Monthly Archives: November 2016

How TFSAs can aid your Victory Lap

depositphotos_43073977_xs-300x295My latest MoneySense Retired Money column on TFSAs is now online. You can read the whole thing by clicking on this highlighted link: How retirees can use TFSAs to save on tax.

I’m a huge fan of The Tax-free Savings Account or TFSA both for young people and for seniors, and everyone between.

It’s the single most powerful investment tax shelter available to Canadian investors. (For any American readers, the TFSA is roughly the equivalent of Roth IRAs).

So if you’re a member of the much-touted “Millennial” generation, you should move heaven or earth to maximize the annual $5,500 contribution as soon as you turn 18 – even if you have to solicit a “matching” contribution from your parents.

If you’ve not yet opened up a TFSA,  as of 2017 the cumulative TFSA room built up since the plan’s debut in 2009 will be $52,000. As I say in the column, for millennials the combination of the newly expanded Canada Pension Plan and a TFSA maximized from age 18 on means that by the time they are old enough to read the Retired Money column, they will be well positioned for retirement.

While late for Boomers, TFSAs can still be a boon in retirement

But as this particular MoneySense column has been dubbed “Retired Money,” the focus is on what the TFSA can do for near-retirees and seniors already retired. When it first came out in 2009, we aging baby boomers lamented the fact the TFSA hadn’t been available when we we were just starting out.

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Which type of credit card is best for you?

Travel and tourism concept. Air tickets, passports and credit cards, tourism and planning, vector illustration
Travel a lot? A travel rewards credit card may be just the ticket.

By Alyssa Furtado,

Special to the Financial Independence Hub

 When it comes to choosing a credit card, it’s easy to feel overwhelmed by the number of different options available. Although it might seem simplest to choose one with your current bank or go with whatever your friends use, you could be leaving rewards such as cash back on the table by taking a one-size-fits-all approach.

Here are four common profiles and the best type of credit card for each.

Frequent flyer

Making the most of vacation days can be expensive, especially if you like to travel. However, you can often help offset these costs using a travel rewards credit card. There are some great travel rewards programs in Canada where you can start collecting points. But because each program is different, make sure you know how they work.

The BMO Rewards Program is a good example, because for every dollar you spend you can earn up to two points. You can then redeem 100 points for $1 back on a wide range of categories including flights, hotels, car rentals and even merchandise or gift cards. Your everyday spending can really start to add up – for example, if you spend $1,500 a month using the BMO World Elite MasterCard, after a year you would have enough points to redeem $360 in value.

Travel cards often also offer good value because most come with a range of insurance benefits such as lost or delayed baggage, trip delay or cancellation and medical coverage. You can then relax on your travels, knowing that if something does go wrong, you’ll be covered.

Big spender

If you like to use your credit card for most of your everyday purchases and bills, you should look to maximize your rewards with a premium rewards credit card. Many of these cards have an annual fee, but if you’re a big spender, the net reward from premium cards are often much higher because the earning potential is usually much higher than with no fee credit cards.

The best rewards cards typically fall into two categories – travel and cash back. If you’ve decided that you don’t fit into the frequent flyer category above, consider instead a cash back credit card. With this type of card, the amount you can redeem typically starts at around 1%, but can get as high as 4% or even more with special promotions.

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Game-winning shopping hacks for Black Friday & Cyber Monday

Credit cards in shopping cart and laptop, Black Friday Sale conceptBy Sari Friedman, Ebates Canada

Special to the Financial Independence Hub

Get the coffee brewing and put your game face on! Thanks to our American neighbours, Black Friday and Cyber Monday sales are about to kick off the busiest shopping season of the year, with deep discounts and exclusive online offers.

Canadians are feeling pretty generous this holiday season, with 84 per cent saying they plan on spending almost $200 more than last year, according to our recent poll.  Whether looking for deals in Canada or across the border, more Canadians are turning to online shopping to avoid the chaos, with 82 per cent saying they will make at least some holiday purchases online.

While you won’t need a helmet and elbow pads to score a deal for these two big shopping days, a little preparation and some savvy strategies will help make sure you stay ahead of the competition – and within your budget.

Don’t believe the hype

The best way to know whether a deal is really a deal is to do your research beforehand. Make a list of items that you’re interested in, then do some recon to compare prices, features, quality and special offers across various retailers. You may find a similar item to what you’re looking for that is a better deal, or at the very least, you’ll have a solid back-up choice that you can still be confident buying.

Limit your spend

the sentence cyber monday and a computer mouse on a background full of dollar banknotes

It’s easy to get carried away in the chase for a deal, but it’s important to set yourself limits or you risk blowing your budget:  game over! Stick to the items on your budgeted list and avoid impulse purchases.  That ‘blowout’ price may seem cheap in the moment, but is it really worth it if your purchase sits in your closet or on a shelf, unused?

Sign up ahead of time

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Sorry but this is one broken record worth listening to …

Needle head and broken vinylLast month S&P Global published its 2016 mid-year SPIVA Canada Scorecard, which compares the performance of actively managed Canadian-based mutual funds with their benchmarks.

The conclusion is clear: actively managed funds, after fees, underperform their benchmarks over time.  Investors may be better served using passively managed alternatives such as index tracking mutual funds and exchange traded funds (ETFs).

This evidence is so consistent and presented so often it almost sounds like a broken record, but given how many Canadians still pay high mutual fund fees for under-performing funds, we believe it’s a broken record still worth listening to.

Before we dive into the data, it’s worth noting a few important methodological points highlighted by S&P:

  1. The study compares the performance of each fund to that of a benchmark selected to provide a sensible “apples to apples” comparison.
  2. The survey looks at both “asset-weighted” and “equal-weighted” average fund performance and the conclusions drawn are similar.
  3. The study accounts for “survivorship bias”, that is it includes funds that were closed or merged with other funds over the relevant time period.

Many funds don’t even survive, let alone outperform

This last point is really important.  According to the study, only 58% of Canadian Equity funds actually survived the last 5 years.  One can only assume that those funds that didn’t survive were not stellar performers.  US and International Equity funds fared a little better with 70% of US funds and 84% of International funds surviving the full 5 years.

So how many funds survived and outperformed their benchmark?  In the Canadian Equity category, only 29% of actively managed funds outperformed their benchmark over the last 5 years.  Those aren’t very good odds considering that it’s nearly impossible to predict in advance which funds are likely to outperform.

Diversifying outside Canada important, but performance of active US and International Equity funds is worse

The Canadian stock market is fairly concentrated in certain industries and specific large cap stocks so it’s important for Canadian investors to diversify outside of Canada.  Unfortunately those looking to diversify using active US and International Equity funds won’t be happy with the SPIVA results.  Only 14% of International Equity funds outperformed their benchmark and 0% (yes, none!) of US Equity funds outperformed their benchmark over the 5-year period.

So maybe you’re feeling lucky and think your Canadian Equity manager has some sort of advantage and will be one of the lucky out-performers.  Once you look to diversify outside of Canada (and you should) the odds drop dramatically (and infinitely in the case of US Equity managers!)

The study only takes us to half-way through 2016.  We wonder how active fund managers have fared through the latter half of the year with such tumultuous events as the US election.  Given that most market pundits not only didn’t predict the outcome of the election correctly but missed how the market would react in response leads us to believe that when the next SPIVA scorecard is published, the same old broken record will still be spinning.

The data speaks for itself but we’ll conclude by saying that when you invest in “the market” by holding passive investment funds or ETFs, you get the market return with a fair degree of certainty. You will not experience the additional uncertainty of whether your chosen active fund will outperform or underperform the market.

Peer reviewed academic data shows that over longer periods of time very few active funds are able to outperform the market and those funds that do are nearly impossible to identify in advance.  The fees for passive investment funds and ETFs are much lower than those for active funds. Again, active fund management comes with lower average investment returns after fees and less certainty of performance versus the market.

graham-bodelGraham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original ran last Friday (November 18th) here. 


The US Forex trading market after the Election

3d render of forex trading conceptBy Justin Duke

Special to the Financial Independence Hub

All over the world, trading markets are rapidly evolving. There are a lot of factors influencing the difference in the high and low of global currencies. In America, the influencing factors only get bigger: talk of oil prices, the outcome of the election, and many more factors. Currency pairs are moving with the market trends. What exactly does this mean for forex traders? The market can be lucrative, and it can be resilient.

In the past few weeks, a lot has happened in forex trading that the investors of this market should be aware of. Risky trends in the market have been amplified lately, but with the American Thanksgiving holiday coming up soon, forex traders in the U.S. are looking at some sort of break, but this time off from the market trends also means a period away from the optimism that some currencies were showing in the past week.

How commodities impact Forex

The market is still recovering from the somewhat aggressive election run by Trump and Clinton. Other trading commodities that influence the Forex Trading market, like oil and gold, also experience major changes. Thanksgiving, in the past, has rigged the market of its liquidity. The S&P 500, for instance, hits some of its highs during such holidays, leading many investors to believe that holiday cheer is an influential factor that can move the market from a low to a high.

Oil rigs moved from 452 to 471 in just a week, while gold is making a move towards $1,200. Last week, US stocks were trading at a low thanks to the loss of the bias previously owned by the GBP/USD currency trading pair. The Fed is looking to diversify some of its policies so as to help strengthen the current position of the dollar in the market. The position of the Euro, on the other hand, might just be about to get very interesting given the current market flux in Europe. Forex traders should consider the word of trading experts before placing their investments on any currency combinations in the current risky markets. Continue Reading…