Sunday, April 2, 2017

Friday Night Video - Sex, Drugs, and RRSPs

I make financial plans for a living, which makes it a bit surprising that I haven't talked money at all on here. There's a lot to say on the topic, and it's turned into a gigantic industry because it's both something a lot of people need and because it's pretty important. So, I'm going to do something a bit different this week(and I don't just mean posting my Friday Night Video on Sunday morning - those who have me on Facebook know that's nothing new). Also, ignore the rather obnoxious video portion here - it's the only version of this song on Youtube. If I ever decide to get into video editing, I may decide to upload this post in video form.

As a little boy I dreamed of playing Rock and Roll
Playing in stadiums with every ticket sold
Seven figure income from a six string guitar
Dating gorgeous women and drivin' custom cars
Well, who can blame him?

Then it happened when my record went gold
Then I'm thinking what'll I do when I get old?
Can't live forever as the King of Rock
Keith Richards disagrees, but 99% of the time he's right. This is quality planning, unlike the mistake so many people make when they get a lot of money. This goes double for an industry as fickle as entertainment, where it's easy to be making a seven-figure income from a six-string guitar this year, and be a "What ever happened to..." special on VH1 a few years later.
That's why I'm investing in some blue chip stocks
Those are a quality cornerstone to most portfolios. They generally shouldn't be 100%, but as we see below the singer has other asset types as well, so it should be fine.
I got SEX, DRUGS, and RRSPs
I'm a rock and roller with financial security
I'm a guitar hero with mortgage equity.
I approve of the financial security, though "mortgage equity" has two plausible meanings here. Does he have equity in his own house from partially paying off the mortgage, or is he writing private mortgages to others as an investment? I should hope he's got the first, but for a millionaire(especially in 1995, when this song was written, with higher interest rates and lower house prices), the second can also be a reasonable investment. The risk can be higher, because it tends to be poorly diversified - giving a quarter-million to a single person is obviously a fairly high concentration of risk unless you have several million. But if he does, then private lending can make sense.
I'm a modern rebel with a cause
I like finding loopholes in the new tax laws
Today, that's pretty hard - the Canada Revenue Agency has spent the last several years closing loopholes fairly aggressively, and I haven't seen any notable new ones since I entered the industry. Every budget seems to find a new one to close. Still, as rebellious tendencies go, this is a far more practical one than most. A famous person talking politics may sway a few votes, but a millionaire distributing tax loophole info can easily sway government finances by hundreds of millions, which has a far larger effect on society, and in the form of directly opposing the most prominent power structure in society. Would that so many rebels had such a practical view of rebellion.
My fans are reading 'bout me in the Rolling Stone
While I'm talking to my broker on the telephone.
Even an enthusiast for do-it-yourself investing hires a professional financial advisor. Given the number of people I've seen who think financial advice is a scam, this makes me a bit happy.
On stage I run around like some animal
But all my money's in a compound annual
I think "compound annual" is a dated term for a GIC, which today is a painfully conservative investment, but in 1995 produced passable returns. If he literally had all his money there I'd have questions, but given the context of the rest of the song it's clear that it's only part of his portfolio.
This life is dangerous but I don't care
'Cause I got insurance on my guitar and my hair!
Insurance should, in general, only be purchased when either a) you cannot afford to pay the cost of replacement out of pocket, b) when you're a higher-than-average risk and the insurance company does not properly incorporate that risk into their pricing models, or c) when there's a tax advantage greater than the costs of paying the insurance company's overhead. If his guitar was something irreplaceable like the legends of some guitarists who have modified their guitars so far that they don't know how to recreate it(I think Brian May of Queen is the example most commonly cited here, but I'm no guitarist), then insuring that would make sense. Ditto the hair for certain hair-focused musical genres - you don't want to go from Duran Duran to Devin Townsend, you know?
We used to be such a happy band..
Phil and Nick and Bob and Stan
But Phil choked on his vomit
And then Nick choked on his vomit
And then Stan choked on his vomit
And then so did Bob.
Well, it's hard to argue with that.
Their deaths sure meant an awful lot to me
'Cause now I'm getting all their royalties
This implies some deeply unusual estate planning on the parts of Phil, Nick, Bob, and Stan. If the band was a group of brothers then this inheritance would make sense, though the singer's mockery of their deaths would be remarkably callous in that case. But if they're the usual group of buddies, the most obvious way for him to inherit their royalty streams would be for them to have all explicitly listed him(or each other generally) as a beneficiary in their wills, since intestacy laws don't give assets to friends under any circumstances I've ever heard of. That's a deeply strange thing to do, unless they all happen to be estranged from their families or something. Alternately, the band could be structured as a joint tenancy with right of survivorship, which is not the default state of joint assets under most legal regimes(and is not even legal in some, such as Quebec), but it's possible. I'm not sure how one would even go about structuring a band as a JTWROS, but I suspect it could be done.

This one, more than any other, proves the superiority of the singer's approach to financial planning. They could have had the money go to supporting their kindly mothers, or their girlfriends, or whatever. Instead, it's going to their smug jerk of a buddy who's mocking their deaths. Seriously people, getting a proper will matters a lot.
They would have spent them on women and booze
But me I got commodities that just won't lose!
It's odd for a guy who brags about sex and drugs no less than eight times in a song less than three minutes long to complain about his bandmates liking "women and booze", but perhaps he's a bit more frugal in his habits somehow. Also, he's rather optimistic about commodities. Unlike stocks and bonds, which are investments in productive activities that can generate a long-term stream of profits which can allow for a long-term appreciation of your assets, commodities are inert - if anything, they cost money because of the needs of storage, security, and the like. The only way for commodities to go up over time is for them to become scarcer, and while that does happen sometimes, it's basically a bet against the future economy on the whole to think they'll do so. So when Paul Ehrlich bets on commodity prices rising, he's being perfectly consistent(and when he loses, he shows that fearmongering on scarcity isn't exactly a slam-dunk). When someone who has money in the usual spread of financial assets bets on it, at best he's hedging his bets, and in most practical cases it's better to do that by dropping your risk allocation overall instead of gambling on offsetting assets like that.
The things in life that I appreciate
Are any stocks and bonds that won't depreciate
Those don't exist. Conservative investing is one thing, but there are no guarantees in life(even contractual guarantees, when they exist, are subject to the risk of the other person going broke and being unable to follow through). I understand the desire, but a sensible investor acknowledges the possibility of depreciation.
My stocks are healthy and my bankroll's high
Rock and roll and real estate will never die!
I could say some snarky comments about indie being the death of rock and roll, or about real estate asset bubbles, but in principle I do agree.
(chorus x2)
I'm a guitar hero with mortgage equity.
I'm a guitar hero with mortgage equity!!!
Overall, the singer's financial plan seems generally sensible - good diversification, solid understanding of the market, and good involvement in his affairs. He has a bias towards bragging, and minimizing the possible downsides of his investment choices, which could lead him to an emotional overreaction when the next market crash happens - he'll need to make sure he doesn't do anything dumb, and his broker may need to talk him down when it happens. But he's sure doing better than his bandmates were, even before the vomit-choking. And hey, a seven-figure income can cover a multitude of sins.

(Also, in case it's not obvious, this is an opinion piece intended for general information, and in no way represents proper financial advice for any individual's situation, the opinion of my employer, or anything else besides me thinking it'd be kind of funny and perhaps a bit informative to take a parody song seriously. If you need professional financial advice, hire a competent local professional financial advisor, not a self-proclaimed Internet wit.)

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