All posts by Financial Independence Hub

Transforming the mortgage experience during inflationary times

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By Rob Shields

Special to the Financial Independence Hub

In a recent Questrade research study conducted by Leger¹, more than 8 in 10 Canadians (84%) expressed worry about the rising costs of inflation; two in five (39%) said they were very worried.

Rising inflation and the impact on mortgage costs have many worried, especially the younger demographic: approximately 45% of those polled.

The survey also found that Canadians aged 18 – 34 understand the importance of investing early and are much more likely to be investing more in their RRSPs to buy a home. Happily, this generation is committed to planning ahead, and will benefit from programs like the Home Buyer’s Plan when the opportunity is right.

Rebuilding the home ownership experience from the ground up

To ease current consumer anxiety, address pain points associated with home buying and mortgages, and help Canadians on their journey to financial independence, QuestMortgage® has been introduced as a direct-to- consumer mortgage offering to help make home ownership easy and affordable.

Designed as a simple, digital service for those looking to buy a first home or renew their mortgage, it is an alternative to traditional mortgages: available online 24/7, without the need to ever visit a branch. A QuestMortgage BetterRate™ offers low rates at the outset, with a team of dedicated mortgage advisors accessible to guide clients through the entire application process. The new service aims to change the status quo, making the process of home ownership straightforward, transparent and stress-free for Canadians of every age.  Continue Reading…

Gen Z is Canada’s most engaged generation for tracking Financial Goals

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Move aside, Boomers: Gen Z is coming through!

According to BMO’s annual Investment Survey, Gen Z is now Canada’s most engaged generation for tracking financial goals.

Younger Canadians are flexing their financial savvy by evaluating their financial goals and plan more frequently than any other cohort: including Boomers!

According to the survey, 62% of Gen Z (aged 18-25) and 54% of Millennials (age 26-41) review their financial goals at least quarterly, with 41% of Gen Z and 29% of Millennials doing so monthly. In comparison, only a third (36%) of Boomers (aged 58-67) review their financial plans at least once a quarter and only 15% of them do so monthly.

“It’s exciting to see the next generation of Canadians building solid financial habits and establishing a foundation early” said Nicole Ow, Head, Retail Investments at BMO, in a  press release, “Real financial progress is a lifelong pursuit as our goals and circumstances change throughout our lifetime. We encourage Canadians of all ages to consider ways not only to grow their wealth and work towards immediate financial goals, but also to ask their advisor how they can align their investments with their values, define their longer-term goals, and protect and share their wealth with their loved ones and the causes that mean the most to them.”

Social media a big influence

While the survey found the majority of young Canadians rely on advice from a professional when making financial decisions, what’s more interesting is the additional sources they are seeking out for guidance. Many are currently working with a financial advisor, and 47% of Gen Z and 32% of Millennials say they were referred to their advisors on the advice of a trusted friend or family member. The impact of social media on the financial habits of young Canadians also mustn’t be overstated. A third of Gen Z and 22% of Millennials refer to financial influencers and social media for their investment decisions. In comparison, only 7% of Canadians over 55 utilize these sources.

Barriers to Entry

Among younger Canadians with savings primarily held in cash, half of Gen Z and close to two fifths of Millennials say the primary reason for this is that they do not know how to invest. Whether it’s not knowing where to begin, or being unsure who to trust with their finances, a lack of basic financial literacy skills being taught in schools may be partly to blame for this. Thankfully, the previously mentioned alternate sources that young Canadians seek out can help to educate those feeling overwhelmed. Continue Reading…

Investing during Wartime: How does the Geopolitical Climate impact your Financial Planning?

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By Steve Lowrie, CFA

Special to the Financial Independence Hub

Don’t let Geopolitical Strife destroy your Investment Resolve.

This month, I was planning to write about financial planning for small- to mid-size business owners, including ways to optimize your personal and corporate tax planning. I believe many of you will find the information useful, so I promise to publish that soon.

But not now. Not after Putin invaded Ukraine. It feels wrong to go about business as usual while most of us are asking important questions about this geopolitical crisis.

By no means do our financial concerns detract from the greater, human toll. That said, if I can help you remain resolute as the world justifiably severs Russia’s access to capital markets and the global economy, perhaps we can both do our part to restore justice in Ukraine.

So, let’s talk about geopolitics and investing during wartime. Here are my key takeaways:

Big picture, geopolitical events’ impact on financial markets are usually short-lived

To help you keep your financial wits about you, consider Vanguard’s historical perspective on how the U.S. stock market has responded to other geopolitical crises over the past six decades. As Vanguard’s chart depicts in the article Ukraine and the Changing market environment, the turmoil has typically translated into initial sell-offs. But markets have also exhibited remarkable resilience, delivering returns in line with long-term averages as soon as six months later. That’s not to predict the same outcome this time, but it reinforces the wisdom of betting for vs. against the market’s staying powers.

Credit: Vanguard – Ukraine and the changing market environment

In Vanguard Canada’s recent article, When the markets seem to turn against you, Greg Davis, Chief Investment Officer recommends a steadfast approach:

“A new dimension of risk has entered the financial markets with heightened tensions in Ukraine …

We know this, however, about equity markets in the context of geopolitical risks: they’ve been resilient, much as markets have always been resilient in the face of various risks. We expect the markets to work themselves out, reaching new heights over time and at varying paces …

So now is not the time to give up your fortitude. Now is the time to take it all in with a deep breath, knowing that this day would come — and knowing that it will pass.”

Speaking of predictions, ignore those who claim to know what’s going to happen next

In their landmark studies on political forecasts documented in their book, Superforecasting: The Art and Science of Prediction, Wharton professor Philip Tetlock (a Canadian, by the way) and co-author Dan Gardner found that we’re unlikely to do our net worth any favors by depending on the “expert” predictions you may be seeing on the daily news:

“People who generate better sound bites generate better media ratings, and that is what gets people promoted in the media business. So, there is a bit of a perverse inverse relationship between having the skills that go into being a good forecaster and having the skills that go into being an effective media presence.”

In other words, those forecasts you’re hearing are more likely to sound like sure (often scary) bets, and less likely to be reasoned reflections on the many ways any given event might play out. In fact, evidence suggests, the more certain an expert seems about their forecast, the more skeptical you should be about its worth.

Continue Reading…

In volatile times, look for Quality

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By Paul MacDonald, CIO, Harvest ETFs

(Sponsor Content)

After nearly two years of a global pandemic, capped by surging inflation, the past month has been dominated by Russia’s invasion of Ukraine and a wave of geopolitical uncertainty unleashed by the largest European conflict since 1945.

“What a crazy decade these past two years have been,” is a line making the rounds on social media at the moment.

In the midst of all this volatility, uncertainty, and tension, we believe it’s important to focus on quality investments. We should begin by understanding and defining quality within our unique philosophy at Harvest ETFs. We can then outline some of the strategies at work in our Harvest ETFs that protect against volatile times and how today’s shocks fit in a longer-term macro-outlook.

Be diversified and own quality

To begin, our view remains that you want to be diversified and you want to own quality. How do you measure quality though? At Harvest, we do it through financial metrics like variability of earnings, visibility into earnings, return on invested capital and others. What those metrics tell us is that large-cap companies have the ability to navigate tail risks.

While risks related to geopolitical tension are top of mind now, we should emphasize that supply chain issues, inflation, and interest rate transitions are arguably the biggest volatility risks now. In this uncertain environment, it’s important to prepare for volatility from a wide range of sources. The expectations for how much and how quickly interest rates will rise is also going to be volatile and will likely result in some sectors doing better at different times, more so than what we have seen in recent history. Volatility shouldn’t come as a surprise if we’re adequately prepared for it with an investment approach that focuses on quality & diversity.

Our focus on quality is a core element of the Harvest investment philosophy. That philosophy focuses on leading companies in specific sectors or mega trends as the best place for investors to be if they want long-term capital appreciation prospects and income across market cycles.

Income Generation and Covered Calls

Income generation is another core element of the philosophy at work in Harvest’s equity income ETFs. That is achieved through a covered call strategy, generating a premium by agreeing to sell up to 33% of a holding at a set price. Using an active covered call strategy, Harvest’s team of portfolio managers generate consistent and high yields on their ETFs. As well, the value of call options tends to increase when volatility and uncertainty increase. The premiums generated by the covered call strategy act as some downside protection by the premium received. Continue Reading…

How millennials can find Financial Independence

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By Mark Seed
Special to the Financial Independence Hub

New year, same movement. The FIRE (Financial Independence, Retire Early) movement remains a big thing.

How can millennials find financial independence?

Can millennials find FI via leverage?

What questions are millennials asking themselves when it comes to wealth building, saving and investing?

This post explores some answers: how millennials can find financial independence.

What do millennials want? Some millennials want financial independence!

While some age ranges will vary depending on the report you read, the millennial cohort (GenY) was born between 1981 and 1995, which puts millennials in the age range of 27-41 in 2022.

As you well know from my site, and my own journey, I believe your 30s are critical years to define your financial wellbeing. Many important life decisions are made during this period of life, such as career selection, buying a house, potentially getting married, starting a family, and much more.

The lifestyle and consumption decisions you make in your 30s could very well define your 40s and future decades, including how much wealth you can build.

In the succinct and well-written book If You Can – How Millennials Can Get Rich Slowly by William Bernstein, there is a simple five-step formula to help millennial investors realize some financial independence dreams. I encourage any 20- or 30-something reading this site to download and read that FREE e-book from my link above or below. I think it will be impactful.

While some millennials will be the major recipients of some of the largest wealth transfers in history, now underway from a mix of older GenX and Boomer parents, via large financial gifts, I suspect some millennials will not have that luxury to rely on for their financial footing.

This means many millennials will need to do what I have done: make their financial independence dreams happen on their own.

Personally, I’m a huge believer in charting your own financial path and not relying on others to do it for you. Sure, you’ll make money mistakes along the way (I have) but you’ll also learn to think for yourself and hopefully hone some critical thinking skills along the way.

Further Reading: My lessons learned in diversification. 

Millennial investor profile – Liquid from Freedom 35 Blog

For many years now, I’ve been inspired and motivated by financial independence. So have other investors that I’ve had the good fortunate to connect with by running this blog. So, in that light, I’ve also been inspired by their stories and what they do differently.

You can read many of those stories on this dedicated Retirement page here. I’ll link to some others below.

One blogger in particular that has an interesting story and some lessons to share is “Liquid” from Freedom 35 Blog.

Liquid moved out of his parent’s basement when he was 21 and hasn’t looked back – paying off some small student loans and building up his net worth recently (now in his mid-30s) to $1.5 million. His long-term goal was always to be “financially free before his 35th birthday”. That goal is now achieved. He ’got there’ by controlled leverage, value investing, taking advantage of market corrections, swing trading, dividend investing, alternative investing and more.

I thought it would be fun to have Liquid on the site, share a bit of his story, and discuss how he used leverage wisely to realize some financial independence dreams far earlier than most.

Liquid, welcome to the site and thanks for your time!

My pleasure Mark and very happy to spend time with you and your readers!

When it comes to our financial journey in general, I know we’re just ‘not there yet’ and I’ve got a few years on you! We are I believe, on a decent path – saving, investing and killing mortgage debt at the same time. Folks are quite familiar with my plan but maybe not so much about you!

Tell us about yourself? In what field do you work, did you work in?

Thanks Mark. Well, I have been enamored with finance and business since I was 18. But despite my best efforts to get into business school I was rejected because of my poor grades. I ended up taking applied sciences instead. But that was a mistake. The program was so difficult I failed all my classes. I was forced to drop out after the first year.

After flunking college, I found a job at Safeway, making minimum wage. Luckily, I was still living with my parents at the time.

One day in 2007 I noticed a local art school was offering a one-year program in graphic design. I’m clearly not academically gifted. But maybe I can draw. I thought it was worth a shot. So, I enrolled.

I received my diploma the following year at age 21 and began my career as a graphic designer. My starting annual salary was $35,000.

Today I’m a senior designer at a large entertainment firm making $75,000 a year. Although it wasn’t my first choice, I am happy with my career decision and how it turned out. The pay is decent. And I can save money to pursue what I’m truly passionate about – finance and investing.

Great stuff. You have found your passion with investing for sure. How did you get started with investing? When did you start investing? What is your investing approach?

In 2009 I wanted to move out of my parents’ basement. After considering my options I concluded that buying was better than renting. So, I purchased a 2-bedroom apartment in Vancouver for $230,000.

This was my first investment, and my first home. At this time, I had $15,000 in personal savings. Not much. But it was enough to cover the downpayment and closing costs. Then I began to invest in the stock market, and other asset classes.

My investing approach can be broken down into 2 parts.

The first part is to mimic the strategies used by the best investors.

Allan Mecham was a college dropout like me. But he managed a fund that compounded at 30% a year.

Activist investor Bill Ackman produced a 70% investment return in 2020. But his long-term record is more like 20% a year, which is still pretty good. Macro investor George Soros managed a fund that returned 30% a year on average for many decades. And of course, value investors like Mohnish Pabrai and Warren Buffett have outstanding long term track records as well.

These public figures in the investment sphere have written books, appeared in interviews, and spoken on podcasts to discuss their ideas, strategies, and outlooks on the markets. Bill Ackman even has a list of 8 core principles that he uses to screen investments. Whenever he deviates from those principles his performance suffers. Furthermore, it’s easy to find exactly what these investors are buying because they have to submit 13F filings regularly to disclose their holdings publicly.

By understanding what these successful investors are doing with their money, I can essentially copy their methods and buy the same stocks as them. This naturally leads to my portfolio having the same kind of high returns as them.

Often the top performing investors will like the same stocks. But sometimes their strategies diverge so I have to decide which one works the best for my situation.

This brings me to the second part of my investing approach, which is to document my investment transactions and track the results. I like to use a spreadsheet for this. I also like to track my thought process, and the reason for making my decisions. This allows me to go back, review what happened, keep what worked, and throw away what didn’t so I can improve my process for next time. This experience has helped me become a better investor over time.

Copy the best, or at least tailor what the best do for you. Good stuff. So Liquid, like some other millennial bloggers are you a fan of FIRE? Why or why not? Have you achieved FIRE or FI? What is the key difference in your opinion between FIRE / retired early or FI or are they same to you?

As a kid I was constantly being told what to do (or not do) by others, and it was frustrating. Despite all the guidance I still felt a lack of direction. However, once I grew up and started to live on my own terms, I began to discover more purpose in life. I was free to make my own decisions and it was liberating. There was just one problem. I still had to work to put food on the table. That’s when I discovered financial independence.

I deeply value freedom so I made it a priority to become wealthy. I’m a fan of FI, but I don’t know about FIRE. I achieved financial independence in 2020 so I consider myself to be FI right now. I’m turning 35 later this spring. And that’s when I will hand in my letter of resignation and quit my 9 to 5 job permanently. Although I will be retired from full time work, I wouldn’t consider myself to be “retired.” There is no universal consensus on what retirement means anymore as the world embraces Web 3.0 and the gig economy.

You’ve had some interesting investments over the years on your path to FI. Can you highlight some investing successes or mistakes along the way? What did you learn from those lessons to help you move forward that might help other millennials reading this?

I’ve been very fortunate to see high returns investing in exotic assets such as Zimbabwe’s banknotes and Playboy magazines.

(Mark: that’s funny but good!)

But I often learn the most from the investments that didn’t do well.

One of my earlier investing mistakes was buying a leveraged volatility ETF that makes trades in the futures market. I knew this fund was risky, but I didn’t really understand what made it so. I initially wanted to make a quick swing trade. But when the ETF’s price fell, I held on – waiting for a reversal instead of cutting my losses. That was the wrong decision. Eventually a lower VIX and the adverse effects of contango wiped out 99% of my position, and I lost $2,000. From then on, I only invest in things that I actually understand. I learned the importance of knowing what I own. Today I can explain any investment I have to a 4th grader, and I can delineate why I own it. Continue Reading…