All posts by Financial Independence Hub

Is the political heat melting your investment cool?

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By Steve Lowrie, CFA

Special to the Financial Independence Hub

I’ve said it before.  So has American financial commentator Barry Ritholtz.  Regardless of your political bent, it’s a bad idea to hitch your investment decisions to whoever is, is not, or is about to be in political power at any given time.

Given the upcoming Canadian election and all the related political storm and fury of late, it’s not impossible that we could end up with a minority government in the next election, with the NDP or Greens having the balance of power.  As a side note, residents of British Columbia have been dealing with this scenario for the past couple of years.  That said, this outcome is just speculation, and this post is not about how you and I may feel about that situation.

This is about the choices we make as investors.  As I said in 2016, and I’ll repeat here:

“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 defense.  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.”

I’ve now been a financial advisor long enough that I’ve heard this refrain many times over: “If ‘X’ is elected I’m moving out of Canada!” Over the years and through multiple conversations, “X” has represented candidates from across the political spectrum.

Ironically, a similar refrain is often heard in the U.S.: “If ‘Y’ is elected, I’m moving to Canada!”Which is why Dimensional Fund Advisors provided us with a telling graphic to illustrate how impotent political parties actually have been at helping or hindering capital markets. Continue Reading…

Adam Smith wins again, as Hedge Fund returns disappoint

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Adam Smith: the Father of Economics

By Noah Solomon

Special to the Financial Independence Hub

It has been 243 years since Adam Smith, “The Father of Economics” wrote An Inquiry into the Nature and Causes of the Wealth of Nations. In this magnus opus, Smith introduced the concept of the “invisible hand,” which can be described as an unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically.

The erosion of Hedge Fund returns

At Outcome, one of our favourite sayings is “In the end, Adam Smith always wins.” Whereas the timing of this triumph is uncertain, victory is nonetheless assured. It is not a question of if, but merely one of when.

Smith’s invisible hand has indeed been at work in the hedge fund industry. At the beginning of 2000, there were relatively few hedge funds, and the global hedge fund industry had roughly $300 billion under management. Between 2000 and 2007, the HFRX Global Hedge Fund Index produced annualized returns of 9.75%. Even during the “tech wreck” of 2001-2, when the MSCI All Country World Index of stocks fell 33.1%, hedge funds rose an impressive 13.8%.

As if following Smith’s playbook, this stellar performance attracted a massive influx of assets from investors and prompted the launch of countless new funds. The resulting increase in competition and “crowding” has had a predictable impact on results. From the beginning of 2008 through the end of last August, the HFRX Index declined at an annualized rate of -0.5% and has fallen 5.7% on a cumulative basis. Moreover, hedge funds failed to diversify investors during the financial crisis of 2008, when the HFRX Index plummeted 23.2%.

As always, Adam Smith wins.

Performance & Fees: Fundamentally disconnected

Despite the severe decline in average hedge fund performance, there has not been a proportionate decline in the high fees that they charge investors. Continue Reading…

These are the credit cards Canadians favour the most, according to J.D. Power

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By Barry Choi

Special to the Financial Independence Hub

J.D. Power has just released its 2019 Canada Credit Card Satisfaction Study and Canadians have spoken: they prefer non-traditional card issuers over what the big banks are offering. This shouldn’t be a huge surprise as consumers had a similar outlook in the 2018 study, but there have been some minor changes to the ranking of cards with Tangerine Bank now having the highest overall customer satisfaction rating.

Using a 1,000-point scale, the average overall ranking was 754, but the top four credit card issuers had an average score of 799. Ratings were based on six factors: Benefits and Services; Communication; Credit Card Terms; Customer Interaction; Key Moments; and Rewards.

With more than 6,600 cardholders taking part in the survey, it’s impossible to determine what everyone was thinking, but we can make some logical assumptions based on the data available.

Canadians are favouring non-traditional card issuers

The biggest takeaway from the survey is that Canadians are favouring non-traditional card issuers with Tangerine, American Express, Canadian Tire and PC Financial taking the top 4 slots. This might be shocking to some people but when you look at the features of the credit cards offered by these companies, it may not surprise you at all.

The Tangerine credit card has become a popular card ever since it came onto the scene a few years ago. What makes this card appealing is that you get to choose up to three categories where you’ll earn up to 2% cash back. Every other credit card out there offers cash back has pre-defined categories so Tangerine is giving their customers the ability to choose what works best for them.

With American Express, they offer both cash back and travel cards, but one feature that’s unique to all of their cards is American Express Invites. With American Express Invites, you get exclusive access to some of the best entertainment, dining, and shopping experiences out there.

When it comes to Canadian Tire, it’s a brand that every Canadian knows. Canadian Tire Money is one of the most popular loyalty programs in the country and it has recently become better since the Canadian Tire credit card lineup was updated and rebranded to Triangle Mastercards.

Then there’s PC Financial Mastercard, which took the top slot last year but has fallen to fourth. Their PC Optimum program is still incredibly popular since you can earn up to 45 points per dollar spent at Shoppers Drug Mart and 30 points per dollar spent where President’s Choice products are sold. In other words, you can earn free groceries and merchandise fast with PC Optimum.

Cash rewards are more popular

According to the survey, 30% of those who responded said they preferred cash rewards. Airline rewards followed with 23%. Overall, customers who understood the value of their rewards program and what they earned were more likely to recommend their card over people who weren’t exactly clear how their rewards worked.

Favouritism towards cash back is nothing new as many Canadians now prefer the simplicity of cash rewards. With cash back credit cards, you get a set % back for every dollar you spend and you can cash out when you have a certain amount banked. When you compare that to travel rewards which may have blackout dates or it may take a ton of points before you can redeem any rewards, it’s easy to see why people prefer cash back these days.

That said, airline rewards are still popular. Within Canada, Air Canada controls much of the airspace so their loyalty program Aeroplan is still incredibly popular. Earlier this year, Air Canada formally acquired Aeroplan and have started to slowly implement some changes. Many Canadians are excited to see what else Air Canada has planned for Aeroplan which is likely why airline rewards are still ranked second overall.

Canadians prefer fewer communications

Unlike customers in the United States, Canadians were more satisfied when their credit card provider only contacted them once or twice a year. Overall, people much preferred email as their preferred way of communication. Continue Reading…

4 benefits of working with a financial adviser

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By Danielle Klassen (Sponsor Content)

Do I hire a financial adviser or should I try building out a financial plan myself?

With the rise of apps and low-cost, online investment products, it can feel easier than ever to take a DIY approach to everything from budgeting, to saving, and investing.

But it becomes more challenging when you want to get beyond the basics. For example, how do I know if I’m saving enough? How can I work towards multiple investing goals at one time? Where can I shave down my expenses? When can I retire? How much should I save for my children’s education?

That’s where a financial adviser comes in. Their job is to see the big picture and help you reach your goals.

Financial advisers provide a slew of benefits that apply to all Canadians, regardless of their net worth. In fact, the stakes can be higher if you’re not rolling in the dough.

WealthBar clients get unlimited access to professional, commission-free advice. Here are the top four advantages of working with a financial adviser:

Get a personalized plan that makes sense for you

The internet is a wonderful resource but it is nearly impossible to find advice that is specific to your situation.

Financial advisers will help you build a personalized plan that accounts for various long and short-term goals. Let’s say your dream is to retire with enough money to travel for four months a year. A financial adviser will help you translate this dream into a financial goal, and will help you build a plan to make it a reality — from budgeting, to saving, and investing — while still accounting for the less romantic aspects of your financial needs.

As your life evolves, your plans will change. For example, maybe you thought you wanted to retire in fifteen years, but now you want to do it in ten years. A financial adviser will help you adjust accordingly, while providing a guiding light on the best way to reach your goals.

Save more money

Half of Canadians say they’ve lost sleep due to financial worries. And the things that keep them up at night? Struggling to save money for short and long-term goals, the increasing cost of living, and unexpected expenses.

The financial planning support that advisers provide can help you become a far better saver. Having a written plan that you review with your adviser on a regular basis (let’s say, yearly) will keep you accountable to your goals. Continue Reading…

What are the unique skills required for investing in real estate?

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By Curtis Brown

Special to the Financial Independence Hub

Real estate has been an extensive career opportunity for quite some time now. People have successfully made a living out of buying and selling of properties and houses. If you ask anyone who has been in this field for a long time, they will tell you it is not an easy job. You need to have excellent communication and convincing skills to flourish in the real estate market. But the trick is not just selling.

You should also have the knowledge to assess and know when to buy so you can get maximum profits out of it. Many successful real estate agents have had numerous happy clients over the years. It’s probably a good idea to look at the set of skills they possessed to get an idea about how you should hone and develop your skill in investing in real estate.

Understand market conditions and risks

The market has many facets. It can be very stable at one time and volatile the next moment. However, if you look closely, it follows a trend. You should be able to analyze these trends so you can take advantage of all the uphills and downhills. There is no denying the fact that there is always an element of risk associated with real estate. However, since you have decided to enter the game, you might as well take some. In case it pays off, the profits may be much more than expected.

Discipline has been the most important skill

This applies to almost all career choices, and its implication in real estate is even more significant. Discipline and patience are two virtues that you definitely cannot do without. Once you embark on the path of discipline and follow up with your clients religiously, you will be able to track down and understand potential customers easily.

Network and Management skills

Since real estate is all about communication and buying and selling, one thing of paramount importance here is the kind of network that you have. A lot of marketing in real estate is based on word of mouth, and heavy networking will help to build a good reputation in the market. You should also be able to manage multiple properties at once. This is one strategy that most successful real estate agents apply. They deal with more than one home and keep stacking up their profits one after the other. You will have multiple avenues of income through this method. Continue Reading…

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