Mill Day

Hide the denture paste, prostate cushions, Depends, penile splints and fecund RRSP accounts, Boomers, because it’s Mill Day here at GreaterFool! You wrinklies have had six decades to figure stuff out, and most of those years were, well, groovy. Now the kids are having a tough one coping with stupid house prices, a lackluster economy, soaring rents and a pile of debt for uni degrees that look dubious (to be kind). Alas, they hate us. Such a relief that we don’t care.

Anyway, let’s spend a few minutes trying to make amends with some seasoned, Boomer-tested advice. Here’s Nat:

Hi Garth, I really enjoy your blog! However, most of your advice is for people who have large savings or are interested in real estate. I was wondering if you could share some advice for first-time investors with smaller savings?

I’m a 20-year-old college student (Business Administration & Marketing) with a general understanding of how the markets work, and $9,000 in the bank that I want to put to use. I currently have $3,000 in a TFSA, using a one-year GIC with a yearly interest rate of 2.5%. I make an average of $25,000 per year, still live at home and will for at least four more years (in the Windsor area). I am talking to advisors from different banks as part of my research. But I was hoping you might be able to share some insight on to which areas I should invest in, and when to start. I also have no plans on buying a home for many years.?

Thank you for your consideration, PS; I believe a puppy picture would make a nice header for this topic.

Sounds like you’re studying something useful, Nat, at the same time as you’ve got a PT job and having mom wash your shorts. Good call. As for your finances… (a) take all of the bank cash and dump it into your TFSA. It’s the best vehicle to use since all growth is taxless and RRSP contribution room should be saved for future years when you are earning more than slave wages. (b) Trash that awful GIC since you’re wasting valuable TFSA space. Being a moister you should own growthier assets, then ignore temporary volatility (which most of the doddering old farts who read this blog seem incapable of doing). (c) And stop talking to TNL@TB. You’ll end up owning a few expensive, dodgy bank mutual funds sold to you by someone who owns a Kia. ETFs are far superior – cheaper, more liquid, nicely diversified.

Given the small amount you currently have, five funds would be sufficient. Put a quarter into US equity (lots more to come), the same into the Canadian market (it’s cheap), 20% into preferred shares (oversold, on sale), 20% international (currently battered) and 10% into REITs (solid). (This blog does not recommend individual ETFs, for a host of good reasons. Go with the majors. You can figure it out.)

Finally, never tell your mom you’ve become an investor. You pay no rent. Don’t blow it.

Now here’s Patrick, also a mill but shacking with his GF in DT TO. “Yes,” he says, “I know we should be married.” Compared to Nat, these kids are rich.

Together we have a household income of $300-400k. We are both in sales so it varies.  And have combined savings of around the same – all in a mix of maxed TFSAs, RRSPs and cash savings. Today we rent a nice, one-bedroom place that is just enough room for us at $2,200.

As said, I am bearish about the housing market generally but I have fallen for the idea of buying a cottage, renting it out on Airbnb when we can and keeping our rental in the city. Neither of our families have a cottage there and we have flexible arrangements with our jobs. This keeps us enjoying the flexibility we need, a place we can retreat to and (hopefully) not be over extended.

After six months, and as many trips, we have landed on a decent waterfront that we think we can get for $650,000. We plan to put about $50-60k into it and hold for the next 5-10 years. Now that it’s the colder side of a cold Fall market, we think it’s the time to strike.

I know cottages are a very esoteric property type, with value depending lake-by-lake, but what are your thoughts on that side of the housing market? I am worried that vacation homes are more sensitive than normal homes and that current values are just due to the goosing we have seen in southern Ontario. However, I am fearful that the worst has happened, like how it looks in the GTA. And that these types of homes will become more in demand (with very limited supply) as Millennials look for city getaways and boomers look to downsize. Is it a great time to buy or still too early if one is risk averse?

I’d love to know your thoughts. We are on the fence and need a brutal assessment

You’ve come to the right place for brutaity. Let’s begin.

Why are you buying a property that’s hundreds of km distant, requires constant maintenance, is costly to insure and finance, that you don’t need and will never live in full-time? Simple. You’ve got real estate lust and believe you can’t afford what you want in the city.

It’s a myth and romantic fabrication that you’ll spend bucolic getaways in the woods with the bugs, since it’s going to be AirBnB’d to a stream of messy, disrespectful, cheap vacationers. Yuck. A for cottage FOMO, you’ve got to be kidding. Secondary properties are far more volatile than those in an urban location, and take a hit when the economy slides as people realize they were piddling money away on a rec property. Just like a boat. Or a horse. Might as well dig a hole in the bush and shovel your $400k into it.

Dude. Buy a house in timeless Leaside. You can well afford it. Get a plastic moose for the backyard. And marry her.