Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Automating Wealth: How to Systematize your Path to Financial Independence

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Pexels/Tima Miroshnichenko

By Devin Partida

Special to Financial Independence Hub

Financial freedom: everyone knows what it means, but few understand how to achieve it. Those who do understand the role of automation in the process and how it allows them to focus on other vital actions necessary to reach their goals. Automating repetitive manual tasks can streamline financial management and improve decision-making.

Strategies for Automating your Finances

Becoming financially independent requires the right habits. However, consistently following a set pattern for saving, budgeting and other money-related activities can quickly feel repetitive. Automation can take care of the boring stuff, saving time and giving you more control over your financial situation. Here are some ways to go about it.

Automate Bills and Recurring Expenses

Bills you pay regularly — such as rent, mortgage, utilities, credit cards and subscriptions — take a significant part of your budget. These payments can cause stress and anxiety, especially if you have to keep track of them manually. Most banks offer automatic debit arrangements  that deduct monthly payments from your account on or before specified dates, ensuring your expenses are always covered on time.

Use a Budgeting App to Track Spending

Building long-term wealth begins with knowing where your dollars are going and how changing prices affect your budget. If you need help with your finances, a budgeting app will be your best friend.

These platforms can simplify expense tracking and help you identify where to scale back. Several are available, so feel free to explore until you find one best suited to your requirements.

Set up Automatic Transfers to your Savings Account

It’s easy to forget to transfer funds into your savings account, especially if you have many financial obligations. Like your recurring payments, you can also automate your financial conservation efforts. This method can help eliminate  the emotional side of decision-making that often makes saving money difficult.

Set Investments on Autopilot

Investing is a powerful way to grow your finances, but the inherent risks can be off-putting. Consider using a robo-advisor or investment bot to manage your portfolio, make data-driven decisions and minimize the time required to manage your investments.

For example, AI stock-trading programs can analyze historical information and current trends to predict market shifts, cluing you in on when to buy or sell a particular stock. Some systems can even tailor recommendations based on your budget and automatically make investing choices based on set parameters.

How Automation gets you Closer to Financial Independence

Financial freedom starts with defined goals backed by intentional action. Automation plays a massive role in shortening the path to achieving these objectives. Ideally, a well-framed goal only requires 3–5 steps to accomplish: anything more than that will likely complicate the process. Continue Reading…

ETF Fees Explained

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By Danielle Neziol, BMO ETFs

(Sponsor Content)

Canadians are facing a lot of sticker shock lately. My grocery bill was how much? My mortgage payment is going to increase by what per cent? Don’t even ask me what it costs to fill up my car these days. With more money going to living expenses, it has become harder to save than ever. One simple way to get ahead is to be more aware of what we are spending — especially in times like these —  and to review our monthly expenses to see where there are opportunities to make cuts.

Our investment portfolios should be viewed no differently. If you are an investor who holds a mutual fund or an exchange traded fund (ETF) there are fees attached to your investments. It would be prudent to review the cost structure of the funds you hold to ensure that the fees make sense relative to the fund’s investment mandate. It would also be wise to review the cost of the funds you hold to see if that fee is competitive relative to similar products in the market. Fees detract from total portfolio returns, so anything an investor can do to manage these costs can help keep more money in their pockets.

Management Fees and MERs

Every investment fund has a management fee. This is the cost a fund manager charges to manage the portfolio operationally (buy and sell securities, rebalance, etc). The Management Expense Ratio (MER) is the bottom-line cost to the investor. It includes any taxes charged to the fund, as well as any added fees (such as leverage). An investor can look up the management fee and MER within the Fund Facts and ETF Facts of their funds. These are regulatory documents that can be found for every fund issued in Canada. Some asset managers advertise very low management fees but have higher, less advertised, MERs, so investors should always do their due diligence on the total fund cost to fully understand the bottom-line payment that they are making every year.

The MER is subtracted from daily returns. Therefore, it has a direct impact on the total return of the fund. And as investors we know that overtime, our total returns help build our overall wealth. Therefore, the lower the fee on the investment, the more money there will be for the investor at the end of their investment period.

Comparing Fees

Once investors are aware of the fees they are paying for their investment products, they have the ability to “shop around” to see if there are any products that may be a better fit in their portfolios or which offer lower fees. When comparing fees it’s important to understand what you’re getting for in return for what you’re paying for. Broad market index funds generally have the lowest fees in the market. For example the BMO S&P 500 Index ETF (ZSP) has an MER of 0.09%. Index funds tend to have the lowest fees because operationally they are easier to manage. A Portfolio Manager will go out and buy the stocks within a particular index, and rebalance when needed.1 Continue Reading…

Lowering the first rung on the housing ladder

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Image courtesy of CMI/Envato Elements

By Kevin Fettig

Special to Financial Independence Hub

 

A recent report by Ontario’s Municipal Property Assessment Corporation (MPAC) highlights the scarcity of homes under $500,000 in Ontario.

In 2013, 74% of residential properties had a value below this threshold. Today,  just 19% of homes are valued below $500,000.  While this situation varies from province to province, it highlights the significant challenges faced by first-time home buyers who find the first rung of the property ladder is nearly unreachable.

Most urban centers would benefit by encouraging lower cost paths to home ownership. One avenue for this is building properties on leased land. In certain areas of Vancouver, we already see this practice, often on First Nations or university-owned lands. Leased land provides two primary paths to homeownership: one involves placing mobile or manufactured housing on the leased property, while the other entails constructing permanent homes on the leased land.

More than 50 years ago, manufactured housing made up as much as 6% of Canadian housing completions. Today, it represents less than 1%. In the U.S., supporting the availability of manufactured housing is a key component of the administration’s effort to ease the burden of housing costs. Most of these initiatives focus on improving mortgage financing for these homes through housing finance agencies Fannie Mae and Freddie Mac. Currently, Americans must rely on personal property financing (chattel lending) rather than conventional mortgages.

CMHC launched Chattel Loan program in 1988

In Canada, we’ve had a mortgage insurance product for these loan types for some time. The Chattel Loan Insurance Program (CLIP) was first launched by CMHC in 1988 as a 5-year pilot program. However, CMHC has never actively promoted the program, leading to a lack of awareness among lenders. Moreover, consumer preference for traditional stick-built housing and resistance from local communities to mobile home park developments have further hindered the adoption of the program.

Although the eligible amortization period can extend up to 25 years, some provinces have not allowed longer-term leases, making it challenging to finance structures on leased land, whether stick-built or manufactured. Even with an insured mortgage product, securing financing for manufactured homes can be difficult. Financial institutions often lack understanding of these structures, and the constraints on amortization period restrict the type of homebuyer. Consequently, the market has primarily targeted retirees seeking to downsize from larger family homes to smaller units. However, with appropriate financing options, these properties could also appeal to first-time buyers.

Building permanent homes on leased land is a second avenue to reducing home-ownership costs. Leased land communities are typically located close to small urban centres. The design ranges from townhouses to single family dwellings, and from traditionally built to manufactured. There are some larger institutional groups in this sector, including Parkbridge, a leading Canadian developer and operator of 106 residential and recreational communities across the country. CAPREIT, a Canadian real estate investment trust, also manages leased land communities but is not a developer. Continue Reading…

Passive Investing with ETFs: Don’t throw the baby out with the bathwater

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Image courtesy Outcome/EpicTop10

By Noah Solomon

Special to Financial Independence Hub

Barbarians at the Gate

The dramatic increase in the popularity of ETFs [Exchange Traded Funds] represents one of the biggest changes in financial markets over the past three decades. The tremendous growth of ETFs has come largely at the expense of actively managed mutual funds. Investors are increasingly shunning the latter in favour of the former. I will attempt to shed some light on whether this shift is justified from a performance perspective.

The Trillion Dollar Question

The vast majority of ETF assets are passive vehicles. The underlying portfolios of these securities are constructed to mimic a given index, such as the S&P 500 or the TSX Composite. In contrast, most mutual funds are actively managed, whereby portfolio managers and securities analysts conduct extensive research to overweight stocks they believe will outperform while underweighting those they believe will be laggards to outperform their benchmarks. Relatedly, the costs of running actively managed funds are higher than those associated with passive ETFs. As such, the former tend to charge higher management fees.

Logically speaking, active managers’ higher fees should not necessarily be an issue. To the extent that they are capable of more than offsetting the negative impact of their higher fees with higher returns, their investors are better off on a net basis. As such, the trillion-dollar question is whether active managers’ skill is sufficient to justify their higher fees. If this is indeed the case, it follows that the shift away from active management into passive ETFs is ill-founded. Similarly, if active managers have failed to outperform, then the massive growth of ETF assets can be simply explained as investors following the money.

Active Management: The Author of its own Fate

By and large, active management has failed to live up to its promise. Specifically, most active managers have underperformed their benchmarks over both the medium and long-term.

S&P Global’s most recent SPIVA (S&P Index vs. Active) Canada Scorecard, which covers the period ending June 30, 2022, clearly illustrates that the vast majority of active managers have struggled to add value.

Percentage of Funds Underperforming their Benchmarks

As the above table illustrates, the inability of active management to add value over the past 10 years has been nothing short of pervasive. There is not one category in which the majority of active managers did not underperform their respective benchmarks. Importantly, this observation holds true over one-, three-, five-, and ten-year periods.

Outrunning a Bear

To be fair, active management is not alone in its underperformance. While the majority of managers have underperformed, any index-tracking ETF is 100% guaranteed to do so for the simple reason that their returns should be equal to those of their benchmarks less management fees, administrative costs, and trading commissions. Continue Reading…

The Ultimate Guide to Podcast Promotion: Tasks, Timelines, and Success Strategies

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Image courtesy Canada’s Podcast/unsplash royalty free

By Philip Bliss

Special to Financial Independence Hub

Launching a podcast is an exciting endeavor, but the real challenge lies in promoting it effectively to build a loyal audience. In this comprehensive guide, we’ll break down the essential tasks, timelines, and strategies to help you successfully promote your podcast.

  1. Pre-Launch Phase (4-6 weeks before launch):

Tasks:

  • Define your target audience: Clearly identify who your podcast is for to tailor your promotional efforts effectively.
  • Craft a compelling trailer: Create a teaser episode or trailer that highlights the value of your podcast and sparks interest.
  • Design eye-catching cover art: Invest time in creating visually appealing podcast cover art that reflects your brand and attracts potential listeners.
  • Develop a content calendar: Plan your initial episodes and create a schedule for consistency.

Timeline:

  • Week 1: Define target audience and create a content calendar.
  • Week 2: Craft a compelling trailer and design cover art.
  • Week 3-4: Set up social media profiles and teaser campaigns.
  1. Launch Phase (Week of launch):

Tasks:

  • Submit to podcast directories: Ensure your podcast is available on major platforms such as Apple Podcasts, Spotify, and Google Podcasts.
  • Utilize a launch strategy: Leverage social media, email newsletters, and your website to create anticipation and drive initial downloads.
  • Encourage listener reviews: Ask friends, family, and early listeners to leave positive reviews to boost credibility.

Timeline:

  • Day 1: Submit to podcast directories and launch teaser campaigns.
  • Week 1: Implement launch strategy on social media and encourage reviews.
  1. Post-Launch Phase (Ongoing):

Tasks:

  • Consistent content creation: Stick to your content calendar to maintain a regular release schedule.
  • Engage with your audience: Respond to listener feedback, comments, and questions on social media and through email.
  • Collaborate with other podcasters: Guest appearances and cross-promotions can expand your reach.
  • Utilize social media: Regularly share engaging content, clips, and updates to keep your audience connected.

Timeline:

  • Ongoing: Stick to your content calendar, engage with the audience, and actively collaborate. Continue Reading…