All posts by Financial Independence Hub

Long-term investors tiptoeing back into Emerging Markets

Posted By |
Franklin Templeton/Getty Images

By Andrew Ness, Franklin Templeton Investments

(Sponsor content)

The COVID-19 pandemic has tested health systems, social and economic structures throughout the world this year. Global financial markets took a hit during the severe downturn last spring, and emerging markets typically bore the brunt of negative sentiment as investors sought safety above all: first to be abandoned and slower to recover.

Over the past six months, a renewed appetite for risk has brought investors back to emerging markets. But as the second wave of the pandemic takes its toll on economic activity over the next few months, will they stay?

Defying stereotypes

Historically, emerging markets have been lumped together at the far end of the risk/reward spectrum, outperforming developed markets in good times but substantially underperforming in bad. The perception of unpredictable politics, unsatisfactory governance and unhealthy levels of debt has lingered since the 1980s. This misperception attracts speculators who ride the market up, make a quick profit and sell off just as quickly.

We would argue that this is a mistake. From our vantage point as veteran investors ― not speculators ― in the emerging markets, we see that traditional perceptions and today’s realities do not always match up. Closing the gap reveals long-term growth opportunities in resilient, but less familiar, businesses.

Which one is the mature market?

Emerging market businesses have evolved from the early days, when opportunities were limited and difficult to access, and the years when successful companies were primarily tied to the commodities boom. Today, companies domiciled in emerging markets are increasingly at the leading edge of technology and innovation. Corporate governance has improved, and global accounting standards have made company finances more transparent. Greater re-privatization and allocation of more private capital are signs that investors are making more long-term commitments to these markets.

No one has a monopoly on entrepreneurship, and as the pandemic has starkly revealed, some “developing” countries are proving more resilient and better able to manage the pandemic than their ostensibly more developed counterparts.

Emerging markets are not monolithic

While countries like China and India offer a large opportunity set, smaller nations such as Korea, Taiwan, Mexico and Malaysia also harbour great opportunity and have proven their resilience during the pandemic. For example, glove manufacturers in Malaysia have recently seen a dramatic surge in demand, driven by COVID-19. We believe it is important to keep an open mind and cast a wide net.

Emerging Asia, the first area to experience the pandemic, may also be the first to recover. In the last quarter, for example, stocks in China rose as its economic resurgence gained pace, with industrial production and retail sales beating growth expectations in September. Strong corporate earnings led Taiwan’s market advance and robust technology exports contributed to that economy’s third-quarter rebound. In Indonesia, the government relaxed coronavirus curbs in Jakarta and passed a job creation law aimed at reducing regulations and boosting investments: all in the space of a single quarter.

Beyond the pandemic

As the prospect of a vaccine providing immunity to COVID-19 grows brighter, those with a longer-term vision are looking beyond the pandemic to economic recovery and opportunities for meeting other global challenges: climate change, overpopulation, disappearance of habitat and biodiversity, among others. We think emerging market companies will be an integral part of the solution. Continue Reading…

4 simple tips for building your Nest Egg and Retiring Early

Posted By |
Unsplash

By Lisa Bigelow 

Special to the Financial Independence Hub

Retirement! For many of us, it’s an event so far in the future that it almost seems unreal. Taking active steps to plan and invest for the “golden years” feels unnecessary.

Yet as anyone who’s lived through their 30s and 40s can share, those decades go by quickly. And if you want to retire early, the worst thing you can do is wait to start saving or unintentionally sabotage your portfolio.

Long story short, if you want to retire early (and wealthy), you’ll want to start now. But what does “start” mean when it comes to saving for retirement?

The answer is surprisingly complex. The good news is that learning how to build your nest egg won’t consume all of your free time. With attention and discipline, you can retire early: so let’s get started.

1.) Visualize your future and figure out what that costs

You wouldn’t renovate your kitchen without choosing a style and establishing a budget. Think of building your nest egg the same way: you need a goal and a plan to get there. Sure, you know you want to retire early. But what does retirement look like for you once you’re there? Do you want to travel? Live in your hometown? Play bridge? Take piano lessons? Visualizing your retirement home base and how you’ll spend your free time will help you set your savings goal.

Envisioning a loose plan for what you want your post-work life to look like is a great start. But you’ll also need to take into account inflation and investment returns, among other factors. AARP’s retirement calculator can help you understand where you’ll need to be financially in order to achieve your goal. It will also help you prioritize the actions you’ll want to take now so you can actually get there later.

2.) Pay off debt and reapply the payments

Debt is a normal part of life for most Americans. Buying a home or paying for college often requires taking out a loan, and so does starting a business. Borrowing responsibly in these areas can help you get ahead financially, but other kinds of debt, like high-interest credit card payments, can hinder your retirement savings efforts.

First, if you have education debt and think the scholar-”ship” has sailed, think again. There are actually scholarships that pay off education debt for borrowers who have already graduated. And if you have excellent credit, you can also look into refinancing your student loans.

If you have credit-card debt, personal loans, or other high-interest payments, prioritize paying off those balances in full. If the payments were manageable for your budget, repurpose those payments into building your nest egg instead. Bonus: once you’ve paid those debts, your credit score will probably rise. And that helps you qualify for lower rates when refinancing or taking out a new fixed or adjustable-rate mortgage.

3.) Get sneaky with microsavings so you can live life along the way

Small dollars add up fast. That’s great news for people who want to enjoy life and save for retirement at the same time. If you’re aggressive with microsavings, you’ll have an easier time affording life’s little niceties and still be able to save for retirement at the same time. Continue Reading…

Canadians turn to digital advice amid Covid uncertainties

Posted By |

By Michael Walker, Royal Mutual Funds Inc.

Special to the Financial Independence Hub

In today’s digital world, we haven’t forgotten the importance of ‘old school’ methods to help people keep on top of their finances. Every November, as part of National Financial Literacy month, financial planners across the country talk to Canadians about the importance of having a plan in place to guide their financial future; one that takes into account the unexpected and which can be adjusted as lives change. You can make a plan on a pad of paper, you can create it on your laptop, your tablet or your mobile device. The important thing is to set it down so you can review it and make adjustments as your life changes.

What’s proving to be a real game-changer, however, is the access Canadians now have to financial advice through digital channels: particularly now, when economic uncertainty due to COVID-19 has many Canadians asking what lies ahead for their financial future.

Canadians who have seen their savings and investments negatively impacted by the pandemic have been seeking reassurance about what lies ahead for their financial future. They want to know how their retirement plans have been affected; will they need to work longer than expected? How can they rebuild their ‘just in case’ fund? Will they still be able to contribute to RESPs for their children or their grandchildren?

Increasingly, as physical distancing has meant Canadians are unable to meet in person with their financial advisors, we’re seeing Canadians turn to digital means to get answers to their financial questions. We already had well-established digital channels at RBC providing digitized advice and insights in place ahead of the arrival of the pandemic. When the number of clients seeking digital advice surged, we were able to quickly respond to their needs and not only provide digitized advice, but also connect clients remotely to our advisors.

Free digital advice accessed 24/7 from home or office

MyAdvisor – only available at RBC – is a key example. This free digitized advice service helps clients create a personalized plan online and provides access to the expertise of our advisors – all from the comfort of their homes and workspaces. Clients can readily view a complete picture of their financial accounts – even those held at other banks – on interactive screens. They have real-time, 24/7 access to their personalized plan through MyAdvisor’s digital dashboard and can see the impact of their money decisions before they make them. They also can get the advice they need, when they need it, by connecting with one of our advisors in their local community through live video, phone and, where possible, in person.

To give you an idea of how many Canadians are now seeking digitized advice supported by the expertise of our advisors, there are now over two million clients connected through MyAdvisor: twice the number as last year. Between April and September of this year, the number of clients logging in increased 21% and video appointments jumped to 20% from 2%. During that same timeframe we also saw a huge increase – 80% – in completed appointments, where clients went beyond logging in to look at their financial picture; they booked appointments and then met with our advisors. Continue Reading…

Biden Presidency may be more taxing for Canadians with cross-border affairs

Posted By |

By Elena Hanson     

Special to the Financial Independence Hub

Finally, the U.S. election season is behind us. But a new presidential administration typically means changes in the taxation landscape, and President-Elect Joe Biden is sure to follow suit. In fact, a Biden presidency may have certain implications for a number of people on this side of the border.

One of the proposals in his election campaign may prove especially punitive to Canadian taxpayers, especially those who hold U.S. real property or any U.S. publicly traded securities in Canadian- or U.S.-based investment portfolios, RRSPs, RRIFs or TFSAs. (Think of your shares of Apple or Microsoft, which have seen a great deal of growth in recent years with quarterly dividends literally dripping into your accounts!)

Tax implications at death diverge in the 2 countries

Hopefully, most Canadians are aware that the tax implications at death tend to diverge when it comes to Canada and the United States. In Canada, capital assets of the person who dies are subject to deemed disposition on the person’s terminal tax return, unless those assets are jointly held with a surviving spouse or they go to a trust designated to the surviving spouse. If the latter two conditions apply, there will be a tax deferral and the tax to be paid only happens when the surviving spouse dies.

In the U.S. non-American citizens are taxed on the market value of their U.S. assets held at the time of death if the total value of such assets exceeds USD $60,000. Interestingly, that $60,000 threshold was set up back in the 1980s and is not subject to any adjustment for inflation. This clearly demonstrates that foreign taxpayers are quite low on the priority list for policy makers in that country.

In addition to this incredibly low filing threshold, there is no deferral permitted upon the death of the first spouse. There is also a presumption that the person who died, the decedent, owns 100 per cent of the couple’s property and must be taxed on the entirety of the couple’s U.S. assets in excess of the $60,000 exclusion.

Now this is where salt gets rubbed into the wound. The executor of the will may be required to look back over the preceding three years – prior to the passing of the person – to determine if they had gifted in any of those years. If so, the value of the gifted property would have to be brought back for tax purposes.

Canada-US Income Tax Treaty provides some relief for Canadians

Luckily for Canadians, the Canada-U.S. Income Tax Treaty overrides harsh provisions of American domestic law. For example, Article 29-B of the Treaty allows taxpayers to avoid U.S. taxation (but they still must file tax returns if the value of the estate exceeds the $60,000 exclusion) if the worldwide market value of the property of the deceased is less than USD $11.58 million (2020 rates). That exclusion is doubled if the assets are jointly held with a surviving spouse. But this generous escape hatch is not automatic; the person in question, a U.S. non-resident, must file their non-resident estate tax return within nine months of the date of death.

Now, let’s get back to the recent U.S. election outcome and why it matters to Canadians. With Joe Biden as President of the United States, that exemption of USD $11.58 million is expected to be lowered quite significantly, and may happen as soon as January 1, 2022. In fact, it may even happen in 2021 following Biden’s inauguration, although it is unlikely that exclusion would be the first tax reform the administration will choose to focus on.

At this point, we do not know how much the exemption will be lowered. Based on changes to the U.S. estate tax over the past two decades, it has already been adjusted at least three times. In 2003, it went from $600,000 to $1 million, then in 2009 to $3.5 million and one year later in 2010 to $5 million. It is likely that the exemption will revert to either the 2009 or 2010 level, subject to adjustment for inflation. Continue Reading…

7 Retirement tips for young Savers

Posted By |

By Mikayla St. Clair

Special to the Financial Independence Hub

One might think that planning for retirement while still young is a hindrance and a waste of time. However, the truth is that early planning has its benefits because you are not just planning for your old age but preparing for every other day you live as well. Planning is not easy; you need a few retirement tips on how to go about it regardless of whether you are just thinking about it or already have a plan. Here are seven appropriate for young savers

1.) Focus on financial stability

The real aim of planning for retirement is to ensure one has financial freedom in old age. If having a retirement plan below 30 years seems off, look at it this way, retirement is like saving to ensure you are financially stable. This is feasible through working out your expenses early; save up for the coming month’s expenses.

2.) Live within your means

Often young people tend to live lives that are way beyond their means. With this, most of their earnings go into acquiring things they may not need. As a result, some rarely have anything for saving. While the idea of getting anything you want sounds good, it may only be momentary and poses dangers in the future.

3.) Have a Plan

With a single monthly pay-check, budgeting may be tricky. There are bills to be paid, debts to be cleared, and much more. That is why you need a plan, plan your expenditures, and ensure to leave some for savings. How do you achieve this?

Cut back on unnecessary costs; if your workplace requires long commutes, consider moving somewhere closer. Spending those extra dollars or minutes on the road may not seem harmful, but they accumulate into a significant loss of wealth with time. Start small; often, the ideology people have is that each contribution must be in high number in saving. However, you may invest too much and exhaust everything. Start small, and eventually, things will build up. Continue Reading…