All posts by Financial Independence Hub

Why retiring baby boomers won’t destroy the stock markets

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By Dale Roberts

Special to the Financial Independence Hub

It’s a fear or suggestion that we hear repeated quite often. The massive cohort of retiring baby boomers will need to sell their stocks to create income and that will crash the stock markets.

Or let’s just say it could cause a slow bleed, taking down or suppressing the stock markets over the coming decades. As you may know the the stock market is, well, a market: it simply lines up the buyers and sellers and when there are more sellers than buyers the price of the stocks will decline.

When we hear the numbers on the baby boomers and more specifically how many boomers will retire each day, it’s often the US numbers that are repeated. When it comes to financial markets it is often very US-centric.

From this from Forbes.com article …

There were 77 million Baby Boomers born between 1947 and 1964, roughly 4.5 million per year. Some doomsayers are predicting the Boomers will drain the equity markets of their capital once they retire. Should you worry? Are your equity portfolios at risk?

It’s now predicted that there are 10,000 baby boomers retiring (in the US) each day. Now when the AARP releases figures such as that they simply use age 65 as a retirement date. Perhaps that’s not a bad benchmark but so many will retire well before age 65, and many more will not retire until well into their 70s and beyond. Many will not retire at all; they’ll continue with part time work. Baby boomers are known for being quite entrepreneurial.

And then, not all retiring baby boomers are going to go out and sell all of their stocks on their 65th birthdays. The public and private pension managers are not going to aggressively sell out of their US stock positions. Pensions hold well-diversified portfolios of US and International stocks and bonds and that also includes massive exposure to private equity: assets that are not ‘in’ the stock markets.

Why the boomers won’t crash the markets

The markets are mostly efficient and they factor in all available information with respect to individual stocks, economies and larger trends. It’s not news that North America is getting ‘older.’ That’s already priced in to the markets.

There is a heavy concentration of US stock ownership by more wealthy US citizens. The challenge for many may not be how fast can they sell their stocks but what to do with all of this wealth. Also, baby boomers are about to inherit over $15 trillion over the next 20 years. That will reduce or eliminate the need to sell those stock shares. You’ll find that, and some other interesting baby boomer stats in this Fool article.

I’ve been writing on Seeking Alpha for quite some time, and the readership is largely quite affluent. Many of these American boomer investors write more of accumulating more stocks in the retirement stage. In Retirees Don’t Say No When The Market Offers You A Nice Bonus I linked to a study that confirms that more affluent US retirees don’t spend down their retirement assets. They even become ‘savers.’

It’s a continual theme as well that many of these retirees ‘live off of the dividends.’ They’re not selling shares; they are simply collecting and spending the dividends. They will not put sell pressure on the markets.

New buyers

The millennial generation is even larger than the Baby Boomers and they will enter their accumulation stage and will be buyers of stock assets directly and by way of their pensions. There will be demand for stocks from younger generations. The Washington Post stated that the millennials will overtake the Boomers in 2019. We also have those echo-boomers and Gen-X’ers stepping in.

Bond yields are low; investors and pension managers know that they need those stocks for the longer term growth potential. Of course, we can often get greater income (and growing income) from stock dividends compared to bonds. The low yield environment also affects those newer and current accumulators as well as they may choose to shun low yielding bonds and embrace more stock exposure.

In Canada we see investors in that Balanced Growth Sweet Spot.

What history has to say

And if we look to the past and to studies, historically the correlation between age and asset prices is weak according to this white paper … Continue Reading…

Those TV ads about financial advisors

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By Darren Coleman

Special to the Financial Independence Hub

There is an Oscar Wilde quote that goes like this: “A cynic knows the price of everything and the value of nothing.” I think of it every time I see one of those Questrade TV commercials where the client meets with their wealth-management advisor so they can tell the person they are fired. Why? The fees are too high.

The commercials drive home the point that advice costs more than doing things yourself, which is no surprise. I’m also flattered because in one of the ads, the character has my name – Darren – and it makes me think I might be in that seat. But that’s as far as the similarity goes because in all the years I have been in this business no client has ever told me they are leaving because of my fees. Not one.

This is where I think those TV ads miss the point. The issue at hand should not be about price. It should be about Value.

All those ads focus on the price of advice and the implication is clear: that advisors are gouging their clients. The advisor gets to retire early because of fat fees while the client, according to the ads, loses up to 30% of their retirement savings to fees. While the math in these ads may be  questionable, the ads also ignore any benefit that the Advisor’s advice may bring.

The ads showcase clients not experiencing true value

Let’s explore what these ads are really about. What they showcase is that the client is not experiencing true value in the relationship. So, the client decides to go it alone and hire Questrade’s robot to do things for them. Questrade, and ‘robo-advisors’ as they are called in the industry, offer a discounted trading commission to do-it-yourself traders, along with pre-built portfolios for more passive investors. As there is no personalized advice on any financial matters for the client, the fees are much lower. Which is as it should be.

I, for one, would never use such a service. I don’t even like those robot vacuum cleaners; the one my wife bought always gets caught under the couch because it can’t find its own way out, which is annoying. I also dislike those robot attendants which more and more companies are using for navigating their telephone systems. And I use these analogies for good reason.

As far as handling your investments and financial matters, does going it alone or going with a pre-built model portfolio actually work? The evidence shows this is not the best solution for most people.

Behavioural mistakes rob people of bulk of their returns

Every year Dalbar, North America’s leading independent expert for evaluating, auditing and rating business practices, produces its annual Quantitative Analysis of Investor Behaviourstudy, which shows that most investors underperform their own investment portfolios. Year after year, investors buy and sell at the wrong times. They do this because they allow their emotions to get in the way. Consider it part of the human condition. Believe me, professional advisors know all about these tendencies: that behavioural mistakes rob people of the bulk of their returns.

For example, in March 2019, Dalbar calculated that the average investor lost more than twice as much as the market in the previous year! The average investor saw their portfolio drop by more than 9% while the market was down only 4%. And this was no fluke. Over a 20-year time period, these mistakes have continued and investors, on average, underperformed the broad market by about 4% annually. Continue Reading…

How much are your old Mobile Phones worth?

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By Charles Duke

Special to the Financial Independence Hub

Selling a used smartphone is an excellent way to make some extra bucks and buy recently released phones. Today, phone prices drop drastically (sometimes by 50% in a month) as soon as new devices are released. This rapid depreciation allows buyers to find flagship smartphones at modest prices when they appear on the used market. Buyers are even more likely to find better bargains when they buy phones that are a couple of years old when new devices are launching. 

There are numerous sites to help users sell their old smartphones, including sellmymobile.com. Here are the prices buyers should expect when selling different phone models:

Apple iPhone

The price of an old iPhone depends on the model and where you want to sell it. Sites like sellmymobile.com should provide a range within which you can sell the device. Generally, private sales make more cash than shops or online retail stores since they need to mark up their sale prices. Sellers can expect more when selling the iPhone 6S, max models and high capacity phones (i.e. more than 16GB of storage). Other features that increase the value of an old iPhone include: 

  • The condition of the Apple device
  • An unlocked handset (Apple phones tired to a network). Users whose devices are tied to a network should consider unlocking it before selling.
  • If the battery has been replaced. Apple offers to replace batteries on iPhone models from version 6 and above for £25-£29 only.

Samsung

Samsung is known for its flagship Galaxy Note and Galaxy S series. The manufacturer develops high-end devices that can be out of reach for most people. As a result, many users opt to sell past generation Galaxy phones, which are often still in demand in a bid to purchase the latest phones. Prices vary from one site to another, and the longer the user waits to sell the device, the less money it attracts. Galaxy S4 for example retails at £133 on AT&t (black), £78 on Sprint (blue) and £151 (white) on T-Mobile.

OnePlus 

The manufacturer is known for making smartphones with high-end components and features without charging high prices. However, smartphones have lost popularity over time with prices plunging to as low as £ 40 for the OnePlus 3.

LG

Most LG users sell their old phones using the manufacturer’s buy-back program. The program allows users to earn cash and buy the latest devices. It also supports all carriers, i.e., AT&T, T-Mobile, US Cellular, Virgin Mobile, Boost Mobile, Cricket and MetroPCS, among others. The flagship smartphone series for this company is the G2, G3 and G4 models. Additionally, unlocked T-Mobile, Verizon and AT&T smartphones hold value longer than Android phones on carriers. Users should also ensure the IMEI or ESN of the phone is clear for activation on new wireless plans. As such, it can’t be reported stolen or lost and should not have an outstanding balance.

Oppo

Oppo is ahead of the curve when releasing new devices. It was the first company to introduce 5MP and 16 MP front cameras, 5x dual zoom technology and rotating cameras. As such, buyers of used devices are likely to find a pretty good bargain for used models. Find X, the company’s latest phone retailed at £1099, but users can now find a second-hand version at only £220. The smartphone has 8GB of RAM and 256 GB memory and is powered by a Qualcomm Snapdragon 845 processor.

Huawei

The market for used Huawei smartphones recently took a plunge since the US suspended the use of Android OS on its mobile phones. As such, buyers can take advantage of potential bargains as phones have dropped by £200-£300 since the ban. The P30 Pro, the manufacturer’s latest phone, now retails at £100.

Charles Duke is a content writer, covering topics relating to technology, investing, business and finance. He specialises in online article copywriting and has produced work for countless blogs over his 6 years of writing for the online community. He has a particular interest in psychology and behaviour when it comes to people and money and enjoys looking to the past for lessons that can be learnt from history.  

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Should you withdraw the Commuted Value of your Defined-Benefit Pension?

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By Michael J. Wiener

Special to the Financial Independence Hub

Should you withdraw the Commuted Value of your Defined-Benefit Pension?

No. There are some exceptions, but the answer is almost always no. In fact, if a financial advisor is pushing you to pull out the commuted value of your pension, that’s a sign that you’re likely working with a bad advisor.

There is almost no chance that your advisor will choose investments that outperform a pension fund, mainly because the total fees you pay with an advisor are so much higher than the fees charged within a pension fund.

Some advisors will tell you that you won’t pay any fees because the mutual funds pay the advisor. Don’t believe this. Mutual funds and advisors get paid out of your savings.

Further, defined-benefit pensions have the advantage of handling longevity risk. Pension funds can afford to pay you based on your expected life span, and they’ll keep paying if you happen to live long. With an advisor managing your money, you need to hold back on your spending in case you live long.

Where it might make sense to take the commuted value

There are some cases where it makes sense to withdraw your pension’s commuted value. Here are a few:

1. Poor health makes you likely to die much younger than average. In this case, taking the commuted value allows you to spend more now or leave a larger legacy. Continue Reading…

How to create a pension for the Average Joe: 65 with as little as $200K in Savings

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By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

We know many of our readers are not “average.” However, if average Joe can support his retirement on as little as US$200,000 savings, imagine what you can do with the amount you have!

By reading the chart below, you can see that the average spending for retirement households age 65 – 74 is US$46,000.


It is tough to make that $46k amount with only Joe’s savings, so what should he do?

Social Security

The average recipient today (in the United States) collects US$1,461 a month, or US$17,532 a year. Joe’s SS check is average and he has a wife who also collects the average Social Security amount.

$17,532 times 2 (people) = US$35,000 per year.

Not quite the $46,000 that they need but getting closer.

Hopefully, Joe has his retirement money invested in VTI (Vanguard Total Stock Market) or SPY (S&P 500 Index) and is making market gains equaling around 10% annually.


Here you can see that since the 1950’s — about when Joe was born — the S&P 500 has had an annualized return of over 11%, dividends reinvested, but let’s use 10% as a more conservative projection.

Remember, Joe has to make up $11,000 to match his average spending ($46,000). But let’s give Joe an extra one thousand dollars per year so he can pamper Mrs. Joe with occasional gifts and dinners out.

So, he needs $12,000 out of the $200,000 in savings per year to make up the difference in spending. That’s an extra $1.000 per month.

Invested in the S&P 500 — based on 69 years of returns and using 10% as the annual return — after his first year he would have $220,000 minus $12,000 withdrawal = $208,000.

Now Joe has $47,000 in annual income: $35,000 from Social Security and $12,000 from investments.

Plus, his $200,000 has grown to $208,000, a 4% gain outpacing inflation at the current rate of less than 2% per year.

Their Social Security payment is also indexed to inflation so as inflation rises, so will their Social Security. Continue Reading…