Inflation

Inflation

Retired Money: Plan for Retirement Income for Life with Fred Vettese’s PERC

My latest MoneySense Retired Money column focuses on a free retirement calculator called PERC, plus the accompanying new third edition of Fred Vettese’s book, Retirement Income for Life: Getting More Without Saving More.

You can find the full column by clicking on the highlighted headline: Retirement Income for Life: Why Canadian retirees love Frederick Vettese’s books and his PERC. Alternatively, go to MoneySense.ca and click on the latest Retired Money column.

As the column notes, I have previously reviewed the earlier editions of the book but any retiree or near retiree will find it invaluable and well worth the C$26.95 price. Also, there is a free eBook offer.

PERC of course is an acronym and stands for Personal Enhanced Retirement Calculator.

PERC is itself a chapter title (chapter 15 of the third edition) and constitutes the fourth of five “enhancements” Vettese describes for getting more without saving more. Vettese developed PERC while writing the first edition in 2018: it is available at no charge at perc-pro.ca.

In another generous offer, anyone who buys the print edition can get a free ebook version by emailing details of proof of purchase to ebook@ecwpress.com.

I reviewed the previous (second) edition of Fred’s book for the Retired Money column back in October 2020, which you can read by clicking on the highlighted headline: Near retirement without a Defined Benefit pension? Here’s what you need to know. Continue Reading…

Bitcoin & Cryptocurrencies: Still not an asset class to which investors need to pay attention

The Michael James on Money blog was skeptical about Bitcoin and Cryptocurrencies as long ago as 2018, as this post demonstrates. He hasn’t changed his opinion since then.

Deposit Photos

By Michael J. Wiener

Special to Financial Independence Hub

As noted above, Jon Chevreau asked if it was okay to republish this post that I wrote way back in 2018. As little has changed since then, here it is, without further changes or commentary.

 

The technology used to create Bitcoin comes from the field I used to work in professionally. I’ve followed Bitcoin from its obscure beginnings to its recent bubble-like rise. After fielding so many questions about cryptocurrencies, it’s about time I organized my thoughts about Bitcoin as an investment and as a currency.

To understand Bitcoin, you don’t have to understand the technology behind it. The big problem anyone can see with digital money is that after you spend it you still have a copy of it, so you can spend it again. Much of the effort in creating digital money centers on preventing this double-spending. Bitcoin does this with some clever cryptography and computer protocols called blockchain.

Another feature of Bitcoin is that more money gets created over time. Those who do enough calculation with their computers get more Bitcoins. This is called mining, and is intended to roughly mimic mining for gold.

Bitcoin as an investment

Before Bitcoin’s meteoric rise, the few people who’d heard of Bitcoin understood that it is a currency, and is intended to be used like money. Now most people have heard of Bitcoin, and they tend to think of it as an investment. Some in the financial world suggest that cryptocurrencies should be considered an asset class. This is nuts.

It makes no more sense to invest in Bitcoins than it does to invest in Somali shillings, Indian rupees, or British pounds. The typical person should think of these things as currencies, not investments. The fact that the Bitcoin exchange rate is so volatile should make us stay away, not dive in.

Bitcoin as a currency

The digital and cryptographic nature of Bitcoin sets it apart from more familiar currencies like dollars. But this doesn’t really capture the important difference. After all, most transfers of dollars are digital and use cryptography.

Bitcoin isn’t backed by any particular government. No such backing is necessary. The U.S. government backs U.S. dollars, and it can impose rules about how dollars are used. If a bank doesn’t play by the rules, the U.S. government could cut that bank out of the dollar system. There is no easy way for the U.S. government or any government to regulate Bitcoin.

One thing governments do with their currencies is demand that electronic transfers not be anonymous. A certain amount of anonymous transfer is possible with physical cash, but this is limited. For the most part, if governments want to trace large money flows, they can do so. Continue Reading…

Then and Now – QQQ

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Today’s post is a departure from any top-stocks that I/we own.

Instead, I’ll share my investing history with a low-cost tech ETF: QQQ.

You can read about my previous Then and Now posts on certain stocks (good and bad!) at the end of this post.

Then – QQQ

Passionate readers and subscribers of this site will know, I’m a HUGE fan of not just dividend-paying stocks but low-cost ETFs as well.

The reason for owning some ETFs beyond some dividend growth stocks is simple: I cannot predict which stocks will truly succeed long-term. 

So, owning low-cost ETFs is a hedge against how I’ve largely unbundled my Canadian ETF for income, beyond holding a few U.S. stocks for mostly portfolio defence.

Years ago, I got a reader question about whether it was best to own Vanguard VTI or iShares ITOT.

I mentioned in my reply that was like splitting hairs given both low-cost U.S. ETFs have and will likely continue to deliver very similar, strong returns.

“Whether you invest in U.S.-listed VTI, ITOT, SPY, IVV or another low-cost U.S. fund that tracks the U.S. S&P 500 or the U.S. total market, I think you’re picking a winning long-term equity product for your portfolio.”

I’ve been right, at least historically speaking.

VTI vs. ITOT November 2023

Source: Portfolio Visualizer.

But even before that post, I invested in a small amount low-cost tech ETF QQQ – not because I didn’t think VTI, ITOT or other S&P 500 ETFs were bad choices, not at all, just that I believed at the time Invesco’s QQQ could perform better.

“Invesco QQQ ETF gives you access to a diverse group of cutting-edge Nasdaq-100 companies — all in one fund.” – Invesco

Since launch in 1999 (gosh, I wish I owned it then!) QQQ has demonstrated a history of outperformance, typically beating the S&P 500 Index. Continue Reading…

Navigating Short, Medium, and Long-Duration Fixed Income in 2024

Image courtesy Harvest ETFs

By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Content)

Fixed-income securities are financial instruments that have defined terms between a borrower, or issuer, and a lender, or investor. Bonds are typically issued by a government, corporation, federal agency, or other organization. These financial instruments are released so that the issuing institution can raise capital. The borrower agrees to pay interest on the debt security in exchange for the capital that is raised.

The maturity refers to the date when a bond’s principal is paid with interest to the investor. In the modern era, interest rates tend to fluctuate over long periods of time. Because of this, shorter-duration bonds have predictable rates. The longer investors go down the maturity spectrum, the more volatility they will have to contend with in the realm of interest rates.

On January 16, 2024, Harvest ETFs unveiled its full fixed income suite. That means investors will have access to ETFs on the full maturity spectrum: short, intermediate, and long-duration bonds.

In this piece, I want to explore the qualities, benefits, and potential drawbacks of short-term, medium-term, and long-term bonds. Let’s dive in.

The two types of short-term bonds for investors chasing security

Short-term fixed income tends to refer to maturities that are less than three years. In the realm of short-term fixed income, we should talk about the relationship between money market and short-term bonds.

Money market securities are issued by governments, financial institutions, and large corporations as promises to repay debts, generally, in one year or less. These fixed-income vehicles are considered very secure because of their short maturities and extremely secure when issued by trusted issuers, like the U.S. and Canadian. federal governments. They are often targeted during periods of high volatility. Predictably, money market securities offer lower returns when compared to their higher-duration counterparts due to the liquidity of the money market.

Short-term bonds do have a lot in common with money market securities. A bond is issued by a government or corporate entity as a promise to pay back the principal and interest to the investor. When you purchase a bond, you provide the issuer a loan for a set duration. Like money market securities, short-term bonds typically offer predictable, low-risk income.

The Harvest Canadian T-Bill ETF (TBIL:TSX) , a money market fund, was launched on January 16, 2024. This ETF is designed as a low-risk cash vehicle that pays competitive interest income that comes from investing in Treasury Billds (“T-Bills”) issued by the Government of Canada. It provides a simple and straightforward solution for investors who want to hold a percentage of their portfolio in a cash proxy.

Medium-term bonds and their influence on the broader market

When we are talking about intermediate-term bonds, we are typically talking about fixed income vehicles in the 4-10 year maturity range. Indeed, the yield on a 10-year Treasury is often used by analysts as a benchmark that guides other interest rate measures, like mortgage rates. Moreover, as yields increase on intermediate-term bonds so too will the interest rates on longer duration bonds.

Recently, Harvest ETFs portfolio manager, Mike Dragosits, sat down to explore the maturity spectrum and our two new ETFs. You can watch his expert commentary here.

US Treasuries avoided an annual loss in 2023 as bonds rallied in the fourth quarter. These gains were powered by expectations that the US Federal Reserve (the “Fed”) was done with its interest rate tightening cycle. The prevailing wisdom in the investing community is that the Fed will look to pursue at least a handful of rate cuts in 2024. Continue Reading…

2023 Financial Year in Review | 2024 Investment Market Outlook

Lowrie Financial/Canva Custom Creation

 

By Steve Lowrie, CFA

Special to Financial Independence Hub

You might assume, the more experienced a financial professional is, the more accurate they can be with their year-end forecasts. Personally, I’ve never tried to predict which hot or cold stocks, bonds, sectors, or market sentiments to chase or flee each year. Instead, the more experience I’ve gained, the more firmly I believe in the Timeless Financial Tips I shared throughout 2023. For me, they serve as the best guide for “predicting” what investors should expect in 2024.

So, considering everything I’ve learned in 2023 (plus the quarter-century prior), I predict …

We cannot possibly predict how 2024 markets will perform.

That’s my expert forecast, and I’m sticking to it. I will, however, add one more prediction, about which I am nearly as certain …

Over time (think multiple years), capital markets WILL deliver positive returns to those who consistently participate in their expected growth.

The 2023 Allure of 5% GIC Returns

If anything, 2023 offered fresh lessons on why it’s better to stick with the financial fundamentals and avoid the perils of market-timing.

As you may recall, we were still licking our 2022 wounds in January 2023, after experiencing an unusually perfect storm of negative annual returns from stocks AND bonds, along with continued high inflation. How unusual was 2022? I looked for the last time investors had experienced across-the-board negative annual returns, plus steep inflation and couldn’t find an example of this, at least in my career.  1994 was the last time both stock and bond returns were negative, however Canadian Inflation (CPI) was a scant 0.25% that year.

Given the 2022 backdrop, no wonder many investors were drawn to GICs and their alluring 5% interest rates in 2023.

It is true, GICs can be helpful for your rainy day funds and similar cash reserves that are awaiting their spending fate. But in 2023, I also saw people using (or, more accurately, abusing) this vehicle to sideline investable cash indefinitely, waiting for seemingly better days to jump into the market. Worse, some investors might have sold off portions of their existing investment portfolio to chase after GIC rates.

Safe Harbors can be a Risky Bet

Unfortunately, waiting for “better” markets before investing or reinvesting according to plan is still market-timing by any other name. And as I’ve covered before, market-timing ignores myriad investment fundamentals.

Among the most important insights to take to heart is how rapidly market tides can turn, leaving the unprepared out of luck. As one of my financial planning colleagues recently described:

“Small hinges swing big doors. [Market] Prices are brutish, irreverent, and unsympathetic to investors putzing about on the sidelines.” – Rubin Miller, Fortunes & Frictions

This message was on clear display in 2023. Talking about swinging markets! I’m willing to bet few, if any of us were expecting such strong annual returns for 2023, especially since most of the reward hinged on a year-end pop.

And yet, it shouldn’t really have come as such a big surprise. It’s exactly how global markets have repeatedly performed over time. It just seems as if investors forget this fundamental every time markets take a break from their historically uphill climb. Continue Reading…