All posts by Financial Independence Hub

Accessing new Income Support programs during the Covid-19 crisis

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Designed by snowing / Freepik

By Carrie Hunter

Special to the Financial Independence Hub

With the Canadian Centre for Policy Alternatives warning of unemployment rates that could hit 13.5 per cent this year, the highest level we’ve seen in our country since the Second World War, there appears to be few industries and individuals who will escape the economic impact of COVID-19 unscathed.

As of the writing of this blog (April 2, 2020), one million Canadians have already applied for Employment Insurance benefits; with the federal government estimating close to four million joining the queue for the Canadian Emergency Response Benefit.

Meanwhile, the John Hopkins Coronavirus Resource Centre has recorded a staggering one million confirmed global cases of COVID-19, with over 235,000 of those situated in the U.S.

The situation south of the border is dire: especially when you consider that the near quarter million number we’re looking at today is likely to skyrocket over coming days, weeks and months tracing the trajectory of the heart-wrenching Italian and Spanish COVID-19 pandemic curves.

On April 1st, in what one wishes were a cruel April Fool’s Day prank, the U.S. Labor Department reported the loss of 10 million jobs in the last two-week period, with 6.6. million Americans filing for unemployment benefits last week alone.

Why does all this matter to Canucks? As the adage goes, when the U.S. sneezes, Canada catches a cold. Our economies, and those of other global entities, are inextricably intertwined.

Your Emergency Income options

Venturing back north to Canada, what follows are some of the options you have to ease your current financial burden. The tried n’ true path, if you qualify, is to apply for Employment Insurance or Sickness benefits. If, however, you don’t meet the criteria for either of these benefits, all’s not lost. You may still be eligible for the Canadian Emergency Response Benefit (CERB). Eligibility standards for this benefit, lasting 16 weeks and paying out $2000/ month, are arguably much less stringent.

Can I apply for CERB? 

You can apply for CERB if you had an income of $5,000 (this can be self-employment, employment or parental benefit earnings) in 2019 or the 12 months prior to the CERB application; and, you expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period identified in your application.You’re also potentially eligible for CERB if you:

  • live in Canada and are at least 15 years of age
  • were laid-off from your job, or your hours have been drastically reduced to zero and you lack any other form of employment income
  • were let go from your job because of COVID-19 and are eligible for regular Employment Insurance or sickness benefits (consult the FAQS at the bottom of the CERB page to get a better handle on when and how to apply for which benefit)
  • still have a job, but have been temporarily laid off
  • are sick, quarantined or are the primary caregiver for someone with COVID-19
  • are a working parent who now must stay home, without pay, to care for your child/children whose school/ daycare is now closed
  • are self-employed or a contractor and wouldn’t otherwise qualify for EI

Tricks, Tips & other considerations

How much will I receive?

Preet Banerjee, keynote speaker and founder of MoneyGaps, has launched the COVID Calculator to help estimate how much income support (via the Canada Child Benefit (CCB), GST and CERB) you can expect during the pandemic.

It’s worth noting CERB will not be taxed at source. That means it’s up to you to squirrel away anticipated tax money that will come due in 2021. To get a sense of how much you might want to sock away, experiment with different income tax scenarios within the Turbo Tax calculator or Simple Tax calculator.

If you’re ambitious, you can model a myriad of tax scenarios in the 2020 and 2019 Canadian Income Tax Calculator. As I mentioned earlier, you can begin applying for CERB on April 6th. However, the government has wisely (although I would still bet heavily on an overburdened IT network suffering instability with unprecedented pent-up Canadian demans) …. staggered the application process. Patience will, undoubtedly, be a virtue.

If you were born in:

  • January, February or March, apply April 6th
  • April, May or June, apply April 7th
  • July, August or September, apply April 8th
  • October, November or December, apply April 9th

And if you fancy a weekend date with the application process, anyone can apply on Friday, Saturday or Sunday.

I know, for many of us myself included, many days this all seems too much to bear, but this morning I was reminded by this Scottish Grandma, this too will pass.

Carrie Hunter is the founder and writer of the personal finance blog, PoundWiseandPennyPrudent.com. A passionate advocate for financial literacy, Carrie writes, speaks and facilitates workshops with a singular goal: to simplify the language of money. A self-taught money expert, Carrie is completing her designation as an Accredited Financial Canada Counsellor®.  This blog originally ran on April 2, 2020 and is republished on the Hub with her permission. 

Bond ETF discounts during recent periods of Volatility

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Rich Powers, Vanguard head of ETF product management

By Rich Powers and Scott Johnston, Vanguard Americas

(Sponsor Content)

The waves of volatility from the coronavirus outbreak have reached every corner of the financial markets. For bond ETFs, the waves have resulted in both volatile market price swings and larger-than-usual gaps between market prices and net asset values (NAVs).

When the gap is positive (that is, when the market price is greater than the NAV), it’s called a premium. A discount occurs when the NAV is greater than the market price. While such gaps can be unsettling, history shows that premiums or discounts are always present with bond ETFs, and their widening amid market volatility tends to be short-lived.

Bond ETFs are an important source of liquidity

Along with heightened market volatility in the bond market over the last few weeks, there’s been a drop in liquidity of many types of individual bonds: that is, the willingness of market participants to buy and sell. Bond ETFs, on the other hand, have maintained their liquidity and have been the primary mechanism for price discovery in the fixed income markets.

In such a volatile environment, bond ETFs can be expected to trade at discounts or premiums. Though discounts and premiums of this breadth and magnitude are rare, bond ETFs have been tested during prior bouts of volatility and actually do a good job of reflecting in real time the value of the underlying fixed income securities. In times of volatility with rapidly evolving macroeconomic, interest rate, and credit environments, investors should expect premiums or discounts in bond ETFs. Bond ETFs tracking similar benchmarks have experienced large variations in market returns as well.

Fewer inputs can create greater price disparities

Discounts and performance differences reflect the fact that there are two ways to determine portfolio values. In setting end-of-day NAVs, ETF pricing specialists use both actual trades and an adjustment factor based on bid/ask spreads for bonds, especially for bonds that haven’t traded recently. Market prices, in contrast, are collectively determined by ETF investors and “market-makers.” If, as happened in the second last week of March, bond trading is fairly diminished in the underlying market, NAV calculations will have fewer inputs and thus there’s an increased chance for differences from market prices.

Unlike a NAV that’s calculated by a pricing provider, market prices for bond ETFs reflect the market’s minute-by-minute judgment, which includes factors such as:

  • Valuation estimates of the underlying holdings by market-makers.
  • Supply and demand for the ETFs.
  • The cost for providing liquidity in fast-moving markets where underlying bonds may have less liquidity.

Since these calculations have different inputs, investors should expect different outcomes, particularly in volatile markets. When viewed over longer periods — say a month or a quarter — these short-term disparities are generally imperceptible, as they are over a “normal” day or week. Continue Reading…

5 financial benefits of having a healthy lifestyle

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By Morgen Henderson

Special to the Financial Independence Hub

Most of us have been given medical advice to eat healthier and get regular exercise, and there are certainly daily benefits to these choices, like feeling more energetic, having a better mood, and experiencing less pain. But we don’t always consider the financial benefits of a healthier lifestyle.

Although spending more money upfront on things like organic food and gym memberships or other fitness activities might seem like it doesn’t fit into a frugal financial lifestyle, the money you’ll save both in your monthly spending and in the long run makes the initial costs well worth it.

1.) Cheaper insurance later in life

When you get older, you may need life or burial insurance (if you don’t have it already), and being healthy will help you get better rates for your policy. Living in an unhealthy way may lead to health problems down the line. Although it’s still possible to get it, it can be more difficult to get funeral insurance for pre-existing conditions (also known as “final expense” and “burial” insurance). For instance, if smokers need insurance, but they now have lung cancer, it may be hard for them to find a policy, and if they do, it may cost them more.

2.) Lower health care costs

Health care companies often charge higher premiums for people with pre-existing conditions or chronic health problems such as hypertension and diabetes, and sometimes also for smokers. Beyond that, if you have a chronic health condition, you’ll need to pay more out of pocket for prescriptions, doctor visits, and medical treatments. While not all such conditions are preventable through healthy living, many common ones — diabetes, heart disease, certain types of cancers, and osteoporotic hip fractures, to name a few — are.

The World Health Organization found that “physically active individuals in the USA save an estimated $500 per year in health care costs.” That’s based on data from 20 years ago, so savings are even higher today.

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3.) Less spending on filler foods

Choosing whole foods over packaged, processed foods like chips and other snacks means you’re getting more nutrition for your dollars. Changing your snacking habits can help you do this. And adjusting portion sizes to meet what your own body needs will also help shave down your spending on food.

What’s more, cutting out other indulgences many people regularly consume, such as tobacco and alcohol, will save money each year that you can redirect to retirement savings or other investments. Healthier eating habits and reduced substance use will affect your budget now, and your health care costs later. Continue Reading…

Coping with the Costs of Covid-19

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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

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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…