All posts by Financial Independence Hub

Bullshift and Misguided Beliefs

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John De Goey, a financial advisor and portfolio manager with Designed Securities, and long-time commentator on the financial services industry, was a keynote speaker at The Money Show recently held at the Metro Toronto Convention Centre.

Author of the book ‘Bullshift – How optimism bias threatens your finances’ (Dundurn Press, Toronto, 2023) and host of the popular podcast Make Better Wealth Decisions, De Goey delivered a presentation called Bullshift and Misguided Beliefs.

‘Bullshift,’ the term De Goey has coined, refers to his view about how the financial services industry makes people feel bullish in order to do the industry’s bidding. To make his point, he noted full-page ads appearing in such publications as The Globe and Mail; one of them ran under the headline ‘Be bullish.’

As for misguided beliefs, De Goey says there is ample evidence that Canadian mutual fund registrants believe things which are patently untrue. To illustrate the latter, he referred to Brandolini’s Law.

Alberto Brandolini was an Italian programmer who developed the term in 2013 and his rule goes like this: The amount of energy required to refute BS is an order of magnitude bigger than what was needed to produce it in the first place. Or, put another way, it compares the considerable effort needed to debunk misinformation to the relative ease in creating that misinformation.

American writer and humourist Mark Twain had a take on this at a much earlier time, and De Goey cited that. Said Twain: “It’s easier to fool people than to convince them that they have been fooled.” The point beyond all this, said De Goey, is that people must unlearn what they think they already know. No easy task.

His presentation at The Money Show covered a number of topics including:

  • The difference between misinformation (an honest mistake) and disinformation (saying something that is deliberately false), and how to unlearn the latter and think for yourself.
  • How behavioural economics and social psychology affect your investing decisions.
  • How the industry uses motivated reasoning and tribalism as opposed to critical thinking and evidence.
  • Why 90% of our financial decisions are based on emotions, not logical thinking.
  • Why governments and financial advisors like optimism over realism.

De Goey, always a student of history, observed that the market is 30% more expensive now than it was in 1929 just before the stock-market crash that led to the Great Depression. He mentioned the Smoot-Hawley tariffs of 1930 and their catastrophic impact on the U.S. economy, not to mention worldwide economy, and compared this to today’s on-and-off tariffs coming out of the Trump White House. He also noted recent credit downgrades and their effect on the U.S., and, of course, the very real pain of the tariffs which he believes will be much worse in the fourth quarter of 2025. What’s more, De Goey says this will be accompanied by higher inflation.

Bear market looming?

De Goey said the current bull market is “taking its final bow” and the bear market is “waiting in the wings.” In fact, he warned that gains made over the past six years could be entirely wiped out in the next four years if the historical regression to the mean for CAPE occurs. For those who are retired or nearing retirement, this would be devastating news indeed.

One of De Goey’s pet peeves – ‘optimism bias’ – refers to a) people thinking the good times will continue despite blatant warning signs, and b) the very human sentiment that bad things happen but only to other people. Not true, says De Goey. The trouble, he says, is that optimism can sometimes put you in trouble.

Normally, a presentation about money, economics and investing doesn’t get into wisdom imparted by such luminaries as Mark Twain, but De Goey didn’t stop there. He also took a page from Carl Sagan, notably, his 1997 book ‘The Demon-Haunted World. Said Sagan: “If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.” Continue Reading…

Challenging Times for Recent Retirees?

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By Dale Roberts, CutTheCrap Investing, Retirement Club

Special to Financial Independence Hub

The following is a special to Findependence Hub. This post is derived from a newsletter from Retirement Club for Canadians, re-shaped and enhanced for this audience. 

In the Globe & Mail Norm Rothery offered an article with the title – With today’s market, investors close to retirement face precarious times (sub required).  Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.

Retirees typically face the greatest risk in the first few years of retirement. A severe market correction or bout of inflation can permanently impair retirement plans. In fact, the risk for retirees starts several years before the retirement start date, they’re already in the retirement risk zone. 

Norm suggested … 

“Planning for retirement is tricky at the best of times because it is beset by uncertainties both known and unknowable. High valuations are one of the known problems but that doesn’t make them easy to deal with.”

While a severe market correction early in retirement is a great risk for retirees who will rely extensively on balanced or growth-oriented portfolios, a longer period of low returns can also create risk. The U.S. stock market is trading at worrying levels based on a variety of value factors. 

Norm demonstrated that the S&P 500 Index is trading at a cyclically adjusted price-to-earnings ratio near 39, which is approaching the 44 level that we saw in late 1999 as we approached the dot com crash. 

Source: Charlie Billelo / Twitter X 

The price-to-sales ratio is approaching its 1999 high. 

This ‘everything metric’ says we have the most expensive U.S. market – EVER! 

Source: Bloomberg

Dale’s related read: The lost decade for U.S. stocks.

And we can pile on with the Buffett Indicator … 

We certainly can’t just step aside and wait for the next recession. Valuation metrics provide no market-timing opportunity. Nothing provides any market timing opportunity. Valuation tends to be a poor near-term market predictor, but it can ‘predict’ the potential returns over the next several years to decade. The data suggest returns for U.S. stocks could be very low in the range of 1-4% annual or even negative in real dollar (inflation-adjusted) returns. 

And keep in mind that Canadian stocks (after a very healthy run) are expensive as well. After their big run-up this year, Canadian stocks now trade for nearly 29 times their average inflation-adjusted earnings of the past decade, according to Citigroup, the historical average is 16, TSX returns over the next several years might be challenged as well. 

So, there is a risk of a major correction inspired by the lofty levels. And low returns in the first decade can put a strain on the spending plans.  Continue Reading…

The Rear-View Mirror vs. The Road Ahead

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Alex Proimos via Flickr (Creative Common)

I’d gladly lose me to find you
I’d gladly give up all I have
To find you, I’d suffer anything and be glad

 I’ll pay any price just to get you
I’d work all my life, and I wi
To win you, I’d stand naked, stoned and stabbed

 I call that a bargain
The best I ever had  

  • Bargain, by The Who

 

By Noah Solomon

Special to Financial Independence Hub

Many investors could be forgiven for believing that U.S. stocks are a superior investment to their non-US counterparts. Since the global financial crisis, U.S. stocks have not merely outperformed those of other countries:  they have trounced them. Over the past fifteen years, the S&P 500 outpaced other developed market equities by a cumulative 150%.

Notwithstanding this astounding outperformance, successful investing necessitates looking ahead. To assess the likelihood that U.S. stocks will continue to outperform, it is important to (1) analyze the drivers of their past outperformance, and (2) determine the future sustainability of these drivers.

Not as Exceptional as you might think

Over the past decade, U.S. companies have delivered stronger earnings growth than those in other countries. However, given the degree to which their share prices have outperformed, the magnitude of their excess earnings growth is far less than one might suspect. Over the past ten years, American company earnings have outpaced those of foreign companies by a meagre 3.8% on a cumulative basis. Moreover, this excess growth was concentrated in the first part of the decade, with U.S. companies growing their earnings at the same clip as their non-U.S. peers from 2020-2024.

Not only has U.S. earnings growth been undifferentiated over the past five years, but it has achieved this mediocrity due to the stellar growth of a small handful of mega-cap tech stocks. Between 2020-2024, the magnificent six (Tesla was not in the index at the end of 2019), which collectively represent a 32% weight in the S&P 500 Index, grew their earnings at an extraordinary, annualized pace of over 20%. Given that the aggregate U.S. earnings growth, which was bolstered by a handful of mega-cap growth companies, has been undifferentiated, it follows that most U.S. companies have been subpar vs. the rest of the world from a fundamental perspective.

Despite relatively weak earnings growth from a global perspective, the non-magnificent 68% of S&P 500 companies nonetheless trade at a significant premium to their non-U.S. peers. Going forward, unless these companies can produce greater earnings growth than those in other regions, their relatively elevated valuations are not fundamentally justified. Moreover, there are several reasons to suspect that that U.S. companies will fail to grow their earnings faster than those in other regions.

Firstly, the U.S. administration’s imposition of tariffs on its trading partners will inevitably raise costs for American companies and reduce the global competitiveness of goods produced in the U.S. Even in rare instances where U.S. companies are successful in passing through these increased costs to their customers, their profits will nonetheless suffer from lower volumes. In addition, recent developments in U.S. immigration policies will reduce the supply of labour, which will hinder economic growth. Lastly, continued policy uncertainty is likely to engender a “wait and see” mode among CEOs, thereby leading to lower levels of investment.

The Magnificence is Evolving

Even if the non-magnificent majority of U.S. stocks fail to deliver the superior earnings growth that is required to justify their relatively high valuations, there is always a possibility that the magnificent minority could save the day by delivering earnings that exceed expectations. At an aggregate valuation of 30 times forward earnings, magnificence does not come cheap. However, if these companies can continue growing their earnings at their historic pace, their valuations are sufficiently reasonable to allow for strong gains in their stock prices. Conversely, if their growth reverts to less magnificent levels, the ensuing capital losses could be substantial.

One of the key drivers of the magnificent Six’s success has been their ability to grow their earnings at a breakneck pace with far smaller amounts of investment than what has been required of past behemoths. However, they have been aggressively ramping up investment in response to the current AI gold rush. While it is possible that these investments will produce strong returns, the fact remains that the low investment/high growth dynamic which has been a key element of the magnificent six’s magnificence may be a thing of the past.

Have I got a Deal for You

Given that U.S. companies have experienced similar earnings growth as their global peers, it follows that the former’s outperformance has been driven primarily by greater multiple expansion, which has resulted in U.S. P/E ratios that currently stand in the 90th percentile of their historical range. Relatedly, the earnings yield on U.S. stocks is close to an all-time low relative to Treasury yields. In contrast, international stocks are currently valued at a historically large discount to their U.S. counterparts.

Price/Gross Profit by Region

 Admittedly, it is possible for valuations to become even more stretched in the short term, and timing markets perfectly is an exercise in futility. However, history strongly suggests that higher valuations foreshadow below average returns over the medium-to-long term. Moreover, in the absence of any compelling argument that future profit growth of U.S. vs. non-U.S. companies will be meaningfully different, the latter appear to be a relative bargain. Continue Reading…

8 Effective Strategies for Managing Retirement Income and RMDs

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Pexels photo by Marcus Aurelius

Retirement income management and Required Minimum Distributions (RMDs) can be complex topics for many Americans. This article presents effective strategies to help readers navigate these financial challenges. Drawing on insights from financial experts, the following tips offer practical approaches to optimize retirement income and manage RMDs efficiently.

  • Purchase Annuity for Guaranteed Retirement Income
  • Leverage Qualified Charitable Distributions for RMDs
  • Optimize Asset Location for Tax-Efficient RMDs
  • Consider Annuities for Steady Retirement Income
  • Use Trusts to Manage RMDs Strategically
  • Convert to Roth During Market Downturns
  • Implement Bucket Approach with Beneficiary Designations
  • Start Home-Based Business to Offset RMDs

Purchase Annuity for Guaranteed Retirement Income

It is important to always consider broader planning needs, but one strategy that can be useful for generating retirement income and managing required minimum distributions (RMDs) is purchasing an annuity. This annuity would be purchased within an IRA and would create a level stream of guaranteed income for the rest of one’s retirement. This will not only satisfy one’s RMDs, but it can also lower taxes by stretching income across many years. In particular, it could help avoid large, irregular distributions that might push one into higher tax brackets. — Aaron Brask, Retirement planner, Aaron Brask Capital LLC

Leverage Qualified Charitable Distributions for RMDs

The obvious choice is to find a part-time job that aligns with your passion. This way, you can generate income and get paid to enjoy your favorite hobby. For example, if you love golfing, getting a part-time job at a golf course may give you discounts or even free games.

As far as managing RMDs, the amount that you must distribute is not determined by your income. It is based on the value of your Traditional IRA at the end of the year and the IRS Uniform Lifetime Table or Joint Life and Last Survivor Table.

This doesn’t include Roth IRAs. There are no RMDs in these accounts.

The best way to manage the increase in income, which can lower benefits such as Social Security or Medicare Part B (which are based on annual income), is to leverage Qualified Charitable Distributions (QCDs) for those who are philanthropic or give to a 501(c)(3) religious institution such as tithing.

When you reach the age to take RMDs, you can directly give to your favorite charity without incurring the tax implication or the increase in income that comes with RMD distributions. In 2025, you can donate up to US$108,000.

This will eliminate the RMD from being counted in your gross income and, at the same time, qualify for satisfying your annual distribution requirement.

I think this is useful because their favorite cause still receives donations, they satisfy their RMD, and they don’t have to pay the taxes up to that amount.

One thing I love about it is that you can make as many QCDs as you wish during the year as long as the total doesn’t exceed the threshold. — Alajahwon Ridgeway, Owner, A.B. Ridgeway Wealth Management, LLC

Optimize Asset Location for Tax-Efficient RMDs

After 15+ years managing corporate finances and helping businesses with cash flow optimization, I’ve seen how asset location strategy can be a game-changer for Required Minimum Distribution (RMD) management. The approach involves strategically placing different types of investments across taxable, tax-deferred, and tax-free accounts to minimize the tax impact when RMDs hit.

I worked with a client in the software technology space who had accumulated significant wealth through stock options and 401(k) contributions. We repositioned his bond holdings and REITs into his traditional IRA while moving growth stocks to his Roth accounts. When his RMDs started, he was pulling from bond interest and dividend income rather than forcing the sale of appreciating assets.

The key insight from my Financial Planning and Analysis (FP&A) background is treating this like portfolio optimization: you’re maximizing after-tax income rather than pre-tax returns. His RMD tax bill dropped by 18% because we were distributing lower-growth, income-generating assets instead of his high-performing tech stocks.

This works especially well for anyone with diverse investment types across multiple account structures. The planning needs to start at least 5-7 years before RMDs begin, but the tax savings compound significantly over time. — Michael J. Spitz, Principal, SPITZ CPA

Consider Annuities for Steady Retirement Income

Although annuities are often a source of debate and critique, they are still a functional and conservative way to generate income in retirement. If set up early enough, the steady income can often account for Required Minimum Distributions (RMDs) across all Individual Retirement Account (IRA) assets since the withdrawal rates are higher than the often quoted 4-4.5%. — Pedro Silva, Financial Advisor, Apex Investment Group, LLC

Use Trusts to Manage RMDs Strategically

After 25 years of helping clients navigate estate planning and witnessing countless families deal with Required Minimum Distribution (RMD) challenges, I’ve discovered the most effective strategy: creating an offshore Asset Protection Trust that feeds into a domestic charitable remainder trust for your RMDs. While this may sound complex, it’s incredibly powerful for the right situation.

Here’s how it works: I had a client with US$2.3 million in retirement accounts who was facing substantial RMDs that would push him into the highest tax brackets. We transferred a portion of his Individual Retirement Account (IRA) into a charitable remainder trust, which allowed him to take his RMDs as annuity payments over 20 years at a much lower effective tax rate. The added benefit? The remainder goes to charity, providing him with immediate tax deductions that offset other income. Continue Reading…

Can you retire using a 60/40 portfolio?

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

I enjoy posting retirement income case studies on this site, so let’s jump right in: can my readers retire using a 60/40 portfolio?

I believe they can. 

Can you retire using a 60/40 portfolio?

As mentioned on this site many times over the years, retirement income planning is a puzzle for some. Not all retirees will have more income generated from their portfolio than what their annual expenses are … although that is probably ideal for some.

That said, it is possible (although rare) to save too much for retirement – if you rely on general assumptions to calculate how much you’ll need.

A good example is your retirement income replacement rate.

The replacement rate is the percentage of the pre-retirement income you need to maintain your standard of living in retirement. I believe overestimating this rate can cause you to save more than what you need for retirement spending.

A general rule shared by some experts is you’ll need between 70-80% of your current income to maintain a comfortable lifestyle in retirement. This is because once saving for retirement is done, and paying off any debt prior to retirement, those pre-retirement expenses drop off.

Other experts cite 50-70% for the necessary income replacement rate. I shared that in this post.

Which one is correct?

Spending 50% of your pre-retirement income is likely a MUCH different number for you and I, vs. 80%.

Retirement rules of thumb are interesting for back-of-the-napkin fun but they have no value in any detailed income planning work. Which makes the following simple but essential IMO in your retirement income planning steps:

Step 1: What are your spending goals?

Step 2: What are your investment savings and income sources to meet those needs?

Step 3: What is the bare minimum lifestyle that you’re ready to live off?

Here is a free retirement income planning playbook. No fee required.

Can you retire using a 60/40 portfolio?

My reader, Olin (name changed) is single and wants to semi-retire this summer at age 55. He has no children or dependants. He’s had a good paying job over the years as a graphic designer but wants to take more of his artistry on the road in the coming years…  He performs at various music gigs during the year for hobby/travel income.

After reading my site, including some MoneySense Best ETFs in Canada editions over the years, he’s landed on a comfortable 60/40 stock/fixed income portfolio across his accounts: that matches his tolerance for investing risk but also seeks to simplify how he invests for his retirement: in a single low-cost all-in-one ETF.

Olin appreciates and respects the dividend income journey by many bloggers but Olin doesn’t have enough money saved up to generate tens of thousands in dividend or distribution income from his portfolio without taking on higher risk bets: so he wants to rely on more of a total-return approach. This should work out well for him based on some historical research and trending.

As a student of market history, Olin is well aware instead of living off dividends or distributions, he could simply sell-off assets as he ages to meet his lifestyle needs. While that approach has some risks as well, depleting your capital over time, Olin is also very confident he could scale-up or scale-down discretionary spending in semi-retirement at will: he will spend more in “good years” and curtail some spending in “bad years.” Being variable with his spending should allow for even greater financial flexibility since he remains out of debt and mortgage-free.

Leveraging some Vanguard research I presented at an Ottawa Share Club meeting in May, 60/40 stock/fixed income portfolios have been very reliable, pension-like constructs for years.

Reference: https://www.vanguard.ca/en/insights/global-6040-portfolio-steady-as-it-goes

While the financial future is always uncertain, there is nothing to suggest a global mix of stocks + a decent weight of fixed income shouldn’t deliver similar results: balancing risk and reward in the decades ahead.

Can my reader Olin retire using a 60/40 portfolio?

Here are Olin’s inputs and assumptions as part of this case study:

  • Olin, single, age 55 later this year – wants to semi-retire summer 2025. He makes $80,000 (gross).
  • He wants to spend > $50,000 after-tax starting this summer.
  • He loves travel, and will take his guitar with him! He has determined he wants some “go-go” spending years between ages 55-79 and will have “slower-go” spending years after age 80.
  • Olin has no workplace pension.
  • He has no debt. He owns his townhome in Ottawa worth about ~ $750,000. Continue Reading…