Stocks, Bonds, and Dog Poo

When Steph decided it was time to retire, we agonized over what to do regarding our “nest egg.” Should we leave it in the stock market, purchase real estate, sit on cash? Trust me, I get that this is a first world problem, but do not underestimate the toll these decisions can take on your well being. We literally analyzed every option to death, and in the end, experienced complete “paralysis by analysis.”

The short answer is, there is no right answer. There is not even a comfortable answer. All answers suck! Invest in an overheated stock market – and when it crashes you could lose half your nest egg. Same goes for investing in an overheated real estate market. Sit on cash at 1.8% interest and you lose money due to inflation. The truth is, once you retire you worry more about what happens to your money and whether or not you have saved enough to last your life time, so decisions seem to matter more.

What we finally decided to do was that which was MOST comfortable – or should I say LEAST uncomfortable. We put 25% of our net worth in long term investments (50% in ETFs, 25% in cash, 25% in Stocks/bonds). I try not to look at these investments…it gives me a stomach ache. The ups and downs of it all are disturbing to me, and the one time I decided to actively “play” the markets, I failed miserably and lost a significant amount of money. Needless to say, the bulk of our nest egg went into real estate. Real estate is what I know. It is what I have always done – I am good at it, therefore it is what I am most comfortable with.

Our principle residence has no mortgage and we decided to put in a basement suite and rent it out up and down for as long as we are travelling. This produces enough income (almost) to live on down here. We dip into a line of credit for the monthly shortfall. That small bit of debt is offset by the rise in real estate prices. While travelling, we have the rest of our nest egg invested in a revenue property that is also rented. The rent pays the expenses and the property has risen in value nicely. I anticipate we will spend about $53000 a year CA while living in Mexico and the Caribbean. Our two properties in Canada are likely to go up by $60,000-$80,000 a year, so technically, my net worth will increased while lounging by the pool and strolling various beaches!

Naturally, there is no guarantee. House prices could drop. BUT, I have a few simple rules that have never failed me, and throughout the many ups and downs of real estate markets, I have always, only, made money. Here are the rules:

Rule #1 You do not make money when you sell real estate, you make money when you BUY real estate. In other words, only buy something that you can get for a bargain.

Rule#2 Buy the ugliest house on the nicest street. This allows you to improve the property and make money when you sell it.

Rule #3 The property has to make money in three ways: when you buy it, when you fix it up and sell it, and as a rental property in between.

Renting out your property has its ups and downs of course. On the up side, there is someone in your property making it less likely to get broken into. You have someone there to shovel snow, and you have income. On the down side, you can get stuck with lousy tenants who don’t pay their rent and/or trash your house. I have owned many properties over the years, and have had many tenants, and only twice did I have issues, so all in all, for me it has worked out well.

Our newest tenant in Oliver, BC stopped paying his rent last month. I had my son take over an official notice to serve to him, and in the next 10 days he took great pleasure in trashing my house – including animal feces on the floor and walls…yes the walls. Now while that might sound horrifying to some, for me it was not really that big of a deal. I called my contractor, had him go in and clean and paint the walls, and rip out all the flooring and put in new flooring. Then I will put in new tenants. The truth is, the flooring needed to be done anyway, and new flooring and paint will raise the value of the property. It was all taken care of with a couple of emails and a credit card. To me that is still so much easier than working twenty more years to save more money so that I could afford NOT to rent out my property. And definitely easier than figuring out management ratios, dividends, and when to buy, hold or sell my Amazon and Google stock (yes I have both).

Those kinds of decisions for me are just so hard to make and I always make the wrong decision…take my Crescent Point energy stock (sorry Uncle Mike)…it took a real dive a few years ago, so I decided to hedge my bet and buy more. It continued to fall so I continued to buy (most of the big investment firms had posted "strong buys" on this stock (it’s oil, it’s gotta come up eventually right?)) NOT!

My stock is now down 78% and yet, I just cannot bring myself to sell it. IT IS A BIG LOOSER AND I CONTINUE TO HOLD IT. In fact I am tempted to buy more! You see! I am NO GOOD AT THAT STUFF!

Give me lousy tenants and dog poo any day!