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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…

Promoting the Health of Older Adults: a worthy read for all

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By Mark Venning, changerangers.com

Special to the Financial Independence Hub

As an everyday person taking a fast read of the title of the new book – Promoting the Health of Older Adults: The Canadian Experience – you wouldn’t exactly get the sense of what to be surprised by or expect what content would be covered within. In the first place, unfortunately, it’s not likely that this book will make it into the hands of everyday people any time soon.

You might ask, what are we promoting, what’s so specific for older adults – eat a nutritional diet of foods, exercise to stay fit, keep your brain active and get your proper sleep? Isn’t that what anyone through their life course should be doing? Yes, maybe. But that’s not at all exactly what you will get here.

Appreciating focus, as the writers in the preface state, the book’s main purpose is for knowledge building on issues related to older adults and their care, primarily for target audiences such as, “undergraduate and graduate students in gerontology and aging, health promotion… and other fields….” and the five groups identified include, educators, learners, policy makers, researchers and practitioners and leaders working with older adults in civic society organizations.

While that may sound too academic, after reading this book my belief is that the general public of everyday people, older adults and others younger, will also benefit greatly from an education presented here on this important subject. If you do flip through this 600-plus page tome, you might think of it at first as “insider dialogue” on health promotion; but not so fast, don’t put the book down.

Serving to heighten knowledge & awareness to engage in social health dialogue.

Choose as many words as you want; for me, Promoting the Health of Older Adults is a social health dialogue, inclusive for all Canadians – interconnected subject areas, holistic, comprehensive, diverse. The arrival of this book is timely, to promote conversation with friends and family, considering our collective journey through the COVID world to date has heightened our awareness of the workings of our own health and our social and healthcare systems.

Briefly, on the structure of this book; it certainly is more of a study text book on over thirty topic areas in seven well laid out parts. However nothing I’ve read talks over the heads of readers, and if facilitated well in a real time group discussion format, there is a set of critical thinking questions at the end of each chapter that would further serve to heighten knowledge and awareness of readers, enough to make you want to be a more engaged in this social health dialogue. Continue Reading…

Dealers putting Clients’ Retirements in Jeopardy

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By Nick Barisheff

Special to the Findependence Hub

Over time, most investment dealers have implemented misguided policies that will negatively affect their clients’ investment portfolios and their ability to achieve a secure retirement.

There are two main policies that have negative impacts on investors’ portfolios. One is restricting investments to a client’s original Risk Tolerance in the Know Your Client application form (KYC). When opening an account, the client will advise the dealer of their Risk Tolerance.  Most clients will indicate that they are medium risk. On March 8, 2017, the Ontario Securities Commission (OSC) implemented risk rating rules that require all mutual funds to rate their fund according to 10-year standard deviation. In 2018, I published an article entitled New Mandatory Risk Rating is Misleading Canadian investors.

Prior to the OSC’s implementation of the risk rating rules, on December 13, 2013, the OSC issued CSA Notice 81-324 and Request to Comment – Proposed CSA Mutual Fund Risk Classification Methodology for Use in Fund Facts. My comments on this policy were submitted to the OSC on March 12, 2014, along with comments from 50 other industry experts.  

I presented a paper to the OSC that argued that Standard Deviation is not an appropriate measure of risk, since the best-performing mutual fund and the worst-performing mutual fund in Canada had the same Standard Deviation.  The measure of Standard Deviation of an investment does not reduce the risk of incurring losses.

A better, more accurate methodology would have used downside standard deviation or the Sharpe or Sortino ratios which measure risk adjusted returns. Nevertheless, the OSC implemented risk rating rules requiring all mutual funds to rate the risk of their funds according to 10 year standard deviation.

As a result, if investments in a client’s portfolio exceeded the risk tolerance as indicated in the original KYC, the client was forced to redeem those investments, by the advisor’s compliance department. A number of BMG’s clients were forced to redeem their positions since our funds had a medium-high risk rating according to the OSC formula, and the clients’ KYC indicated medium-risk tolerance. A number of clients wanted to change the KYC in order to allow them to maintain ownership of our funds but were advised that, unless there was a significant change in their financial circumstances, they could not change their KYC. Continue Reading…

6 Expenses that First-time Homeowners should plan for

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Image Source: Unsplash (https://unsplash.com/photos/cqAX2wlK-Yw)

By Beau Peters

Special to the Financial Independence Hub

Becoming a first-time homeowner is an exciting prospect. It’s a chance to have a place you can call your own, where you can make memories for years to come.

With that said, proper planning is necessary, or your dream can become a financial nightmare. The fact is that there are many unavoidable and potential expenses that could occur over time, and if you don’t understand the realities or you don’t save appropriately, then you could be in for some hard times.

To help you out, we have compiled a list of common expenses that most first-time homeowners will experience and how to prepare accordingly.

1. Closing Costs

As you are looking at potential homes and comparing your financial situation, you will want to keep in mind that there are some upfront expenses that you will want to consider, especially closing costs, which may amount to 3-6% of the total loan value. It is important that you have those funds fluid and ready to go when you sign your new mortgage.

If you are short on funds, then consider creating an agreement with the seller to share these costs or look into government programs if you are short.

2. HVAC Issues

No matter where you live, yyour HVAC (Heating, Ventilation, and Air Conditioning) units will likely need to be repaired either soon or down the road. While most units can last 10 to 15 years, if you run your heat or AC all day, every day, then you could be looking at a repair sooner than later, especially if you bought a home with an existing unit.

When preparing for the expenses associated with a damaged air conditioner, you will need to decide if you can have your unit repaired or if it will need to be completely replaced. The first thing you should do is get a quote from a professional to see if the cost to repair is almost as much as the cost to replace. If it is, consider getting a brand new unit because you know it will last a long time and work at high efficiency. Also, consider the fact that if your AC had to be repaired once, it will probably require maintenance again. Include these considerations in your final decision.

3. Appliance Lifetimes

Whether you are moving into a home with existing appliances or you are buying them brand new, you must realize that all appliances have their expiration date. For instance, refrigerators often last about 10 years, and even if they are still usable after that time, their efficiency will begin to dwindle. As far as other appliances:

  • Washers and dryers typically last about 10-13 years.
  • Dishwashers have about 10 years.
  • Microwaves typically last around seven years.

Knowing these dates is important so you can begin to budget accordingly to pay for a replacement.

As a new homeowner, an expense that you may want to incur is the cost of a home warranty. Many of these programs cover a portion of the price of the service calls necessary to fix your appliances, and your annual fee will also help with the cost of a new unit. As soon as you move into your home, look for home warranty programs and find one that suits your needs and financial situation.

4. Roof Damage

The roof is arguably one of the most important aspects of your home, and if it is damaged by weather or general wear and tear, then you will want to have it inspected and repaired immediately. Typical roofs built with asphalt shingles will last about 20 years, so if you have a new home, you may be good for a while, but if you bought a used home, then you will want to see how much time is left. Continue Reading…

Spooked by the stock market? Here’s the answer

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

Most investors do not like volatility. They do not like looking at their investment account balance observing that they’ve ‘lost money.’

Of course, you have not lost money until you buy an asset at a certain price and then sell at a lower price. You’ve then just realized your losses. You have not lost money when your portfolio value goes down. And in fact, swings in portfolio values are just par for the course. Stocks and bonds and real estate change in price (with wild swings at times) in regular fashion: it’s normal behaviour. If the stock markets have you spooked, there is a simple and timeless plan of action.

With this strategy, you can ‘win’ if stocks go up. You can win if stocks go down. It’s a strategy that worked during the worst period in stock market history: the Great Depression of the 1930s .

The answer of course is adding money on a regular schedule. In the investment world they call it dollar cost averaging; we can abbreviate that to DCA. There is no need to guess about which way the market is going to go today, next week, next month, next year, or even the next five years. We simply expect or hope that the markets will go up over longer periods, as they have throughout history.

Stock market history

U.S. stocks, S&P 500

You can see that there is lots of green on the board. Stocks mostly go up. It is those pink years (on the table) that usually trip up many investors

The key to long-term wealth building is being able to invest through those down years. And in fact, adding money in those years is quite beneficial as the stocks go on sale.

But keep in mind that stocks can stay under water for extended periods.

Dollar cost averaging

Now this is a consideration for those who have very little exposure to stocks, or who have been out of the markets for quite some time. That event is not as rare as you might think. Many investors have left the markets, though they recognize that they need to be invested to reach their financial goals and enjoy a prosperous retirement. They also want their wealth protected from inflation.

Here’s the demonstration: investing through the initial stages of the Great Depression.

In the above charts we see equal amounts invested, but the dollar cost averaging strategy still delivered positive returns in a vicious bear market. Buying at those lower prices was very beneficial. Now keep in mind for the above to work, the markets have to go up over time. They have to recover. And historically they have.

Time reduces risk

Here is a wonderful graphic that demonstrates the returns over various periods. Our odds increase as we lengthen the time period that we remain invested.

And a table that frames the probabilities of positive returns.

Charlie Bilello

Spread out that lump sum

If you are sitting on a large sum that you want to get invested you will have to have a plan. Over what time period should you get those monies into the market?

If you start investing and the markets keep going up, great. Mission accomplished. The money you’ve invested has increased in value. You are collecting dividends along the way.

But of course when we enter a stock market correction, your total portfolio value will decline. Though you might get enough of a head start so that your money invested remains in positive territory.

At that point when markets are declining, remember that lower prices are good. The stocks are going on sale. And of course, you do not have to invest in an all-equity portfolio. You can dollar cost average into a balanced portfolio.

I’d suggest that you spread the money out over 2 or 3 years. For example, If you are on the 2-year plan and have $100,000 to invest and you’re investing every month, you’d invest $4,167 per month.

You can’t time the markets

For those who already have substantial assets invested, you can’t move in and out of the markets. We don’t know when the corrections will occur. The most reasonable course of actions is still dollar cost averaging. That said, whenever you have money to invest, stock market history says get it invested. The sooner the better.

From My Own Advisor here ‘s – Dollar cost averaging vs lump sum investing.

Invest within your risk tolerance level

This is key. If you get scared and sell, you might lose money.

You might have to accept a lower-risk portfolio that is likely to earn less over time compared to a more aggressive stock-heavy portfolio or balanced portfolio. It’s also possible that you do not have the risk tolerance to invest (at all), even in a very conservative ETF portfolio. If that is the case you would have to stick with GICs and high-interest savings accounts. You might add to your real estate exposure for growth. In retirement, you might use annuities to boost your income.

For savings we use EQ Bank. 3-and 6-month GIC’s now 2.05%

To help gauge your risk tolerance level and the appropriate level of portfolio risk, please have a read of the core couch potato portfolios on MoneySense. You’ll find a table within that post that breaks it down.

If you are risk averse, you likely need a managed portfolio and advice. You might consider a Canadian Robo Advisor. These investment companies provide lower-fee portfolios at various risk levels. Advice is also included. A few of these firms also offer financial planning.

At Justwealth, you get access to advice and financial planning. In fact, you’ll have your own dedicated advisor.

Justwealth. The Canadian Robo Advisor that knows when to get personal.

They will do a risk evaluation to see if investing is right for you, and then you will be placed in the appropriate portfolio(s). And once again, you’ll be offered the greater financial plan as well.

Start investing

Preet [Banerjee] puts some of the above in video form [YouTube.com]. Preet also goes over how much you might market over various time frames, at different rates of return.

The key is to not be frozen on the sidelines. We might refer to that as ‘paralysis by analysis’.

Build wealth at your own comfort level, at your own pace. You will learn as you go. You can build up your comfort level for risk and volatility. It’s quite possible that you can increase your risk tolerance level over time. We develop risk callouses.

Walk before you run, perhaps.

Robo Advisors are a great training ground for investors.

Thanks for reading. We’ll see you in the comment section. If you’re not sure what to do, feel free to flip me a note.

Dale Roberts is the Chief Disruptor at cutthecrapinvesting.com. A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on Feb. 12, 2022 and is republished on the Hub with his permission.