Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

Is it worth it to skip a Mortgage payment?

By Alyssa Furtado,

Special to the Financial Independence Hub

Skipping a mortgage payment can seem like a good option, especially in an emergency if you don’t have a rainy day fund or savings to dip into. If you lose your job, your car breaks down, or you have any other type of unexpected expense, the option to skip a mortgage payment may look enticing. But is it worth it?

Some mortgage lenders allow you to skip a payment. Here’s what you need to know before deciding whether or not you should choose that option.

What does skipping really mean?

Sounds like a simple fix on a month when everything’s gone south, right? Not so fast. When you skip a payment, you’re not just pushing the expense back a month, you’re still racking up interest.

On a day-to-day basis, it looks like a simple monthly payment. But your mortgage payment actually has two component parts: The principal (the actual payment of the debt itself) and the interest. You don’t pay the principal, but your mortgage lender still charges you interest.

By skipping a month, you lose the chance to pay down the principal and you add on that month’s interest, which gets added to the total amount left on your mortgage.

You wind up with a higher mortgage rather than the number staying the same. The skip doesn’t freeze time. Any scenario where you add more interest should be looked at as borrowing more money.

Looking years down the line, the interest you pay after skipping will be even higher since your loan itself becomes larger. The increase won’t be huge, but if you just took on a mortgage with a 25-year amortization period, the additional interest will add up over time. If you’re close to paying off your mortgage, the interest costs won’t be as high.

Am I allowed to skip?

Continue Reading…

The 2017 MoneySense ETF All-Stars

The fifth edition of the MoneySense ETF All-stars is available online here. This annual feature used to appear in the print edition of the magazine and was originally written by Dan Bortolotti, who is now a full time investment advisor with PWL Capital Inc., and well known for his Canadian Couch Potato blog.

In recent years, I’ve written it, with the assistance of an expert panel of ETF experts you can find in the link. They include Dan himself and his partner Justin Bender at PWL, Tyler Mordy at Forstrong Global Asset Management, Mark Yamada at PUR Data, Yves Rebetez, editor of ETF Insight), and Alan Fusty of Index Wealth Management. (The same members as last year).

As you’ll see, because the goal of the panel is to identify low-cost, well diversified ETFs that can be bought and held over the long run, we try not to make changes just for the sake of change. As a result, 12 of the 14 picks from 2016 are back in 2017, with two substitutions deemed necessary in the US equity and fixed income categories.

Changes in US equity and fixed-income categories

In the case of the US equity category, the panel stood pat with two Vanguard S&P 500 ETFs (hedged and unhedged) but replaced a third Vanguard ETF in this category, VUN, with a new offering, XUU, launched in 2015: the iShares Core S&P US Total Market Index ETF.

The other big change was in fixed-income. Four of our five fixed-income picks are back, with one major tweak: the removal of VAB, Vanguard Canadian Aggregate Bond Index ETF, and its replacement by ZAG, the BMO Aggregate Bond Index ETF.

For the most part, the panel was unanimous in making these two particular tweaks although of course there was a fair amount of debate throughout the process, which you can read about in the full article online.


Life Planning Basics: The Importance of an Emergency Fund

Photo Credit:

by Jackie Waters

Special to the Financial Independence Hub

When setting up your financial life plan, it’s important to understand the absolute necessity of an emergency fund. Before you can start saving for what you want in your future, you have to save some for all the stuff you don’t want or expect to happen.

The main purpose of an emergency fund is to protect against life’s many contingencies. This includes, but is in no way limited to; job loss, medical co-pays, car troubles, home repairs, child expenses, and unexpected travel needs. Without an emergency fund, you’re forced to turn to other means to pay for things you simply can’t ignore. Many turn to credit cards, which increases personal debt and leaves people in insurmountable holes. It’s nearly impossible to invest in your future when you’re sitting under a pile of debt.

How much should be in your emergency fund?

Continue Reading…

How Smart Beta Strategies fared as Interest Rates rose in 2016

Rising Rate Case Study (July 8, 2016 to Dec 31, 2016) When U.S. 10- Year Treasury Note Interest Rate Went from 1.36% to 2.44%

By Christopher Gannatti, Associate Director of Research, WisdomTree Investments

Special to the Financial Independence Hub

One of the biggest stories in 2016 was rising interest rates, most specifically that the U.S. 10-Year Treasury Note went from 1.36% on July 8 to 2.44% on December 31.1 While it may be too early to know if the greater than 30-year bull market in bonds (in other words, a longer than three-decade secular trend of falling rates) is over, 2016 did offer an interesting case study of smart beta strategies, many of which had only been in live calculation during falling rate periods.
How Strategies won as Rates rose

In the recent rising rate periods in 2013 (May 2, 2013, to December 31, 2013, when the U.S. 10-Year yield went from 1.62% to 3.03%)2 and 2016, a few big themes became clear:

  • Small Caps: One aspect of small-cap companies is their ability to respond quickly to trends of improving growth, which is typically apparent during periods when the 10-Year yield is increasing. Additionally, they tend to have cyclical exposures regarding sectors instead of more defensive exposures. Also, if the U.S. dollar is strengthening (not unusual when the 10-Year yield is rising), these firms do not tend to have exports as their dominant source of revenue and therefore have less of a competitive headwind.
  • Earnings: Rising rates tend to place strategies with higher valuations at risk, because one impact of rising rates is to lower the current valuation multiple of equities. WisdomTree’s earnings strategies are designed to provide lower price-to-earnings (P/E) ratio exposures to the market segments upon which they focus. It’s also notable that they tend to naturally be under-weight in the more defensive sectors of the market (Utilities and Telecommunication Services are two big examples) that usually tended to do better during the falling rate periods that directly preceded the rising rate period.

How Strategies Lost as Rates Rose

• Low Volatility/Minimum Volatility: It’s important to realize that the word “volatility” relates to both upside and downside market movements, seeking to lower both of them. Continue Reading…

Burn Your Mortgage: The simple, powerful path to Financial Freedom

By Sean Cooper

Special to the Financial Independence Hub

Five years ago I read Jonathan Chevreau’s financial novel, Findependence Day, and it changed my life forever.

One of the central themes of the book is that the foundation of Financial Independence is a paid-for home. I wasn’t a fan of six figures of mortgage debt hanging over my head for the next 30 years, so I aimed to pay off my mortgage as quickly as possible.

A little over a year ago I reached my goal of “Findependence” when I burned my mortgage – literally. I paid off my home in Toronto in just three years by age 30. Thanks to a stroke of luck and good timing, the story went viral, making headlines around the world from the U.K. to Australia. I received hundreds of email from people congratulating me and wanting to follow in my footsteps.

This inspired to me write my new book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for CanadiansWith home prices skyrocketing in cities like Toronto and Vancouver, many feel like  the dream of homeownership is out of reach. I’m here to tell you that it’s not. I may have paid off my mortgage in three years, but that doesn’t mean you have to. There are simple yet effective lifestyle changes that anyone — from new buyers to experienced homeowners — can make to pay down their mortgage sooner.

Some people argue it doesn’t make sense to pay down your mortgage early with interest rates near record lows. I see it differently. Instead of using low interest rates as an excuse to pile on more debt, use them as an opportunity to pay down the single biggest debt of your lifetime: your mortgage.

Here’s an excerpt from my book that looks at why you’re most likely better off paying down your mortgage instead of investing. [Editor’s Note: the official launch of the book is today.]

Why pay down your Mortgage when you can come out ahead Investing?

Continue Reading…