Finance MYTH 3: “Your home is your best investment. Renting is just throwing money away.” A good many of us were brought up to believe that a home is the single most important financial asset which we will ever own and should be a foundational-level investment for almost everyone. Such people point to the extraordinary gains enjoyed by homeowners in Vancouver (average home up by 192% over the past 20 years), Toronto (up by 180%) and other international cities as proof that owning a home is the best and easiest way to riches. Not so fast. No question, owning real estate can be a great “forced investment plan” for many people (after all, if you don’t pay your mortgage, the bank will take your home away). But this doesn’t mean that every home in every city at every time is a good investment. That’s particularly true for snowbirds looking to purchase a rental property or a vacation home. The actual fact is that residential real estate in most parts of Canada has historically provided only modest financial returns once property taxes, repairs and other costs are factored in. If you’re thinking about buying a home (or buying a second one), don’t assume that ownership is always the best way to build wealth. Check out an online calculator (there are many out there) and compare the gains on real estate in the area you’re looking at to what you’d gain by renting and investing the difference. You might be surprised at how “throwing money away” actually leaves you with more money over the long run. MYTH 4: “I don’t invest in stocks. The stock market is just a giant casino.” Some people are uncomfortable with how much the stock market goes up and down on a near-daily basis, often for no real rational reason at all. This volatility encourages them to save their money rather than invest it; they sock it away in savings accounts, keep RRIFs and TFSAs in cash and fill their portfolios with guaranteed income certificates (GICs) that pay low interest rates. At the heart of this discomfort is a fundamental misunderstanding of what stocks really are. They are not casino chips – rather, they are small, fractional slices of a business. While their price movements may seem irrational, capricious and emotionally driven in the short term, over the longer term, their value is utterly rational, moving up and down in pace with the success (or lack thereof) of the underlying business. Knowing this fundamental truth is the key to long-term wealth building. When you see buying stocks as buying an ownership stake in a business, it’s possible to apply a level of logic and discipline to investing: you can research a company’s profit and loss statement, you can examine its future prospects, you can think carefully about how it can take a given innovation or trend or scientific advancement and turn it into a profitable enterprise. Yes, there will always be uncertainties, incomplete information and assumptions which you make along the way. But that’s a world apart from going “all in” on a poker hand. MYTH 5: “The situation with [insert current crisis here] makes it waayyy too risky to invest right now.” A myth that’s sure to be trotted out whenever a significant economic event or geopolitical change occurs, whether that’s rising inflation, a sputtering economy, a change in U.S. trade policy, how AI will put our grandchildren out of work, or whatever the financial news seems to be focused on. Don’t get us wrong: inflation, the economy, AI, or even the price of tea in China are worth learning about. And sometimes, these things can have a strong and powerful effect (either positive or negative) on our portfolios. But understand this: in the decades you’ve been upon this earth, the world’s stock markets have overcome many challenges both similar to, and very different from those we face today. And despite sometimes painful downturns, they continue to grow and make money for investors. Instead of pulling your money out of the market in reaction to either economic or political events, build a broadly diversified, defensively oriented portfolio of blue-chip stocks which you know and understand – or outsource the work by investing with experienced fund managers. By all means, pay attention to what’s going on economically. But unless you need to access your savings right now, it’s almost always better to make measured changes to your portfolio rather than a wholesale “sell it all” approach. Because this too – whatever “this” happens to be at the moment – shall pass. 30 | www.snowbirds.org
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