All posts by Financial Independence Hub

Was the F.I.R.E. movement doused by the pandemic?

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Cutthecrapinvesting: Image by Mohamed Hassan via Pixabay

By Dale Roberts

Special to the Financial Independence Hub

F.I.R.E is an acronym for Financial Independence Retire Early. It is a very popular movement that gets a lot of attention in the blogosphere and on social media. The idea is to eat excess amounts of ramen noodles, squeeze your budget until it squeals, save 90% of your income, invest like crazy in an all-stock portfolio, and then never work another day of your life after the age of 38. I’m kidding, please don’t “OK Boomer” me.

In reality, most from the F.I.R.E. movement will not “retire” early, but many may reach a wonderful form of financial independence. In 2020, was the F.I.R.E. movement doused by the pandemic?

2020 brought us a very quick and violent stock market correction. It was the most violent in history, but so was the recovery as governments and central banks came to the rescue of stock and bond markets. Looking back it feels like a blip. But in the moment it was more than scary, considering that we did not know the path of destruction that SARS-coV-2 might leave behind.

We still don’t know.

Did the F.I.R.E movement change course?

From what I read from my F.I.R.E friends (they’ll say I’m being rather presumptuous with the use of that friends description), they embraced the volatility. After all, volatility is not risk, if you can handle that risk, and you have an incredibly long time horizon. Volatility and falling stock prices are an opportunity, whether you are seeking to build that growing dividend stream or plan to one day also harvest shares to create retirement income.

In March of 2020 I asked …

Is this an incredible investment opportunity or what?

In the Globe and Mail, Brenda Bouw offered how F.I.R.E investors are managing through the pandemic. (Sorry that is paywall, but I’ll give you the important deets). That is a great piece with some good commentary, especially from advice-only planner Jason Heath.

The F.I.R.E. traps

F.I.R.E. followers need to be extra vigilant as their nest eggs need to last decades longer than those who retire in their 60s and 70s. There is the perception that the F.I.R.E. gang have less risk, because they are young. In fact the opposite is true. From Jason …

“You may need to over-save and underspend longer than you might think when you’re pursuing the F.I.R.E. movement,” says Jason Heath, an advice- and fee-only certified financial planner at Objective Financial Partners Inc. in Markham, Ont. “When you’re retiring at age 40 versus age 65, there’s so much more margin for error.”

Jason also pointed out that funds can quickly disappear because of costs associated with an extraordinary event, such as a serious injury or illness that requires long-term care or having a child with a disability.

“If you don’t budget for the unexpected, that could really compromise your early retirement plan,” he says.

Of course it is true that the F.I.R.E. folks may have the opportunity to go back to work if need be. But it’s also important to use the word “MAY.”  It’s not a given that health would permit the opportunity to work. There is no guarantee that meaningful work would be available. I hate to be a Dale Downer, but this is the reality that we should accept and recognize.

The good new is, they won’t actually “retire”

Nobody really retires early except for teachers and other public servants. So if you want to really retire early, you know where to apply for a job. You’ll need that guaranteed, defined benefit, indexed-to-inflation-for-life pension. And those may be hard to come by these days as governments are also doing the math on funding or backstopping those options.

Most will use that F.I. and ditch the R.E. And most will admit to that reality. They just want that freedom to do more of what they want in life with respect to leisure and travel and work. And that’s why I am a big fan of the movement. It is based on a wonderful end game (freedom) and it employs some more than important financial basics, behaviour and lessons.

You build wealth by living beneath your means. Here’s my personal finance book. OK, you may notice, it’s a blog post. Who needs a book? It all ain’t rocket surgery.

Everybody say FIWOOT!

Jonathan Chevreau calls it all Findependence. That’s perfect. Mark from My Own Advisor frames it nicely with his own acronym …

I prefer Financial Independence Work On Own Terms (FIWOOT) versus FIRE The Financial Independence Retire Early (FIRE).

Here’s Mark’s Weekend Reads.

Dance with the one that brought ya?

The greatest mistake within the community will likely be the commitment to an all-stock portfolio. There is that expression that you might ‘dance with the one that brought ya’. But that’s not the case when it comes to protecting your wealth and your F.I.R.E. Continue Reading…

10 Stock Types investors could consider in 2021 

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By Emily Roberts

For the Financial Independence Hub

Following a challenging year for us all, we are confident that those reading this and beyond are more than happy to see the back of 2020. As we make our way further into 2021, the pandemic’s impacts are beginning to show themselves more, and we can see the different ways that the pandemic changed our lives in some way or another.

Financially, the last year has been one of the toughest that many of us have ever faced. A large majority of the world population experienced the economic crash of 2008 but have stated that the last year has been similar in some elements but drastically different in others. It is no surprise that experts have estimated that the pandemic’s financial impact across the globe is set to be much worse than that felt back in 2008.

As a result of this, there is little surprise that people are searching for ways that they can be more economic themselves, and how they can improve their current situation. We are seeing more and more people monetizing on their existing skills in every direction, creating a small, online business selling some type of arts and crafts or baked goods.

While these are certainly effective ways of boosting your income following a set-back, this is not the only avenue available to those searching for a side hustle. With an increased interest in the world of cryptocurrency as of late, and with a 350% increase in how many Google searches have been made into Bitcoin, there undoubtedly appears to be an interest in investing our money.

If you are interested in finding out more about investing your money moving forward and the different stock types to consider when exploring this world, you are in luck! Detailed below is a helpful list of the best stock types to consider in 2021. Read on for more.

Before deciding to invest

Particularly when exchanging money, you want to make sure that you have put some thought into this. The last thing that you want to do when attempting to boost your income is to put yourself into any sort of financial difficulty.

Those who are clued up on all thing’s stocks are probably aware that there is risk involved in investing in stocks. But for those who are not, this is one thing that is well worth considering before jumping into this world.

By ensuring that you correctly understand the ins and outs of what you are getting yourself into, you can rest assured that you will be moving money around in a safe manner.

It is worth noting that investing in stocks takes some time and patience; you will not see the results overnight, so it is worth monitoring over time. On that note, let’s get to the main event: what types of stock exist.

Different Stock Types 

  1. Common Stock: As the name here suggests, this is the most common type of stock that exists and which you can invest in. Common stock is an ideal stepping-stone into the world of investment and is suitable for those who are first starting out on their investment journey and building up a portfolio. When you invest in a common stock, you own a share in the stock and in the company’s profit as well. Those who choose to invest in a company through common stock can also expect to get the ability to vote on the company policy and anything else of importance that requires shareholder’s input.
  1. Preferred Stock: This type of stock is often compared to bonds. Unlike common stock, preferred stock pays investors a fixed dividend, whereas the common stock offers investors the opportunity to earn dividends, but these are not guaranteed. Preferred stock is an ideal choice for those looking to invest in something while prioritizing income rather than any sort of long-term growth. Much like that of common stock, those who invest in a company’s preferred stock can vote on matters involving shareholders but are also given more preferential treatment. What’s more, if a company is to go into liquidation or declare bankruptcy, those who own preferred stock are returned their dividends before those who have common stock.
  1. Mining Stocks: Unlike other aspects of the investment world, this may well be a term that not many people are aware of. That said, these are also stocks worth investing in during 2021. More so when wanting to boost your income. Much like our other suggestions, it is advised that those interested in investing into these particular stocks do adequate research levels first. Mining stocks have multiple elements to them, and these are known as either major or junior mining stocks. Major mining stocks are known to work in a similar way to that of blue-chip stocks. On the other hand, junior mining stocks are akin to  penny stocks. To learn more about mining stocks and how you can go about investing into this particular type of stock in 2021, check out the guide created by Wall St Now on their website.
  1. Blue Chip Stock: Following its brief mention previously, we thought it best to explain further what we mean by Blue Chip Stock and why it is one of the best stocks to invest in as we head further into 2021. Blue Chip Stock investors can expect to experience relatively low risks regarding their investment into a business. Companies that allow the opportunity to invest in Blue Chip Stocks are generally considered leaders in their industry. With strong reputations regarding products and services, those who choose to invest in this particular stock can rest assured that they will receive some sort of pay-out at some point.
  1. Cyclical Stocks: Another term those outside the investment world may be unfamiliar with, but another excellent type of stock worth investing in when wanting to make some profit in 2021. Cyclical stock is also known as equity stock and is generally used in businesses and companies that are manufacturing certain goods; this can include cars, houses, and other equipment. Generally speaking, we pay for necessary goods like food and drink on at least a weekly basis. We don’t tend to put a second thought into these purchases, and it is something that we need and therefore pay for often. Cyclical stocks rise and fall in value based on the ups and downs that come with being a business and any external influence. Think of economic crises – much like what we have seen in the last year – as well as economic booms. To make a profit through cyclicals, you would need to purchase a stock in a company during a time when the price is at its lowest. This could be during an economic crisis, so it is certainly worth considering at a time such as the present. To make a profit, simply sit with your investment and be patient until a time when the price has risen, during an economic boom. When investing into cyclical stocks, one thing that should be considered is that during times of recession, the investment you have made could be regarded as worthless. So, make sure to do your research before making the jump.
  1. Defensive Stocks: While on the topic of investment during the recession, our attention turns to the world of Defensive Stocks. Another suggestion for those looking to invest in 2021 is an ideal suggestion on the off chance that we enter another recession in the future. Continue Reading…

To Infinity and Beyond: Whither the Efficient Frontier?

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Buzz Lightyear from Toy Story

By John DeGoey, CFP, CIM

Special to the Financial Independence Hub

With apologies to Buzz Lightyear, there seems to be a fair bit of cognitive dissonance in the world.  Over the years, advisors have collectively convinced their clients that it would be reasonable to expect high single digit returns on a fairly traditional (say 70% stocks; 30% bonds) portfolio.  I got a call this week from a fellow who told me that, as a former wholesaler for the industry, he “knew” that a 7% to 9% long-term return was a reasonable expectation.  I didn’t have the heart to tell him it isn’t.  Some day soon, I’ll have to break it to him.

What do you suppose has happened to the efficient frontier in the recent past?  As a reminder, the efficient frontier is a concept pioneered by Harry Markowitz in the 1950s: “efficient” because it is optimal and cannot be improved upon; a “frontier” because you cannot go beyond it.  Like infinity. It is the theoretical model of the best return you could plausibly expect for any given level of risk.

Historically, stocks have gotten returns that are about 5% higher than bonds.  Bonds, for their part, have averaged about 3.5% over the post-world war II era.  So, that’s around 3.5% for bonds and 8.5% for stocks.  At a 70/30 split, that’s something like 7% return for a balanced portfolio using historical index returns.  Those are historical numbers.  Of course, if products and financial advice cost (say) 2%, the expected return is more like 5%.

Efficient Frontier has shifted downward

The thing that very few advisors mention, in my personal experience, is that the efficient frontier has almost certainly shifted downward.  Bonds are now more likely to earn something like 1% and stocks, with valuations that are approaching generational highs, are, over the foreseeable future, likely to earn a premium that is less than the 5% historical spread.  Jeremy Grantham at GMO has gone so far as to project that virtually all asset classes have a negative expected return over the next seven years. Continue Reading…

Early Retirement Extreme

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By Michael J. Wiener

Special to the Financial Independence Hub

When I first picked up Jacob Lund Fisker’s book Early Retirement Extreme, I expected it to be similar to other early retirement books I’ve read, but it isn’t.  This is a thoughtful philosophy book that lives up to its subtitle A philosophical and practical guide to financial independence.  If I had read it decades ago, I likely would have retired even sooner.

The book begins with the claim that modern life is like the movie The Matrix.  We can’t see the crazy way we live our lives as wage slaves.  We give up our most productive hours to a job that leaves us with too little energy to do much other than waste money on stuff we don’t have the time to enjoy.  If your instinct is to disagree, consider reading the book; Fisker makes an excellent case.

“Ignore most of the personal finance books out there.  They only explain how to play the game by the rules.  Instead, use the rules to play a different game” outside the Matrix.

It’s easy to pick out parts of the book that are extreme enough to seem crazy:  “it’s possible to live on a third or even a quarter of the median [U.S.] income,” central heating is “an uneconomical product,” “to adapt to cold, try switching to cold showers,” and “you can make clothes hangers out of cardboard boxes.”  However, it isn’t necessary to agree with Fisker on all points.  If you accept only part of his philosophy, you could end up with a more fulfilling life and fewer years on the job.

Philosophy

Here are examples of points the book makes on the way to building a philosophy for a different way of living.

“If you have debt, you’re not a free person.”

Our measures of success make little sense: “spending half an hour in a traffic jam getting from A to B in an expensive car is considered more successful than spending half an hour in a traffic jam getting from A to B in a cheap car.”  “Similarly, it’s considered more successful to sit on a couch in your home, if there is an additional unused couch in an additional unused room, compared to a house with no unused couches or no unused rooms.”

To have work-life balance, “one solution is to moderate one’s career ambitions.”  It’s best to realize “at an early point that going all the way [to the top of a career path] not only depends on skills, but also requires 100% dedication, reading time, and possibly some ethical compromises.”  I was fortunate to figure out early in my career that I wasn’t interested in management and the dedication of time it requires, even though that would have been a path to higher pay.

“People don’t seem to realize that the quest to bring more possessions in through the front door is a chronic disease, and that the shortage of space is a symptom rather than the underlying problem.”

“The kind of retirement most people are familiar with and dream about … revolves around spending money.”  This applies to my lifelong dreams of financial independence.  Now that I’ve achieved it, I’m unlikely to stop spending money faster than Fisker advocates.

People “spend their most productive hours and years in a job which they don’t really care about, after which they go home exhausted to deal with spouse, kids, dinner, bills, trying to keep up with the neighbors, and languishing in front of the TV because they have little energy left.”

We should “reverse the outsourcing of ordinary life skills and gradually insource skills” such as meal preparation and mending clothes.

“Happiness does not stem from being surrounded by possessions.”  “Being surrounded by them is the result of an addictive habit.”  If you analyze how often you use all your possessions, “Don’t be surprised if you use fewer than three percent of your possessions daily and 90%+ of all possessions less than annually.”  However, the author isn’t an extreme declutterer; he just seeks to own the things that serve him best.

Many houses have “restaurant-sized kitchens which seem proportional in size to the time the owners spend away from them, eating out.”  “Either buying or renting a home that is priced at several times your annual income is a huge financial mistake.”

More Specific Advice

“The best way to think about cost is not the sticker price,” but rather the annual cost.  If an item lasts 10 years, the annual cost is one-tenth of the sticker price.  Or even better, if you can buy something used and later sell it, your annual cost could be extremely low or even negative.

“Including home value in one’s net worth is an academic exercise, as this part of net worth is irrelevant to financial independence.”  This makes sense to a point, but I think it becomes less true in old age.  If you plan to use a reverse mortgage or sell a home before moving to a retirement home, the value of your home matters to your financial independence.

“I’d consider it normal to … be able to run five miles, walk 25 miles, or bike 50 miles.”  People would do well to drive less and exercise more.  I work hard to stay in decent shape, and I’ve maintained decent fitness standards.  However, when you’re young, injuries are rare, and you can often just work around them to run, walk, or bike.  As I’ve aged, the number of days I can’t do these things well due to one injury or another has been climbing, and I can’t control the timing of when I won’t be able to travel distances without motorized transportation. Continue Reading…

RBC continues to see increased adoption of digital banking solutions

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NOMI Budgets, available through the RBC mobile app.

By Peter Tilton, Senior Vice President, Digital, RBC

(Sponsor content)

Prior to the pandemic, RBC already had a robust digital banking user base.

However, as COVID-19 reached Canada and temporary branch closures took effect, we saw a rapid increase in demand for digital banking solutions.

We quickly pivoted to expand the capabilities of some of our leading digital tools, helping to ensure that clients could access everything they needed from home, including one-on-one appointments with their financial advisor.

Our analytics showed some interesting trends: the first being that many seniors quickly adopted digital banking tools. We saw a 77% increase in average weekly enrolment for digital banking sign-ups amongst users aged 60+, and daily re-engagement amongst these clients increased by 36%.

Digital banking tools also saw an overall increase in demand. For clients who had been with RBC for more than five years, there was more than a 60% increase in average daily digital enrollment throughout the first few months of the pandemic.

Below is a look at some of the tools that helped our clients simplify their day-to-day routines and manage their finances effectively from home.

With MyAdvisor, meet with your financial advisor from home

MyAdvisor offers clients digital access to their personalized financial plans and connects them to an advisor in their community either by live video, phone or in-branch.

In the wake of COVID-19, we saw increased adoption of MyAdvisor. The platform was adapted to allow for an increased volume of client and advisor interactions, including video calls. We also expanded the platform to support a wider group of advisors to help meet every need; for example, Private Banking advisors.

We’ve heard some great feedback on the platform from our advisors, one of whom mentioned that they previously tried to introduce MyAdvisor to a client for two years, but the client declined as they preferred in-person meetings and didn’t use online banking. Given the current physical distancing guidelines, the client decided to try a video meeting through MyAdvisor and was surprised with the ease of use. When the client went to book their future annual review with the same advisor, they requested another MyAdvisor video appointment.

We now have more than 2.23 million clients onboarded onto MyAdvisor with a personalized plan. Between March 2020 and January 2021, the number of completed appointments increased by 84%.

Ask NOMI allows clients to get more comfortable with digital banking

Ask NOMI is an interactive guide to personal banking. Found in the RBC Mobile app, it uses Artificial Intelligence to answer client questions about their accounts, simplify select everyday banking tasks and increase client comfort levels with digital banking. Continue Reading…