All posts by Financial Independence Hub

The Long View: Follow the Herd?

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By Jeffrey Schulze, CFA, Director, Investment Strategist with ClearBridge Investments, a Specialty Investment Manager of Franklin Templeton

(Sponsor Content)

There are times to follow the herd and there are times to stray away from the pack. Investors must learn this lesson. Sometimes, it can be beneficial to follow a larger group, but there are moments when it can make sense to chart one’s own course. In the early and middle stages of an economic expansion, running with the herd can be a beneficial and safe proposition.

As the U.S. recovery unfolds, some investors may be tempted to break off, worried about the formation of a bubble. Indeed, many investors are concerned that the market may be overheating, based on metrics such as the forward earnings of the S&P 500 Index.

Importantly, an increase in equity multiples is not uncommon during the early stages of an economic expansion. Following recessionary troughs, market returns tend to be driven by price-to-earnings (P/E) multiples during the initial market rally (approximately nine months) as investors anticipate an eventual earnings rebound. As the recovery matures over the subsequent two years, the opposite dynamic occurs, with multiple compressions on the back of stronger earnings growth. Put differently, earnings typically make a significant contribution toward stock returns during this second phase of the rally and declining P/Es become a modest drag on returns (see Exhibit 1 below).

Exhibit 1: Multiples vs. Earnings Data as of Dec. 31, 2020. Source: JP Morgan.

As we move through 2021 and eventually into 2022, we expect this same pattern to unfold; however, multiples may remain elevated.

Higher multiples not uncommon early in Expansion

Valuations are elevated in part because investors correctly sniffed out the budding U.S. economic recovery. Unprecedented stimulus actions (both monetary and fiscal) short-circuited the typical bottoming process, as policymakers formulated a response that rapidly ended the economic crisis and fueled an upturn in financial markets.

ClearBridge Investments has been tracking the scope of this improvement, and we see an overall expansionary green signal since the end of the second quarter of 2020. In our view, it has become clear that a durable U.S. economic and market bottom has formed, with the S&P 500 up 67.9% from the lows and a third-quarter GDP rebound of +33.4%, as of December 2020. Continue Reading…

6 things you can do to stay out of Debt

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By Sia Hasan

Special to the Financial Independence Hub

No one wants to be in debt, but the good news is that you don’t have to be if you make smart financial decisions. Here are six ways you can change your habits and stay out of debt.

Create a monthly budget

Creating a monthly budget can help you visualize how much money you have coming in and how much typically goes toward expenses such as electricity, Internet and maintenance. There are plenty of apps that can help you get started, or you can go the old-fashioned route and use a pencil and paper. After about a month, you’ll be able to see how you can cut down on your expenses, such as canceling subscriptions that you don’t need or use.

Go Green

Not only can you go green on a budget, but it can actually save you money in the process. The next time you’re low on food, try going to the local farmers market instead of the grocery store. Contrary to popular belief, one study found that farmers markets are 10 to 20% less expensive than grocery stores. While you’re at it, bring your own reusable bag with you when shopping. Some stores will give you a refund, which can add up to $10 of savings a week. If you’re looking for another way to go green, installing solar panels in your home can be a great way to help the environment and save money at the same time. Although the initial investment may be large, you’ll actually end up cutting electrical costs in the long run. One study found that you can save up to $30,000 in the first 20 years after installing solar panels. If you’re interested in going solar, Loanpal can provide you with financing options.

Leave your credit cards at home

Unlike a credit card, you can’t overspend cash once it’s gone. Before you go on your next trip to the grocery store, bring only the amount of money that you think you’ll need. This way, you can stick to your list and you won’t be tempted to buy any extra treats or unnecessary items. Credit cards can make it difficult to know how much you’re actually spending, which can lead to costs rapidly accumulating. Continue Reading…

7 steps to downsizing your Home: a checklist

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Achieving financial independence often comes with dreams of a big house on a quiet cul-de-sac with plentiful space and bedrooms for the family. But during a worldwide pandemic, many homeowners have sought to simplify their life and downsize their primary residence.

To help demonstrate what downsizing may look like, we asked homebuilders and homeowners about the steps they would recommend taking if they were to downsize a home.

Here are seven steps to downsizing your home:

  • Right-Sizing
  • Accessibility
  • What Items Do You Use to Support Your Habits?
  • Do The Hard Things
  • Have a Financial Plan
  • Don’t Get Sentimental
  • Keep Things Only if They Bring You Joy

“Right-Sizing”

At Cullum Homes, instead of downsizing, we call it “right-sizing”! We have been designing and building lock-and-leave luxury homes in this specialized niche market for many years. Steps we would recommend include (1) free yourself from a large lot, pool, landscaping, etc. and the endless expense, upkeep, and maintenance they require, (2) consider a private, gated community with resort access and/or amenities that are maintained by someone else, and (3) before making the move or having a new home built, give careful consideration to the rooms and spaces you want now and might need or want in the future. Don’t become so focused on cutting space that rooms become unworkable. We have actually had clients that cut out too much space, only to return and have us add on later, or build them another larger home! — Rod Cullum, Cullum Homes

Accessibility

As a company that specializes in accessibility lifts, many of our customers are either looking to downsize or reduce the impact of mobility challenges in their homes. Many of our customers find that adding accessibility to their existing home allows them to remain comfortable and surrounded by the things that are important to them. This is often the easiest way to simplify your life. If you do need to downsize, a stair lift can make an in-law suite readily accessible. — JJ Hepp, Arrow Lift Stair Lifts

What items do you use to support your habits?

Having recently downsized our home, we took stock of how we spend our time and what we use in support of our habits. This made donating and discarding unwanted items a lot easier. We also looked ahead at the space we were moving into and how our current furniture and other items would help make this smaller space as efficient as possible. In hindsight, we spend less time maintaining our space and have more free time and a better quality of life. — Steven Brown, DP Electric Inc

Do the hard things

The reality of downsizing a home is that homeowners have less storage space and less living space. Getting rid of things is hard. Doing Goodwill drop-offs or posting items on OfferUp means saying goodbye to lots of memories. But, making the hard decision to part ways with items opens up an opportunity to say hello to a new lifestyle with reduced upkeep and increased savings. Do the hard things that come with downsizing, and your lifestyle will benefit as a result. — Brett Farmiloe, Real Estate SEO Company

Have a Financial Plan

Whenever downsizing is brought to the table, it can be a phenomenal experience. It is quite surprising to learn how you can function on a lean basis, void of clutter and unnecessary items. Continue Reading…

4 Investing lessons from 2020

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Lowrie Financial/Unsplash
By Steve Lowrie, CFA
Special to the Financial Independence Hub
Sometimes, it takes years for key investment lessons to play out to the point we get to say, “See? Told you so.” 
Not so in 2020. Now that this excruciating year is behind us, we can at last appreciate the remarkable crash course it offered in nearly every principle inherent to successful long-term, goal-focused investing.

Where to begin?  Let’s start with the power of planning.

Lesson #1: Planning beats reacting

“Short-term thinking repeated again and again doesn’t lead to long-term thinking.” — Seth Godin

You were there, so you probably remember:  Major global stock markets declined from near all-time highs in mid-February to a low on March 23rd (34% in 33 days).

Few of us saw that coming.  Fewer still might have guessed things would so abruptly reverse, to end 2020 with new highs, well into positive territory.  The U.S. stock market reached new heights last summer, even as the pandemic and its economic devastations raged on.  The Canadian stock market reached a new high recently on January 7, 2021.  Europe and other global stock markets still have a way to go.

The lifetime lesson here, and my key, repeated observation for 2020, is simply this:

The economy can’t be forecast, and the market cannot be timed.  Instead, have a long-term plan and stick to it during dramatic turning points.

Planning as opposed to reacting: this is your and my investment policy in a nutshell, once again demonstrating its enduring value.  Consider these points:

Much ado about nothing:  The velocity and trajectory of the equity market recovery nearly mirrored the violence of the February/March decline.  For those who like to relate letters of the alphabet to economic or market performance charts, the 2020 stock market chart was a pretty pronounced V.

Patience is a virtue:  In volatile markets, it’s tempting to “wait for the pullback” once a market recovery is underway, and/or wait for the economic picture to clear before investing.  Either or both formulas are more likely to underperform compared to simply sticking with your disciplined plan.

Lesson #2:  In investing, “shiny and new” often isn’t

“Modern portfolio management tools give today’s investors control over their own savings, insight into fees and performance, and the luxury of watching their money vanish in real-time when markets plunge.” — Tim Shufelt, The Globe and Mail

The most significant behavioural mistakes investors make (individuals and institutions alike) are panicking in a down market or getting caught up in the allure of a hot market fad.  While both can be severely hazardous to your financial health, my experience is that chasing hot new trends is often the most damaging.

Today’s trends may be new, but the lesson is all too familiar:  A hot new investment trend is wonderful and exciting … until it’s not.

For example, reading today’s financial news, I sometimes wonder if I have been asleep for the past 20 years, like Rip Van Winkle.  Have I just woken up in the tech boom of the late 1990s, when there was more than an average number of hopeful investors trying to score big on the latest tricks of the trade?  If you’ve been around as long as I have, you know that didn’t end well.  A lot of investment portfolios were left woefully deflated once that bubble burst.

From the adventures of day-trading brokerage accounts, to chasing the latest hot IPO, to piling into large technology companies (regardless of their bloated valuations), the similarities between then and now are uncanny.  Today, we could add record-busting bitcoins and blank-check SPACs to the mix.

Then and now, rising markets often tempt the uninitiated to abandon their well-diversified portfolios to chase after the “easy” money.  Then and now, your best move remains the same: stay diversified.  Concentrated bets on hot trends generate wildly unpredictable outcomes, which makes them far closer to being dicey gambles than sturdy investments.

Put another way, if investing were a school, the markets charge a steep tuition to those who don’t heed their history lessons.  I wonder if 2021 could be an expensive year for those chasing the latest hype?

Lesson #3:  Be selective in your media diet

“Wow. If I’d only followed CNBC’s advice, I’d have a million dollars today … provided I started with $100 million dollars. How do they do it!?” — Jon Stewart, The Daily Show

This is a topic for deeper discussion, but it’s worth including in our 2020 reflections:  Investors should remember that popular and social media is much better at hyping extreme news than offering calmer views. Continue Reading…

How the one-ticket Asset Allocation ETFs performed in 2020

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easy peasy lemon squeezy - Dictionary.com

By Dale Roberts

Special to the Financial Independence Hub

The one-ticket ETF portfolios are game changers in Canada. You can get a more comprehensive and ‘complete’ portfolio by way of entering one ticker symbol. The fees are incredibly low, in the area of .20%. Yes, that’s about one-tenth of the cost of a traditional mutual fund in Canada. Of course most Canadians should ditch their mutual funds and head on over to their one-ticket ETF of choice. The performance has been very strong. Today we’ll look at the performance of the one-ticket ETFs for 2020.

A one-ticket ETF portfolio will give you access to Canadian, US and International stocks. The stock market risks and volatility are managed by way of bond ETFs. Those bonds (depending on the ETF provider) can be by way of Canadian, US and International bonds.

Remember, stocks are the unruly and unpredictable toddlers, while the bonds are the adult in the room. We might also manage risks by way of cash, gold stocks and gold ETFs that hold physical gold, plus bitcoin and a basket of commodities and currencies. Personally, I am in the camp of managing the risks beyond the bond ETFs. You may choose to top up your one=ticket ETF; that is a personal choice.

One ticket ETFs are managed portfolios

When you invest in a one-ticket ETF you are accessing a managed portfolio. Your job is to add the monies. The ETF provider will buy the stocks and bonds and will rebalance the portfolio on a regular schedule. Easy peasy. That’s why most Canadians will not or do not need an advisor or broker. Especially if you are in the accumulation stage and are simply filling up your RRSP and TFSA accounts.

It’s so simple and effective. When you do need financial planning you can pay as you go by way of a fee for service financial planner. You don’t have to fork over a percentage of your investment wealth every week. In fact, IMHO, most Canadians should not allow perpetual access to their pockets.

The one-ticket ETF providers

The most famous and adopted one-ticket portfolios are offered by Vanguard. The following post will also help you learn how to choose the right ETF portfolio at the right level of risk. Here’s which Vanguard One Ticket ETF should you invest in? The following links are my reviews of each offering.

You might also look at the BMO One Ticket ETFs.

There are also the Horizons One Ticket ETFs and the iShares One Ticket ETFs.

And new to the fold is the TD One Click Portfolios offered by TD Bank. The TD portfolios were launched in August so they will not be part of our full year 2020 evaluation.

If you have any questions about which one ticket might be right for you, please use that contact form. I’m happy to help. No charge.

The one ticket returns for 2020

Even though we experienced the first modern day pandemic, returns for investment assets in 2020 was very strong. Here’s the 2020 year in review. In that post you can see the breakdown of returns for stocks and bonds in 2020. Continue Reading…