The next year I more than doubled my income but still felt like wages weren’t keeping up with cost of living inflation. We moved to Ottawa but the higher cost of living meant we were STILL in a shitty 1-br but this time with abysmal public transit access and atrocious grocery costs.

Two years later I doubled my salary again, moved to somewhere that still has a high COL but more family supports and a better lifestyle. I pay about the same for my 3-br house than I did for that moldy Ottawa Mechanicsville unit. finally started feeling like an ‘adult’ and get ahead. It’s hard to resist lifestyle inflation when you’ve gone so long without many luxuries – your wardrobe needs an overhaul, your computer is 10 years old, you’re still using a flip phone… and you’re trying to make up for lost time and start saving for retirement and paying off student loans. It’s extremely hard to explain to boomer parents why you still feel hand-to-mouth on such a good wage. Retirement still feels way out of reach.

As for kids, I’m One And Done. We budget based on my income alone so I know I could support the family if shit goes sideways. But a second kid would make everything way too stressful.

Grateful for subs and other sites that have helped demystify budgeting and investing. But eff it’s a beast out there!

User: lostinpickering

It truly is a sad reality. My husband (31) and I (29) only have a house thanks to my parents who lent us the down payment (they offered, we were going to rent forever). We have to pay it back once we are able to pull it out from the equity of our home, which will be in about 10 years or so. If I die unexpectedly, I’ll make sure my parents get that money back from life insurance.

With our current income (about $110K), we would only be able to BARELY afford 1 child, but we would like to try before it’s too late to have kids. Our future kids education would be funded by the government child tax benefit that we would put aside. Our retirement fund is currently my husbands employer match where he can contribute upto 10% of his income, we currently do 8%.

Mortgage and property tax is about 41% of our household income after tax. We drive to work together, pick up food from our parents on the weekends. Downgraded to 1 car and live about 1 hour 20 minutes from work. We buy no-name brand food most of the time and frozen veggies for cooking. We are skipping christmas this year because there were too many weddings this year that we cannot afford it.

I know that this isn’t really comparable to what you are going through but, you read a lot on here about high income earners, but the majority of us are in a position where we can only afford a home with help.

You are doing an incredible job with what you have and always be proud of that.


Is it Worth Sending Your Child to Private School?

Is it worth sending your child to private school? The average cost of private school tuition across the United States is $9,638 for elementary school and $14,522 for high school. (Source: Private School Review)

Assuming your kid goes to private school from age 4 (junior kindergarten) to age 17 (the end of high school) and a 2% inflation rate, the total cumulative cost of tuition is $178,495. That’s a shit-load of money for something that is free for the rest of us schmucks. And that doesn’t even cover incidentals, like ski trips to Aspen or whatever else rich kids do. Trust me, you’re not sending your kid to private school in Wal-Mart clothes. Private school is an expensive lifestyle choice.

The wealthy send their kids to private school for valid reasons: a rich educational experience, exposure to programs the public school system cannot cover, the cool uniforms. Most importantly, the rich send their kids to private school to network with other rich kids (who will eventually become rich adults).

I’ll admit there are probably lifetime benefits for some who attend private schools – i.e. connections. However, I have seen many private school graduates simply follow the same career path as the rest of us. Private school certainly isn’t a guaranteed ticket to skip the line, but I guess it sometimes helps.

New to Start Here

So Is It Worth Sending Your Child to Private School?

If instead of sending your kid to private school, what if you invested the money in a moderate portfolio earning 6% per year? If you did this, by the time your kid is aged 30, the portfolio would be worth almost $541,000.

So what would be more useful? A private school education that may or may not give your child a head start in life? Or $541,000 on their 30th birthday?

That’s a serious chunk of money that could be put towards a home or new business.


Growing Up Gen X

Featured Image: Oscar the Grouch (arguably the Gen X mascot) with Caroll Spinney, who played him until 2015. Spinney died on December 8th, 2019. This article is dedicated to him.

If you were to believe mainstream media, the only two generations to ever exist are Baby Boomers and the children of Baby Boomers (Millennials). The world is so focused on these demographic bulges that other groups are completely ignored.

One would think a neglected demographic presents an opportunity for businesses. While executives salivate over Boomers and Millennials, few are serving the unique needs and wants of Generation X.

Who is Generation X?

Generation X is the group of people born between 1965 and 1980. The bulk of this generation were children of the 1980s. This is a smaller cohort than the Baby Boomers, explaining why they tend to be ignored – both economically and politically. Of course, ‘small’ is a relative term. There are about 65 million Gen Xers in America as of 2018. I am one of them.

Not once in my career – which is approaching 20 years – have I heard of a business strategy targeting Generation X. Not once! This strikes me as a massive gap in the marketplace.

Of course, there are industries that fulfill the needs of the current Gen X age range, but that association is purely coincidental, as opposed to strategic. For example, new single family homes tend to be purchased by people in their mid-30s, regardless of what demographic to which they happen to belong. Home builders target people in their mid-30s, not a specific generational cohort.

There are opportunities to truly service the under-serviced generation. However, to do so requires a deep understanding of the collective experiences that shape that generation’s current characteristics. Below is a summary of those experiences, some second-hand and others personal.

I encourage you to share your experiences in the comments section.

Children of Divorce

As children, Generation X saw their parents divorce at a rising rate compared to previous generations. Indeed, by the time I reached high school it seemed less common for someone my age to have married parents. Intact nuclear family structures were a rarity.

In the 1980s, divorced parents rarely had shared custody of their children. This meant that the child lived with one parent full time and saw the other on weekends, if they were lucky. Most of my friends saw their ‘other’ parent far less.

The unbalanced parenting burden created emotional and economic stress for the parent with full custody, eroding the parent-child bond. Meanwhile, because the part-time parent hardly saw their kid, interactions were usually fun and unrestricted. In the child’s eyes, the full-time parent was a tyrant and the part-time parent could do no wrong. One parent was vegetables and the other was ice cream.

These dynamics resulted in many non-traditional family structures and relationship issues that persist to this day.

Latchkey Kids

The 1980s saw women increasingly enter the workforce – particularly in the middle and upper classes. Whether divorced or not, the home tended to be empty for most of the day. While daycare existed, many kids did not attend – some for economic reasons, others because of availability. As a politically neglected generation, social programs for children were being stripped.

Consequently, many kids in the 1980s not only went to and from school alone, they returned home to an empty house.

Picture giving your six year old a key to the house so they could let themselves in after school. This was reality for many.

With this being the norm, adult supervision was absent in much of the Gen X kid’s life, compared to previous and later generations which benefited from intact families, stay at home moms, daycare and nannies. Generation X, in many respects, raised itself.

A meaningful portion of Generation X was also the children of Vietnam vets and crack heads. A combination of PTSD, inebriation and death removed the father from many families that needed them the most.

This created a very independent generation. It also created a situation not unlike Lord of the Flies, with rampant bullying and stupidity. The law of the jungle prevailed.

This went beyond kid-to-kid interactions. Since latchkey kids were left on their own so much, they became easy prey for adult pervs. Gen X kids were fully aware (and warned) of child abductions, but they were on their own to deal with them. The reality was that abductions were still rare, but the fear remained palpable. There are several high profile cases of kids who were my age at the time going missing. In all these cases, the kids were unsupervised.

Some of these kids made it through the filter to become emotionally healthy and independent adults. Many did not.

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We Were All Going to Die Part 1: Nuclear Annihilation

While not the first generation to live under the dark clouds of the cold war, Generation X was the first to be completely helpless from birth to (eventual) death.

During the early stages of the cold war, Baby Boomers were taught how to survive a nuclear war. Generation X was taught to hope they don’t survive. Baby Boomers also grew up believing they could stop nuclear proliferation. With time, however, Baby Boomers’ anti-war idealism morphed and they elected Republicans. Consequently, Generation X spent its childhood watching Reagan’s unstoppable massive buildup of nuclear weapons, knowing the extermination of humankind was at the press of a button.

There were many popular songs made in the 1980s about the cold war and nuclear apocalypse: 99 Red Balloons (Nena), Guns in the Sky (INXS), Nikita (Elton John), It’s a Mistake (Men at Work), Forever Young (Alphaville), and so on. To this day, Mad Max (1979) is the reference people use to describe a post-apocalyptic world. Also released around that time (1984) was the scariest mockumentary ever made: Threads.

This was pop culture based on impending doom. Gen X grew up in the shadow of fear.

Since birth, Generation X has lived at the whims of others and the hope that cool heads prevail. If there’s anything that explains the generation’s cynical ‘fuck it, I don’t care’ attitude, it’s the persistent worry of nuclear annihilation. Of course, this is oversimplifying. Generation X cynicism is caused by a combination of general disappointments in humanity.

As Generation X approached adulthood, the cold war came to a close. Russia and the former Soviet Republics suddenly became allies we needed to assist through the transition to democracy. Without an enemy hidden behind an iron curtain of secrecy, the threat of nuclear war declined and the Doomsday Clock was turned back to 17 minutes to midnight by 1991. During the peak of the cold war in 1984, it stood at 3 minutes to midnight.

With the Doomsday Clock currently back at 2 minutes to midnight due to inaction over climate change and the (once again) threat of nuclear war, I wonder if today’s kids will grow up with the same cynicism as Generation X.

We Were All Going to Die Part II: AIDS

If you have sex you will die. That was what Generation X was taught as we came of age during the late 1980s. When you tell a kid something will kill them enough times, you will have a lasting impact on their behaviour and attitudes.

The AIDS epidemic created mass panic during the 1980s because people didn’t know how it was transmitted. Until more was known, AIDS patients were ostracized, even by the medical teams treating them. The disease was a death sentence, putting a halt to the sexual revolution in which Baby Boomers actively participated.

Because AIDS is more easily transmitted via anal sex, it was rampant in the gay community. In the early years, it was referred to as the ‘gay plague’. The disease destroyed gay communities as older gay Gen Xers (and younger Baby Boomers) saw many of their friends die. I speculate that AIDS slowed the acceptance of gay men and women in general society – either because people feared the disease or because of ultra-religious convictions that AIDS was a curse from god.

People still had sex during the 1990s. But promiscuity and casual encounters declined considerably. Monogamy became the norm for Generation X.

The Birth of Grunge and Hip Hop

Out of Generation X’s chemical soup of cynicism, nihilism and angst arose new forms of self expression. The two most notable being grunge and hip hop, which overflowed with testosterone – both an outward projection of internal struggle, disenfranchisement and anger.

In particular, the destruction of inner-city New York City during the 1970s and the crack epidemic of the 1980s combined with cultural isolation and helplessness to cause black youth to take matters to the street corners. Rapping arose from street culture but it was also the antithesis to street life, providing a non-violent outlet for rivalries and an alternative to drug dealing. Intertwined with the other elements of hip hop – graffiti, breakdancing and DJing – a cultural phenomenon was born and soon spread outward. The message of poverty and struggle resonated with a large part of Generation X, which could relate – even from the suburbs.

Technological Transformation

Generation X witnessed the demise of the typewriter and the birth of the personal computer. With relative ease, we transitioned from the Dewey Decimal System to, books to iPads and rotary phones to smart phones.

While Baby Boomers also experienced these changes, most were too used to the analogue world to easily transition and were late adopters. Baby Boomers are now technologically capable, but lack the digital instincts of younger generations. In contrast, Millennials and Gen Z were born in a digital world. This is all they know and what they’re used to.

Generation X is uniquely positioned to straddle the analogue world of Baby Boomers and the digital world of Millennials, allowing them to relate to both worlds.

I’m sure there is tons of stuff I’m missing. There is probably enough to fill a book. I’d love to hear about your views on this. Please share your thoughts on the Gen X experience to the comments section below!


Police Officer: How to Protect Your Wealth from Thieves

This comes straight from the writing of a police officer on Reddit, who was answering the following question on how to protect your wealth from thieves:

“Former burglars of reddit, where is one place people should never hide valuables?”

Here is his answer:

Hiding your valuables is fine, but ideally you don’t want to get even to the point where someone is in your house. Most people worried about where to hide their valuables would be better off spending time considering their house’s security from the outside.

My advice:

  1. Front perimeter. Unless you have a gated mansion then your front door is going to be accessible from the street. That means there is no benefit security-wise in high fences, prickly hedges, etc. All these do is screen your house from view, making it far easier for someone to break into without being seen. If you’re looking at two houses and only one can be seen from the road then you’re 100% going to be breaking into the other. That’s why picket fences, low hedges/walls, etc. are ideal. A gravel driveway is a nice touch too – nice and noisy so anyone approaching your house makes their presence known.
  2. Rear perimeter. Completely the opposite advice is true here. At least here in the UK, the rear of most houses is shielded from view, so anyone getting into your back garden will have undisturbed access to your house. So you want to shield your house from view and make access difficult. Tall hedges, solid fences, prickly bushes, etc. are your friends.
  3. Flat rooves. Here in the UK it’s common to have a single story garage with a flat roof attached to your house. Often the house will have a window that opens over it. That window needs to be closed.
  4. Exterior lighting, cameras and alarms. Both make a house much less attractive to a burglar. Lights (both motion-sensing and just a simple porch light) make someone scoping out the house or trying to force entry much more visible. Cameras and alarms are pretty obvious deterrents. Again, it’s about making your house a less tempting target than others as opposed to creating an impenetrable fortress.
  5. Sheds. Sheds are a soft touch for burglary. Garden tools, bikes, DIY tools, etc. are expensive and very easy to sell second hand. Go on Ebay and look at the price of a decent second hand petrol mower or leaf blower – that’s easy money and low risk when you consider that it takes about 2 seconds to cut off a padlock and no-one will be sleeping in the shed. Don’t leave expensive kit in sheds, cover the windows so that the contents can’t be readily seen, and install motion-sensing lighting to cover them. If you’re keen as mustard, there are even cheap wireless alarms that link to basically a doorbell in the house. But the best advice is just be sensible what you’re storing there.
  6. Breaking and entering tools. Don’t leave your ladders and other tools that can be used to break into your house readily accessible outside it. I’ve seen houses with open upstairs windows and a set of ladders stored visibly down one side of the house. If you’re leaving out tools that a burglar can use to break into your house then you’re doing it wrong.
  7. Tradesmen. When you park your van outside your house you are saying “I’ve got expensive tools here”. Don’t leave them in your van.
  8. Letterboxes. This probably isn’t an issue for the states, but here in the UK we have letterboxes through our front doors. Most people also keep their house and car keys by the front door. If you can look through your letterbox and see your keys then you need to move them – they can easily be hooked through the letterbox using e.g. the top segment of a fishing rod. Then someone will be driving around in your car with a set of keys to your house.
  9. Spare keys. Don’t hide a key outside your house. Certainly don’t hide it in a fake rock etc. If you absolutely must, then at least bury it in a flower bed or something. You’re better off leaving a key with a friend (or burying it in their flower bed, if you must) – but don’t give it to them with a keyring identifying your house! Also, don’t leave a spare key in your car – someone breaking into your car won’t need to look up your address – there’ll always be some paperwork or other in there that identifies it.
  10. Perhaps most importantly, get to know your neighbours and share your plans with them. If you’re going away for a week then tell them. Neighbours who generally know each others’ habits will notice when there is a strange van parked in your drive, or lights are mysteriously turning on whilst you’re out of town. And they’ll be more likely to act rather than minding their own business.
  11. Be conscious of what you can see through your windows. For example, as you approach my front door you walk past the window to a room full of various computing kit that look expensive. When I’m not using the room, I normally close the blind simply to conceal what’s inside – otherwise I’m suggesting to anyone calling at the house for any reason that there is expensive gear lying around the place.

Finally, break into your house. Or at least, figure out how you would. That will show you the weaknesses. When I was a student I was really bad at locking myself out of the house and would regularly need to break in. I’ve climbed the back fence to access a backdoor I suspected was left unlocked, used a piece of card to flick open the locks on sash windows, managed to wriggle down an old coal chute into the cellar, etc. Each time I’d fix the problem but next time I was faced with the need to get inside I’d find another way in. It’s a very helpful exercise to test your security.


Time to Stop Loving That “Hot” Portfolio Manager

…and by “hot” I’m not referring to looks.

Rather, I’m referring to a portfolio manager who is having a hot streak of outperformance.

The fact is, manager outperformance is not persistent and it is not a predictor of future outperformance. Indeed, most portfolio managers see their hot streak come to an abrupt end within a year. Almost all meet their demise within two years.

The lack of outperformance persistence suggests any hot streak is the result of luck and not skill. Therefore, the active management fees charged by portfolio managers are not worth paying. Investors would be better off using low cost index funds.

This is all based on research performed by Standard and Poors:

For funds categorized as top performers in September 2017, 47% maintained their top-quartile performance the subsequent year. However, there was a dramatic fall in persistence afterward—just 8% of domestic equity funds remained in the top quartile in the three-year period ending September 2019. This result (8%) is consistent with the notion that historical performance is only randomly associated with future performance.

They continue…

An inverse relationship exists between the time horizon length and the ability of top performing funds to maintain their success. Less than 3% of equity funds in all categories maintained their top-quartile status at the end of the five-year measurement period. In fact, no large-cap fund was able to consistently deliver top-quartile performance by the end of the fifth year.

What about poorly performing fourth quartile funds? Could they experience a swing into outperformance territory in subsequent periods? Unfortunately not.

Fourth-quartile funds were most likely to be merged or liquidated across categories over the five-year horizon. This supports the view that underperformance typically precedes a fund’s closure.

Yet another nail in the coffin for active managers and the exorbitant fees they charge. You’re clearly better off ditching that hot portfolio manager for a portfolio of low cost index funds.


Investing Fees Will Leave You Broke During Retirement

If you’ve been paying attention you probably know that investment fees will reduce the value of your retirement portfolio over time.

For example, Questrade argues that by switching to a lower cost investing platform you could retire 30% richer.

All this is true. Essentially, whatever you pay in fees is foregone wealth. I.e. if your annual fees are 2% and your gross return is 8%, your net return is reduced to 6% after fees.

Remember: fees can be layered (often covertly) into your portfolio in multiple ways – advice fees, investment management fees, tax, operating expenses, and so on. Sometimes the fees are bundled, sometimes they’re charged separately. Buyer beware.

Unfortunately, high fees will do much more damage than leave you ‘less well off’ at retirement. High fees could mean the difference between going broke or not.

Check out the following example for Joe Smith retiring at age 65 with a $1,000,000 portfolio. Sounds like plenty of money for retirement, right? Well, the level of fees mean the difference between Joe eating ham sandwiches and cat food for lunch.

Start with the following assumptions for Joe:

  • Requires a frugal annual income of $40,000, adjusted for inflation
  • Will live until age 95
  • Builds a balanced growth portfolio consisting of 80% stocks and 20% bonds
  • Has a 10% average tax rate

What are the odds Joe goes broke before he dies?

Calculation methodology for the data geeks: Using data made available by , the probabilities are calculated by using stock and bond returns between 1871 and 2016. For example, if an investor expects to be live for 50 years in retirement, all historical 50 year periods are analyzed. One historical cycle would be from 1871 to 1922, another one from 1872 to 1923, and so on until 1965 to 2016. Thus 95 different historical cycles are considered (in this example).

The chart below shows the portfolio failure rate, based on historical precedent, for Joe Smith at various fee levels. “Portfolio failure rate” essentially shows how often during the historical periods the portfolio ran out of money before the end of the period (in Joe’s case 30 years).

Investment fees have a significant impact on the portfolio failure rate. In Joe Smith’s case, the portfolio failure rate rises from 18% when the investment management fee is 0.30% to a whopping 42% when the investment management fee is 2.50%.

Hold up…think about what this really means. Imagine what it would be like to run out of money as a senior citizen.

This is a deadly serious issue and a catastrophic failure of the wealth management industry. The average retiree is getting screwed out of their money leaving them completely broke during retirement. This creates massive hardship, as a broke retiree often has no way of recovering and has to rely on the state, charity or family for food and shelter. Dignity and independence, however, are lost forever.

While the difference between 0.30% to 2.50% sounds very wide, this is the realistic range for investors in Canada.

For example, Cambridge Canadian Equity Fund charges an MER of 2.48%. AGF Global Strategic Balanced Fund charges 2.63%. Mackenzie Canadian Growth Balanced Fund charges 2.29%.

Meanwhile, at the other end of the spectrum, Questrade provides all-in portfolio services for 0.38%. Finally, a DIY investor can combine Vanguard’s FTSE Canada All Cap Index ETF, which has a 0.06% fee and Canadian Aggregate Bond Index ETF, which has a 0.09% fee.

Investors who do a little investigating will better understand their costs and be able to shift from one end of the spectrum to the other.

Bottom line: Pay close attention to fees, as this is one of the few parts of investing that is totally within your control. Over the long run it will have a huge impact to your standard of living and independence.