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moneysense.ca, 7/08/08
This and That # 104
- The biggest news this week is the rapid drop in the value of the Canadian Dollar, which closed today just under the 95 U.S. cents mark. Economists fear rising inflation due to the weakening currency at a time of weak growth.
- Actively managed funds are supposed to perform better than the benchmark index in a bear market. Larry MacDonald highlights a Standard & Poors study (found here) that shows that only 4 in 10 funds beat the TSX Capped Composite Index (which investors can track using XIC) in the 2000-2002 bear market.
- Rob Carrick questions the attraction of segregated funds in the light of new legislation that affords protection for retirement accounts from creditors.
- Jon Chevreau questions if there is such a thing as good debt.
- Gail Vaz-Oxlade on the “I-work-hard-so-I-deserve-it” mentality that is ruining people’s finances.
Blog round up will return next week. Have a nice weekend, everyone!
moneysense.ca, 7/08/08
That Chevreau column was a disappointment. Considering that the two things most commonly refered to as good debt are a mortgage and a student loan, he brushed over the first and basically agreed that the second is good. I’d hardly call that truly questioning whether there is such a thing as good debt.
I was expecting more insight into when a mortgage or student loan are bad debt, or some indication that it’s possible to buy a house without a mortgage. But apparently, the answer to the headline “Is there such a thing as good debt?” is a simple yes.
Aleks: To be fair to Jon, he doesn’t write the headlines. I guess a more apt title would have been “Is leveraging to invest, good debt?” because that’s what the article is mostly about.
That article makes no sense. What is a stock? It’s a piece of a business. Why does he say that it’s OK to borrow to start a business for “good debt” but “bad debt” is to use leverage to buy stocks. It’s the same bloody thing.
In fact, statistically speaking, 50% of new businesses fail and 25% of new businesses are of the “walking wounded” variety – staying out of bankruptcy but also never turning a profit. And then 15% of new businesses grow, but are usually outpaced by inflation in terms of return on investment. Only 10% of new businesses statistically beat the odds. Many years ago, I attended an entrepreneurship program while in university and the professor gave us those gruesome statistics in our first class…
Unfortunately, the run-up in the value of the loonie has turned Canada into a bit of a “one-trick pony” as the commodity businesses continued to boom while the manufacturing heartland is getting devastated. So, we are reducing our economic diversification and when commodities take a nosedive like they always do, we won’t have manufacturing to support our economy anymore. Look out below!
Here in Toronto, we will always have the financial services industry keeping things afloat, but there have been massive layoffs and plant closings from the manufacturing sector. So far, everything is staying afloat as these thousands of people can file for EI benefits, but I’m sure things will start to look ugly here when their EI benefits run out starting a year from now, because those jobs aren’t coming back.