All posts by Robb Engen

Renewing your Mortgage this year?

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By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

Our mortgage is up for renewal later this year. That’s a shame because I’m enjoying the ultra-low 1.90 per cent interest rate on our five-year variable mortgage (prime minus 0.80 pe rcent). It’s a near certainty that I’ll have to renew at a higher rate this summer.

My bank is offering five-year variable rates at prime minus 0.10 per cent, which means a mortgage rate of 2.60 per cent. That’s not much of a discount off of the five-year fixed rate they’re advertising, which comes in at 2.94 per cent.

Five years ago, when the deeply discounted variable rate was 1.50 per cent lower than the five-year fixed, it was a no-brainer to go variable. Now it’s not so cut-and-dried.

What is clear is that we’re living in the golden age of low mortgage rates. Remember three years ago when BMO introduced its controversial 2.99 per cent ‘no frills’ mortgage?

Now it’s rare to see mortgage rates ABOVE 3 per cent – and most come with all the bells and whistles; from 120-day rate holds and pre-approval, to double-up monthly payments and lump sum payment privileges.

For nearly a decade we heard how interest rates couldn’t possibly get any lower and that the smart thing for homeowners to do was lock in their mortgage with a five or even a 10-year fixed rate.

It turns out the best advice was to do what has almost always saved Canadians the most money over the last 50 or 60 years. Go variable.

Renewing your mortgage

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EQ Bank: Your new High-interest No-fee Banking Solution

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eqbankbanner_HISABy Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

Over the last decade or more Canadian banking customers have had to accept two inevitable truths:  interest rates on savings deposits would plummet and stay at historic lows, and banks would continue to raise fees on everyday bank accounts and services. All of this occurred while Canada’s big five banks hauled in record profits.

Savvy bank customers had to invent complicated workarounds to keep their hard-earned money safe, free of fees, and to earn a decent interest rate. That meant limiting transactions, maintaining high minimum balances, and bouncing from bank-to-bank chasing the latest short-term high-interest rate promotional offers.

If only there were a bank that offered one solution: a hybrid chequing-and-savings account that paid market-leading interest rates with no monthly fee, and no extra charges for moving your money around via e-Transfer or for paying bills.

EQ Bank

Enter EQ Bank – a new digital bank and offshoot of Equitable Bank – with its unique EQ Bank Savings Plus Account. Launched on January 18th, 2016 Continue Reading…

How to supercharge your RRSP

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Vector illustration of the engine. Gradient mash.By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

The idea that an RRSP loan can boost your savings and generate a higher tax refund does not sit well with most people. If you can afford the loan payment then why not just budget and save that amount in the first place instead of borrowing?

In The Wealthy Barber Returns, author David Chilton describes a strategy that can increase your RRSP contributions without putting you out of pocket any more than what you’d already planned to save. He explains how most of us save from our after-tax income, but when we contribute only those after-tax dollars instead of their pre-tax equivalent, we shortchange our RRSPs.

So how do you get the full, pre-tax amount into your RRSP? The answer is to use something called a “gross-up” strategy where you borrow a small amount equal to the tax refund that will be produced by your RRSP contribution. Here’s how it works:

Let’s say you are in a 40 per cent tax bracket and had $3,000 after taxes to invest. How much should you contribute to your RRSP?

The Smart Debt Coach

If you’re not sure of the answer, you’re probably like the majority of Canadians who unknowingly invest less than they could into their RRSP, according to Talbot Stevens, author of a book called The Smart Debt Coach.

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Indexers are terrible at indexing

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Cartoon Humor Concept Illustration of Couch Potato Saying or Proverb

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

Despite all of the evidence that low-cost passive investing outperforms actively managed portfolios, many investors still cling to the belief that an active approach can help steer them through turbulent times in the market.

Even investors who have taken the plunge into index funds and ETFs can’t help themselves when faced with uncertainty. Emotions take over, as do our instincts to tinker with our investments to try and optimize performance.

Earlier this month, Dan Bortolotti updated the investment returns from the ever-popular Canadian Couch Potato model portfolios.

Despite Dan’s best efforts to explain that these new and simplified portfolios should be used as part of a long-term investment strategy, the overwhelming number of comments from readers suggests that it’s nearly impossible for indexers to simply set-it and forget it.

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Some financial reading ideas for 2016

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By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

I don’t know if I’d describe myself as a voracious reader, but I do enjoy a good book and like to read the latest on personal finance, investing, behavioural finance, and leadership or motivational topics. In fact, this year I found myself putting down my phone or laptop more often and picking out a good book to read instead.

Some of the good ones included Carl Richards’ One-Page Financial Plan, and Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry.

I also enjoyed Ben Carlson’s A Wealth of Common Sense, about why simplicity trumps complexity in any investment plan. Mark Goodfield of The Blunt Bean Counter fame rewarded us with a compilation of his best work in Let’s Get Blunt About Your Financial Affairs. And finally, one of my favourite authors is Michael Lewis and I read his latest – Flash Boys – about a group of Wall Street guys who figure out how the stock market is rigged to benefit insiders.

Reading list for 2016

One of the most influential books I’ve ever read was Daniel Kahneman’s Thinking, Fast and Slow. This book convinced me that my investing success up to that point likely had more to do with luck than skill or hard work, so I finally made the switch from picking individual stocks to indexing.

Since then, behavioural finance, economics, and psychology have been topics of interest. A couple of books in this area have caught my eye and I’ve put them on my reading list for 2016:

MisbehavingFirst, Richard Thaler published a new book last year called Misbehaving: The Story of Behavioral Economics. Like his mentor, Daniel Kahneman, Thaler uses observations and experiments to explain how our behaviour is often so inconsistent with the economists’ model of rational choice.

I might also read: Nudge: Improving Decisions About Health, Wealth, and Happiness

Irrationally Yours

Dan Ariely is a professor of psychology and behaviour economics at Duke. He wrote a book this year that I want to check out called, Irrationally Yours: On Missing Socks, Pickup Lines, and Other Existential Puzzles.

I might also read: The Honest Truth About Dishonesty: How We Lie to Everyone–Especially Ourselves

The Index Card

I’m a big believer in keeping things simple and that especially applies to personal finance and investing. There’s no need for things to be as complicated as the financial services industry makes it out to be. That’s why I was excited to hear that Helaine Olen, author of Pound Foolish, is coming out with a new book in January called, The Index Card: Why Personal Finance Doesn’t Have To Be Complicated. Check this out:

“When University of Chicago professor Harold Pollack interviewed Helaine Olen, an award-winning financial journalist and the author of the bestselling Pound Foolish, he made an off­hand suggestion: everything you need to know about managing your money could fit on an index card. To prove his point, he grabbed a 4″ x 6” card, scribbled down a list of rules, and posted a picture of the card online. The post went viral.

Now, Pollack teams up with Olen to explain why the ten simple rules of the index card outperform more complicated financial strategies.”

I might also read: The Incredible Shrinking Alpha: And What You Can Do to Escape Its Clutches

Thing ExplainerFollowing the topic of simplicity, Randall Munroe, author of the hilarious comic XKCD, came out with a new book called Thing Explainer: Complicated Stuff in Simple Words.

“Funny, interesting, and always understandable, this book is for anyone—age 5 to 105—who has ever wondered how things work, and why.”

I might also read: How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life

The Devil's Financial DictionaryI’m really excited about this one. Jason Zweig, financial columnist at the Wall Street Journal, wrote a survival guide to the hostile wilderness of today’s financial markets with The Devil’s Financial Dictionary.

I might also read: Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich

The Essential Retirement GuideFred Vettese is an expert on Canada’s retirement income system and sits on the Pension Policy committee of the C.D. Howe Institute. His latest book is called, The Essential Retirement Guide: A Contrarian’s Perspective. It debunks typical retirement rules of thumb and reveals how you can calculate your personal wealth target – the amount of money you will need by the time you retire to live comfortably.

I might also read: The Real Retirement: Why You Could Be Better Off Than You Think, and How to Make That Happen

Final thoughts

It looks like I’ve got a ton of reading to do next year. Of course, all of these books will get tossed aside if and when George R. R. Martin finally publishes The Winds of Winter, the sixth instalment in the A Song of Ice and Fire (Game of Thrones) series.

What’s on your reading list for 2016?

In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on December 20th and is republished here with his permission.