big stash, bad casflow

[expatcanuck]

I love this blog after hearing about it recently.

Here's the deal.
48 yrs old. Large stash, semi mustashian before i ready this blog. Expat canadian in uk since mid 1990s. Somehow had 2 kids and wife along the way.

Always lived below my means and invested the rest. Just ditched second car, cuttings own hair, what little there is. Have always cycled to work etc. Run my own business but after reading this blog, business up for sale and making plans to head back to calgary as have my f-off money so to speak.
Assets 8 properties in calgary total current value. 2.75 mill cdn. Mortgages 230k cdn on 2 properties. Cash in business 60k cdn. One will be our primary residence . Sale of business, who knows economy here in the toilet, likely not much maybe 100k cdn

Here's the thing. Calgary house prices have shot up and rents have not kept up which is a good problem to have. So i reckon in the range of just under 2 mil cdn once taxes and fees paid in investment money. Will maybe keep 2-3 properties that have good yields but i don,t really like diy and currently use a management company to deal with the rentals.
We currently live comfortable on the equivalent of 3500 cdn after tax assuming no mortgage, one car. Was going to buy used but not since the massive flood. You just know a lot of those cars will find their way onto the resale market.
Will be in walkin/cycling distance to shops/school.
Point is, what else to put my stash into without the headache of being a landlord and get modest cashflow to spend more time with my wife and kids?

[pom]

Managing your properties does not necessarily mean that you DIY, you could just develop a good rollodex of plumbers, painters ... over a few years and call them as needed. After all, that is all that the management company does.

You could buy some Canadian Reits if you want the real estate exposure witout the hassles but assuming that you keep 2-3 properties, maybe you will already be realestate heavy.

Canadian market yield about 3.0% in average; my only issue with that is that the canadian market tends to be overweight natural ressources, banks and RIM so if you are ok with that, why not but you may want to consider an international index fund instead, it will bring in about 3% in dividend yield as well and be better spread across industries (however you add-in a currency risk factor).

Canadian Real Return Bonds yield about 1% right now. It is really low but maybe you could buy a little bit for stability.

Good luck and happy return home!

[aclarridge]

Based on your assets and expenses I think you're at about a 2% safe withdrawal rate, assuming you don't buy a very expensive house. That's EASY, you probably could have stopped working a while ago.

You should probably read up on investing in general as right now you're very exposed to the Canadian real estate market. Some simple low-cost ETFs could easily provide you with the dividend yield and bond interest you need for your expenses.

Best thing to do is read some books on asset allocation (many are recommended on these forums, just search), come up with an Investment Policy Statement, implement it, and then move on to other things; the financial part of your life will be pretty much solved. Congrats on the stash!

[expatcanuck]

Many thanks for replys.

I have been so busy grafting/investing the past few years and living modestly it took a good punch in the face of reading this blog to realise i am done.

As you say i am way over exposed in the calgary market. It will be a god time to sell over the next year as we just had massive floods, large inward migration due to oil and an already short housing stock.

I have no idea where to start in terms of where to allocate the stash to look for income, with low-mod risk whilst trying to keep some growth and in this regard am financially illiterate.

Any suggestion to narrow the field of books/blogs whatever so i dont just got to the casino and put it all on red.
I read up  a bit on the conservativeinvestor blog and the cdn dividend nija dood

Any help on a direction would be appreciated

[aclarridge]

There's a series of articles mentioned at the bottom of this blog post. It's a great place to start.

[expatcanuck]

Thank you very much.
Thats exactly what i needed

[aj_yooper]

You might also like Bogleheads:  http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit  They also have an active forum for questions.

[Megatron]

how did you purchase all your 8 properties, through financing or you pay cash one at a time? I'm working on my current stash but no where near your size.

also, I just wanted to say kudos on the large stash.

[expatcanuck]

Wow, thanks gang, really helpful.

The bloke from chicago, thanks, great read, have booked marked it for more detail. Love your city, have great memories of a few days along the lakesshore drive followed by a deep dish spinach at giordanos (sp?)

Hi megatron.
To be brief, i finished my degree in '96. Moved to the uk with my wife as my dad is from here , so have a pommie passport,  for some short term travel that has turned into 17-yrs.

We had circa 150k us in student debt. We did it the old fashion way. Lived waaaay below our means, cleared the student debt in 2-yrs. Then with a bit of forward planning, a lot of really hard work and a tremendous amount of luck we bought a series of properties. Had 13 at one point. Bought them all on finance, nearly got wiped out at one point, consolidated, learned from our many many many mistakes and here we are 17 yrs later with a shit load of equity.

Of course the world was different then, cheap house  prices in calgary, booming uk economy and a very strong exchange rate in our favour with lots of cheap credit.

Happy to share any details you want to know but don,t want to be a bore.

[Gerard]

As a "can't see the forest for the trees" type, I focused on a tiny detail of your post, the car/flood thing. It might be fun for you to treat yourself to a (frugal?) vacation in a city far from Calgary, buy a used car there, and drive it back.

wrt investments, if you sell that many of your properties, you'll have a Shitload Of Capital, so you can afford to eat into some of the principal if you have a couple of lean years. You probably won't have to, as you sound like the kind of people who can crank up the frugality if needed, but hey, it's nice to know it's an option.

Also, would you consider living in a smaller, simpler place in Calgary (given housing prices there), and having a second, snowbird-type place somewhere with a better climate?

[expatcanuck]

Hi Gerald, interesting question about the car.

Under normal circumstances, yes I would probably look at sourcing a car from the US that was acceptable under the riv program to import. 

However, as we will be arriving from overseas with 2 young children  who then need to start schooling immediately with a shipping container that will likely show up give or take 4 to 8 weeks later and then involving I would suspect a good month or so of IKEA/kiiji and home Depot hell.  As we already have substantial assets, I would rather Rent-A-Car for a week, go to one of those car cost Canada website places to figure out what the dealer invoice prices and just say “I want one of those”and this is how much I'm willing to pay cash today, take it or leave it.

In terms of housing in Calgary, that is where my wife is from and her family is there so as I lack any bottle to stand up to my wife, that is where we will reside.  A happy wife is a happy life and all that. 

Also, I did my 1st degree at U of C and quite like the city for the access to the outdoors.  One of the houses we own is on the southside within cycling distance to shops and if you know Calgary is within throwing distance of fish Creek Park and the cycle paths.

In terms of a holiday home  abroad, that is something I looked into but I don't think it makes economic sense.  Maintaining multiple properties abroad for a number of years is difficult enough even with an excellent agent in a 1st world country with a robust economy.  Over the years we have had one of our houses burned down, another property drug dealers moved in next door and assaulted one of our tenants.  And a few times we have had tenants do midnight runners with leaving the property unsecured and in some cases stealing even things that are nailed down.  Whilst I adore America as a fun place to visit and parts I would happily live in,  they have many very odd laws that make it difficult to want to own a property there as a 2nd home.

As such, to me in makes much more economic sense to rent places for a month or 3 at a time in areas with mild winter climates whether it be the US, Mexico, Dominican Republic or Europe.  As we have EU passports as well as Canadian, there are dirt cheap places for winter rentals all over sunny places in Europe.

Out of curiosity, where on the East Coast are you?

[CompLB15]

I would go with putting 90% of it into Berkshire Hathaway (BRK.B), and sell a % of stock per year to meet your income needs.
BRK.B is almost as safe as S&P index fund, and is at a fair price today.
You will likely get 8% growth a year for the next 10 years.

The CEO Warren Buffett has a discussion of dividends in his annual report.
Page 19
http://www.berkshirehathaway.com/2012ar/2012ar.pdf

[pom]

I would go with putting 90% of it into Berkshire Hathaway (BRK.B), and sell a % of stock per year to meet your income needs.

You need to get facepunched, Buffet would be the first guy to tell you that putting anything more than 5%-10% in an individual stock is dumb.

Lehman Brother was a damn fine company, a master of risk management, a pillar of strenght ...  until it wasn't.

GE was run by Jack Welsh for god sake, it paid fantastic and ever increasing dividends ... until it had to cut them 65%.

[arebelspy]

I don't think being over weighted in Berkshire is a bad move - it already has quite a bit of diversification based on the companies it owns.  (Though it is a bit over-reliant on the insurance aspects.)

I'm okay with more than 5-10% in BRKB.

YMMV, obviously, and one should pick an AA that works for them.

[aclarridge]

I think Warren Buffett is a very special guy and has a very impressive skill set, and it has certainly been lucrative to invest with him pretty much throughout his career. However, he's getting old. I can't help thinking, once he's mentally unfit to run the company or dies, then what happens? What differentiates Berkshire from the rest of the investment management firms, hedge funds, asset managers, etc. out there?

I just think it's unrealistic to expect that they will continue to outperform the market once he's gone, just because he once ran it and he's the best. They don't have any other competitive advantage that I'm aware of.

[CompLB15]

pom. 
Buffett has 99% of his net worth in Berkshire. 
Also when he ran his investment partnership in the 60's he put 40% of his fund into American Express during the salad oil scandal done by Tino De Angelis
Page 80 http://books.google.ca/books?id=uEmiOCLdZfIC&pg=PA79&lpg=PA79&dq=american+express+salad+oil+buffett&source=bl&ots=-Smfn5QmWj&sig=bhOUF7JR8vkQlC0HfKN2HpafLOM&hl=en&sa=X&ei=dyjoUbXEJOimyQHi-IGQCQ&ved=0CFAQ6AEwBg#v=onepage&q=american%20express%20salad%20oil%20buffett&f=false

F140.
They have huge competitive advantages in each subsidiary, they have approx 90 of them.  Almost every subsidiary has some sort of advantage in its respective market.   In addition, Berkshire is run in an extremely decentralized manner, Buffett has very little input into how each subsidiary is run.

For example.
GEICO low cost provider.
NetJets pretty much owns the fractional jet market
BNSF railway, one of the biggest railroads in America and arguably the best run
The list goes on and on.


Your not going to lose money in Berkshire in the long run and it will perform better than the general market. 

[aclarridge]

Other investment management firms have wholly owned subsidiaries as well, and why are they worse off? Because Buffett didn't pick them? Fine, but what about when he's gone? Companies change over time and what was once a great investment might not be in the future.

Your not going to lose money in Berkshire in the long run and it will perform better than the general market.

This hurts your credibility.

[daverobev]

Have a look on Canadian Couch Potato too - for simple stuff.

Also, there are tax benefits to getting Canadian dividends - I assume you have an accountant and know that?

For example, you could buy $100k of ZCN.TO (for example) - management fee of 0.15% - and yielding about 3% at the moment. Having it unregistered you'd get $3k of dividends PLUS tax breaks (effectively it lowers your tax rate). ZCN is, at least, the S&P Composite, not just the TSX 60.

In fact, CCP does fee-based analysis work now. Pointless for me with my few thousand dollars of Canadian investments and one small house, but for you? Well worth it - and you are paying him to advise you, meaning he has no incentive to sell you crap funds.

[arebelspy]

I think Warren Buffett is a very special guy and has a very impressive skill set, and it has certainly been lucrative to invest with him pretty much throughout his career. However, he's getting old. I can't help thinking, once he's mentally unfit to run the company or dies, then what happens?

Um, you have partial ownership in a bunch of companies making lots of money?

You are investing in a company, not a guy.  It happens to be well run (and I think will continue to be well run after him and Charlie pass away), but that doesn't mean when the big guy goes, the company is done and declares bankruptcy or something.

Your not going to lose money in Berkshire in the long run and it will perform better than the general market.

I wouldn't go that far (you can predict the future?), but I think it is a good investment.

[Freeyourchains2]

I think Warren Buffett is a very special guy and has a very impressive skill set, and it has certainly been lucrative to invest with him pretty much throughout his career. However, he's getting old. I can't help thinking, once he's mentally unfit to run the company or dies, then what happens?

Um, you have partial ownership in a bunch of companies making lots of money?

You are investing in a company, not a guy.  It happens to be well run (and I think will continue to be well run after him and Charlie pass away), but that doesn't mean when the big guy goes, the company is done and declares bankruptcy or something.

Your not going to lose money in Berkshire in the long run and it will perform better than the general market.

I wouldn't go that far (you can predict the future?), but I think it is a good investment.

Well an interesting question arises, are the next contenders for the CEO position of Berkshire Mustachian as well? Because Warren Buffet sure is!

If they aren't, they might go on an emotion spending spree with their company's billions in cash. Though i believe they are trained well enough in investing ways by Warren Buffet, but it is hard to justify that in their personal lives. As they may be Anti-mustachians in their private personal lives (even with Millions of income).

[CompLB15]

I know predicting the future sounds crazy, but I will go out on a limb and say BRK will be an exception to the rule.


Among many reasons, Buffett has spent his life creating the company and has thought long and deep about the company after him.  The current board of directors have a vested interest in seeing the company doing well.  So even if a crazy CEO got in, the board would get rid of him fairly quickly.

[aclarridge]

Um, you have partial ownership in a bunch of companies making lots of money?

You are investing in a company, not a guy.

This is obvious.

It happens to be well run (and I think will continue to be well run after him and Charlie pass away), but that doesn't mean when the big guy goes, the company is done and declares bankruptcy or something.

You're putting words in my mouth. I stated in that same post that

I just think it's unrealistic to expect that they will continue to outperform the market once he's gone, just because he once ran it and he's the best. They don't have any other competitive advantage that I'm aware of.

Of course the show goes on, they continue to own what they own and make more acquisitions, but I'm actually asking the question - what makes them different/better than other investment management firms after that? Right now, I'd say the answer is that they have an amazing wealth of experience and guidance in Warren for all their big decisions. Afterward I'm not sure the answer is so clear, and that's the point I'm trying to make.

Regardless, if they're going to outperform the market and everybody knows it (I must be the only giant moron that just can't figure it out) then why isn't this outperformance priced in to the current market value of the company?

[arebelspy]

Of course the show goes on, they continue to own what they own and make more acquisitions, but I'm actually asking the question - what makes them different/better than other investment management firms after that? Right now, I'd say the answer is that they have an amazing wealth of experience and guidance in Warren for all their big decisions. Afterward I'm not sure the answer is so clear, and that's the point I'm trying to make.

They may still have that amazing wealth and experience depending on what Warren has managed to pass on to the various potential successors.

Regardless, if they're going to outperform the market and everybody knows it (I must be the only giant moron that just can't figure it out) then why isn't this outperformance priced in to the current market value of the company?

Of course it would be.  There's no reason to say they'll outperform the market going forward.

[aclarridge]

They may still have that amazing wealth and experience depending on what Warren has managed to pass on to the various potential successors.

They may. There is an element of risk though. IMO, there is higher risk with that one company than there is with certain Vanguard index funds because of the fact that they are more passively managed (i.e. you buy into a predefined strategy that has no room for input from managers who think they know what to do).

As a side note, I am trying to discourage the OP that 90% BRK is a good idea long-term. It's probably safe enough and might even outperform, but again, seems higher risk than index investing IMO.

[arebelspy]

As a side note, I am trying to discourage the OP that 90% BRK is a good idea long-term. It's probably safe enough and might even outperform, but again, seems higher risk than index investing IMO.

Definitely higher risk, and also not something I'd recommend.

I just don't think it's disastrous and I wouldn't compare it to investing in "a single stock," it really isn't due to the diversified holdings.

But yes, in terms of practical advice for the OP - a total market index fund is the best way to invest in the stock market, IMO.

[aclarridge]

I just don't think it's disastrous and I wouldn't compare it to investing in "a single stock," it really isn't due to the diversified holdings.

I certainly agree it's not disastrous. I'm not going to argue with you that it's different from a company with no other holdings in other companies - clearly there's diversification. I don't think I ever made that comparison, what I said was

there is higher risk with that one company than there is with certain Vanguard index funds because of the fact that they are more passively managed (i.e. you buy into a predefined strategy that has no room for input from managers who think they know what to do).

[arebelspy]

That's fine, but the original comment being replied to was that investing that much in BRK was "dumb" and one doing it deserved to be punched in the face (and that one ought not hold more than 5-10% in a single stock, which is why I pointed out this was a different case).  That's what I was arguing about, and the position you seemed to be de facto defending, whether or not you were the one that said it.

[aclarridge]

That's fine, but the original comment being replied to was that investing that much in BRK was "dumb" and one doing it deserved to be punched in the face (and that one ought not hold more than 5-10% in a single stock, which is why I pointed out this was a different case).  That's what I was arguing about, and the position you seemed to be de facto defending, whether or not you were the one that said it.

Ah I see. Wasn't my intention; I had only skimmed that one. I was more at issue with Reply #11 - should have quoted it.

[LinCO]

I have an observation about what I don't see in the above conversation. I admit to not reading the links-however, if this original question related to relatively swift procurement of a large amount of capital, doesn't that raise the possibility that he will buy high?

I am mostly in real estate myself, so I'm not fluent with the terminology - could some of you stock investors address this, please?

[expatcanuck]

Have a look on Canadian Couch Potato too - for simple stuff.

Also, there are tax benefits to getting Canadian dividends - I assume you have an accountant and know that?

For example, you could buy $100k of ZCN.TO (for example) - management fee of 0.15% - and yielding about 3% at the moment. Having it unregistered you'd get $3k of dividends PLUS tax breaks (effectively it lowers your tax rate). ZCN is, at least, the S&P Composite, not just the TSX 60.

In fact, CCP does fee-based analysis work now. Pointless for me with my few thousand dollars of Canadian investments and one small house, but for you? Well worth it - and you are paying him to advise you, meaning he has no incentive to sell you crap funds.

holy thread hijack everyone!!!

To be frank, I have worked my nuts off and already realise I have lots of eggs in one very large basket. I am not going to transfer all of those eggs to another single equally large basket.

Although I have accumulated a large stash I am an unsophisticated  investor.

I like the above idea, I didn't know about dividend taxes in Canada, at this point I am looking for income and to defend my stash from inflation. I am still working 70hrs a week trying to sell my business. What little time I have left is with my wife and kids, essentially I have invested heavily in property in Calgary, spend time with my family and otherwise live in a bubble.

Property in Calgary has been a no brainer for the past 12-ish yrs. 3rd largest oil reserves in the world 700km north, the oil financial centre, cheap housing prices in the past, strong exchange from the UK until 2009 and I was making shitloads of money living cheap in the UK and most importantly Calgary is where my wife is from.

All my properties have doubled in value and essentially all my birthdays and Christmases have come true. Picture a really fat kid locked inside a very large donut shop.

So now, I realise it's time to punch out, I am looking for income and to defend my stash, income and just keep pace with the market whilst spreading my stash around so if some part fuck up, I won't get wiped out.

[pom]

one doing it deserved to be punched in the face

And I still believe that but will not hijack the thread anymore than to say that "this company is different" is a sentence that I have heard many times since I started investing in the mid-90s. Not everytime it spelled disaster but it was a disaster enough times to make me extra cautious.
 
Back to topic:

About 80% of my equity portfolio is in index funds, the rest is play money and not a single stock is ever more than 5% of my portfolio. My advice is to have similar "rules" for your equity and bond investments.

[daverobev]

Have a look on Canadian Couch Potato too - for simple stuff.

Also, there are tax benefits to getting Canadian dividends - I assume you have an accountant and know that?

For example, you could buy $100k of ZCN.TO (for example) - management fee of 0.15% - and yielding about 3% at the moment. Having it unregistered you'd get $3k of dividends PLUS tax breaks (effectively it lowers your tax rate). ZCN is, at least, the S&P Composite, not just the TSX 60.

In fact, CCP does fee-based analysis work now. Pointless for me with my few thousand dollars of Canadian investments and one small house, but for you? Well worth it - and you are paying him to advise you, meaning he has no incentive to sell you crap funds.

holy thread hijack everyone!!!

To be frank, I have worked my nuts off and already realise I have lots of eggs in one very large basket. I am not going to transfer all of those eggs to another single equally large basket.

Although I have accumulated a large stash I am an unsophisticated  investor.

I like the above idea, I didn't know about dividend taxes in Canada, at this point I am looking for income and to defend my stash from inflation. I am still working 70hrs a week trying to sell my business. What little time I have left is with my wife and kids, essentially I have invested heavily in property in Calgary, spend time with my family and otherwise live in a bubble.

Property in Calgary has been a no brainer for the past 12-ish yrs. 3rd largest oil reserves in the world 700km north, the oil financial centre, cheap housing prices in the past, strong exchange from the UK until 2009 and I was making shitloads of money living cheap in the UK and most importantly Calgary is where my wife is from.

All my properties have doubled in value and essentially all my birthdays and Christmases have come true. Picture a really fat kid locked inside a very large donut shop.

So now, I realise it's time to punch out, I am looking for income and to defend my stash, income and just keep pace with the market whilst spreading my stash around so if some part fuck up, I won't get wiped out.

Ok, so the good news is - if you sell a house or two now, the amount you'll lose to inflation in, say, a year or two isn't hideous. There are 2-ish% savings accounts available (remembering to split up large chunks of cash between different banks! $100k is the gov't insured limit I think). Sell two, get half a mil, after selling your business, and.. try to.. relax.

You'll lose what, 2% *of what you've cashed out* a year. Ten grand on half a million. Not great - but not the end of the world!

[aclarridge]

I have an observation about what I don't see in the above conversation. I admit to not reading the links-however, if this original question related to relatively swift procurement of a large amount of capital, doesn't that raise the possibility that he will buy high?

I am mostly in real estate myself, so I'm not fluent with the terminology - could some of you stock investors address this, please?

Classic lump sum vs. dollar cost averaging problem? A recent thread about that is here, but just google it if you want to know more. IMO, in summary, lump sum investing is higher risk and higher expected reward, while dollar cost averaging is the opposite.

holy thread hijack everyone!!!

Sorry. What can I say?

[expatcanuck]

Thanks gang.
Really helpful, lots of reading to be done.
After i sell the business and take the family for a nice camping holiday  in the rocky mountains of course...

One thing i forgot to ask. I was reading up about the tax breaks for canadian dividend shared. Is there an ultra low cost/management fee canadian ETF that covers a large range of good quality shares with a dividend payout of the 3% range that meets the canadian tax criteria? I tried a google search but my dear the selection is overwhelming.

Or am i unrealstic?

The unsophisticated investor

[aclarridge]

I think after you do your reading, probably the best thing to do is go to each of the big ETF providers' websites and look around. Usual suspects are Vanguard, Blackrock (ishares), Claymore, Horizons, and BMO. Once you've done your research, post whatever asset allocation you're thinking of going with here, along with your particular requirements or additional info regarding taxes or whatever, and have people take a look at it. That's what I did anyway.

If you want more serious, professional advice in addition to the advice from this forum (probably a good idea) the Canadian Couch Potato guy is one option as mentioned before!

[daverobev]

ZCN.TO is good - it is the full S&P/TSX Composite (ie 254 companies, not 100 like the Vanguard one). 0.15% MER I believe.

Have a look on Canadian Couch Potato - ETFs.

[expatcanuck]

Great, many thanks

Lots of great direction.
Will read up and no doubt have a few more questions once I have had a chance to digest it al