So the net worth of Canadians fell by $331.7-billion or so between July and September. Bummer, eh?
A little over a year ago, when house prices and stocks were soaring, I asked in this newsletter if net worth was the most overrated statistic in personal finance. This question is just as relevant today.
Net worth is the surplus left over when you subtract the amount you owe from the value of the assets you own, including investments and real estate. Last year was epic for net worth gains, while 2022 has been the opposite. How valuable can net worth be as a measure of financial success when it’s so volatile?
It’s not like tracking your net worth is a waste of time. You definitely want to set a trend in your life of consistently increasing your net worth over the decades by paying down debt and building up your investments. But net worth is a volatile number that will make you feel great some years and anxious in others.
This is definitely a year to feel anxious. House prices are down sharply from the February peak, stocks have been up and down and even supposedly harmless bonds have tanked. It would be normal to end the year with a house that fell in value in 2022, and a balanced portfolio of investments that did likewise.
When I wrote about net worth last time, I suggested not getting too attached to the net worth number of the day because asset prices could fall. In late 2022, my advice is to treat today’s declines as similarly temporary. In the next year or two, housing will stabilize in price and begin the next leg higher. Stocks have already trimmed their worst losses of the years, and bonds have had a nice little rally in the past month or so. Your balanced portfolio might just be finding its equilibrium.
Expect the real estate and financial assets you own to build your net worth gradually and reliably over periods of five to 10 years or more, with big spikes up and down in the near term. If you keep saving, investing and paying down your debt, you’re doing all you can to help your personal net worth numbers tell a good story.
As for the big drop in net worth in the third quarter, Canadians still had household wealth valued at $15.1-trillion. That’s $2.7-trillion higher than at the end of 2019.
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Rob’s personal finance reading list
From Toronto to Edmonton, and back
A first-person account from a woman who moved to Edmonton from Toronto because real estate prices are so much lower. Beyond the cheap house she bought, pretty much everything else didn’t fit right. She’s now back in Toronto.
Dollarama rules
A summary of a social media discussion about items that are cheaper at Dollarama than other stores. The price gap on some items is striking.
Time to raise your game on tipping?
Thoughts on trying to tip more generously this holiday season, if you can afford it. I know that tipping fatigue is a thing right now, but people in the service industry rely on tips as part of their income. Ask an Uber driver about that.
Defending the $20,000 New Year’s dinner
The restaurant critic for the Ottawa Citizen stands up for a chef who has offered to cook a $20,000 dinner for four on New Year’s Eve. The offer has been criticized on the basis that some households are struggling to afford groceries.
Ask Rob
Q: I would like to invest $100,000 through my online brokerage account to buy U.S. securities in U.S. dollars. I recently read about a dollar exchange strategy called Norbert’s Gambit. It seems somewhat complicated but I would like to know your thoughts. I do have U.S./CAD cash accounts with my broker. Should I just do it that way?
A: Norbert’s Gambit is a long-standing strategy for avoiding foreign exchange costs when converting Canadian dollars to U.S. currency in your investment account. It’s a fairly involved process, so much so that financial bloggers have written step-by-step manuals. Using a U.S.-dollar account will keep forex costs down, but you’ll still need to convert Canadian dollars into U.S. dollars when funding your account. I guess it all comes down to how aggressive you want to be in keeping your investment costs down.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Thoughts from the federal government on saving on energy consumption at home and in your vehicle.
The Money-Free Zone
I totally enjoyed the new movie Harvest Time, which documents the making of the 1972 Neil Young album Harvest. Here’s a cover of a hit song on the album, Heart of Gold, by the soul artist Charles Bradley. In the film, Neil offers just a small taste of a great banjo version of Heart of Gold.
From the Twitterverse
A bit of a dust-up over how much Statistics Canada’s inflation data can be trusted.
In case you missed these Globe and Mail personal finance-related stories
- The best under-$50 holiday gifts for every type of person
- That big, burly truck or SUV is killing it. Your finances, that is
- How does the normal retirement age in Canada compare with other countries?
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension
