The RRSP Secret E-Book

Greg Habstritt

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 459

Veröffentlichungsjahr: 2010

Beschreibung

If you're a Canadian investor who's feeling ripped off lately, you're not alone. Canadians pay the highest fees in the world when it comes to investments in RRSPs and other registered accounts. Is this just because Canadians are foolish, or is there something more sinister at work? Now, and for the first time, The RRSP Secret reveals many of the financial industry's most closely guarded secrets - providing the individual investor an unprecedented view into how the financial system negatively impacts the financial freedom of most Canadians. More importantly, the book outlines specifically how to defend your wealth and use a little-known strategy to create double-digit returns - the same way the banks do. You'll never hear a bank manager or financial advisor tell you about this secret strategy, and you won't read about it in the newspaper. Why? Because they'd rather continue selling you underperforming investments that increase their profits instead of making you wealthy. The financial industry is a massive marketing machine that isn't designed to make you money, and the only way you'll become financially free is if you take control of your financial future - and this is your opportunity. In The RRSP Secret, Greg Habstritt teaches you how to use the money in your RRSP, TFSA and other registered savings accounts to invest in one of the most reliable and secure investments available to you - and it's exactly the same strategy that the banks use to create profits themselves. You'll finally be empowered to turn the tables on the financial industry, and beat them at their own game. You'll learn how to invest for double-digit returns without having to take massive risks, or pay hidden fees and commissions. Stop being taken advantage of, and start making better decisions with your money. Your financial future starts now! Testimonials: " Greg Habstritt is a multi-millionaire who can show you exactly how to build massive wealth by using cutting-edge strategies and a formula for predicting markets. I teach people to learn from the best, and there's no one better than Greg!" ~ T. Harv Eker, Author of the #1 New York Times bestseller Secrets of the Millionaire Mind "I have known Greg Habstritt for several years and have always appreciated his integrity, honest approach, and willingness to 'tell it like it is.' The concepts you'll read about have been used by wealthy Canadians for decades and now, for the first time, they're being shared in a very straightforward, step-by-step guide." ~ Don R. Campbell, President of the Real Estate Investing Network and bestselling author of Real Estate Investing In Canada 2.0 "If you need street-smart skills on how to make millions in real estate like the pros do, then stop looking! Greg Habstritt teaches his secrets on how to build massive wealth through real estate investing. Greg teaches what he does and what works, and you can take that to the bank." ~ Keith J. Cunningham, Master Teacher of Business, Keys to the Vault Business School for Entrepreneurs

Leseprobe

Table of Contents

Title Page

Copyright Page

Foreword

Introduction

THE JOURNEY BEGINS

How to Use This Book

How to Claim Your Free Bonuses

SOME OF THE BONUSES THAT ARE WAITING FOR YOU

PART I - WHAT THE FINANCIAL INDUSTRY DOESN’T WANT YOU TO KNOW

CHAPTER 1 - I’ve Met the Enemy, and the Enemy Is Me!

THE FINANCIAL OVERWHELM LOOP

PATH OF LEAST RESISTANCE

THE H.A.P. INVESTING STRATEGY

VICTIM NO MORE

DON’T WORRY, THAT’S NOT YOUR ONLY PROBLEM

CHAPTER 2 - Why the Financial Industry Isn’t Your Friend

A WIN-WIN OUTCOME

THE DIFFERENCE BETWEEN FINANCIAL PLANNERS, FINANCIAL ADVISORS AND STOCK BROKERS

SEVEN UGLY SECRETS OF THE FINANCIAL INDUSTRY

WHERE DO YOU FIND UNBIASED FINANCIAL ADVICE?

CHAPTER 3 - The Trillion-Dollar Heist

THE CLASSIC MUTUAL FUND SALES PITCH

THE WOLF IN SHEEP’S CLOTHING: MUTUAL FUNDS

SEVEN DIRTY SECRETS OF MUTUAL FUNDS

CHAPTER 4 - Understanding Registered Accounts

THE BUBBLE CONCEPT

SPECIAL CONSIDERATIONS FOR RRSP ACCOUNTS

SPECIAL RRSP PROGRAMS

BENEFITS OF RRSP ACCOUNTS

HOW TO CREATE A REGISTERED ACCOUNT

“THAT’S IMPOSSIBLE!”

HOW TO TAKE CONTROL OF YOUR RRSP ACCOUNT

NOT ALL SELF-DIRECTED ACCOUNTS ARE CREATED EQUAL

PART.II - THE BEST-KEPT INVESTING SECRET FOR CANADIANS

CHAPTER 5 - The Best-Kept Secret Strategy for Creating Double-Digit Returns ...

THE STRATEGY UNVEILED

MORTGAGES AND RRSPS

CHAPTER 6 - The Power of Flexibility

EQUITY REFINANCING

THIS IS WHAT THE BANKS DO

LOAN-TO-VALUE LOGISTICS

CHAPTER 7 - Mortgage Investing, Step by Step

SELF-DIRECTED RRSP SETUP

THE POWER OF MULTIPLE INVESTORS

CHAPTER 8 - How to Find and Evaluate Opportunities

FOUR SOURCES FOR FUNDS

CASH IS OKAY, TOO!

ADVANCED STRATEGY: PURCHASING AN EXISTING MORTGAGE

HOW TO EVALUATE YOUR OPPORTUNITIES

CHAPTER 9 - The Terms of the Deal

COLLATERAL

INTEREST RATES

THE TERM

OPTION TO RENEW

PREPAYMENT

STRATEGIES TO PROTECT YOUR MONEY AS A LENDER

RRSP FUNDS AND NEW PROPERTY

OTHER BIG MISTAKES TO AVOID

CHAPTER 10 - Managing Risk and Dealing with Defaults

A FEW DEFINITIONS

THE TWO BIGGEST RISKS IN MORTGAGE INVESTING

IF THINGS GO WRONG

BEING NOTIFIED OF AN ACTION

RRSPS AND FORECLOSURE

THE TOP SEVEN TIPS TO PROTECT YOURSELF

Conclusions

Common Questions and Answers

Acknowledgements

Index

Copyright © 2010 by Greg Habstritt

All rights reserved. No part of this work covered by the copyright herein may be reproduced or used in any form or by any means—graphic, electronic or mechanical without the prior written permission of the publisher. Any request for photocopying, recording, taping or information storage and retrieval systems of any part of this book shall be directed in writing to The Canadian Copyright Licensing Agency (Access Copyright). For an Access Copyright license, visit www.accesscopyright.ca or call toll free 1-800-893-5777.

Care has been taken to trace ownership of copyright material contained in this book. The publisher will gladly receive any information that will enable them to rectify any reference or credit line in subsequent editions.

Library and Archives Canada Cataloguing in Publication

Habstritt, Greg

The RRSP secret : defend and build your wealth with this powerful investment strategy / Greg Habstritt.

Includes index.

ISBN 978-0-470-73652-4

1. Registered Retirement Savings Plans. 2. Real estate investment—Canada. 3. Finance, Personal—Canada. I. Title.

HD7129.H.024’0145 C2009-905916-9

The material in this publication is provided for information purposes only. Laws, regulations, and procedures are constantly changing, and the examples given are intended to be general guidelines only. This book is sold with the understanding that neither the author nor the publisher is engaged in rendering professional advice. It is strongly recommended that legal, accounting, tax, financial, insurance, and other advice or assistance be obtained before acting on any information contained in this book. If such advice or other assistance is required, the personal services of a competent professional should be sought.

Production Credits Cover Design: Adrian So Interior Design: Pat Loi Typesetter: Thomson Printer: Friesens Printing Ltd.

Editorial Credits Editor: Don Loney Project Coordinator: Pamela Vokey John Wiley & Sons Canada, Ltd. 6045 Freemont Blvd. Mississauga, Ontario L5R 4J3

FP

Foreword

Are you tired of low returns, high mutual fund fees and no one taking responsibility for your financial plan’s performance? Afraid to open the RRSP statement that comes in the mail each month, worried about how much worse things are getting for your financial future?

Then this is the book for you.

If there’s one thing that the 2008-2009 economic downturn taught Canadians, it was this: financial success and early retirement are not guaranteed. It also taught us that we must take back control of our personal financial situation by becoming much more aware of what we invest in and what our desired outcome is. And that is exactly what this book is going to enable you to do: take control and create a financial future based on reality, while reducing the underlying risk.

The financial industry in Canada has long held the advantage over the average investor, because most people never get the inside view of how things really work. As a result, most Canadians are playing the financial game without even understanding the rules. This book is going to change that for you.

Ever since RRSPs were created, Canadians have been obsessed about them; obsessed, but often not well informed. Most information we receive has been filtered through the eyes of the financial community, and then watered down to the point where most investors have false assumptions about RRSPs and don’t understand how to truly capitalize on them and maximize their benefit.

One simple example of this is that the financial industry has convinced many Canadians that there is a “season” for RRSP contributions every year in February. Even though this isn’t true, it serves the purposes of the financial industry, and keeps Canadians doing things that do not necessarily serve their own interests.

Your RRSP is a part of your overall financial plan, a plan that should take advantage of the RRSP tax advantages but not rely upon them. It’s a plan that should be designed not to help you “stop working,” but a plan that shows you how to “start doing the work you love to do” in your community, business or charity. It’s time that Canadians start to live their financial life with a whole life picture in mind, instead of just a retirement plan.

The book you have in your hands will play a major role in opening your eyes to how the financial industry really works and to the significant potential role that your RRSPs can play in your overall plan. You’ll discover many of the secrets that the financial industry has held for so long, designed to maximize their profits while ignoring the financial health of the average Canadian.

This book is controversial, because it reveals many of the things that some in the financial industry would prefer you didn’t know. In addition, for the first time ever, it shines a light on innovative options you can use to take advantage of the tax savings an RRSP provides you while increasing your returns and limiting your downside risk.

You’ll finally learn how to turn the tables so that you, rather than the financial industry, are in a position of advantage. You’ll learn how to create your own investments that generate double-digit returns without a laundry list of commissions, fees and expenses.

The concepts you’ll read about have been used by wealthy Canadians for decades and now, for the first time, they’re being shared in a very straightforward, step-by-step guide.

I have known the author of this book, Greg Habstritt, for several years, and have always appreciated his integrity, honest approach, and willingness to “tell it like it is.” I believe there is a lack of solid, practical, high-integrity educational material in the marketplace, and I believe that The RRSP Secret will begin to fill this void.

In this book, Greg has revealed the secrets and myths that hold back most Canadians financially, and provided the blueprint for you to follow to create success for yourself. Using this powerful information, anyone can start tapping into these strategies and never again have that anxious feeling in their stomach every time their RRSP statements show up in the mail.

Pay close attention to what you read in this book. Enjoy it, and above all else, use it and start to see how the real financial world is nothing like what the RRSP commercials tell you. It is a much larger world out there, and this book will give you the tools to enjoy it.

Sincerely, Don R. Campbell President of the Real Estate Investing Network and bestselling author of Real Estate Investing in Canada 2.0

Introduction

It was July 5, 2002, and it was what I refer to as a “moment of truth” in my life. I believe that we all have a few of these crucial, life-changing moments. And usually, they’re tremendously painful realizations that cause us to make an immediate decision on the spot, a decision that forever changes our life. For me, this was the day I had gotten out of bed early to impress Raylene, my girlfriend, with breakfast in bed.

I woke up in my custom-built 5,000-square-foot mansion on the outskirts of Calgary, which I had built shortly after selling my communications company. I thought I was pretty clever. After all, I had become a millionaire the day before I turned 30 years old, and I was on top of the world.

As it turned out, selling my company was more luck than anything else, because it sold at the absolute peak of the dot-com bubble. In fact, I had consummated the deal in March 2000, the very top of the tech bubble that was just about to burst. At the time, of course, I didn’t realize it, and figured that my success had come because I was such a genius.

I was about to learn the truth. I got up to make breakfast, quietly going into the kitchen and preparing all the ingredients for the perfect meal. When I went to turn the stove on, however, it wouldn’t fire up and there didn’t seem to be any gas. Since it was brand new, that seemed odd, so I went downstairs to investigate.

The gas water heater was off as well, so it seemed like there was a problem with the gas. As I went outside, I assumed that it was probably an interruption from workers in the area, since our community was relatively new and still undergoing construction.

As I rounded the outside of the house to look down the street, something caught my eye—a big, red tag hanging from the gas meter on my property. As I approached it, the reality began to set in, even though I didn’t want to process it.

The gas company had turned off my gas for lack of payment.

Here I was, this supposed brilliant young entrepreneur, living the life that most people only dream of, and my gas had been shut off. Soon I would discover that this wasn’t the only financial problem I had.

I went back into the house, and as my primary focus was Raylene, I tried to figure out how to hide this embarrassing fact from her so that she didn’t find out I wasn’t as put together as she probably thought I was.

Fortunately for me, when she woke up she was in a rush because she had to get back into town to her photography business. That day happened to be the first day of the Calgary Stampede, a busy time for her, and she had a million things to get done.

I drove her into town and dropped her off for work. Crisis averted—for now.

Of course, I then had to immediately go to the gas company and plead to get my gas turned back on. Since I had no money in the bank, I had to get an advance on my credit card in order to pay cash and clear the delinquency on my account. I will never forget the way that I felt that day. It was like I was living in a dream, and then suddenly, someone came along as I slept and whacked me across the back of the head with a baseball bat. It was painful, humiliating and life-altering. It was then that I decided I would never be in that position again.

THE JOURNEY BEGINS

If you’re like most Canadians, you’ve never received much in the way of formal education or training when it comes to money, investing and wealth. It really is astonishing to think that no one gets proper training on how to create, protect and manage their money, even though money is an important resource in every person’s life.

I’m a typical Canadian, born to middle-class parents that worked hard to give their children every opportunity and chance for success. My brother, Jim, and I grew up in a very loving family. Like most children, we learned from our parents most of what we knew.

While we were fortunate that my father was an accountant and understood how numbers and accounting worked, he also spent most of his career with one employer and never started his own business. There was a time when this worked for most people. Go to school, get good grades, find a good job, stay there for 30 years, and then eventually you’ll retire and they’ll take care of you. That plan worked for my dad quite well, but the world has changed and this is now a recipe for disaster.

I started my own businesses when I was very young, and both my brother and I seemed to have the entrepreneurial bug in us. My first memories of running a business are of being eight years old and selling drinks to thirsty golfers through the fence just down the alley from my childhood home, which happened to back onto a golf course.

Over the years, I’ve started and run more than twenty different businesses, and decided early that I wasn’t going to rely on someone else to employ me and take care of me. My vision was to run my own business, be my own boss and determine my own destiny. And for the past twenty-odd years, that’s exactly what I’ve been doing.

The start of my journey towards financial fluency started that day, July 5, 2002, when I realized I didn’t understand money. It was painful to admit that I was doing a terrible job managing my finances, and that I was actually in very poor financial condition. To the outside world, I looked like a success story—winning awards for my companies and entrepreneurship, living in a million-dollar mansion with all the toys—but inside I was a financial wreck. And getting my gas cut off was the wake-up call I needed.

It was at that moment that I decided I was going to learn how money really works, and was going to do whatever I had to in order to ensure I would never feel that way again. For the past several years, I have dedicated myself to the study of money, investing and financial success. I’ve spent hundreds of thousands of dollars to be educated by some of the best and brightest mentors, teachers and speakers in the world when it comes to success and prosperity.

Early on, I recognized that I had to choose an investment strategy that I would focus on, because it’s difficult to be successful in something if you don’t focus on it. I chose real estate, primarily because I had always been interested in it, and also because the research I’d done told me that our local real estate market in Calgary was poised to perform well over the next several years. I had started dabbling in real estate in 1997 when I bought my first investment property (I lived upstairs and rented out the basement suite), but I decided to get serious about it the same year I had my moment of truth.

I began educating myself on investment principles, how money really worked, and the habits and traits of successful and wealthy investors. I quickly gained insight into all the mistakes I had made in the past, and began to discipline myself not to repeat them.

At the same time I was increasing my financial fluency, I started to investigate real estate and to develop a system that would allow me to create wealth by buying properties. I focused on properties I could acquire with little cash down, and quickly began using my selling skills to get other investors to partner with me and provide the necessary cash to buy the properties. Before long, I had built up an impressive portfolio of about forty properties, and people began asking me if I could show them how I was doing it. In fact, I had decided to get a real estate licence early on, because I realized that I couldn’t find a real estate agent that understood what I was trying to accomplish.

Using my real estate licence, I started helping others buy real estate for investment purposes, and created more income from the commissions. Eventually, I realized I had enough people wanting my help that I could probably hold a seminar and teach them all at the same time, instead of trying to help people one by one. Soon enough, my one-day training seminars blossomed into multi-day, international training programs, which now have attracted thousands of students from more than twenty different countries. But it all began because I made a decision to focus on real estate and learn everything I needed to know to be successful.

All along, I continued to buy real estate and increase the size of the properties I was acquiring. The result was a sizable real estate portfolio, most of which I continue to hold today, along with a growing training company called SimpleWealth, which provides people inspiration, knowledge and tools to create financial success for themselves.

Another blessing I have is that not only do I have an incredible business partner, Kourosh, who allows me to do what I do best, but also I get to work with my best friend every single day because that happens to be Kourosh as well. His influence and impact on me has been incredible, and I have been fortunate to attract such world-class people into my life because of the realizations and decisions I’ve made on the road to becoming a professional investor.

I’m truly grateful for the life I have now—in fact, my girlfriend Raylene stuck with me through the learning journey I went on, and did me the huge favor of becoming my wife in 2005. She’s also the mother of the most incredible gift I’ve ever received, our baby boy Cooper. The two of them are really why I do what I do, and why I love my life so much.

I tell you all this about myself for one reason only: to help you recognize that no matter how uneducated you feel you are about money, or how little you know about the financial industry, you do have the power to change your financial future. You simply need to decide that you are going to learn what you need to know, so that you’ll always be able to take care of yourself.

That’s what I did back in 2002, and it changed my entire life. Only one thing is for sure: I did not know anything more about investing, finance or money back when I started than you do today. Even if you know nothing, that puts you on the same level I was at when I started down this path.

I hope to help you avoid taking several years to get to the point where you are confident enough to make your own financial decisions and begin creating wealth for yourself and your family. No one will ever take better care of your money than you will, and this book is intended not just to show you why you shouldn’t trust the financial industry with your money, but to share with you some practical and simple ways to create double-digit returns for yourself, without taking massive risks or paying outrageous fees.

If you’ve picked up this book, I’m going to assume that it’s because you’re looking for better financial answers than what you’ve been getting from the financial industry and the media at large.

It’s truly amazing to me that in a time when we have more access to information and resources than ever before, more people are making disasters of their financial lives than ever before. If it were as simple as getting “the right information,” we’d see the average person getting into better financial shape. But we know this isn’t the case.

My plan with this book is pretty simple. First, I want to wake you up and help you realize that the financial industry is a massive machine that will eat your financial lunch if you let it. It’s not there to help you, it’s there to make massive profits for its shareholders. It’s really that simple. If you’re going to take control of your own finances, you must realize that the financial system will take from you as much as it possibly can, and it won’t feel bad about doing it. So our first job together is to make sure you understand the game you’re playing.

Next, I’m going to show you why so much of the traditional thinking when it comes to investing and money is completely wrong, and in fact doesn’t work. This won’t come as a surprise, as you’ll see that many of the traditional investment strategies and ideas come from the financial industry itself. We’ll break through some of these myths and, as we do, I think you’ll start to see a new light shine through. You’ll begin to feel more engaged and optimistic that you can take control of your own finances, and be successful.

Then, we’ll look specifically at registered accounts in Canada, such as RRSPs, RESPs and TFSAs, and see why so many Canadians are taken advantage of when it comes to these types of accounts. If the mention of these terms scares you, don’t worry. I’ll explain them in a very simple way. As a key part of this book, I’ll show you specifically what you can do to create impressive returns without having to take huge risks.

I’ll walk you step by step through what I believe is one of the most powerful investment strategies that you can begin to implement immediately, so that you’re in a position to finally feel confident, empowered and able to create your own financial future. This is a little-known method of creating double-digit returns that most people aren’t aware of, and I’ll explain why it is that the financial industry doesn’t want you to know about it.

I am humbled that you are reading this book, and I want to sincerely thank you for spending your valuable time with me on this journey. Also, I want to point out that this book will not be the end of your learning process. Through my website, which you can find at www.rrspSecret.com, you will be able to access a wealth of articles, tools, resources and bonuses that will help you gain even more confidence and control over your financial future. You can go to the website and register for free to receive all of the bonuses and articles. This is my way of thanking you for investing your trust and time in me.

I hope that this book introduces you to new ways of thinking and to innovative ideas and strategies that will allow you to beat the financial industry at their own game and create prosperity and security for you and your family.

To your success, Greg

How to Use This Book

Welcome to The RRSP Secret! You’re about to embark on an exciting journey, designed to help look “behind the curtain” and see what’s really going on in the financial industry. My goal in this book is to help you see things for what they really are, and then to provide you with some powerful tools you can use to maximize your own financial success.

But here’s the really important point that I want to emphasize: this book is only where you should start—not where you should finish!

One of the challenges in teaching an investment strategy is that the environment, rules and documents are always changing. As a sophisticated investor, it’s important that you’re always aware of any changing rules, and getting access to the most up-to-date versions of the documents and information you need. That’s why I created the powerful www.rrspSecret.com website, which will support your education and learning process. On the website, you’ll find current versions of all the documents, forms, agreements and applications that I refer to in the book.

Your first step should be to register at www.rrspSecret.com. Your second step should be to download the resources so you can refer to them as you read the book.

Once you are a registered member, you’ll have access to the Bonus Resources section of the website, which is full of bonuses and added benefits that I’ve created to maximize your value from reading this book.

How to Claim Your Free Bonuses

As a thank you for purchasing this book, I’ve arranged for you to get access to a number of powerful bonuses and resources that will fast track your financial success and progress.

I’ve created a very powerful website that you can access by virtue of purchasing this book. Once you register, you’ll have complete access to this online resource, which will provide you all of the most recent documents, forms, rules and updates that you need in order to make full use of this book.

You’ll also benefit from additional Special Reports, audio and video training sessions—in total, there is more than $850.00 worth of bonuses that will provide you additional education, training and support as you begin to make better financial and investment decisions.

To access these exclusive bonuses, go to my website at www.rrspSecret.com, and register as the owner of this book.

When you visit the site, simply look in the top right corner of the home page for the “Register Your Book” link, and follow the simple instructions!

SOME OF THE BONUSES THAT ARE WAITING FOR YOU

You’ll find a variety of important resources at www.rrspSecret.com, including

Sample Documents, Forms and Agreements (that you can edit and use)

Throughout the book, I refer to sample documents and forms that you’ll need to understand as you execute this strategy. Rather than embedding these documents into the book (and killing thousands of trees in the process), I have placed them on the website so you can always access the most up-to-date, current versions of every document and form. Wherever possible, the documents are also provided in Word format so that you can actually download and utilize them in your own investment journey.

Additional Training Resources

On the website, you’ll find that I have provided a number of very powerful video training clips, audio recordings, and special reports and articles that will help you learn even more about the strategy I teach in this book. You can access these resources for free, as my way of thanking you for purchasing this book.

For example, you’ll find a very powerful conference call recording that I held with one of the top financial planners, where he reveals some of the most shocking and concerning realities about the financial industry. You don’t want to make any major financial or investment decisions until you’ve heard this call! The financial industry does not like this information to be shared publicly, but you’ll have free access to the recording when you register for the site.

Greg’s Q&A

Once you’ve read the book, I expect you’re going to have questions that you need answered—and I’m going to be there to help you get the answers you need! I will be hosting a regular Q&A session for all registered members of the website, allowing you to ask me whatever questions you have about the strategy or anything contained in the book.

Updates and Alerts

When you register on the website, you’ll also then be on my insider list so that you receive updates of new changes to legislation, as well as alerts when we’ve added or changed any of the resources on the website.

Discussion Forum

On the website, you’ll also find a discussion forum where you can connect with other investors from across Canada, and talk about how you’re implementing the strategy. You’ll also find this is a powerful place to network with other investors, and ask questions about specific situations or issues that you come across.

Mutual Fund Calculator & Other Tools

One of the most significant things for Canadians to understand is the devastating effect of fees and commissions on their investments. I’ve created a calculator that provides you a simple way of revealing the true cost that you’re paying when you invest in mutual funds. I refer to this in detail in Part I, as you’ll see. This will be an eye-opening tool for you to use and share with your friends, I assure you!

I’ve also provided you free access to my “Market Matrix” Calculator, which allows you to do market research that will assist you in implementing what I teach you in this book.

I Want To Hear From You!

Once you’ve read the book and registered on the website, please submit your comments and feedback on this book! My goal is to inspire Canadians to ask better financial questions, and take control of their financial futures. If anything I share in this book helps you think differently, please let me know. On the website, you’ll find a link to submit your comments.

PART I

WHAT THE FINANCIAL INDUSTRY DOESN’T WANT YOU TO KNOW

CHAPTER 1

I’ve Met the Enemy, and the Enemy Is Me!

When I’m left on my own, I’m my own worstenemy.

—Ron Wood

I’m going to start with the single most important thing for you to understand if you’re going to change your financial circumstances and create prosperity for yourself and your family. You’re probably not going to like what I’m about to tell you, but here’s something I can guarantee: your financial future depends on your ability to believe and accept what I’m about to reveal to you. In fact, I’m starting with this because without question it is absolutely the main reason that most people never achieve financial success.

The reality is that the biggest reason you’ve been held back financially is you. You are literally your own worst enemy when it comes to money and investing. Most people don’t like to hear this, but let me remind you that this applies to everyone, including me.

It’s important for you to understand some of the thinking and behaviours you have right now that are hurting your financial future, because once you’re aware of them, you can change them. Sadly, most Canadians never take the time to try and learn anything about how investing, finance or money works. They simply listen to the “experts,” hand their money over to others who claim to be professionals and hope for the best. To many people, investing and money management are some kind of voodoo magic, and they don’t really understand it. It’s too painful to try and learn it, so they avoid the topic—and their financial statements reflect this sad reality.

So why is it that so many investors are fearful of making decisions? Why do so many people avoid learning about simple concepts when it comes to investing and managing their own money?

This can be easily explained by what I call the “Financial Overwhelm Loop.”

THE FINANCIAL OVERWHELM LOOP

As you grow up and get through high school and then possibly university or college or go directly into the workforce, you become acutely aware of all the financial things out in the world you know nothing about. You begin to hear about the stock market, RRSPs, mutual funds, real estate, taxes, corporations, stockbrokers, cash flow, contribution matching, market timing, diversification, dollar-cost averaging—the list is endless.

Predictably, since you’ve never formally been taught any of these things, they cause you anxiety and concern, because you have no idea what they are or what you should be doing about them. As you accumulate some money, you have a sense that you should be doing something with that money, but you just don’t know what that should be. You begin to feel a sense of being overwhelmed by trying to figure out what to do. Fear and trepidation set in, too.

There doesn’t appear to be any other logical solution. Your parents don’t seem to be able to offer any intelligent advice and your friends don’t seem to understand things any more than you do, so you do what most people do in this situation and turn to a financial advisor to ask for some help. And then it begins.

You feel a sense of relief as you hand your responsibilities over to an “expert” who will take care of your money. When you meet with him (or her, as the case may be), he sounds very smart and he gains your confidence that you’ve selected the right person.

Of course, since you don’t know to ask, he doesn’t discuss his compensation or how he is going to profit from working with you. Rarely is the nature of your relationship with him discussed in detail. All you know is that he is going to manage your money and grow it so that you can enjoy a wonderful retirement.

You then essentially ignore your financial situation, trusting it to someone else. You don’t educate yourself, or learn about new products and services coming out in the marketplace. You don’t pay a lot of attention to the fundamentals of the markets. In fact, you can’t, because you wouldn’t know where to start.

But you carry on with your career or your business, your family and all the other priorities you have. Besides, you’ve got enough going on in your life, and the last thing you need to do is try to become a financial expert. You’ve never been good with numbers, and it’s just not your skill set. You do what you need to do, your advisor manages your money, and everyone lives happily ever after. Right?

Unfortunately, most investors find out at some point that while this fairy tale is easy to believe, it rarely comes true. Eventually, out of nowhere, some kind of financial problem arises. There’s a meltdown in the stock market, or interest rates are increased without warning, or your portfolio takes a hit for some reason that you’re not clear on.

And here you are, looking to your advisor for help and reassurance. And what does he tell you? “Don’t worry,” he says. “Now is not the time to panic. We’re in for the long haul, and now is a terrible time to pull out.” He tells you that he thinks the market’s about to come back, and tries to calm you down.

You’re feeling trapped, because you don’t have any idea how to interpret what’s going on and you’re blindly relying on someone you hope knows what they’re doing. You’re again feeling overwhelmed, because you don’t know whether you should fire your advisor, or if you should stick with it “for the long run.”

And this vicious circle continues over and over, blindly trusting others with your money and then failing to become educated so that you can make better decisions in the future. For many investors, this cycle repeats itself for their entire lifetime. Some investors switch advisors during a downturn, while others stick with theirs, hoping that at some point things will turn around.

Now, don’t get me wrong—as I’ll outline in the next chapter, I don’t think that the entire financial industry is out to get you, or that you can’t trust any financial advisor. While there are definitely some serious problems in the way that the system is structured (and works against the interest of the individual investor), I do believe that most of the people in the financial sector are honest and want to help you. Unfortunately, as you’ll see, many of them don’t even know the damage they’re causing to their clients.

In any case, the point you need to get right now is that no one will take better care of your money than you will.

PATH OF LEAST RESISTANCE

One of my key beliefs is that in life, when something negative happens to you, there are three primary ways in which you can respond.

1. Blame. One response might be to place blame on why the negative outcome occurred. For example, let’s assume that an investor places $10,000 in a stock that his stockbroker recommends. The stock goes to zero, and he loses his entire $10,000 investment. He immediately jumps up and down, and points his finger at the broker, blaming him for putting him into a bad investment. Placing blame is the primary method in which most investors respond to losses.

2. Justify. Another response to a negative situation is to work to find good reasons for why it happened—investors attempt to justify the outcome. For example, a real estate investor who loses money suggests that the reason for the loss is that the market is soft, and there’s not much he can do about something like that. The cause of the problem is out of his control, and he just shrugs his shoulders.

3. Take Responsibility. The third response to something negative is to take responsibility for the outcome. The investor accepts that the reason for the negative outcome was either in whole or part due to the actions (or inactions) that he personally took. If you look at the first example above, where the investor lost $10,000, instead of blaming his broker he could instead look at what he did personally to contribute to the negative outcome (the loss).

Out of curiosity, how did you respond to the last loss that you took on an investment? When you checked your portfolio and saw that it has gone down several percentage points, did you blame anybody and anything but yourself?

If you look carefully at these three ways of responding to something negative, you’ll notice that the first two—placing blame and justifying—put the power into the hands of someone or something else, and you cannot control the outcome. That’s another way of saying that you are a victim. You’re really saying that it’s not your fault, and therefore it must be the fault of someone or something else.

In the third response, taking responsibility, you are forced to step up and recognize what role you played in the negative outcome. Of course, most investors don’t like to do this, as it’s much easier to point the finger at someone else, or come up with a good reason (excuse) as to why things didn’t turn out as hoped.

Accepting This Important Truth

Until you are willing to identify and take responsibility for negative investment outcomes, you’ll be powerless to stop them because you are putting yourself in the role of victim. Let me go back to the examples above to illustrate my point.

In the situation where the investor lost $10,000 because he trusted his broker, it’s easy for the investor to point at the broker and blame him. After all, the broker suggested that stock. But what role did the investor play? Or, more importantly, what role could the investor have played?

If the investor had been willing to be responsible and accountable, one of the things he likely would have done is tried to learn more about the investment that the broker was recommending. He would have played an active role in the investment, as opposed to just sitting back and hoping that his broker had made a good suggestion.

Blindly throwing money at an investment without understanding it is no different than placing a bet in Las Vegas. Any time you invest in something you don’t understand, you’re gambling, not investing.

In this case, the investor needs to accept responsibility for investing in something that he really didn’t understand. By the way, this isn’t the exception, this is the rule! Most investors are putting their money into investments in which they have no knowledge or understanding, so it’s not surprising that most investors do not do very well.

In 2005, Ellen Roseman reported in the Toronto Star on a survey of Canadian investors in mutual funds that underlines this point. Of those surveyed, 60% didn’t know what an “MER” was (it stands for “management expense ratio”), and 40% couldn’t name the fund that they were invested in.

Think about that for a moment: 40% of the investors didn’t even know what it was that their money was invested in! That’s like having money invested in real estate, but not knowing in what city or province.

THE H.A.P. INVESTING STRATEGY

I’m about to reveal to you the most popular investment strategy in the world today. It’s particularly popular because it takes virtually no time to learn or to apply, and you can use it in any kind of investment vehicle. You don’t even need a financial planner or stockbroker to utilize this strategy and, in fact, most investors do it themselves because it’s so easy. It also happens to be the most popular strategy used by Canadians, and has been since the dawn of time. My guess is that at some point, you’ve applied this strategy yourself and perhaps still are.

What I’m talking about is the Hope and Pray (H.A.P.) Investing Strategy—what most investors are relying on to create their financial future and retire in comfort. It involves simply hoping and praying that things are going to turn out okay, but my guess is that if you’re reading this book you already know that this is a fairy tale. The H.A.P. strategy hasn’t worked for you.

Hoping and praying is what you have to do if you decide to hand over your money to someone and let them take care of it. You have to hope they know what they’re doing, and pray that they make decisions in your best interest and don’t lose it all. It’s truly a loser’s strategy, and it’s one that I hope you’ll never apply after reading this book.

VICTIM NO MORE

At this point, I hope it’s clear why being a victim is so damaging to your net worth and your financial future, and I hope I’ve inspired you to decide that you’re not going to choose to be a victim anymore. I’m also hoping you’re recognizing why this discussion of psychology is as important, if not more important, than talking about investment principles, facts and figures!

If you’re prepared to STOP being a victim with your money and investing, I have a very effective tool that I personally created when trying to overcome the desire to be a victim.

Asking “What Role Did I Play in This?”

“What role did I play in this?” This is a question I created for myself many years ago, I find that it immediately takes me out of the victim mentality and plants me squarely in reality. It forces me to think about what role I’ve played in an outcome, and helps me avoid the trap of blaming and justifying.

Asking yourself this question forces you to be accountable for at least some portion of the outcome. The more you ask the question, and the more honestly you answer it, the more you begin to realize that you—not someone or something else—were primarily responsible for the outcome.

Let me again look at the $10,000 investment loss to demonstrate the use of this powerful tool. In that case, when the investor lost his $10,000 in the stock recommended by the broker, he was quick to condemn and blame the broker for making the bad decision.

However, if that investor stopped and asked himself what role he played, he would soon have to face the reality that he invested his money without understanding the stock. He would have to admit that he was blindly hoping and praying that the broker was going to do a good job. Thinking about it further, he’d likely come to the realization that if he had done some research on the stock and was able to ask intelligent questions, he may have been able to see a reason why that stock wasn’t the best choice.

I certainly feel that the broker played some role here, since providing good advice is supposed to be part of the job. But when we’re talking about an investor who doesn’t even pretend like he wants to learn anything or be involved, it’s rare that this situation works out well for everyone.

Let me emphasize this point by looking beyond the investment world and sharing with you what I believe is one of the most profound and important statements that I’ll make in this entire book.

I believe that a direct indicator of how successful you will be in life (not just financially) is based on your willingness to be accountable for your results.

This applies not only to investing and money but equally to relationships and other areas of your life. For example, if you continually blame your spouse for the problems you have in your marriage, and you’re not willing to step up and assume responsibility for some of your faults, then that relationship is doomed.

Taking Full Responsibility, No Matter What

If you want to be successful, you must immediately begin assuming responsibility and being accountable for all the negative things that happen in your life. The more that you can eliminate blame and justification from your vocabulary, the more successful you will be.

I often get challenged on this, because someone will say to me, “Well, my car got broken into last night, and they took my briefcase with my laptop. I lost all of my documents for the past three years. And you’re telling me this is my fault?”

Actually, yes I am. Before you decide to return this book, I’m not saying that you caused the break-in, but you did make several decisions that brought about the negative outcome. First, you decided where to park your car. That likely contributed to the outcome. Next, you left a valuable asset in the car, when I think most of us realize that’s usually not a good idea. You chose not to take the briefcase with you, wherever you were going. Maybe you felt you had a good reason for this—perhaps you were going for dinner with your spouse, or going to the gym. In any case, whether you had a good reason or not, recognize that you made the decision that led to the outcome. All of the documents for the past three years are gone. That would imply you didn’t have a backup of your documents. And whose responsibility was that?

Hopefully you’re getting the point here, and not resisting what I’m saying. Believe me, it has taken practice and time to get accustomed to taking responsibility in as many areas of my life as I can. But I also share with you that the moment I became accountable, my life changed. And you have the very same opportunity. You simply need to make the decision.

DON’T WORRY, THAT’S NOT YOUR ONLY PROBLEM

If all of this weren’t enough to contend with, the reality is that as human beings we are wired with instincts, habits and responses that have evolved over thousands of years, all with one purpose: to help us survive this dangerous world.

I’m not going to delve into a deep discussion about psychology, but I think it’s important to help you recognize that the way our brains are wired is in direct conflict with good, fundamental investment habits. Put another way, the things that we do by instinct actually hurt us as investors. It doesn’t seem very fair, but it’s true, and becoming aware of such things gives us a fighting chance to work around these weaknesses instead of being blind to them as most investors are.

In fact, this realm is a fascinating field that continues to develop. Behavioural finance and behavioural economics are fast-growing areas of knowledge that apply scientific research to the study of economics and the investment world, and attempt to identify the reasons why investors do seemingly irrational things. Personally, I’ve always been intrigued by what causes people to do the foolish things they do. Why do people hold onto a stock well after it’s dropped, and has little hope of ever coming back? Why do investors buy real estate at the very top, thinking they’re getting in at the bottom, when the market indicators clearly are saying otherwise?

Recognizing Investor Biases

I refer to each of these problematic instincts as “investor biases,” because you have a natural bias to respond in a certain way when presented with a specific scenario. A bias is simply a false assumption or judgment you’ve made that isn’t based on fact or truth. Investor biases are automatic reactions that you likely have to specific investing situations that are based on an emotional response, not an intellectual one.

It’s worth noting here that a powerful psychological influence is at work twenty-four hours a day on all of us, which helps explain some of the strange things we do, not just with our money but in other areas of our life as well.

Psychologists have proven that the human mind only does something for one of two primary reasons: a desire to either (1) obtain pleasure or (2) avoid pain. And they’ve proven that our instinct to avoid pain is stronger than our desire for pleasure. In other words, your brain will go out of its way to avoid pain, regardless of whether there’s an opportunity to obtain pleasure. The avoidance of pain overrides your desire to obtain pleasure, and this is something that’s hard-wired into us as human beings.

What does this have to do with investing? Everything. Your psychology will dictate your investment success more than anything else you can learn or understand. That’s why I feel it is appropriate to spend just a few moments on this.

Investor Bias #1: Aversion to Loss (The Need to Be Right)

One of the most powerful human instincts ingrained in us is that each of us has some deep desire to be right about the decisions we make. We gain a sense of pleasure when we are correct. Conversely, when we are wrong, we experience some degree of psychological pain, and therefore we try to avoid being wrong. Again, remember the two things our brain is constantly seeking out: experiencing pleasure and avoiding pain.

To demonstrate this bias, consider an investor who buys a stock at $1.00. After a couple of weeks, she checks her account and finds that her stock is down to $0.85. What does she do? If she’s like most investors, she holds onto her position and uses a number of reasons (excuses) to rationalize that decision:

1. “I’ve already taken the 15% loss, so selling now locks that in and that would be foolish.”

2. “The decline is temporary and the stock’s going to come back.”

3. “It’s a good company and the market isn’t seeing the potential.” (And she tells herself this, even though she has never reviewed the company’s financial statements or prospectus.)

What’s really going on here is quite simple. Subconsciously, the investor is trying to avoid a painful experience. As a result, she’s avoiding the decision to sell at a loss, because she would have to admit that she was wrong and that creates pain, which she is desperate to avoid.

Most investors aren’t even aware of this inner dialogue going on, but the net result is that they decide to keep holding the stock, which usually means that what could have been a short, quick pain turns into a long, dull, slow pain that lasts for weeks, months or even years.

If you’re not sure whether you are vulnerable to this bias, consider the following scenarios based on the excellent work of Van K. Tharp in Trade Your Way to Financial Freedom.

Given the following two options, which would you choose?

1. A sure loss of $15,000

2. A 20% chance of no loss at all, and an 80% chance of a loss of $20,000

The reason that most people choose the second option is because it provides some potential of avoiding loss. Most investors would prefer to take the risk that the market is going to come back and help save them from the loss. Unfortunately, this leads to a larger loss, which then makes it even more difficult to get out.

Let’s try another example. Which of the following options would you choose?

1. A sure gain of $15,000

2. An 80% chance of $20,000, and a 20% chance of no gain at all

Again, about 80% of the population chooses the first option in this case—the sure gain. However, the second option is actually the best, because the gain in that case would be $16,000, which is higher than the sure gain. Taking the sure gain violates the investing rule of letting your profits run.

Most investors are afraid of losing, and end up taking a profit whenever they can. This satisfies their need to be right, and helps avoid the loss. Unfortunately, being blind to the bias at play means that they are likely making poor investment decisions, even though their decisions may seem logical.

I’ve felt this very bias many times, and none more than when I bought Nortel in 2000, the year of the dot-com collapse. I bought Nortel at $80 per share, after it had come down from $120 per share, on the advice of a broker that I had at the time. Because I thought I was such a brilliant investor I decided to use leverage (using a margin account), and borrowed money from the brokerage so that I could buy even more stock. I bought three times the amount of stock that I had the money for, because that would mean I’d make triple the killing!

Soon after I had bought it, it dipped to $60 per share, and I spoke to the broker. He told me that he thought it was headed back to $120, and that this was just a temporary decline. I quickly agreed (recognizing now that it was because I was looking for a reason to avoid selling) and held on. The stock started to climb back up, making me feel great pleasure that I had made such a genius decision. It slowly moved back up towards $80, but never made it. The rise in price was temporary and soon it was headed back where it came from.