Investing

I've had this story about the Big Lie of Defined Benefit fermenting in my head since long before I heard anything from the Canadian Labour Congress (CLC) about expanding the Canada Pension Plan (CPP). For those not in the know, Canadians have to give up a small percentage of their income which goes into a huge pot that pays them a meagre sum of money every month, once they retire. At present we pay in about 5% of our salary to an annual maximum of about $2200. I believe at present the CPP benefit for the retired is around $1100 or $1200 a month, which is not much at all. Hey, who wouldn't want more than that? So when I first started seeing friends on facebook posting links to CLC material on the matter, I started to follow those links. And in doing so I became rather concerned, because it became clear to me very quickly that the CLC is trying to change something they clearly do not understand in the least. The only other alternative is that they do understand it, but are choosing to lie about it.

One of the first things I saw on the matter was this video from Ken Georgetti, the president of the CLC. Boy does he demonstrate a very fundamental misunderstanding of how the CPP works. He spends a good bit of time demonizing "the markets", since he seems to equate this with private RRSPs, an alternative to the CPP that far too few Canadians take advantage of. In that much Mr Georgetti is entirely correct - far too few Canadians do take advantage of an RRSP. But the way to fix this problem, is not with a big lie. The basic thrust of his argument seems to be that a couple of decades ago it was recognised that Canadians did not have enough saved for retirement, so they were encouraged to set up their own RRSPs (Registered Retirement Savings Plans - similar to a 401K in the US). The problem is that far too people have done this, which leads Mr Georgetti to declare like he does just past the 2 minute mark in this video "putting the money in the market has not done what they promised it would do" . Markets bad, for a good socialist, right? The problem is that putting the money in the market most certainly has done what "they" promised it would do, and this is right under Mr Georgetti's nose in the form of the very CPP he wants to reform. So either he does not have the slightest understanding of the very thing he is so keen to reform, or he is outright lying about it. There are no other possibilities.

In order to understand this, we need a bit of a lesson in recent history.

I recently decided that I wanted to make some major changes to my RRSP, which I manage myself with a Scotia McLeod Direct Investing account. I've been dabbling in the stock market for about 10 years now, and fully managing my own investments for about the last 5 of those. And in general have done pretty well with it and beat the market average by a fair bit. Recently I decided that I should put my money where my mouth is, regarding green investing, so I went on the search for green investments. What I was primarily looking for was Canadian investments, which turned out to be a lot more challenging than I'd originally hoped because I had to limit myself to companies that were publicly traded on the stock markets - due to the nature of my Self-Directed RRSP with Scotia McLeod. But in the end, I did find some promising investments and shifted my money around accordingly.

One quick comment I have about investing in general, concerns the common advice you hear to "diversify your investments". There are actually 2 schools of thought on this matter, and I happen to adhere to the other school. Yes, diversified investments can help shield you from huge losses in one particular investment, but on the other hand they can also help shield you from huge gains in one particular investment. Let's just say for the sake of argument that a good diversified portfolio contains 20 different investments. And let's further suppose that one of those investments experiences huge gains, and doubles in value in a very short period of time. That's awesome! But given that it is only 1/20th of your entire portfolio, it will only produce a relatively small gain for you. This is why I personally generally keep my portfolio fairly small - sometimes with as few as 2 or 3 investments, but typically with 5 to 7. This may be considered higher risk, but it has served me well so far.