Dearest readers, the stock market has been one of the most discussed topics during this challenging time. Everyone- even politicians of both sides of the "spectrum"- has been talking about it. Hmm, no surprise there- many people have RRSP's here in Canada or a 401K in USA. The idea is superficially simple. In Canada, you can decrease your taxable income by predetermined amounts every year if you put your money into a RRSP. You go to your bank, discuss how aggressively you want to invest, and then they put your money into one or more mutual funds. They charge fees for managing these, aka trying to keep them stable. As for you, you get to pay less tax right now, and once you retire and your money has grown, you get to withdraw it and pay less taxes then, versus how much you would pay while you were younger and earning more. Great as that may sound to many people, this tax deferring incentive may be a double edged sword; in fact, it may have been a double edged sword for many years now. How? Why is this important to you? Read on and either it will reaffirm what you are already thinking, or it will give you a fresh perspective.
So, our government and the banks are in bed together and this is no surprise. What has always been interesting to me is how obvious it is when you look at a RRSP as an investment approach. Once you make enough to owe lots of tax to the government, they give you a tax deferral disguised as a tax break if you give your bank thousands of dollars each year to invest it for you and charge you management fees for doing so. You may be very busy with work, life, family, friends, hobbies and so on, so this seems like a great deal. You take your 5-7 percent average annual growth (before management fees) on your money and cross your fingers that by the time you hit mid 60's you will be seemingly rich and you get a sweet ass retirement. But, what happens then is that you accept the yield you get from the banks' RRSP's as a benchmark, a financial reality and you cannot and will not believe anything better is possible. You cease to question it. After all, you may love your tax deferrals disguised as fake tax breaks a little too much. You may have learned to love them. Fine- most people are better off investing through a RRSP than saving cash or putting it into a basic savings account or a GIC and so on. But then again, all of these comparisons come from the premise of accepting RRSP as a dogma.
This, dearest readers, is the other edge of the sword- the edge that hurts you. By accepting RRSP's as dogma, you get a bad deal. In fact, it is so bad that if you start when you are 25, you need to wait around 40 years to be truly happy with it. Also, and this is what really takes the cake, it is like thinking you are e.g. getting a great deal being paid 80K at your current job when in fact at many other places you would be worth 100K-150K! The reason why you do not realize that is because the bad edge of this double edged sword cuts down your desire to learn more about the stock market, about investing, and about economics. If you ever do learn a bit about all that, you will then immediately reach for the calculator. Then, you may ask yourself a simple question. If I said no to RRSP and had to pay all my taxes this year, and then I took some of my money that I can spare, how much would I have to grow it in one year to make up for the lack of tax deferral to get the same yield as I would from RRSP AFTER the management fees? How about double that yield? How about ten times that yield? What is really possible out there is something that you will never find out unless you learn this stuff and ask yourself these questions, do some calculations and so on.
I do not have stock tips, I am not an economics or a stock market expert, but I understand enough to confidently state that relying on RRSP's has robbed us of the ability to recognize a clear need to learn economics and investing on a countrywide level until it completely permeates our society. Could you imagine what Canada would look like if most of the adult population was able to invest on their own and consistently beat beat the percentage yield of RRSP's by a lot? We would have more successful traders and less gurus offering online courses. We would have more people paying themselves a second job salary from the comfort of their own home. We would have people retiring early again if they wish- not later and later because they must. It would be a different Canada altogether, because we would redistribute wealth without a goddamn economic reset or a devastating tectonic shift in how our society and economy function.
What are your thoughts? Do you know anyone who consistently beat their RRSP by percentage yield or otherwise? Share if you like.
So, our government and the banks are in bed together and this is no surprise. What has always been interesting to me is how obvious it is when you look at a RRSP as an investment approach. Once you make enough to owe lots of tax to the government, they give you a tax deferral disguised as a tax break if you give your bank thousands of dollars each year to invest it for you and charge you management fees for doing so. You may be very busy with work, life, family, friends, hobbies and so on, so this seems like a great deal. You take your 5-7 percent average annual growth (before management fees) on your money and cross your fingers that by the time you hit mid 60's you will be seemingly rich and you get a sweet ass retirement. But, what happens then is that you accept the yield you get from the banks' RRSP's as a benchmark, a financial reality and you cannot and will not believe anything better is possible. You cease to question it. After all, you may love your tax deferrals disguised as fake tax breaks a little too much. You may have learned to love them. Fine- most people are better off investing through a RRSP than saving cash or putting it into a basic savings account or a GIC and so on. But then again, all of these comparisons come from the premise of accepting RRSP as a dogma.
This, dearest readers, is the other edge of the sword- the edge that hurts you. By accepting RRSP's as dogma, you get a bad deal. In fact, it is so bad that if you start when you are 25, you need to wait around 40 years to be truly happy with it. Also, and this is what really takes the cake, it is like thinking you are e.g. getting a great deal being paid 80K at your current job when in fact at many other places you would be worth 100K-150K! The reason why you do not realize that is because the bad edge of this double edged sword cuts down your desire to learn more about the stock market, about investing, and about economics. If you ever do learn a bit about all that, you will then immediately reach for the calculator. Then, you may ask yourself a simple question. If I said no to RRSP and had to pay all my taxes this year, and then I took some of my money that I can spare, how much would I have to grow it in one year to make up for the lack of tax deferral to get the same yield as I would from RRSP AFTER the management fees? How about double that yield? How about ten times that yield? What is really possible out there is something that you will never find out unless you learn this stuff and ask yourself these questions, do some calculations and so on.
I do not have stock tips, I am not an economics or a stock market expert, but I understand enough to confidently state that relying on RRSP's has robbed us of the ability to recognize a clear need to learn economics and investing on a countrywide level until it completely permeates our society. Could you imagine what Canada would look like if most of the adult population was able to invest on their own and consistently beat beat the percentage yield of RRSP's by a lot? We would have more successful traders and less gurus offering online courses. We would have more people paying themselves a second job salary from the comfort of their own home. We would have people retiring early again if they wish- not later and later because they must. It would be a different Canada altogether, because we would redistribute wealth without a goddamn economic reset or a devastating tectonic shift in how our society and economy function.
What are your thoughts? Do you know anyone who consistently beat their RRSP by percentage yield or otherwise? Share if you like.