All posts by Financial Independence Hub

When Low Rates cause people to do Dumb Things

Image courtesy Outcome/ShareAlike 3.0 Unported 

By Noah Solomon

Special to Financial Independence Hub

When cash, high quality bonds, and other safe assets offer little yield, investors get caught between a rock and a hard place. They can either (1) accept lower returns and maintain their allocation to safe assets or (2) liquidate safe assets and invest the proceeds in riskier assets such as equities, high yield bonds, private equity, etc.

Using history as a guide, when faced with this dilemma many people choose the second option. This decision initially produces favorable results as the increase in demand for stocks pushes prices up. However, as this reallocation progresses, prices reach levels which are unreasonable from a valuation perspective, and the likely returns from risk assets do not compensate investors for their associated risk. At this juncture, committing additional capital to risk assets becomes akin to picking up pennies in front of a steam roller. For the most part, this narrative is what played out across markets following the global financial crisis of 2008.

Following the global financial crisis, near-zero rates pushed investors to take more risk than they would have in a normal rate environment, which entailed making outsized allocations to stocks and other risk assets.

Unable to bear the thought of receiving negligible returns on safe assets, people continued to pile into risk assets even as their valuations became unsustainable.

Had central banks not begun raising rates aggressively in 2022 to combat inflation, it is entirely possible (and perhaps even likely) that stocks would have continued their ascent, valuations be damned!

Instead, rising rates provided risk assets with some worthy competition for the first time in over a decade, which in turn caused investors to rethink their asset mix and shed equity exposure.

The Equity Risk Premium: A Stocks vs Bond Beauty Contest

The equity risk premium (ERP) can be loosely defined as the enticement which investors receive in exchange for leaving the safety of Uncle Sam to take their chances in the stock market. More specifically it is calculated by subtracting the 10-year Treasury yield from the earnings yield on stocks. For example, if the P/E of the S&P 500 is 20 (i.e. earnings yield of 5%) and the yield on 10-year Treasuries is 3%, the ERP would be 2%.

Historically, stocks tend to produce higher than average returns following elevated ERP levels. Intuitively this makes sense. When valuations are cheap relative to the yields on safe assets, investors are getting well compensated for bearing risk, which tends to portend strong equity markets. Conversely, at times when stock valuations are rich relative to yields on safe assets and investors are getting scantily compensated for taking risk, lower than average returns from stocks have tended to ensue.

Chart courtesy Outcome
  • At the end of 2020, the S&P 500 Index’s PE ratio stood at 20 (i.e. an earnings yield of 5%), which by no means can be considered a bargain. However, stocks were nonetheless rendered attractive by ultra-low rates on cash and high-quality bonds. It’s easy to look good when you have little competition!
  • By the end of 2021, the Index’s PE ratio was above 24 (i.e. an earnings yield of 4.2%). Stocks were even less enticing than valuations suggested, given that 10-year Treasury yields had risen from 0.9% to 1.5%. This set the stage for a decline in both prices and valuations in 2022.
  • From an ERP perspective, 2022’s decline in valuations did not make stocks less stretched vs. bonds. The contraction in multiples (i.e. increase in earnings yield) was more than offset by a rise in bonds yields, thereby causing the ERP to be lower at the end of 2022 than it was at the start of the year.
  • In 2023, the S&P 500’s PE ratio expanded from approx. 18 to 23, which was not accompanied by any significant change in 10-year Treasury yields. By the end of the year, U.S. stock multiples had nearly regained the lofty levels of late 2021, despite the fact that Treasury yields had actually increased by over 2% during the two-year period.
  • In contrast, the relative valuation of Canadian stocks vs. bonds currently lies at levels that are neither high nor low relative to recent history.

 Low Rates: The Growth Stock amphetamine

Growth companies, as the term implies, are those that are projected to have rapidly growing earnings for many years. Whereas an “old economy” stock such as Clorox or General Mills might be expected to grow its profits by 2%-10% per year, a juggernaut like NVIDIA could be expected to double its profits every year for the foreseeable future. Continue Reading…

Financial Management Simplified

MoolahMate Dashboard

By Fauzi Zamir, CPA, CA

Special to Financial Independence Hub

I have diabetes so I am careful about eating sugary foods.  In this short statement lies the secret of simple financial management.  You may say that’s an odd conclusion, but you will shortly see the principles underlying the analogy in the first sentence and its applicability to your finances.

The first element (I have diabetes) is “knowing” that I have a problem and the second element (I am careful about eating sugary foods) is “doing something about it.”  In the same way, financial management requires that you first know what you own, what you owe, and what your cash inflows and outflows are.  The second thing is to determine which debts to pay off first and which discretionary expenses you can reduce: in other words, you want to reduce your expenses so that you can generate savings that can subsequently be invested.

Let’s use another analogy.  I need to get in shape.  I enthusiastically join a club and start going regularly.  But soon I am overwhelmed by the choice of machines and different exercises and my visits start to decline and eventually stop.  What happened?  I was probably over ambitious, didn’t have the discipline and made it overly complicated.  I could have taken a simpler approach by focusing first on my diet and then doing something simple like regular walking to create the sustained discipline  that is needed for long-term results.  The message here is, start with something simple and sustain the routine. Continue Reading…

Estate Planning Mistakes that could Jeopardize your Findependence

Image by Unsplash: Melinda Gimpel

By Devin Partida

Special to Financial Independence Hub

Estate planning is crucial for anyone looking to secure findependence and leave a lasting legacy for their loved ones. It involves making deliberate decisions about who will inherit your assets and how executors should handle your affairs after you’re gone.

However, many overlook the finer details, leading to common mistakes that can have significant financial and emotional impacts on those left behind. Understanding and avoiding these pitfalls ensures your estate plan fulfills your wishes and supports your loved ones without unnecessary stress or financial burden.

Common Estate Planning Oversights

Navigating the complexities of estate planning is no small task, and it’s all too easy to overlook crucial details that can make a big difference. Here are some common estate planning oversights that could derail your intentions and how to steer clear of these potential pitfalls.

Neglecting to Update Beneficiaries

Regularly reviewing and updating beneficiary designations on life insurance, retirement accounts and other financial assets ensures your estate plan reflects your current wishes. Life events — like marriage, divorce, the birth of a child or the death of a designated beneficiary — can alter your intentions for asset distribution.

Failure to update these designations can lead to your assets going to unintended recipients — like an ex-spouse or estranged family members — instead of supporting your current loved ones or preferred charities.

Underestimating the Value of a Comprehensive Will

Having a will that comprehensively covers all assets and wishes is fundamental to effective estate planning. Despite its importance, only about 32% of Americans have taken the step to create a will.

This document ensures your assets are distributed according to your desires, provides clear instructions for caring for minor children and appoints executors to manage your estate. An incomplete will — or the absence of one — can lead to family disputes, as loved ones may have differing opinions on the distribution of assets.

Such disagreements often result in extended legal processes, which can deplete the estate’s value through legal fees and other costs. Additionally, without a will, state laws dictate the distribution of your assets, potentially leading to outcomes that starkly contrast with your wishes.

Failing to Establish an Advanced Health Care Directive

An advanced health care directive guides medical decisions if you can’t communicate your wishes, providing physicians and loved ones with clear written instructions. Healthcare providers especially value this foresight, ensuring your care aligns with your preferences and alleviating the burden of decision-making from your family. Continue Reading…

Why you may wish to own a U.S. Dollar Investment Account

Royalty-free image courtesy Justwealth

By James Gauthier

(Sponsor Blog)  


Many Canadians are aware that you can open a U.S. dollar bank account at most Canadian financial institutions.

But did you know that you can also open a U.S. dollar investment account through many different investment companies?

The following are reasons why you may wish to consider opening a U.S. dollar investment account.


Reduce the cost of U.S. dollar conversion

Every time that you convert Canadian dollars to U.S. dollars (or vice versa), you will pay a fee to the financial institution that makes the conversion for you. That fee is known as the currency spread, and can usually be noticed by looking at the difference between the “bid” and the “ask” prices displayed by the financial institution.

For example, if the current spot exchange rate is quoted as $1.35 Canadian for each U.S. dollar, the bid (or price that you will receive for selling U.S. dollars) might be $1.32 and the ask (or price that you must pay to purchase U.S. dollars) might be $1.38. So, every time you buy or sell U.S. currency you lose 3 cents per dollar. If you are regularly converting currency, that becomes very expensive!

Buying or selling U.S.-listed securities in a Canadian dollar investment account is a common example of Canadians paying unnecessary currency conversion costs, allowing the broker to pocket the currency spread on buys and sells, dividends or interest paid. The more that you buy and sell, the more that you lose. These costs can be eliminated by simply owning your U.S.-listed securities in a U.S. dollar investment account instead since there is no need to convert currency on every transaction.

Hedge the impact of currency exchange rates

Have you ever felt like you had to limit your spending on travel to the U.S. because the value of the Canadian dollar was depressingly low? Or how about not ordering that item located in New York on eBay because it was priced in U.S. dollars which made it too expensive? The value of the Canadian dollar relative to the U.S. dollar has fluctuated greatly over time. In the past few decades alone, the exchange rate has ranged from more than $1.60 Canadian per U.S. dollar to less than $1.00 – yes, the Canadian dollar has on occasion been worth more than the U.S. dollar!

But why leave it to chance? If you have a portion of your investments denominated in U.S. dollars, you can always draw from it when you need it. You won’t pay conversion costs, and the current exchange rate should not matter because you don’t have to convert anything. For folks who require the frequent use of U.S. dollars for business, travel, or shopping, a U.S. dollar investment account can make a lot of sense.

For a simple illustration, consider a shrewd Canadian investor who vacations in Orlando, Florida for one week in February every year. The typical expense for this trip each year is about $5,000 U.S. dollars. This investor opened a U.S. dollar investment account and invested $100,000 U.S. dollars in an income-oriented investment portfolio that consistently earns 5% per year. This investor should never have to worry about exchange rates, or conversion costs since $5,000 U.S. dollars can easily be withdrawn every year!

Eliminate PFIC reporting (for U.S. citizens living in Canada)

Unfortunately for U.S. citizens living in Canada, Uncle Sam requires you to continue filing U.S. income tax returns. Also unfortunately, the I.R.S. requires additional reporting requirements for Passive Foreign Investment Corporations (PFICs), which may result in additional taxes owing. If you own any mutual fund or exchange traded fund issued by a Canadian company, it is considered a PFIC. Regulations require that all mutual funds purchased in Canada, must be issued by a Canadian company. Unless you enjoy the extra reporting requirements, this can be problematic for some investors. Continue Reading…

Creating your own Podcast Studio: A Step-by-Step Guide

Image courtesy Canada’s Podcast/unsplash royalty free

By Philip Bliss

Special to Financial Independence Hub

In the ever-expanding world of podcasting, creating a professional and efficient podcast studio is essential for producing high-quality content that captivates your audience.

Whether you’re a seasoned podcaster or just starting out, building a dedicated podcast studio can elevate your production value and enhance the overall podcasting experience.

In this guide, we’ll walk you through the essential tasks, equipment, and strategies to not only set up your podcast studio but also effectively promote your podcast.





  1. Define Your Niche and Audience:
  • Identify your target audience and the niche you want to focus on.
  • Research competitors in your niche and understand what sets your podcast apart.
  1. Create a Content Plan:
  • Develop a content calendar outlining topics, guests, and episode release schedule.
  • Plan for regular, engaging content to keep your audience coming back.
  1. Design Your Studio Layout:
  • Choose a quiet and dedicated space for your podcast studio.
  • Consider acoustic treatment to minimize echo and external noise.
  1. Invest in Quality Recording and Editing Software:
  • Choose reliable recording software like Audacity, GarageBand, or Adobe Audition.
  • Invest time in learning the basics of audio editing for polished episodes.
Image courtesy Canada’s Podcast/unsplash royalty free


  1. Microphone:
  • Invest in a high-quality microphone like the Shure SM7B or Blue Yeti.
  • Consider a pop filter and shock mount to enhance audio clarity.
  1. Headphones:
  • Choose closed-back headphones to prevent audio leakage during recording.
  • Opt for comfortable and studio-grade headphones like Audio-Technica ATH-M50x.
  1. Audio Interface:
  • Select a reliable audio interface such as Focusrite Scarlett 2i2 for clear audio signal processing.
  1. Mixing and Monitoring Equipment:
  • Include a mixer if you plan to have multiple hosts or guests.
  • Invest in studio monitors for accurate sound monitoring.
  1. Recording Accessories:
  • Use a sturdy microphone stand or boom arm for convenience.
  • Consider a portable vocal booth or isolation shield for noise reduction.

Promotion Strategies: Continue Reading…