All posts by Financial Independence Hub

Lower for Longer interest rates and Implications for Public Policy

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

In the second half of August, the two countries that share the bulk of the North American continent independently signaled that they are shifting their economic courses and pursuing a public policy initiative which had been considered somewhat heretical until very recently.  We are now left to reflect upon what it all means and how it will play out in the coming months.

Let’s re-cap.  In mid-August, Bill Morneau resigned as Canada’s Minister of Finance and was swiftly replaced by the Prime Minister’s main political fixer, Deputy Prime Minister Chrystia Freeland.  Concurrently, we learned that Trudeau had taken to seeking advice from Mark Carney.  Carney has been the Governor of both the Bank of Canada and Bank of England, a senior consultant at Goldman Sachs, a Chairman of the Financial Stability Board and currently acts as the United Nations special envoy for climate action and finance.

He’s smart, connected and has shown repeatedly that he concurs with the thesis in Minister Freeland’s 2012 bestseller Plutocrats, which spells out just how rapidly income inequality has spread.  There is now a wide consensus that first-world monetary policy has contributed greatly to this phenomenon.  See my thoughts on the Cantillon Effect in a previous blog for more on why that is.  For better or worse, Freeland, Trudeau and to some extent, even Carney are looking to craft a made in Canada policy response.  Their perception is that the COVID-induced slowdown coupled with shockingly low rates has created a once in a lifetime opportunity to be bold.

To that end, the Prime Minister prorogued the federal legislature and, along with his newly-minted Minister of Finance, indicated that when the House resumed sitting, the Throne Speech would put major emphasis on the economy transitioning to a modern economy that is far greener than anything that has ever been seen in Canada previously.  Parenthetically, this transition would also take pains to address growing inequality.  Remember that the Trudeau government was first elected in 2015 with a mandate to look out for and champion ‘people in the middle class and those working hard to join it’.

Continue Reading…

4 ways for a Small Business to thrive

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By Sia Hasan

Special to the Financial Independence Hub

Building a company from scratch and being your own boss are the dreams of many. However, it is small businesses that have it the hardest, and you’ll need to bring your A game in order to survive the first year of operation. There are many ways that a small business may stack the deck in its favor, however. Here are the tips you need to know in order to keep your business from going under.

Maintaining Cash Flow

Businesses strive to make money, but a business owner must also cover his or her overhead expenses in order to stay in business. Therefore, one needs to maintain one’s cash flow in order to continue to compete. This is especially pertinent when it comes to invoices, as invoices can be great for consumers while being a detriment to smaller businesses.

An invoice factoring company can help you maintain cash flow by buying your invoices from you at a slight loss in exchange for immediate payment. While this isn’t much an issue for established, successful companies, small businesses can benefit tremendously from this practice.

Reducing Costs

Another important way to strengthen your cash flow is to simply reduce the costs of some of your necessary experiences. In some cases, you can outright eliminate expenses, as well. For instance, you can try to find better prices within your supply chain, or you can even buy directly from manufacturers in order to cut costs. In such cases, you need to be sure that you’re not losing too much in terms of quality or reliability, however. Continue Reading…

The unintended consequences of ESG paternalism

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By Cory Clark

Special to the Financial Independence Hub

As a parent, it can be hard to let your children make their own decisions. Particularly when you question the wisdom of the decisions they may make. At some point however, you have to let children make their own decisions. As they mature, that’s what they deserve, and it’s entirely possible they’ll make the right decision for them, even if it’s not the decision you would have made. One of the unintended consequences of overprotectiveness is that as soon as that child gets the chance, they fly the coop and stay as far away from their overbearing parents as they can. “Local college? No thanks.”

Last month, the U.S. Department of Labor [DoL henceforth] became a helicopter parent and pushed its proverbial children out the door when it issued new proposed rulemaking related to ESG [Environmental, social and corporate governance] investments within retirement plans. “Financial Factors in Selecting Plan Investments” seeks to codify harsh guidance on ESG investments within retirement plans, which will very likely have a chilling effect on the availability of such investment options to retirement plan participants.

The proposed rule is paternalistic to both plan fiduciaries and plan participants. With respect to plan fiduciaries, the DOL takes the unusual step of supplanting industry experts’ professional judgment in favor of their own. But perhaps the more damaging effect of the proposed rule is that it tosses aside the participant’s personal choice related to the values underlying their retirement investments. The Department has in essence said to America’s retirement plan participants, “we know better than you, and as long as you live under our roof…” This positioning can bring about a very predictable response, stop living under that roof and unlock your personal choice. Ironically, the Department issued a second proposed rule the very same month which shows participants the door.

The second proposed rule issued by the DoL, “Improving Investment Advice for Workers & Retirees,” officially reinstated ERISA’s 1975 definition of fiduciary, but made some critical adjustments to its interpretation such that rollover recommendations will be considered a fiduciary act and subject to an annual retrospective review. The proposed exemption would allow otherwise prohibited rollover recommendations, provided that the recommendation is given under an impartial standard of conduct.

DALBAR finds EST investments attractive in DC pensions

A recent DALBAR study shows that ESG investments are an attractant to defined contribution plan participation. It’s only natural that the inverse would also be true; the absence of ESG investments within a plan can be an incentive to invest elsewhere or not invest at all. This incentive is only going to get stronger as the younger generations, who have a greater preference for ESG, begin to make up a greater proportion of the retirement plan market. Continue Reading…

Should I change my investments during an election?

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LowrieFinancial.com
By Steve Lowrie, CFA
Special to the Financial Independence Hub
Back during the Clinton/Trump U.S. presidential election four years ago, I ended up fielding a lot of questions from investors of all political bents. Many investors wondered whether they should adjust their portfolio in response to the change of the guards. At the time, I had this to say: 
  • Post pubBack during the Clinton/Trump U.S. presidential election four years ago, I ended up fielding a lot of questions from investors of all political bents. Many investors wondered whether they should adjust their portfolio in response to the change of the guards. At the time, I had this to say: 

“If you want to skip reading my more detailed explanation, the answer is: No. Even when political news is strongly felt, there will likely never be a good time to shift your investments — neither in reaction nor as a defence. First, no matter how certain one or another outcome may seem, how the market is going to respond to the news remains essentially unknown. Second, by the time you’ve heard the news, it’s already priced into the market anyway.”

Fast-forward to 2020. To say the least, a few things have changed!  But my advice remains the same: From one election to the next, other factors have exhibited a far greater impact on investment returns than which person or party holds the U.S. presidency. Whether leadership is more or less conservative, largely efficient markets have usually figured out a way to shift and grow, either way.

As we can see in this interactive chart from Dimensional Fund Advisors, these results are well-documented. They also make a lot of sense, given something called “stage-one and stage-two thinking.”

Thinking in Stages

Stage-one and stage-two thinking are terms popularized by economist Thomas Sowell in his book, “Applied Economics: Thinking Beyond Stage One.” Basically, before acting on an event’s initial (stage one) anticipated results, it’s best to engage in stage-two thinking, by first asking a very simple question:

“And then what will happen?”

By asking this question again and again, you can more objectively consider what Sowell refers to as the “long-run repercussions to decisions and policies.”

Who will next occupy the various seats of power around the globe, and what might the results be? Stage-two thinking helps us see past the usual proliferation of stage-one predictions that call for anything from financial ruin to unprecedented prosperity.

As financial author Larry Swedroe describes in a US News & World Report interview, “Stage one thinking occurs when something bad happens, you catastrophize and assume things will continue to get worse … Stage two thinking can help you move beyond catastrophizing … [so you can] consider why everything may not be as bad as it seems. Think about previous similar circumstances to disprove your catastrophic fears.”

Timeles lessons in terminal uncertainty

In the 2020 U.S. presidential race, we’re seeing prime examples of both dire and exuberant financial forecasts, presumably premised on who wins the election. The truth is, nobody has a clue what all the combined market-moving forces have in store for us in the near term, because nobody can know the answer to Sowell’s convoluted market-moving question: And then what will happen? Continue Reading…

Have you considered retiring later?

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By John DeGoey, CFP, CIM

Special to the Financial Independence Hub

There are countless pieces of advice regarding retirement planning out there.  Some of them deal with lifestyle issues (How will you fill your day?  Are you sure your spouse shares your vision of how time in retirement will be spent?  What will you do to stay sharp now that you’re no longer working?), but most deal with the financial aspects of retiring.  For people who are nearing retirements (i.e. those in their 50s and early 60s), there really are only four choices that can be manipulated to help maintain a suitable cash flow for your autumn years:

  • Save more
  • Invest more aggressively
  • Accept a lesser lifestyle in retirement
  • Retire later than you planned to

There is a long list of resources and pundits who offer input on the first two items … and virtually no one wants to talk about the third item, because it is seen as a last resort.  What about the fourth item?

Retiring later is not always an option, but for those people who have some discretion, it merits serious consideration.  To begin, there are plenty of experts who can attest to ‘staying involved’ as a pathway to staying young, vigorous and mentally sharp.  Not everyone feels this way, but many people working a bit longer (even if only part time) can attest to the fact that doing so helps in their retaining a sense of worth, identity, belonging and contribution.

Taking my own advice

At this point, I need to disclose that I am planning on taking my own advice.  Less than a decade ago, I told friends I’d retire at 65.  Then, when the age for full OAS was raised to 67, I told people I’d work to that age.  More recently, even as the age for full OAS has been lowered back to 65, I am thinking of staying in the workforce longer – until age 70, perhaps.  Once again, I really enjoy my work – this option isn’t for everyone! Continue Reading…