All posts by Financial Independence Hub

What Time Magazine person of the year Elon Musk has to say about Cryptocurrency

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LONDON, UK – June 2021: Bitcoin cryptocurrency on a Tesla electric vehicle logo.

By Sia Hasan

Special to the Financial Independence Hub

Time Magazine’s Person of the Year Elon Musk — chief executive officer of Tesla, The Boring Company and founder of SpaceX — has helped bring cryptocurrency into the public spotlight. He supports cryptocurrency and has made people more aware of what it is and how it works.

What is Cryptocurrency?

Cryptocurrency, also known as crypto, is a digital currency traded for goods and services. Many companies issue their own cryptocurrencies to be spent specifically for the service or product they provide. A company’s crypto is comparable to arcade tokens or poker chips. People must exchange real currency for cryptocurrency to buy the product or service.

A type of decentralized technology called Blockchain is what powers cryptocurrency. Different organizations (none of which have absolute control of the data) can trace the data through the processes of multiple computer systems. Blockchain manages and records transactions with an online ledger that is very secure. It can be shared and used by anyone with the proper credentials.

Blockchain allows businesses to use shared and protected information for collaboration. It is starting to emerge in almost every industry. It is a good fit for CRM for small business because it provides a secure place to store certified data.

Why do people use Crypto?

Because cryptocurrency is decentralized — not regulated by an authority or issued by a government — it offers autonomy to its users. Crypto is not subject to the boom and bust cycles in a country’s economy. Theoretically, it promises more control to the owner.

Cryptocurrency offers low transaction fees for international payments. Foreign purchases and wire transfers have associated costs and can be expensive. There are no banking fees related to cryptocurrency, such as minimum balance fees or overdraft charges. Continue Reading…

11 best Personal Finance formulae to live by

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What is one personal finance formula that you live by to help maintain expenses and create wealth?

To help you maintain expense and create wealth, we asked small business owners and professionals this question for their insights. From developing multiple streams of income to living beneath your means and giving back, there are several personal finance formulas that you can use to maintain your expenses and generate wealth.

Here are eleven best personal finance formulas to live by:

  • Develop Multiple Streams of Income
  • Set a Budget and Stick To It
  • Make and Save More Than You Spend
  • Seek Out the Best Deals
  • Overestimate Your Spending
  • Value and Invest in Yourself
  • Account For Every Dollar With Zero-Based Budgeting
  • Track Your Spending Monthly
  • Deposit Any Extra Cash to Savings
  • Set Clear Expectations With the 30/50/20 Rule
  • Live Beneath Your Means and Give Back

Develop Multiple Streams of Income

You need to develop multiple streams of income, if you can. Just trying to get wealthy from one source of income is not enough to build the sort of wealth you’re imagining for yourself. Starting with the income stream you have now, add to it. Invest, if you can, as dividends from the right stocks or mutual funds can be another income stream. In general, the more income streams you have, the greater your ability to create wealth. — Carey Wilbur, Charter Capital

Set a Budget and Stick to it

Setting a budget and sticking to it is a tried and true personal finance formula that works for anyone of any age, in any business. Fiscal responsibility is never overrated. Knowing how much you have coming in and going out, how much you can afford to spend and how much would be too much, can prevent you from making costly decisions. This is one of the key foundations of creating and maintaining wealth. — Randall Smalley, Cruise America

Make and Save more than you Spend

I live by the formula of making and saving more money than I spend. There’s no better way to create wealth than being responsible with what you earn. Save more than you spend, make smart investments when possible, and don’t deviate from your long-term goals. Work hard and stick to your budget, and your wealth will continue to grow. — Vicky Franko, Insura

Seek out the Best Deals

I try to save money wherever possible and always try to find the best possible deal on an item. A penny saved is a penny earned, after all, so I do my research in order to earn. If I see something I like, I shop around to be sure that I’m getting the best price. The same principle can be applied to anything, whether we’re talking about books, TVs or, like with us, insurance. — Brian Greenberg, Insurist

Overestimate your Spending

When creating my budget, I always overestimate my spending for each category. I round up every number so that there is a buffer for unexpected costs, and I’m never cutting it too fine. I find this removes the feeling of being too restricted by my budget and letting it rule my life by being in the way of spontaneous moments. When in reality, a budget is there to make your life easier and help you plan for the moments which bring you great happiness. It’s barely noticeable to put away a little extra for each spending category but combined this adds up and allows you space to live more freely. — Antreas Koutis, Financer

Value and Invest in Yourself

You are your own greatest and most important investment. That’s how I see it. Be sure that you’re paying yourself what you’re worth, commensurate with the value you bring to whatever you’re doing. Continue Reading…

Retirement Planning for Gen Xers: Build Wealth and Retire Happy

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Image Lowrie Financial

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Are you a Gen Xer? Not quite a baby boomer, but too, ahem, mature to be a millennial? If you are in your 40s to mid-50s, your family financial planning has probably been on a wild ride lately. You may be wondering if you’ll ever get to retire with any wealth left to spend.

As we covered in “Retirement Planning for Baby Boomers”, you should also be incorporating retirement planning into your holistic financial planning. And, no, “I’ll just work forever” doesn’t count for peace of mind planning. Let’s take a look at what Gen X retirement planning looks like for many families.

Gen X Retirement Planning Essentials: Saving, Spending, and Investing

Whether you’re planning to fund your retirement or any other major life goal, the essentials aren’t so complicated. I’m reminded of a joke I heard a while back:

There was this guy, Joe, who dreamed of winning the lottery, so he prayed every day that he would. As time passed with no luck, his prayers grew more fervent. One day, he finally asked, “God, can you even hear me?” Lo, the heavens parted and he received his reply: “Joe, help me out here … Buy a lottery ticket!”

So it goes with planning for retirement, or any other short-term or long-term financial goals. Skip the obvious, and you’re unlikely to get very far.

Many Gen X families I meet come to me anxious to learn how to best invest their savings and make money in the market. This is important, and we can definitely help with that, as I’ll touch on below. But first, consider this from “The Psychology of Money” author Morgan Housel:

“Since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more.”

In other words, despite all the speculative, FOMO (fear of missing out) investing hype you may be tempted to follow in the popular financial press, don’t lose sight of FIRST setting aside money today to build wealth for tomorrow. Consistently spending less than you’re earning (without piling up high-interest debt to do so) goes hand in hand with saving. THEN comes investing.

Gen X Retirement Planning Challenges

These retirement planning essentials aren’t complicated. But they’re often much easier said than done, given the hurdles that often stand in the way. You probably don’t need me to tell you about the Gen X-style financial challenges you and your family are grappling with. But I will anyway. You’re welcome. 😊

When you were new to adulthood, financial planning was simple. You were single, no dependents. Your job didn’t pay much, but you figured you were destined for greatness. Other than college debt, you had few demands on your income. Maybe your parents were even pitching in. If you decided to move, you and a few buddies could transport everything you owned in a rental van, and still have time left for pizza and brew at the end of the day.

That doesn’t seem so long ago. But now you’re in your 40s or 50s, and “simple” has become a distant memory. These days, you’re juggling your own short-term and long-term financial goals; your parents’ needs; your kids’ wants; Toronto-area housing challenges; and, oh yes, that little career-crushing pandemic. Plus, your youthful vigor isn’t quite what it used to be. As the late, great comedienne Joan Rivers once said, “You know you’ve reached middle age when you’re cautioned to slow down by your doctor, instead of by the police.”

I get that it’s hard to incorporate retirement planning into all of the above. Relative to your here-and-now financial needs, retirement probably feels too distant and too daunting to tackle today.

But take heart. You can actually use that distance between now and retirement as a force for good … your good. If you can include even a few retirement planning best practices into your life, they should have a larger-than-life impact on your family financial planning.

What are some of your power moves? Read on.

A Gen X Edge: The Power of Compound Returns

As a Gen X family, you should still have decades between you and your ideal retirement. So, perhaps counterintuitively, you get to routinely set aside less if you start saving more right away.

The extra time you’ve got gives you the luxury of benefiting from compounding returns. That means you can snowball more returns on the returns you’re already receiving—and so on, and so forth. Bottom line, the more you manage to save, and the sooner you get started, the more likely your investment portfolio will have what it takes to come through for you in retirement. Continue Reading…

What to do about crazy Stock valuations

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By Michael J. Wiener

Special to the Financial Independence Hub

The last time I had to put a lot of effort into thinking about my finances was back when I retired in mid-2017.  I had ideas of how to manage my money after retirement, but it wasn’t until a couple of years had gone by that I felt confident that my long-term plans would work for me.  I had my portfolio on autopilot, and my investing spreadsheet would email me if I needed to take some action.

I was fortunate that I happened to retire into a huge bull market.  I got the upside of sequence-of-returns risk.  The downside risk is that stocks will plummet during your early retirement years, and your regular spending will dig deep into your portfolio.  Happily for me, I got the opposite result.  My family’s spending barely made a dent in the relentless rise of the stock market.

However, stock prices have become crazy, particularly in the U.S.  One measure of stock priciness is Robert Shiller’s Cyclically Adjusted Price-Earnings (CAPE) ratio.  In the U.S., the CAPE ratio is now just under 40.  The only other time it was this high in the last 150 years was during the dot-com boom in the late 1990s and early 2000s.  Just before the 1929 Black Tuesday stock market crash, the CAPE was only about 30.

Outside the U.S., prices aren’t as high, but they are still elevated.  My stock portfolio’s blended CAPE is a little under 32 as I write this article.  Even if stock prices were cut in half, this would just bring the CAPE close to the average level over the past century.  To say that these thoughts made me think hard about whether I should change how I manage my portfolio is an understatement.

A change in thinking about high stock prices

For a long time, my thinking was to ignore inflated stock prices and just rebalance my portfolio as necessary to maintain my chosen asset allocation percentages.  I have a planned “glidepath” for my stock/bond mix that has me about 20% in bonds at my current age and increasing as I get older.  My bond allocation consists of cash and short-term bonds, and the rest is spread among the world’s stock indexes.  I saw no reason to change my plan as my portfolio grew.

Then a question changed my thinking.  If the CAPE rises to 50, or 75, or even 100, would I still want such a high stock allocation?  It’s not that I expect the U.S. or much of the rest of the world’s stocks to become as overvalued as Japanese stocks in 1990, but I should be prepared for how I’d respond if they do.

At a CAPE of 50, I wouldn’t want more than about half my money in stocks, and at 100, I wouldn’t want much in stocks at all.  So, even though I’m comfortable with 80% stocks at a blended CAPE of 32, something would have to change if the CAPE were to rise from 32 towards 50.

A first attempt

Once I realized I definitely would reduce my stock allocation in the face of ridiculously inflated markets, I had to work out the details.  I started with some rules.  First, I don’t want any sudden selloffs.  For example, I don’t want to hold a large stock allocation all the way up to a blended CAPE of 39.9 and suddenly sell them all if the CAPE hits 40.  A second rule was that I don’t want any CAPE-based adjustment to apply unless the CAPE is above some threshold level.

As the CAPE kept climbing, I felt some urgency to choose a plan.  My first attempt was to change nothing if the CAPE is under 30, and when it’s above 30, I multiplied my bond allocation by the CAPE value and divided by 30.  I implemented this idea in my portfolio as an interim plan before I analyzed it fully.

Another adjustment I made a little earlier was to reduce my expectation for future stock returns.  When the current CAPE is above 20, I now assume the CAPE will drop to 20 by the end of my life.  This doesn’t directly affect my portfolio’s asset allocation, but it reduces the percentage of my portfolio I can spend each year during retirement.  When stocks rise and the CAPE rises, my portfolio grows, and this increases how much I can spend.  But then this new rule reduces my assumed future stock returns, and reduces my safe spending percentage somewhat.  Increasing stock prices still allow me to spend more, but this rule slows down the increase in my spending.

A new simpler rule for adjusting my stock allocation based on high CAPE values

I’m still happy with the way I’ve adjusted my expectation for future stock returns when the CAPE is high, but I’ve changed the way I adjust my bond allocation to the CAPE.  I now have a simpler rule I named Variable Asset Allocation (VAA) that better matches my thinking about what I’d want if the CAPE got to 50 or 100.

VAA: If the CAPE is above 25, I add CAPE minus 25 (taken as a percentage) to my age-based bond allocation.

For example, without VAA my current bond allocation based on my age is about 20%.  The current blended CAPE of my portfolio is about 32, so I add 32–25=7% to my bond allocation.  So, I’m currently 27% in bonds and 73% in stocks.

This might not seem like much of a bond allocation adjustment in percentage terms, but it’s a bigger adjustment in dollar terms.  Consider the following example.  Suppose a $500,000 portfolio with a 20% bond allocation sees a jump in the CAPE from 25 to 32.  This is a 28% increase in stock prices.  So, we started with $100,000 in bonds and $400,000 in stocks, and the stocks jumped in value to $512,000 for a total portfolio size of $612,000.  When we adjust the bond allocation to 27% in accordance with VAA, we have $165,000 in bonds and $447,000 in stocks.  Of the $112,000 jump in stock value, we shifted $65,000 over to bonds, and left only $47,000 of it in stocks.  Although the bond allocation went from 20% to 27%, a 35% increase, the dollar amount in bonds rose 65%.  This is a substantial shift, and it leaves a healthy bond buffer if stock prices subsequently crash. Continue Reading…

Canadian Energy: An Industry in Transition

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Franklin Templeton/iStock

By Les Stelmach, Izabel Flis, Mike Richmond, Naveed Sunderji

Franklin Bissett Investment Management

(Sponsor Content)

This is an interesting time for the energy industry. Occasional reflexive selling based on emerging demand or supply concerns has been short-lived. Late last fall (based on January distribution), consuming nations like the United States tried to mitigate higher crude oil prices by releasing volumes from their strategic petroleum reserves to little avail.

More recently, higher rates of COVID infection in some European countries and the emergence of the Omicron variant sparked some selloff in oil prices, but this is likely to be short-lived as the trajectory for global demand approaches pre-COVID levels.

In addition, the ongoing focus on climate change concerns — most recently articulated at the COP26 conference in Glasgow, — has increased pressure on producing nations and companies to limit production. The current lack of a coordinated suite of energy alternatives that can deliver reliably at the necessary scale does little to deter demand. Arguably, this phase of the transition is contributing to higher prices for crude oil and natural gas. Prices for both commodities have supported greater returns and profitability for oil and gas companies, rewarding investors willing to ignore the volatility.

The path to net zero: journey of 1000 steps

While the last 20 years have seen significant improvements in cost-effectivenes and efficiency for renewable technologies, the sobering reality is that they are not yet able to carry the full load of global economic activity. Renewables still generate comparatively less energy than hydrocarbons, are less stable and vulnerable to demand shocks. An aggressive transition to renewables can backfire, as Californians discovered during last summer’s severe heatwave when their heavily renewable-reliant energy supply was unable keep up with the increased demand. The result was rolling blackouts.

The infrastructure created to support the extraction, production and transportation of hydrocarbons will not be transformed overnight, but in some cases it will become part of the transition to cleaner energy. Pipelines, for example, are essential conduits for hydrocarbons. Political controversy aside, from an environmental perspective they are currently the safest, most efficient, most cost-effective and cleanest mode of transport.

Some natural gas exports are already serving decarbonization efforts in developing nations. In the future, some pipelines may be converted to carry low-carbon recycled natural gas (RNG), hydrogen or carbon dioxide to be sequestered as these alternatives become more widely adopted. Longevity and cash flows for these assets are considered stable over the near future.

Energy and ESG: surprisingly compatible

For oil and gas companies, the emphasis on “E” in ESG (environmental) is really a “C” (climate change). The scrutiny around gas emissions does not isolate one measure to the exclusion of others. Water and waste management, turnover rate, injury rates: these and many other factors are part of a comprehensive ESG analysis. Continue Reading…