All posts by Financial Independence Hub

Money: Influencing people and their behavior

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By Steve Barker

For hundreds of years, the American dream has been to become one of the fortunate few that moves from rags to riches. Although many people enter onto United States’ soil believing they will become one of the chosen few to make the dream a reality, statistics show that most people don’t make their millions no matter how hard they try. What is more interesting is what happens to those that do make their fortune and how it often changes them, their perspective on the world, and other people’s view of them. Money can influence people and their behavior in some surprising ways.

Psychology and Money

The way you view yourself, your success in life, and for abilities can all be linked directly to your money, or lack thereof. While you may have been told your whole life that money is the root of evil, you are probably like the majority of the 7 billion people on earth as you try to make more money: ever chasing the currency you should believe is evil. The eternal chase for more money to purchase more things to buy bigger and better items is at the bottom of a social belief system, and though it may not be who you believe you are, it can influence how you see yourself fitting into society and how you react toward others.

Self and Money

Where you fit into your world view is often dependent on money and how much you make. For some reason, people tend to classify themselves into social rankings relating to money, the ability to earn it, and the amount already earned. This is sometimes referred to as class essentialism. In other words, some people believe they have the natural ability and are pre-genetically disposed to have the right to make money, be more intelligent, and be part of a higher social group. Research has found this is especially true of the wealthy groups questioned, while the poor respondents believed it was all about work, rather than ability, genes, or intelligence. That is why it can be difficult for the suddenly rich winners of the lottery or huge sports contracts to fit into a world that sees those individuals as less-than. The split can be intense and derisive.

Values and Money

Money has an influence on how you value your time, actions, and motivations, but most importantly, you may find it influences how you value yourself. If you find yourself as part of a higher social group because of the money you bring in, you may see yourself as happier, healthier, and more giving. On the other hand, some research indicates that the newly rich from the sudden creation and rise of crypto currency were found to be more business-oriented, less trusting, and more suspicious of the world around them. If you set a value of $20 an hour on your time, you can see that someone that values their time at $300 an hour may have a very different world view than you do, whether it is good or bad is all a matter of perspective.

Ethics and Money

While it is unknown why some people have higher ethical values than others from the moment they are born, researchers are finding that wealth has a direct influence on all types of ethical situations. The higher an individual believes his or her class inclusion is, the more unethical he or she believes they have the right to be. Continue Reading…

Aman Raina’s mid-year ROBO advisor review

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By Aman Raina, SageInvestors.ca

Special to the Financial Independence Hub

We have passed the half-year mark and so I thought it would be a good time to check back into my ROBO portfolio to see how it’s doing and if there is anything interesting going on.

I was all good to go on writing a very pedestrian update as the portfolio had not undergone any significant changes in over a year. Then I got a couple of emails.

Snippets of Email from my ROBO informing me of “changes” in my portfolio.

 

About a month later I received a follow-up email with some more explanations.

 

 

Follow up email from my Robo Advisor

 

The emails paint a picture of some minor changes and tinkering.

Changes? Lordy there were a few.

After remaining static for about a year and a half, the ROBO made some very significant changes in the portfolio. The asset mix of 85 per cent stocks and 15% bonds remained, but the allocations were altered quite dramatically. Here’s the breakdown along with the allocations in the past.

 

Caption: Asset allocation of my ROBO portfolio since inception

Allocation to US stocks fell from 32.5% to 26.5%

  • Allocation to Canadian stocks fell from 22.5% to 10.5%
  • Allocation to Emerging Market stocks increased from 10% to approximately 16%
  • Allocation to other Foreign Stocks increase from 15% to 32%
  • The bond allocation changed from domestic government and corporate bonds to Government and US bonds.

This marks the 3rd significant change in my portfolio’s asset allocation in the 4 1/2 years I’ve had the portfolio. I think we can clearly say this portfolio has not been passively managed.

The changes are pretty dramatic, but actually welcome. Regular readers of this blog know I’ve been a bit critical on the ROBO’s concentrated exposure to US and Canadian stocks. Prior to this adjustment, almost 55 per cent of the equity component was in US/Canadian stocks, which I thought was pretty high. Granted, it has been a winning move as the results have been quite strong. I have been concerned that the portfolio is pretty exposed if the markets were to take a major downturn. It seems ROBO has gotten the message and re-calibrated the portfolio. This is a good thing to see, although again I wonder why it took so long. I also wonder if this rebalancing was more of a market timing action or an asset reallocation action? Hard to say.

The other change involved the rotation of ETF products. ROBO decided to use different ETF products. Here’s the summary.

Bonds

  • Sold BMO Mid Fed Bond Index (ZFM) and bought Mackenzie US Government Bond ETF (QTIP)
  • Sold iShares Core Canadian Bond ETF  and bought BMO Long Fed Bond ETF (ZFL) .

This is ROBO’s latest tinkering of the Bond component of the portfolio. Continue Reading…

5 apps to help get your personal finances on track

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By Julia Faletski (Sponsor Content)

For many people, managing your money means simply checking your bank account every month and paying your bills. That’s a great starting point. But if you want to get on a strong financial footing and maybe even retire a millionaire, you’ll need to set goals and have a plan for how to get there. That means budgeting, saving, building a strong credit score, and more.

Fortunately, today’s technology means you don’t need to be a math wiz to make these smart money moves. In fact, you don’t even have to look at a spreadsheet. There’s an app for that.

To help you get started, we’ve curated a list of apps that will help you automate —  and dominate — your personal finances:

Budgeting

To start out your financial journey, you’ll want to know how you’re doing today. Budgeting is probably the most fundamental aspect to personal finance. There are lots of budgeting apps out there, but Mint is one of the more well known ones for a good reason. Mint allows you to manage your finances from beginning to end: you’re able to link banks accounts, credit cards, investment accounts (like WealthBar!) and bills. You can track your spending, create a budget, and see a complete picture of where your money is going, all in one place. It’s great for both keeping track of your day-to-day transactions and long-term goals.

If you want more of a step-by-step guide to creating and following a budget, take a look at You Need A Budget (YNAB). Not only are you able to link accounts and track expenses, but you can also get advice on how to pay down debt, manage monthly expenses, and accumulate savings. It’s always a bonus when a company infuses their features with financial education. Knowledge is power!

Taxes

We get it, tax season probably isn’t your favourite time of the year. Luckily, apps like TurboTax aim to make filing your taxes painless. The app will take you through a number of easy-to-answer questions — prompting you to provide the pertinent information — and then it will do the calculations for you. No need to go through all the tedious steps yourself! The goal is making sure no money is left on the table in unclaimed deductions.

Credit score

Having healthy credit goes a long way when you need to borrow money for a big purchase like a house or even get a credit card. Credit Karma allows you to take the guesswork out of understanding your credit score. They make it easy to access your credit rating for free, understand what is positively or negatively affecting the rating, and see how you can improve it. Continue Reading…

Mark Seed’s hybrid Income Investing and Retirement Strategy: Your questions answered

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By Mark Seed
Special to the Financial Independence Hub
Image courtesy of iShares

 

For many years now, I’ve been a huge fan of dividend investing.

Dedicated readers will know I’m on a mission with this strategy – an aggressive one at that – to hopefully earn $30,000 per year in dividend income from a few key accounts.

I figure this income stream, supplemented with other assets (e.g., RRSPs, workplace pensions, other), should set us up well for semi-retirement in the coming years.

While I love dividends, especially from my Canadian stocks, I invest beyond Canada’s borders using some low-cost U.S.-listed ETFs.

You can find some of my favourite ETFs to own here.

I invest this way (more than ever) since I believe in portfolio diversification.  In using some low-cost U.S. ETFs, I obtain this diversification and therefore opportunities for long-term growth at a very low cost.

This makes me a ‘hybrid’ investor: using a basket of Canadian (and some U.S.) dividend growth stocks for passive, rising income and using some low-cost ETFs to ride the general stock market equity returns.  I believe in this two-pronged approach since it should not only provide some passive income for life, but it should also deliver capital appreciation as well.

Like other Canadian bloggers that I look up to, I’ve been building my dividend stock portfolio (and adding to it) since around 2008-2009.  I’m well on my way to earning the desired $30,000 per year from a few accounts: a recent update you can find here.

Should you follow this approach?

Is hybrid investing right for you?

Well, check out the rest of this post and you can decide …

Your Ever Growing Income

My friend and past contributor to this site, Henry Mah, recently released a book called Your Ever Growing Income.

You can read about the Canadian and U.S. versions of that book here.

Henry recent encouraged bloggers and passionate investors like myself to publish some answers to a few questions: about income investing and my retirement strategy.

Today’s post does just that!

Income Investing and my Retirement Strategy

1.) What stocks should you buy and why?

I have a bias to owning companies that have a long, established history of rewarding shareholders.

You can see some of the very dividend-friendly histories of many Canadian stocks here.

On my Dividends page, I have highlighted some of the stocks I own; they are:

  • Canadian banks (examples:  RY, TD, BNS, BMO, CM).
  • Canadian insurance companies (examples:  SLF, MFC, GWO).
  • Canadian pipeline companies (examples:  ENB, TRP, IPL).
  • Canadian telecommunications companies (examples:  BCE, T).
  • A few major Canadian energy companies (like SU).
  • Canadian utilities (examples:  FTS, EMA, AQN, CU, CPX, INE, BEP.UN).

My thinking?

Basically, I buy companies that people need.  People need to bank, so I own banks.  People need insurance, so I own insurance companies.  Last time I checked people want to heat and cool their home(s) in Canada, so I own those companies too.  I think you get the idea …

I also own a number of Real Estate Investment Trusts (REITs).  Examples include REI.UN, HR.UN, CAR.UN, CHP.UN and a few more.  I’ve basically unbundled REIT ETFs like ZRE, XRE and ZRE to own those companies directly.

I tend to own what the big funds in Canada own.  I don’t pay any money management fee to do so. [See holdings of the iShares i60s shown at the top of this blog.]

2.) How do I evaluate the merits of the stocks I am considering?

My approach is rather simple:

  • If the Canadian company pays a dividend, I might consider it.
  • If the Canadian company has paid a dividend for many years, I will consider it.
  • If the company has paid a dividend for decades or generations, I will most undoubtedly want to own it.
  • If the company has raised its dividend for decades or generations, I probably already own it.

As part of my portfolio, I also consider the following when buying and holding stocks:

  • Sector diversification: given Canada is dominated by financial and energy sectors, I try to invest in healthcare, consumer stocks and technology companies state-side via low-cost U.S. ETFs.
  • Earnings: I look at company earnings for any longer-term warning signs.
  • Payout ratio: I look at the company’s dividend payout ratio for any flags.
  • High yield: I try to avoid chasing yield since I believe consistent dividend growth and increases (ideally year-after-year) are some keys to wealth creation; not owning a high-yield stock whereby the dividends are likely unsustainable

3.) When should you invest more money into new stocks or the ones you already own?

Tough question!

I can’t predict the future … although I wish I could.

For the most part, I don’t deviate very far from the existing ~30 Canadians stocks I own.  I tend to buy more shares in the stocks I own when they’ve been beaten up.  If people have a hate-on for banks, I buy them.  If REITs have been punished of late, I buy those.  You get the idea.  I hope to rinse and repeat this approach until wealthy.

That means, I’ve essentially unbundled the top-Canadian ETFs like XIU, XIC, VCN and a few others for passive income.

Maybe you shouldn’t take my word for it.  Here is some very sage advice:

“The selection of common stocks for the portfolio of the defensive investor should be a relatively simple matter.   Here we would suggest four rules to be followed:

  • There should be adequate thought not excessive diversification. This might mean a minimum of ten different issues and a maximum of about thirty.
  • Each company should have a long record of continuous dividend payments …
  • Each company selected should be large, prominent, and conservatively financed …
  • The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say the past seven years.” – Benjamin Graham, considered the father of value investing; most well-known disciple of his teaching: Warren Buffett. 

4.) When should you sell your stocks?

Hardly ever.

I mean it.

As long as the dividends are paid and continue to increase year-after-year, I will own the stocks I do:  the banks, the utilities, the pipelines, the telcos, and so on,

That said, no company nor investing approach is perfect so if the company you own stopped increasing its dividends for a few years, it might be time (depending upon the broader economic climate) to ditch the company.

5.) Should you be worried when the market and prices are going down? Why?

No.

I mean that too.

Why?

Consider stock prices going down like a sale.

Investing in the stock market seems like the only place in the world where people don’t celebrate paying less for something they want to buy.

If your intention, like mine, is to own a basket of dividend paying stocks that have a long track record of rewarding shareholders with raises, then you should really learn to train your investing brain and look at broad market declines as a great way to celebrate buying stocks on sale.

Here’s how to prepare for any market meltdown. Continue Reading…

The problem with Preferred Shares

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By Ian Duncan MacDonald

Special to the Financial Independence Hub

You identify preferred shares by their stock symbols. Their symbol contains a “PR” or a “PF.”  For example, an Enbridge Inc. preferred share is ENB.PR.N.

Preferred shares pay dividends, often in the range of 5 or 6 per cent. This is usually one or two per cent more than what the company pays common share holders.

Like a bond, they are a form of loan; thus they do not share in the capital gain of a corporation, nor do they have any ownership or voting rights. While they rank ahead of common shares in realizing money from a company’s liquidation, they rank behind bondholders. Their ranking is of little benefit.  After the lawyers, bankruptcy trustees and the banks (with their fully secured debentures) are paid off, the chance of anything being left for distribution is just about nil.

While you can conveniently buy and sell preferred shares on the stock market very few investors have any interest in them.  Zero trades in a day is not unusual. There are 654 shares on the TSX pay paying a dividend of 3.5%. or more.  Of these, 364 are preferred shares and of those only 112 had more than 4,000 shares traded in a typical day, despite their high dividends. This is due to the low possibility of preferred shares delivering an increase in share price to speculators.

Preferred shares are issued at a standard price of $25 each. Of the 364 preferred shares only 17  had a share price exceeding $25 and of these only one was greater than $30.  The chance of realizing a capital gain from a preferred share is 1.91% and 183 or (50% of them) had lost at least 20% of their value.  They were now worth less than $20. Five were trading for less than $10.  It is not surprising that not one analyst recommended that investors buy any of these 364 preferred shares. Continue Reading…