Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Retired Money: Equities in Retirement — you may need more than you think

Contrary to what some may feel, equities in retirement is not an oxymoron. If you’re retired or almost so, you may be thinking it’s time to lighten up on your equity exposure.

The problem with rules of thumb is that some of them get quite dated and nowhere is this more relevant than in the maxim that a retiree’s fixed income exposure should equal their age. (So, the guideline goes, 60 year olds would be 40% in stocks and 90 year olds only 10% in them).

My latest MoneySense Retired Money column looks at this in some depth, via reviews of two books that tackle both the looming North American retirement crisis and this topic of how much equity retiree portfolios should hold. You can find the full article by clicking at the highlighted text: How to Boost Your Returns in Retirement.

As the piece notes, the single biggest fear retirees face is the prospect of outliving your money. Unfortunately, retiring in this second decade of the 21st century poses challenges for just about any healthy person who lacks an inflation-indexed employer-sponsored Defined Benefit (DB) pension plan. We’re living longer and interest rates are still mired near historic lows after nine long years.

The two books surveyed are Falling Short, by Charles Ellis, and Chris Cook’s Slash Your Retirement Risk. I might add that regular Hub contributor Adrian Mastracci twigged me to the Ellis book when he compared and contrasted it to my own co-authored book, Victory Lap Retirement. See Adrian’s review here: Two notable books to guide your “Retirement” journey. Continue Reading…

Why are boomers slow to embrace DIY online investing?

My latest Financial Post column has just been published, which you can retrieve  by clicking on the highlighted headline: Boomers slow to embrace online investing but, surprise, it’s not a technology thing.

(Added Thursday: The article has also been published in the print edition of Thursday’s paper, on page FP8, under the headline Boomers ‘fearful’ of online investing: advisor. This Hub version of the column elaborates on a few points, adding the important distinction that newer online do-it-yourself [DIY] investors do NOT have to go without human advice or guidance, which they can get through fee-for-service planners, fee-only money coaches or investment coaches.)

According to a TD Bank Group survey titled Too shy to DIY, 79% of Canadian baby boomers use the Internet for banking but only a paltry 16% are DIY online investors.  The poll of 2,000 Canadian adults was conducted late in July.

Since the Boomers have embraced most aspects of the Internet and are just as addicted to smartphones as Millennials and Generation X, it’s clear (as the headline notes) that “it’s not a technology thing.”

Rather, the main reason for low Boomer use of online investing is lack of investment knowledge: TD says 79% of those surveyed don’t manage their money online because they simply don’t know enough about investing, while 22% say they don’t have enough time to invest on their own.

When I asked Jeff Beck, Associate Vice President at TD Direct Investing, why the disparity he replied with this email:

“The gap between Boomers who bank online and those who invest online can be attributed to the fact that many say they are unfamiliar or uncomfortable with online investing tools. There’s a misperception that online investing is a complicated, time-consuming activity. That’s why TD Direct Investing offers a range of educational resources, tools and support to help investors get off to a great start, whether their goal is active trading, long-term investing, or both.”

So too do the other major discount brokerages as far as I’m aware: TD is one of the discount brokerages our family uses and there’s certainly no dearth of information on investing there or indeed most other major financial institutions.

As a boomer myself I was a tad surprised by the findings. Continue Reading…

Loss avoidance: The power of long-term thinking

By John WIlson

Special to the Financial Independence Hub

A friend of mine was planning a long trip outside of Canada and didn’t really have a definite date as to when he’d be back. He was thinking a good six months to a year. I remember asking him about what he would do with his car; where he planned to park it. He thought it would cost too much to put it in long-term parking, somewhere around $200 to $300 a month. He was, as he saw it, just going to park it on the street.

You may detect where this story is heading.

A few months into the trip his car was impounded. As he wasn’t back in the country yet, he asked me if I could go to the lot on his behalf. About $2,500 in fees and several (not so enjoyable) hours later, his car was finally retrieved.

By choosing not to pay long-term parking up front, my friend may have enjoyed the short-term benefit of not having to put effort into making arrangements or paying any money. But the inherent risk in that decision played out; the car ended up in the impound lot and he had to pay quite a significant amount of money: not to mention the embarrassment of asking a friend to go for a long, impromptu visit to the lot on his behalf.

Short-term gratification can hurt in the long run

This story reminds me of how some of the highest-return investments in life are investments of time, where the payoff comes from the avoidance of loss.

We often see the tradeoff between short-term and long-term thinking in our interactions with management teams. For example, a company can really inflate its current earnings and make the latest report or annual release look a lot better by under-investing in intangibles, such as marketing.

Marketing is an expense that will hit the income statement every quarter, but often doesn’t provide a benefit until two, three, four or ten years down the road. The same thing goes with investments in R&D. The management team that focuses too much on optimizing current period earnings will often do so to the detriment of future profitability and competitive positioning. This is one of the reasons we encourage managers to adopt incentive plans that are based on long-term performance rather than short-term earnings targets or share price movements.

Continue Reading…

5 ways post-secondary students can save money

By Brandon Silbermann

Special to the Financial Independence Hub

When it comes to education, there are important financial lessons to be learned by post-secondary students outside of class.

According to Statistics Canada, there are currently more than two million full and part-time students at Canadian universities and colleges, and for those who leave home to study, a four-year university education could cost as much as $90,000. The road to responsible money management is a lifelong journey and many post-secondary students would benefit from ongoing practice: no matter their financial situation.

As a millennial financial advisor with freedom to provide impartial advice to helps young adults and parents prepare for life on campus, here are my top five tips and tricks to help students save money and put themselves on a solid financial footing throughout the school year.

1.) Look for scholarships and bursaries

There are many different scholarships out there available to students based on factors such as their choice of major, financial need, academic performance and community involvement. Surprisingly, however, many scholarships and bursaries go unclaimed each year. Although it may be time-consuming to find all the options available to you, contacting your school to get a directory is a great start and may be well worth the effort. You can also access Canada.ca’s student financial assistance section to learn what is available to you and how to apply for help to pay for your post-secondary education.

2.) Hone your cooking skills and save big

Buying food at restaurants every day can quickly add up and put a damper on a limited student budget. Shopping at a local market or on student discount days at a grocery store is a smarter route. For example, Zehrs – a Loblaws brand grocery store – offer 10 per cent discounts off students’ groceries on Tuesdays if they present their student cards in Waterloo. You can also order a basket of ugly but delicious produce via second-life.ca or browse through your local grocery store for discounted fruits and vegetables nearing expiry. Certain supermarkets, such as Loblaws, Sobeys or Metro, now offer a range of “imperfect” fresh products at affordable prices.

3.) Pay down highest interest rate debt first

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Always show up for a free lunch!

By Heather Compton

Special to the Financial Independence Hub

Always show up for a free lunch!

That’s the tongue-in-cheek advice I give all “soon to retire” folks but, frankly, taking advantage of free lunches is key for every investor.

I use the term “free lunches” for all manner of benefits and it’s alarming to me how many people pass them by. Many employers offer employees matching contributions to Retirement Savings accounts that require the employees to pull out their own wallet too.

One major corporation I worked with gave all employees a contribution of 6% of their salary to the Defined Contribution Pension Plan.  The employer would contribute a further 4%, contingent upon the employee also contributing 4%. That’s a great free lunch! A shocking number of employees felt they couldn’t afford to participate:  they said they couldn’t meet all their other financial obligations without that 4% of salary. Actually, by making the 4% RRSP contribution they also earned a tax deduction, so the after-tax, out-of-pocket expense was even less.

Don’t overlook the daily Special

Many companies offer employees the convenience of group savings programs, even where there are no company-funded contributions. That too has value; the investment choices available in these plans often have significantly below market rate MERs (management expense ratios) and no account fees or cost to buy or sell. One company with which I am familiar has a savings plan offering a solid range of investment funds with MERs ranging from a low of 0.10% to a high of 0.58%.

Only a knowledgeable investor, capable of building a low cost ETF (exchange traded fund) portfolio, could match this low-cost option. If the contributions are made to a group RRSP, the employer can also add the convenience of reducing the tax paid at source. Since the contributions and investments are made regularly, often monthly, we can add the benefit of dollar cost averaging to the mix.

What other free lunches are often overlooked?

Continue Reading…