Decisions like whether to go over the Canadian Falls, or the smaller American Falls with the rock slope at the bottom, are decisions I don’t care to make!
I also don’t like the idea of spinning around a whirlpool at 50 kilometers an hour hoping I don’t drown. And I’d prefer a smooth ride to one that might throw me out of the boat.
Well, here’s what they don’t want you to know: you don’t need to use the Niagara River. You don’t need the stock market or mutual funds. You don’t need to risk your financial life going over spectacular plunges or stagnating for endless periods of time going around in circles hoping you won’t go under in the process.
You can take the guaranteed route – the safe road – and this book will show you how.
Part
The Antidote – A Six Point Plan for Financial Freedom
The Antidote is a simple plan. It’ll only take you a few minutes to read the six-point synopsis below.
But here is the best thing about it: You don’t need to follow it in order. You don’t even need to religiously follow each one of the six points. The fact of the matter is that if you stick to just one of the points, you’ll probably make a significant improvement in your personal finances.
Follow it all and you can rest easy knowing that your retirement nest egg will never decline, even if your bank goes out of business.
Here it is.
● Never touch anything that cannot be simply explained to you in plain English.
● Don’t invest in anything that is not guaranteed by the government.
● Never borrow to invest.
● Avoid complicated investment schemes. If it sounds too good to be true, it is.
● The truth is that you don’t need to risk your hard-earned money in the stock market and you don’t need mutual funds.
● You can use 100 % government-guaranteed investment certificates to achieve your goals without the risk of losing your shirt.
● If you want to take a chance, buy a lottery ticket.
● Decide if you can afford a house and, if you can, buy one.
● Do the calculation of how many years it will take to pay off the mortgage and do it before you retire.
● Never risk your home for any kind of investment idea, no matter what.
● Focus on two of your biggest expenses – income taxes and interest on your debt.
● Pay to have your family’s personal income tax returns prepared by a qualified expert.
● Pay extra to have that expert analyze your family situation to minimize your tax bill by income splitting, etc.
● Find out what your credit rating is and improve it.
● Get at least three quotes on any debt that you get into.
● Do not even think about saving for retirement until you have paid off student loans and bought a home.
● Pay off the mortgage before investing another dime in an RRSP.
● Never borrow to invest in an RRSP.
● If you’ve got a bad one, find a good one.
● If you can’t find a good one, simplify your finances so you don’t need one at all.
Chapter 1
Avoid Personal Financial Disasters
In the mid-eighties I took one of those personality tests that determine what type of person you are, what your strengths and weaknesses are and what type of career you’d be suited for. The results were not too surprising: I was basically a pretty normal person, pretty good at math, probably never going to be a great artist or preacher.
But then, at the end of the session, the person giving me the results told me something that has turned out to be one of the most important pieces of information that I have ever received in my life. It was this:
Dave, you can’t tell when people are lying to you.
What? You mean I can’t tell by looking directly into someone’s eyes and monitoring their body language whether they are telling me the truth? Exactly.
And you know what? Neither can you.
Think about it. Ever watched a great actor in a movie? There are great actors all around us each and every day. The problem is that some of them want to rip us off.
I was fortunate enough to learn this lesson in my twenties and it has stood me in good stead when it comes to investing, as well as life in general. I don’t assume everyone I meet is lying to me. For example, I have known my buddy Stu for over thirty years and I know I can trust him because he has never once lied to me.
On the other hand, I initially do not trust people I meet for the first time, even if they have been referred by a friend or client.
Unfortunately, many people did not take the personality test in their twenties that I did. They learned the hard way that many people can’t be trusted. One of the early examples when it comes to investing rip-offs was that of Charles Ponzi.
The Ponzi Scheme
This scheme is often at the root of many investment scams today.
Charles Ponzi (pronounced “pon-zee”) was born in Italy in 1882 as Carlo Ponzi. He grew up there and emigrated to the U.S. in 1903 at the age of twenty-one.
His first stop? Canada. He went to Montreal, where he was convicted of forgery in 1908 and sentenced to three years in prison. After his early release for good behaviour he was soon arrested on immigration charges for trying to assist five other people get into the U.S. illegally. He was jailed again in 1910.
After his release, he spent time in several cities and held various jobs, including dishwasher, waiter and office clerk. He eventually settled down in Boston in 1917, where he worked in clerical office jobs.
On December 26, 1919, Ponzi established a company called the Securities Exchange Company. He had hit upon an idea to make himself rich. It had to do with postal international reply coupons (IRCs). These are coupons that can be exchanged for one or more postage stamps for the minimum postage for an airmail letter to be returned to any other country that is a member of the Universal Postal Union. The purpose of an IRC is to send someone a letter in another country with sufficient postage for them to send a reply. For letters in the same country you can simply use a self-addressed stamped envelope, but for mailings to other countries, using an IRC does away with the need to use foreign postage or currency.
Ponzi claimed that he could make money by taking advantage of different postal and exchange rates in different countries. For example, he claimed he could send $1 to Italy and with the IRC he could buy $3.30 worth of stamps in Boston. He promised a 50 % return in 90 days. In the beginning he actually did pay that rate of return – often in only forty-five days.
To many people, it sounded like a good idea. The money started to flow in.
Within a few months people began lining up at his company’s door. Thousands of people invested their hard-earned savings. At its peak the company was bringing in more than $1 million a week, and that was in the early 1920s.
The problem was that he never really bought the IRCs or even attempted to make any money for the investors. He simply paid the return out of the money that other investors had put