I attended FORUM in Vancouver last week, presented by the Canadian Pension & Benefits Institute. I’m going to share two reports from the conference. The first features David Chilton, famous for his self-publishing success The Wealthy Barber.
Chilton made four key points:
1. Lines of credit are a burden on their owners.
He called these the worst thing to happen to Canadians in the last 20 years. “Lines of credit are killing people’s personal finances,” he said. “It’s unbelievable how people are abusing these things … Do you know what the worst combination is? A line of credit and a home renovation. It makes people insane. I’ve seen it over and over again. Once they renovate one room, the other rooms pale by comparison. On they go to the next room, and it’s a never-ending cycle of renovations. It gets them deeper and deeper in debt. The four most expensive words in the English language are ‘while we’re at it.’”
2. Not all active money managers can add value.
Active management is a zero-sum game, said Chilton. Some managers will outperform, others will underperform. Not everyone can win. “A lot of people are looking at the [return] figures over the years and are saying it’s not worth it. They’re looking at a passive approach to lower costs … Nobody has been able to figure out how to locate the active money managers that will outperform ahead of time. We have mastered the art of locating the past performers.” If your advisor doesn’t recommend the same fund managers today that he or she did 10 years ago, ask why that’s changed.
3. Debt in the developed world will continue to be a drag on the economic recovery.
“When you add up the private debt, public debt and unfunded liabilities, it’s hard to make sense of the numbers,” he said. “A grade five math student can tell you that this is not going to have a happy ending. Somehow, someway we’re going to have to deal with all this debt. It could be through inflation. It could be through some sort of formal default. At the very least, it’s going to lead to slower economic growth over the next x number of years in the developed world.”
4. Sherry Cooper got it right.
A few years back, the chief economist at BMO Capital Markets spoke and wrote about the degree to which middle- and upper middle-class Canadians have failed to save enough for retirement. “She was bang on,” said Chilton. “There is an inherent optimism bias when you’re young, that everything’s going to work out. Somehow, you’re going to be able to save even more later. So you defer the saving, and you live it up. But costs never stabilize. The kids go to university, you move to a bigger home, you get divorced, you lose your job. Something can go wrong and it derails your plan. Beyond pay yourself first; I still say the most important financial advice by far is to start young.”
David Chilton’s The Wealthy Barber Returns is due in bookstores this fall. Next time, Paul Kedrosky on LinkedIn, the recovery and the politics of austerity.
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