All posts by Financial Independence Hub

Is everyone thinking of Retiring?

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By Dale Roberts, Cutthecrap investing

Special to the Financial Independence Hub

It’s just a coincidence perhaps. But much of my blog and reads for the week research landed on that retirement theme. Everyone’s thinking of retiring or writing about retirement. And why not? That is a big end goal for most of us; some form of financial freedom. This Sunday Reads post offers a nice slice of retirement thinking, from the emotional to the money side of things. And of course, there’s some non-retirement ‘stuff’ in here as well.

This is a very good topic and post on My Own Advisor – the emotional side of retirement. In fact on this site I wrote an article that offered that waiting for your spouse was the hardest part of retirement.

Mark offers up on that period after the retirement honeymoon stage (after year one) …

At this point in retirement, the honeymoon is over and potentially it isn’t as enjoyable for some as they may thought.

Maybe some folks go back to work – as part of FIWOOT [Financial Independence: Work on own Terms]. There are only so many rounds of golf you can play …

I’ve read feelings of disenchantment can set in for some. Even depression. That’s certainly something I wish to avoid. By maintaining some form of work into my routine (may or may not be daily), it is my hope that I can stay active (socially, physically, cognitively) to support my health in early retirement and far beyond.

We certainly have to take greater care when we design our life in retirement. We need to be busy and we have to have purpose – from my life experience and from many studies. Having the money to retire in some form is just the half of it, or less.

The waiting is the hardest part

In my post link above, I touched on my first taste of semi-retirement experienced alone. My wife still works and will likely work for a a few more years. I also took off down east to be with my daughter as I launched this blog …

That said, I got a good taste of that ‘waiting’. And as Tom Petty (RIP) sang ‘The Waiting Is The Hardest Part’. While I have a very generous amount of loner in me I was surprised at how uncomfortable a feeling that was – that working alone and being alone for many hours on end. I couldn’t wait for my daughter to finish work and head up to the cottage for dinner and a walk along the beach.

I may have got a taste of what if feels like to make that transition.

The Boomers Retire

On the retirement front Jonathan Chevreau takes a look at a new edition of The Boomers Retire. The book is co-authored by Alexandra Macqueen, a Certified Financial Planner who co-authored Pensionize Your Nest Egg with famed finance professor Moshe Milvesky. David Field is an investment advisor and financial planner and co-creator of the CPP Calculator.

From Jonathan’s post on MoneySense …

“That’s just responding to the reality of retirement income planning for the growing numbers of the ‘pensionless’,” Macqueen says. “If you don’t have lifetime income, you’ll need to create it or take your chances. Whatever you decide, here’s a collection of the relevant facts, principles and issues you’ll need to take into consideration when you’re making your plan.”

While the book is written for advisors and planners, it is also a good read for the rest of us offers Jon.

Of course Alexandra is no stranger to this site. A retirement and pension expert Alexandra penned one of the most read (and most important) posts on this site.

Must read: Defined benefit pension planning. Bad advice could cost you your retirement.

And the Maple Money Podcast is on point this week as well with how to design your retirement lifestyle, with Mike Drak. Mr. Drak is a co-author of retirement heaven or hell, which will you choose? Continue Reading…

7 things you can do now to have a Debt-free Life

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By Emily Roberts

For the Financial Independence Hub

Living debt-free might seem like a distant pipe dream to many, and that’s unfortunate. Being crippled with debt is difficult, and even more so when you feel like the situation is hopeless. The reality is that most people who have large amounts of debt could be making simple steps every day to turn their situation around. The issue for many is knowing where to start. Let’s take a look at what you can do today to get on the road to a debt-free life.

Take a long hard look at your Financial Situation

The first thing you have to do is know exactly how much debt you have. This will allow you to get a clear assessment of your finances and start working on repaying them. Not only that, but there could be cases where your situation might not be as bad as you thought. For instance, did you know that entries on your credit report have to be removed after a certain period? This means that some of the debt that you thought you had may have been expunged from your report a long time ago. This is why you need to keep a close eye on your credit report and get your annual statutory copy from the one of the three major credit reporting agencies. Once you know exactly what you owe, you can build a plan.

Call your Creditors

The next thing you have to do is get in touch with your creditors and work on a plan. There are some cases where you can work with a professional who will help consolidate all of your debt and have you pay a fixed sum per month. This can be a good option in some cases, but you don’t necessarily have to hire someone. Calling your creditors and speaking with them directly could help you shave off a few dollars of your debt. Also note that the more you can pay upfront, the more they will be willing to lower the amount of money you owe. Try to get them to report the payment to the credit reporting agencies in writing as well so it can be reflected on your credit score.

Use your Credit Cards wisely

If you have multiple credit cards, we would suggest that you start paying them off one by one. Tuck away the one with the highest balance and commit to paying it in full. Set up automatic payments if you have to. This will allow you to both reduce your overall debt and significantly improve your credit score by lowering your credit utilization ratio.

You then have to use your other cards wisely. A lot of people believe the myth that paying the minimum is something credit card companies will reward, but that’s complete hearsay. In reality, companies love people who use credit responsibly, and one of the best ways to do that is to use as little of your credit as possible. So, if you want to be viewed favorably by creditors, aim to keep your total utilization ratio under 30%.

If you want help with credit card debt and feel like you don’t have the discipline to pay them off on your own, we suggest you check out Tally. Their app will allow you to manage your credit cards all in one place and could even help you save on interest if you qualify for their low-interest line of credit. They will help you pay your cards automatically through an easy-to-understand interface, ensuring you don’t have to deal with a late fee ever again.

Know what you’re signing up for

Very few people take the time to read the fine print when they get a credit card and more people should. One piece of research reviewed credit card agreements for clarity and found that the majority of people surveyed could not understand them. That’s a big problem when considering that credit card agreements can include provisions that will allow them to change the interest rate at will. Continue Reading…

Lack a DB pension? Pros and Cons of the Purpose Longevity Fund

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By Mark and Joe

Special to the Financial Independence Hub

Hello readers of the Financial Independence Hub! We are the founders of CashflowsandPortfolios.com,  a free resource dedicated to helping DIY investors in getting started with their portfolio right up to planning efficient withdrawal strategies during retirement.

We are honoured to have been invited by Jon Chevreau to contribute a piece on a new income product for retirees: the Purpose Investments Longevity Fund.

If you are close to retiring or already a retiree, you’ve likely thought a lot about the following questions:

  1. Did I save enough for retirement?
  2. How will I generate sufficient income for my retirement?
  3. How long will my money last?

If you are lucky enough to have worked for a Government entity for 25-30 years, then you are probably not too worried about funding your retirement.  However, for the rest (most) of us, we need to save and invest on our own over the long-term. If that’s not enough, we then need to figure out ways to decumulate our savings as efficiently as possible.

For DIY investors, there is not much in the form of “forever” payments until death, except of course Canada Pension Plan (CPP) and Old Age Security (OAS). We consider these as one of the three pillars of retirement income for Canadians.

Another common source of “forever” income that acts like a government defined benefit (DB) pension are annuities: which are guaranteed by insurance companies. With annuities, investors are trading their capital for a steady income stream, which is essentially a DB pension.

Why aren’t annuities more popular? For DIY investors, it’s likely because of the fact that you are giving up your capital for a yield (currently around 4-5%) that can be obtained by your own DIY portfolio (see below for an example).

So what if there was a product out there that would provide:

  1. Income for life
  2. A yield higher than annuities
  3. An option to “sell” the product to regain some of your invested capital if needed?

That’s the opportunity and challenge that Purpose Investments has taken on with the creation of their latest mutual fund: The Longevity Pension Fund.

There has been a lot of buzz about the Purpose Investments Longevity Pension Fund and for good reason:  it solves a number of big problems that retirees face.

What is the Longevity Pension Fund and what are the pros and cons of owning such a fund?

Pros and Cons of the Longevity Pension Fund

At a high level, the Longevity Pension Fund is a cross between a balanced index mutual fund (47% equities/38% fixed income/15% alternatives), an annuity, and a defined benefit pension. While the fund does offer income for investors, a solid yield, and an option to “sell” the product if needed, these potential benefits must be considered with some drawbacks. As always with financial products, the devil is in the details.

With the basics out of the way, what are the PROS and CONS of the fund?

PRO – Reduces longevity risk (i.e., outliving your money) by offering income for life, but without the guarantees

As mentioned, the Longevity Purpose Fund is a mutual fund that any investor will be able to buy. Once purchased, and the investor is 65 or older, the fund will pay a distribution for life (at least that is the plan). Purpose Investments has stated that the 6.15% yield may sound high, but to maintain that yield they would only need to achieve an annual return of 3.5% net, which is well below historical returns for a common 60/40 stock/bond balanced portfolio.

Combined with mortality credits (investors who die sooner than expected, leaving their money invested in the fund for other investors), Purpose Investments has stated that 6.15% is conservative and can possibly go higher in the future.

PRO – You can get some of your investment back

With annuities and defined benefit pensions, you don’t typically get your contributions back. With this Longevity Fund, if you sell the fund you will get your initial investment minus any income payments. For example, if you have invested $100k into the fund, and have been paid out $10k, then you get back $90k if you sell. At a yield of 6.15%, essentially you can get some capital back up to 16 years of being invested in the fund. After that point, co

nsider yourself invested for life.

PRO – The taxation of the distributions will be tax efficient

While the fund is available for all kinds of accounts — including tax-free savings accounts (TFSAs) and registered retirement income funds (RRIFs) — potentially the best home for this fund could be in a taxable account. That is because monthly income distributions in the first year are expected to be roughly half a return of capital (RoC) with the remainder from capital gains, dividends and interest. This means that in a taxable investment account, the distributions will be tax-efficient (much more so than a defined benefit pension payment).

PRO – No Binding Contract

A key feature of this Longevity Pension Fund is a script from the annuity playbook: mortality credits. Similar to an annuity, you are participating in a pool of credits: those that die. When you die, your estate gets your initial contribution minus the total amount of income payments. The investment gains generated by your investments over the years stay in the fund and are used to top up monthly payments for everyone else.

Unlike an annuity though, you can get out of the fund: it’s not a one-way binding contract.

From Purpose:

“Unlike many traditional annuities or other lifetime income products, the Longevity Pension Fund is not meant to feel like a binding contract. You can change your mind and access the lesser of your unpaid capital** (i.e., your invested capital less the distributions you’ve received) or current NAV. Your beneficiaries are entitled to the same amount if you pass away. Once your cumulative distributions surpass your invested capital, there will no longer be any redeemable value left. Please speak to your advisor or see the prospectus for further details.”

The fund is also designed similar to many pension plan funds or funds of funds:  a balanced mix of stocks, bonds and other investments that should* meet their income obligations to unitholders.

*Target income is just that. This fund does not offer an income guarantee.

CONS – The fund does not pass onto heirs

As mentioned above, the mortality credits are how this fund will sustain its yield into the future, which also means that the fund and its payout do not pass onto your spouse/heirs. For investors with a spouse/heirs, this is one of the largest drawbacks of the Longevity Pension Fund.

CONS – The distributions are not guaranteed

The monthly payments seem juicy right now but the Longevity Pension Fund is not like an annuity whereby income is guaranteed for life; the 6% or more income target is just that: a target. Continue Reading…

Trust no one: Zero Trust Architecture and the next generation of Data Protection

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Zero Trust Architecture (ZTA) is fast becoming the security model of choice as businesses worldwide recognize the need to better protect their networks and assets in light of today’s growing remote workforce.

By Anthony DeCristofaro

Special to the Financial Independence Hub

For many organizations, remote work began as a pandemic-induced novelty. More than a year later, however, it has become the new normal. Even when the world officially reopens, a large number of employees who have experienced the perks of working from home will no doubt be requesting the flexibility to continue doing so – that is, if their employers actually plan on transitioning back to a physical workplace.

Remote work presents new data security challenges: even for top-notch VPN

Granted, a reliable VPN will substantially lower your chances of being hacked. However, as the past year has shown us, even the most highly rated VPNs are far from foolproof. While they’ve always had their fair share of vulnerabilities (thus the need for constant updating), VPNs have been under constant assault since the pandemic began.

For example, one extremely sophisticated attack compromised more than 900 Pulse Secure enterprise VPN servers enabling the attackers to gain access, steal account credentials, and exfiltrate other sensitive data belonging to victim organizations.

The more employees using your VPN, the greater your network’s vulnerability

Pre-COVID, you had maybe 10% of employees using your VPN one or two days a week. Now, you likely have 90% of employees or more using your VPN five days a week. Each one of these employees creates a new point of vulnerability.

Your VPN can’t protect remote workers from malicious cyber activity. If just one compromised employee uses your VPN, you could soon have yourself an intruder. It’s a company’s worst nightmare and an attacker’s dream come true.

Zero Trust Architecture (ZTA) is the way forward

According to Gartner IT Research, “by 2022, 80% of new digital business applications opened up to ecosystem partners will be accessed through zero trust network access,” and 60% of enterprises will transition most of their remote access VPN solutions to ZTNA by 2023.

Unlike VPNs, platforms that operate with Zero Trust Architecture (ZTA) assume that security breaches happen – and rightly so. Take the recent Colonial Pipeline incident.

In May 2021, the fuel operator responsible for carrying 2.5 million barrels of fuel per day was temporarily shut down after being held for ransom by cybercriminals. This, combined with similar cyberattacks on SolarWinds, Microsoft Exchange, and others, prompted The White House to issue an Executive Order in support of a zero trust approach to security. Continue Reading…

Going Global for Growth Opportunities

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Franklin Templeton/Getty Images

By Kathleen Anderson, Director, Client Portfolio Manager, ClearBridge Investments 

(Sponsor Content)

Considering how much COVID-19 has dominated our thoughts over the past 18 months, it is important to remember the significant challenges the world was facing prior to the pandemic. Aging demographics, growing inequality, and of course, the massive threat of climate change remain major concerns for global leaders, and that holds true in the investment industry too.

Sustainable investing and a focus on the environmental, social and governance (ESG) ratings of companies has become an important consideration for investors in recent years. Our firm, now part of Franklin Templeton following its acquisition of Legg Mason last year, was a signatory to the UN’s Principles for Responsible Investment in 2008, and first introduced ESG-integrated portfolios in 1987. Back then, responsible investing was a niche part of the industry, but attitudes have shifted considerably in the years since. At ClearBridge Investments, ESG factors are fully integrated into all our investment strategies after we formally introduced ESG ratings in 2014.

That includes the new strategy available to Canadian investors, Franklin ClearBridge International Growth Fund and Franklin Clearbridge Sustainable International Growth Active ETF (FCSI).1

With this actively managed solution, the portfolio managers target international stocks they believe are mispriced by markets, and use a fundamental, bottom-up approach to invest in quality businesses across the growth spectrum (Structural, Secular, Emerging) (see chart below). Quality in this case means companies with strong balance sheets and good management, offering unique products or services, or having strong niche positions locally or globally. Portfolio construction is also governed by a strict buy and sell discipline, with all capitalization, sectors and regions represented among the fund’s 40–70 names.

The case for looking outside of North America is also strong right now as the vaccine rollout gathers pace internationally. As always, history offers us some guidance.

International equities outpaced U.S. stocks the decade before the financial crisis

The U.S. has been the undisputed global leader on equity performance since the Global Financial Crisis of 2008. Prior to that, international equities outperformed the U.S. for close to a decade, showing that geographic leadership tends to persist over a long period.

Continue Reading…