Why Am I Investing? Critical Factors & Trends to Consider for Investing
Welcome to my first newsletter! You are receiving this because I thought you may be interested in what I have been up to with real estate investing. If you think someone else may be interested in this, please feel free to forward to them! I’m planning on doing updates every couple of months on what I’m up to as well as my thoughts on investing and real estate.
Here is a snapshot of the before and after of my first real estate project at 220 William Street in Shelburne, Ontario. Pictured below are only a few of the many great people that helped me with this project - they rock!
Why the Heck Am I Investing?!
Whatever stage or experience you’re at financially, I’m hoping this will either be a reminder of why you’re investing, or, a point where you might re-consider your options. I’d like to tell you why I am interested in investing, and why I spend much of my free time investing and thinking about investing:
Simply, I want to create financial freedom for myself and my family.
How do I do that?
Well, to win the game, one must first understand the rules, and the forces at play! The other option is forget the rules, come up with an idea, create a million dollar app then sip Mojitos on the beach… Let me know when you figure that out and I’ll come join! Until then, let’s understand the former option... for now. I have a job, and I work hard for my income. However, the rich don’t work for money, they let money work for them (from the book: Rich Dad Poor Dad) through investing! I would like to focus on three important forces that guide my decision making:
Income vs. Asset Growth
The government sets inflation targets every year. The force of inflation causes your money to be worth less next year than it was this year. Therefore, keeping money under your mattress or in a bank account means you’re losing the game.
If the inflation target is hit of about 2% per year, your money sitting in your bank account or under your mattress, will be worth half of what it is worth now 35 years from now. The average person works about 40 years, that means if you were saving and not investing, your money is worth about half after all that work! WTF! If inflation rises like it did in the 80's, that money is worth a lot less…
It is clear to me that if we don’t invest our money, it loses value. All that money we worked hard for is worth less…I don’t like that. Therefore, I must invest any excess income. Inflation is force number #1.
Income vs Asset Growth
Incomes in Canada on average, are growing at a slower rate than house prices i.e. hard assets, especially in the GTA. Although house prices in the last couple years have skyrocketed, the trend has been ongoing on for a long time.
Looking at the graph below, if this trend is projected out into the future an average Canadian will not be able to afford a home. This is already true in Toronto. A single-family home is out of reach for a typical household income. Unfortunately, I expect this trend to get worse, not better. This means that the average Canadian that is not investing in assets has less money next year compared to the Canadian that is investing. Over a course of a lifetime the difference is outstanding.
Unfortunately if you're not investing and you’re only dependent on your income, the stats say you’re playing a losing game. Income vs asset growth is my force number #2.
Ever heard of the magic of compound interest? Well, it’s magical! Einstein called it the 8th wonder of the world, and Warren Buffet says it's the single most powerful factor behind his success is compound interest.
Compound interest has 3 important factors: length of time, rate of return, and the original amount/recurring deposits. I like to use the expression: the best time to plant an oak tree was 20 years ago, the second best time is RIGHT NOW. Click HERE to learn about the Magic of Compound Interest.
Jen invests $3,000 per year, for 11 years, for a total of $33,000 from age 25-35. Amber invests $3,000 per year for 33 years for a total of $99,000 from age 35-65. The rate of return for both is 10%. The result is: Jen who put in ⅓ of what Amber put in ends up with double what Amber does.
That’s magic, so let's use it! Compound interest is force number #3.
Some people think that investing is risky, but I could not disagree more! Not investing is risky, because you are guaranteed to lose, due to the forces at play and the rules of the financial system.
So, where do I invest to get a high rate of return? Lately, I’ve been investing in real estate, and I’ve been getting great returns from some niche investing strategies. In next months email I’ll let you know why I like real estate investing, and the benefits I think it has over stocks and mutual fund investing.
Let me know if you or someone you know would like to learn more! Otherwise, stay tuned for the next Brown Properties update on real estate investing!
Spencer Brown Brown Properties