All posts by Financial Independence Hub

Coping with the Costs of Covid-19

By Carrie Hunter
Special to the Financial Independence Hub

Our world, as we’ve known it, has changed dramatically over the last few weeks. Likely, forever.

If you have children, and like me live in Alberta, you can now add homeschooling to your c.v. You and your spouse are now living and working in this same space 24/7 practising the soon-to-be-normalized cultural rite of social isolation.

When you do step outside, gratefully breathing in fresh air, looking up as a neighbour passes and takes a step back, yet still cheerfully waving, you’re reminded again of the new normal: social distancing.

Back in your home, you open up your laptop only to be inundated with Covid-19 news headlines, across every possible platform, and overwhelmed by the inconceivable number of people being felled by the novel coronavirus.

The Zombie Apocalypse

Unsurprisingly, global financial markets, reflecting the fear, anxiety and uncertainty of investors, are in free fall — the TSX and S&P were down 34% and 32% respectively the week of March 20th — cliff-diving off record highs of just a month ago. Reporting of these numbers is closely followed with economists’ dire predictions of a recession once the Covid-19 crisis subsides. It’s surreal. I can’t shake the feeling I’m an extra in a Zombie apocalypse movie. If only.

How do we cope as the once relatively reliable world we knew, just a few short weeks ago, continues to experience seismic shifts that shake and loosen the very foundation supporting our lives?

Keep calm, Carry on

We can only control what’s within our reach. This is my mantra; only now, I repeat it several times a day. Here are  some tips to help cope with day-to-day changes:

Emergency Fund

Practically speaking, ensure you have an emergency fund. Typically, you’re looking to sock away three to six months of living expenses for the “just in case” scenario. Don’t have it now? Don’t panic. Take a good hard look at your monthly expenses and incorporate this savings target into your budget. Anticipating an income tax refund? Earmark a portion of these dollars and deposit them into a high-interest savings account. Preferably one that’s CDIC insured.

Resist the temptation to save for your rainy day with extra monthly dollars. There’s rarely spare change at the end of the month; be intentional, add this line item to your budget. Even a few dollars to kickstart the account will make a difference in the long run.

Budgets

Do you have one? If not, this is a great time to put one together. Track ALL of your expenses for a month or two. Do you see any trends? Any obvious places you can trim expenses? Make it happen.

One of my favourite hacks is around groceries and meal planning. Each week, I shop in my freezer and pantry compiling a list of recipes for the week. Not only does it take the stress out of meal planning (and save money on takeout), but it limits trips to the grocery store.

Financial Support

More than one million Canadians have now applied for Employment Insurance. You may find yourself without work; caring for a loved one battling Covid-19 or staying home with your children due to school or daycare closures. The federal government will be offering financial support for 16 weeks, beginning in April (the online portal is scheduled to launch on April 6th) and payments will be retroactive to March 15th, through its COVID-19 Economic Response Plan.

Managing your portfolio performance

I review our portfolio on a daily basis. It’s not really something I should do, and given the performance of the last month, it may be a habit I soon break.

The last month has been startling; I’ve watched our collective portfolios steeply decline, briefly ascend only to decline again. It’s unbelievably tempting to hop off the rollercoaster, almost primal, really, sell what remains and seek shelter on the sidelines. Continue Reading…

Aman Raina’s 5-year Robo advisor review — and how Robos are holding up in the bear market

By Aman Raina, SageInvestors.ca

Special to the Financial Independence Hub

NOTE: This review was initially undertaken using data compiled as of January 30, 2020, which marked the 5-year anniversary during which the portfolio was active but prior to the severe market turbulence that occurred in February and March 2020.  As it became apparent that the market pullback was becoming an epic meltdown, additional data was compiled and included into the review.

Five years ago I embarked on a personal experiment. I was having a hard time getting any insights on the effectiveness of a new investment services that was shaking the ground at the time in 2015.

Known or labeled as Robo Advisors, these new wealth management companies offered services to invest on behalf of others using an online platform and a combination of algorithms and computer coding to buy and sell specific investments and manage portfolios. Five years ago these firms were just stepping into the investing consciousness, but since then they have mushroomed and even traditional investment companies are now offering some flavor of online investment management services.

It all seemed quite appealing; however, there was one thing that many marketing materials, blogs, and mainstream media were avoiding … do these types of services make money for investors? Is this the type of service that would successfully bring more people, who naturally feel intimidated and frustrated by the whole investing concept into the investing domain?

Since no robo advisor company back then was interested in disclosing their performance (they still avoid it) other than citing research that their low cost/passive oriented strategy is superior, I decided five years ago to try an experiment to get some more insights that did not involve boilerplate marketing speak. I set up an account with one of the “large” Robo Adviser firms and invested $5000 of my own money into it.

My goal was to go through the process and blog about my experience using the service, how the ROBO went about making decisions and how it managed my portfolio, and more importantly, the results. I’ve always said that we need a good five years to really get a handle on how effective these services are compared to traditional wealth management services. Well, I just crossed the five-year mark of my ROBO journey, so let’s check back in and take a look at how it’s been doing. I’ve also said that I would reserve my opinions about this service until we reached that five-year threshold. Well here we are and I’m ready to unload my takes.

 

2019 was an epic year for stocks. US major stock indexes were up just over 30 per cent on the year. Fantastic returns. Hopefully my ROBO got a good piece of that action.

Performance

Overall, my ROBO portfolio posted a solid year. The portfolio was up 11.6 per cent year over year, a nice rebound from the previous year where it lost 2.1 per cent. Over the 5 years, the portfolio generated positive returns in three of the 5 years, and posted double-digit returns in those three years. The portfolio increased by $707, of which $162 came from dividend income while the remaining $545 came from capital gains. Over the year period, the ROBO portfolio increased from my initial $5000 to $6817, a cumulative return of 36 per cent. Of the $1817 increase, 1/3 was from dividends while the remainders was from capital gains. The portfolio continued to benefit from higher concentration of US and Canadian equities, which again hit it out of the park the past year.

ROBO Annual Return Chart.jpg
ROBO Cap Gain vs Dividend Chart.jpg

Below is the breakdown of the portfolio. Five years ago when I set up the account I answered a series of questions about my financial literacy and risk tolerance. ROBO took my responses and crafted a portfolio that it felt was compatible with my profile. Continue Reading…

Two Way Traffic – a podcast series on cross-border financial issues

Two Way Traffic is hosted by Elena Hanson (L) and Darren Coleman (R).

By Elena Hanson and Darren Coleman

Special to the Financial Independence Hub

Canadians with assets in the United States and/or family members who are American citizens can face a whole range of complexities when it comes to their financial matters. This can include everything from tax – on both sides of the border – to a myriad of issues concerning an estate, gifting, investments, what have you.

This is what inspired us to develop a unique podcast series called Two Way Traffic. In a nutshell, it’s a give-and-take discussion by two experts who share a great deal of experience: an accountant specializing in cross-border tax, and a wealth-management advisor licensed in both Canada and the United States.

Two Way Traffic, produced by the Acme Podcasting Company, kicked off in January and involves five episodes. Every month we release another one with a different topic.

Through our combined experience, we’ve seen it all, but inevitably a situation arises that presents new challenges. Take the example of a Canadian widow with an account managed by a U.S. trust company. One department of that trust company wanted her to transfer the account because she was in Canada, while another department with the same company said she couldn’t transfer! She then hired a lawyer to effectively have one department argue with the other department: and all at her own cost. The problem could have been avoided altogether if her spouse had sought advice from cross-border experts before he had put this structure in place.

Example: A Canadian IT pro with a California customer

Or take the example of a Canadian IT professional who is incorporated in Canada. This person  works for a California-based customer; some of the work is done out of his home in Canada and some of it is done in the U.S. But here is the problem. The person gets paid in stock options and makes a popular U.S. 83(b) election to pay tax on stock options at grant when the value is low in the hopes of significant appreciation in the future. However, this results in a complete mismatch of Canadian and U.S. taxes at both the personal and corporate levels. As with the other example, if this person had reached out to a tax accountant with cross-border expertise, such a mistake would have been avoided.

Two Way Traffic is just that. It’s not just trucks carrying freight that go across the border every day. It’s also people and – the most complicated commodity of all – money/assets. Our podcast series includes five episodes, each one designed to guide listeners through the complications, implications and advantages of having money and family on both sides of the border.

A million Americans live in Canada

This is a particularly pertinent subject right now. With over one million Americans living in Canada, a booming job market for professionals in both countries, and a new free-trade agreement just signed, the cross-border movement of skilled workers has never been higher. Also, many Canadians have family or property in the U.S. who may not have yet considered the effects of U.S. taxes on their financial plans. This podcast will bring to light those areas of your Canada/U.S. finances where you might be missing something crucial.

For example, the new US-Mexico-Canada trade agreement will impact a lot of people and a lot of companies. With cross-border movement, things can get very murky, and murky is the last thing you want when it comes to determining country of residence, taxes, employment benefits, pensions, and so on.

You have to think about tax residency, which is a very different animal in Canada than it is in the United States. Tax reporting can be complicated if a U.S. person has Canadian corporate ownership. For example, there are different anti-deferral tax provisions that require a U.S. citizen who is a shareholder of a Canadian corporation to recognize corporate income when it is earned and not distributed. Things in Canada are done differently; you are taxed personally when the corporate income is distributed. Bottom line? This can be a major headache for incorporated U.S. citizens who have corporate entities in Canada, or for that matter, anywhere outside the U.S.

Tax reporting can also be complicated if a U.S. person holds such popular Canadian savings vehicles as RESPs and TFSAs. There is also a significant difference between a U.S. person who expatriates by giving up their U.S. nationality, and a Canadian who chooses to become a non-resident of Canada. Continue Reading…

Americans extremely worried about job security, finances and Retirement due to Coronavirus

By Mike Brown

Special to the Financial Independence Hub

Due to COVID-19, 57% of adult Americans are worried about their job security, while 63% are concerned about both their retirement savings and ability to make monthly student loan payments. Plus, many other insights from LendEDU’s newest survey.

At the time of this writing, Johns Hopkins’ Coronavirus Resource Center has reported 353,692 cases of Coronavirus around the world and 15,430 deaths. In the United States, there have been 35,345, while the total number of deaths is 473 by most estimates.

Then there’s the economic fallout in the U.S. as the stock market has gone into a tailspin, and a recession, or worse, seems likely. With the nation necessarily self-quarantining itself, countless small businesses are shuddering their doors and laying people off.

In the wake of this global pandemic, LendEDU has surveyed 1,000 adult Americans to better gauge the micro-level economic impact that COVID-19 will have on our country.

We found that a substantial proportion of people are worried about their job security, retirement savings, mortgage or student loan payments, and taking on too much credit card debt.

Click here to jump to the full survey results

If you would like to see a specific breakdown of the data other than those provided (ex. state-by-state, gender, age), please email me at brown@lendedu.com.

Observations & Analysis: How is Coronavirus Impacting the Finances & Employment of Americans?

All data is based on a survey of 1,000 adult Americans commissioned by LendEDU and conducted by research firm Pollfish. The survey was conducted on March 18, 2020. For some questions, the answer percentages may not add up to 100% exactly due to rounding.

Job Security

We first asked respondents how Coronavirus has already impacted their job since the virus’ impacts started being felt by the U.S.

35% of adult Americans have been fortunate enough to see no changes to their job due to COVID-19, while a combined 24% have not lost their job, but have seen their hours either reduced or eliminated. Unfortunately, 6% of respondents have lost their job in the Coronavirus fallout.

But, just because the majority of respondents have kept their job in some manner does not mean they aren’t still concerned about losing it. This rings especially true amongst those who have seen hour reductions.

Amongst those that maintained their job in some manner, the majority, 57%, were still concerned about job security moving forward as the impact of Coronavirus widens.

67% of those who have seen reduced hours are worried about keeping their job, while 73% of respondents who had their hours completely cut but kept their job are concerned over job security.

Compare these numbers to the 48% of those who have seen no change in their job, but are still worried about their losing it.

No matter the position employees find themselves in as COVID-19 takes hold, it is clear that stressing over job security will almost be impossible to avoid during this time. Maintaining morale will be a challenge for employees, employers, and the economy as a whole.

General Finances

Before Coronavirus and its impacts hit home here in the U.S., how many Americans were living paycheck to paycheck?

No matter how the data is broken down, the majority of respondents were living paycheck to paycheck before COVID-19 became a large-scale issue in the U.S. This has been reported in other studies as well.

So, while the Coronavirus outbreak in the U.S. may not drastically change the financial lives of those who have seen no changes to their jobs, it could cause severe trouble for those who have seen reduced hours or lost their jobs completely.

For example, 70% of those who have seen their hours partially cut due to COVID-19 were already living paycheck to paycheck, while 82% who have lost their jobs because of the pandemic were doing the same.

Over the next few weeks or even months, these folks will be stretched thin like never before when it comes to their finances. This is why a plan to send Americans checks due to COVID-19 is being discussed in Washington D.C.

With financial woes forthcoming or already here for many Americans, some will be drawing from an emergency fund or savings account to cover expenses.

And when it came to the expenses that Coronavirus has brought on, whether it be toilet paper or T-bone steaks, we found that our respondents have spent an average of $335.65 on COVID-19-related expenses since the pandemic began to seriously impact the U.S.

When expenses run high, many consumers need to access debt, typically via credit card, to finance their purchases. We asked poll participants with at least one credit card if they will be taking on more credit card debt than they would like due to Coronavirus.

Retirement Savings

Coronavirus has already had a crippling impact on the stock market, and it’s likely to get worse. For older Americans especially, there’s a pervasive fear that retirement nest eggs might get completely decimated as a result.

38% of our respondents indicated they are currently saving for retirement through something like a 401(k), Roth IRA, or high-yield savings account. We asked these folks about their concerns over their retirement savings due to COVID-19.

Within each age breakdown, the majority of Americans indicated that they are worried about their retirement savings due to COVID-19 and the ramifications it will have on the market.

Not surprisingly, this is especially true for older Americans ages 55 and up who are in the retirement red zone. 67% of this cohort are concerned about their retirement nest eggs.

Monthly Finance Payments (Mortgages, Student Loans, & Credit Cards)

With financial worries widespread and budgets tightening, we wanted to ask a few questions related to common financial obligations that Americans have, like payments for student loans, credit cards, or a mortgage.

The following graphics are based on questions only asked to those respondents that stated they had a mortgage (35%), outstanding student loan debt (23%), and/or at least one open credit card account (63%).

Many respondents are quite concerned about meeting their monthly financial obligations, whether they be related to a mortgage, student loans, credit cards, or all three.

Most alarming was how those adult Americans that lost their jobs due to Coronavirus answered these few questions. 96% of this group was worried about meeting mortgage payments, 88% about student loan payments, and 93% about credit card payments.

Widespread delinquency or default would have severe implications on the economy at large. In an attempt to combat this, we have seen the Trump Administration waive further accruing interest on student loans and suspend all evictions and foreclosures until April for FHA-insured mortgages.

Investments

While we did touch on investments as they pertained to retirement savings earlier, we wanted to dedicate a section to more active, personal investments that consumers make through personal brokerage accounts.

To describe the stock market in the last couple of weeks as turbulent would be an understatement. There have been sharp rises and drops (mostly the latter), and trading has actually been halted a few times in recent weeks on both the New York Stock Exchange and Nasdaq. The 15-minute halts happen when an initial steep drop in the market triggers “circuit breakers” that shut down trading.

27% of our poll participants indicated that they were actively invested in the market through a personal brokerage account when COVID-19 started impacting the U.S.

We asked this group a couple of questions in regards to playing the market.

As expected, the vast majority of Americans who were making personal investments in the market when Coronavirus escalated got clobbered. 79% of respondents indicated they lost money, while just 8% made a profit.

And, how will these respondents invest moving forward as the pandemic continues to disrupt daily life?

As it turns out, the majority of investors plan on riding out the storm and holding steady on their stock plays. Meanwhile, 21% plan on buying more during this crisis, while 13% will be looking to dump shares.

Full Survey Results

Continue Reading…

Advice matters: Here’s why

Getty Images

By Bernard Letendre

Special to the Financial Independence Hub

The investments landscape has witnessed seismic changes in North America and around the globe in recent years. Although the vast majority of customers are either satisfied or extremely satisfied with the services they receive from their advisor — based on The Investment Funds Institute of Canada and Pollara Strategic Insights 2019 Canadian investor survey –one narrative that has been gathering a lot of attention focuses narrowly on fees and goes as far as questioning the value of advice. Like all generalizations, this narrative oversimplifies things and can create misleading perceptions.

If you’re a seasoned investor, you know that picking individual securities to create a desired return isn’t a simple task. Investing to achieve a meaningful goal is even harder: it involves developing a good plan and focusing on outcomes rather than fees and performance alone. And that’s hard work.

That’s why I believe in the value of advice. Studies like the one conducted by CIRANO and the University of Montreal have shown that financial advice results in better outcomes: pure and simple. In fact, findings revealed that investors who worked with an advisor over a 15-year period accumulated 3.9 times more assets than those who invested on their own during the same period. Another interesting finding revealed that the difference in outcomes wasn’t mostly due to investment performance (Alpha) but to other factors such as discipline and increased savings rate associated with the advice received by investors: grouped under the concept of Gamma by the study’s authors.

One explanation for those better outcomes could be that in creating a financial plan, an advisor will ask their clients important questions that DIY investors may not think about: or wish to ask themselves. Secondly, once a plan is put in place, an advisor can play a unique role in holding clients accountable towards their own goals, which may result in better financial outcomes compared to people who rely on self-discipline to keep themselves in check.

When it comes to navigating the big moments in life, like passing down a business to the next generation, recognizing early signs of mental health issues that come with age, or handling the death of a spouse, the complexity of such precarious situations often requires a human touch. Investors need someone with the expertise, emotional intelligence and compassion who goes above and beyond to help them every step of the way. Advisors do that.

Advisors focus on more than just Asset Allocation

As is clear by now, advisors focus on more than just asset allocation to help clients achieve their goals. They’re able to support them with a more holistic approach, which could include advice around tax planning, estate planning, insurance planning and more. This is why investors who benefit from the support of an advisor often achieve better outcomes than if they were to try and do it themselves. Continue Reading…