The comfort zone

Everyone worries. It’s human.

As we’ve mentioned often, there is no stronger emotion than fear. It frames so many of our actions. When it comes to money we fear losing it more than we covet gaining it. Our banks have made endless fortunes by playing the ‘safe’ card with cash savings accounts and GICs.

These days Tariff Man looms as a threat. Putin is forever waving his nukes. Stock markets look scary and overvalued. There’s an online web of scammers and crypto is a casino. Wars continue. Kevin O’Leary is negotiating to sell Canada to Trump. It’s all too much

So people get scared. Now we face the prospect of recession, rising unemployment and even-lower interest rates. It’s a deadly combo for those who lose a job and income while having savings locked up at 3%, with inflation ticking higher.

So let me tell you about Bethany. She’s an entertainer in Vancouver. Before Covid, she was a rising star in the clubs and at private gigs. But for the last couple of years she’s suffered the same reversal personally that big-city cultural events have. But while Heritage Canada came along to bail out comedy festivals and dramatic productions, there’s been no rescue for a woman with a six-string guitar.

But B has a secret. It’s her B&D investment portfolio, fed routinely while she was still working every weekend. All ETFs. All liquid. All growing. And managed in a way that tax-efficient income can be harvested when the rain sets in.

She wrote me this week.

“I am forever grateful for you and your amazing team guiding our financial future,” she says (yeah, Bethany asked me to help here a few years ago).

“I want to say, having been born into poverty I grew up believing that I will always live paycheque to paycheque. Finding your blog started the road to change and culminated with your agreement to make me a client changing my future. The music business has been a “work stoppage” for the last 2 years. Not good. I have only had 6 weeks of work for half the normal rate in that time. For many of my brothers and sisters that I work with this has been devastating financially. It has been tough to watch it unfold. I was able to change gears and start drawing a monthly as if I was retired. Now, I have solid work ahead and not ready to retire at all. Circumstances showed us me the future plan is going to work. OH BOY IT WORKS! So that young girl who’s only foreseeable future was paycheque to paycheque has been completely replaced with solid footing and no stress over finances.”

I bring you this sweet MSU not just to make me feel good (it does), but to underscore a point. Invest. Stay invested. Do not be spooked by headlines. Never sell into a storm. Don’t retreat into cash. Never lock your money away, especially for a pittance. Quell emotion. Be disciplined, plus confident. And if you can’t manage all that, hire someone who can.

A good advisor (or you, if you work at it) can turn a balanced and diversified portfolio into a monthly stream of cash which is not considered income for tax purposes. It can be taken as return of capital, for example, with taxes resulting only from dividends and capital gains generated by a portfolio – both at preferential rates. RRSPs which yielded juicy tax refunds during working years can be nibbled at efficiently during lean ones. TFSA withdrawals, of course, attract no tax. And equity-based ETF returns have been outstanding since the pandemic.

If Bethany had been less focused, or chunked her savings into low-yield GICs, life would have sucked when the gigs ended. Less wealth. No liquidity. Minimal growth. More taxation.

Now, with more storm clouds drifting up from the south, is a good time to ask: do you have a plan? Are you ready? Could you replace lost income? Are you liquid? Can you handle debt payments and buy the dog food?

Money is not to hoard, or be obsessed over. It’s to finance life and make your most precious commodity, time, worth living. Fear is not your ally. Get over it. Get ready.

About the picture: “You may be amused… the attached provided a laugh and “country-wisdom” combined,” writes Susan, in Saskatchewan. “My husband sent it to me because he thought that’s about what some of our friends use for advisors. Maybe these friends know something good about such sources? I hope your year is safe, healthy and not too dire in the steerage section.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.