All posts by Financial Independence Hub

How to stop worrying and embrace market Volatility

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By WisdomTree ETFs
Following one of the most tranquil years in stock market history, volatility came roaring back in late January and early February. Many investors were calling for the inevitable return of volatility in 2018, ourselves included. That said, few foresaw how quickly and how violently that prediction would come to fruition. While there was some debate as to what exactly prompted the pickup in volatility (with everything from inflation to inverse volatility exchange-traded products to the all-encompassing “quants” being blamed), the bottom line is that the spike in the Volatility Index (VIX) left equity investors running for cover.

 

One thing we found interesting was that during the height of the correction, the MSCI Emerging Markets Index outperformed the S&P 500 by almost 150 basis points on the downside, with other emerging market (EM) strategies holding up even better.1 Given that the EM asset class historically has had a standard deviation about 50% higher than that of the S&P, EM investors who may have expected the performance of EM to be worse than that of the U.S. were likely pleasantly surprised.

Valuation’s impact on Beta

The EM outperformance brings to mind a concept that Jeremy Grantham has written about: beta is a critical component of explaining relative performance, but valuation can influence beta. Assets that are more expensive relative to their history may experience volatility above their expected levels (and vice versa). When an asset’s price outruns its fundamentals, a downturn in the market can be disproportionally negative when the music stops.

This is the exact same idea that underpins WisdomTree’s original investment philosophy and why we focus on fundamentals. Regarding those fundamentals, within EM we remain encouraged by corporate earnings and believe that the attractive valuation currently offered by the asset class is being underappreciated. As such, the recent sell-off may have provided us with a live case study that validates the dynamic beta concept.

Using Volatility as a Buy signal

As our Chief Investment Strategist Luciano Siracusano recently noted, when the VIX spikes upward, the following 12 months historically have seen strong returns for the S&P 500. Taking it a step further, while elevated VIX levels have portended good times for U.S. equity investors, EM equity investors have had even greater reason to cheer. Continue Reading…

Stop cheating yourself out of tax savings: Tips to get the biggest refund

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By Clayton Brown

(Sponsor Content)

The CRA might not exactly be falling over themselves to help you get a nice tax refund. A recent audit showed the agency blocked more than half the calls it was getting (that’s 29 million calls out of 53.5 million) because … well, it just could not handle all of the call volume.

And even when Canadians did get through, agents gave the wrong information about 30 per cent of the time. So, Canadians might need a little help in figuring out how to file their taxes the right way; ideally, so they get the maximum refund they deserve.

Here are some things you can do around tax time to make sure you get the money that should be coming to you:

Take your deductions and claim your credits

The CRA likes its revenue but successive governments have created various options to give the taxpayer some breathing room. Deductions are one of the few variables in your favour, lowering your taxable income, so make the most of them.

Probably one of the best known ones comes from RRSP contributions.

You can contribute up to 18 per cent of your previous tax year’s earned income, plus unused room carried forward from previous years. This helps you pay less tax now, and assuming your income is lower in retirement, also helps you pay less tax later on. By now, you should have all your RRSP receipt slips from your financial institution. (Make sure you keep those receipts, in case auditors come calling).

Another tactic: claiming deductions for child care costs. The government wants to encourage parents to buff up their skills and improve their job prospects. For instance, you can deduct up to $8,000 per child who is under 7 years old. For children aged 7 to 16, you can deduct up to $5,000 for those eligible child care expenses.

Canadians can also claim the interest on certain student loans as a credit. This credit is not like a deduction (where a $1 deduction translates into $1 less taxable income, up to a limit). However, it can still significantly lower a tax bill for those struggling to finally pay off student debt after they’ve finished school.

There are many more deductions and credits available, so don’t leave money on the table!

Love those Spousal RRSPs

Marriage is a beautiful thing. Being with the person you love, sharing memories … and don’t forget about those tax advantages! (Technically, they also apply to common-law spouses, so you don’t have to get hitched to reap the rewards).

These tips generally apply where one spouse earns quite a bit more than the other. In that case, it can make sense for the higher-earning partner to contribute to a Spousal RRSP.

So, let’s say Ned makes $80,000 in salary at his engineering job. Meanwhile, Ned’s wife, Claire, earns just over $50,000 as a manager in an electronics store.

They are both contributing to their own individual RRSPs (Ned saved $6,000 in his. Claire saved $4,000). But Ned also puts $5,000 into a Spousal RRSP. Since Claire’s income is lower, she is the holder of the Spousal RRSP and she will be the one withdrawing income from it. The ideal result, if they’re doing it right: when she makes a withdrawal, it will be taxed at a lower rate than if Ned withdrew it from his own RRSP. Continue Reading…

Where is the most affordable housing for Singles?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s no secret that Canadian real estate is expensive, with home ownership financially out of reach for many in the nation’s largest urban centres. Detached Toronto houses, for instance, fetched an average of $1,282,240 in February: and that follows an 18.6 per cent decline from the year prior.

Affordability in Vancouver remains at an all-time low; according to a recent report from RBC, the lender’s Senior Vice President and Chief Economist Craig Wright stated Vancouver home buyers “are being challenged by the worst affordability levels ever recorded in Canada.”

Well beyond expert advice

Financial experts commonly recommend that for homeownership to be financially sustainable, shelter costs should not exceed a third of a household’s take-home pay. This is easier said than done in the majority of Canada’s markets: and not at all possible in some regions for those purchasing a home on a single income, according to data compiled by Zoocasa.

To determine the level of affordability in each market, the study determined the median home price-to-income ratio, based on regional home prices reported by the Canadian Real Estate Association, and median household incomes from Statistics Canada.

This ratio determines how many years it would take to pay off a home using 100 per cent of a household’s annual income:  the higher the ratio, the longer the timeline. And, while dual-income households have their fair share of affordability challenges in hot markets, the numbers paint an impossible picture for solo buyers.

For example, in Vancouver, where a single-income household brings in a median annual salary of $38,164, and the average home cost $1,071,800, homeownership outweighs incomes by multiple of 28. A home in the City of Toronto would set said buyer back 19 years for their home purchase.

Even most affordable markets too pricey for Singles

However, in a market as varied as Canada’s, affordability can change drastically by market, yet single-income households are still theoretically paying too much on homeownership in even the most affordable regions. Houses for sale in Hamilton, a popular secondary market to Toronto, still cost single buyers 15 times their income while in Saint John — the most affordable Canadian market — the average home price of $171,596 still outstrips the regional median income of $39,163 by four times.

Continue Reading…

The 10 worst mistakes that new Entrepreneurs are likely to make

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By Abby Vonda

Special to the Financial Independence Hub

When you’re starting your own business for the first time, it’s all about learning from your mistakes. But it can save you a lot of time, effort and money if you manage to avoid them altogether. Here are some of the 10 worst mistakes you can make as a beginner entrepreneur:

1.) Being too inflexible

Your business idea may look great on paper but in practice things rarely go as predicted. You may come across unexpected challenges and opportunities once your business gets off the ground. Don’t be so inflexible that you fail to recognise them.

2.) Forgetting your Vision

While flexibility is key, you don’t want to move in too many different directions at once. It will spread your time and resources too thinly. Keep your vision clearly in mind. It may adapt over time. But you should always have a reference point to come back to.

3.) Beating yourself up over Setbacks

When you’re just starting out, any setbacks can really dent your confidence and motivation. It’s important to remember that every business experiences these setbacks. And it’s learning to move forward and do things differently next time that will make your business stronger in the long run.

4.) Thinking you can do it all yourself

Very few people are able to master all aspects of entrepreneurship. Try to be aware of your own strengths and weaknesses. If you struggle with business administration or copywriting or keeping track of the numbers, get somebody on board to help you. This doesn’t even need to be a full time employee: freelancers and contract workers give you flexibility as well as the necessary expertise.

5.) Failing to consider Investment implications

When searching for initial investment, it can be tempting to jump at any offer. However, it’s worth taking your time to consider investment implications. What will it mean if investors have voting rights? And how would you feel if family members lose money, even in the short term, as a result of their investment?

6.) Keeping your idea too close to your chest

When you have a great idea, it’s tempting to keep it close to your chest. You don’t want anyone else to run off with it and get there first. But unless you are able to share your vision with others you may struggle to get it off the ground. Continue Reading…

5 financial tips that save money in the long run

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By Sia Hasan

Special to the Financial Independence Hub

The financial steps you take now can have a major impact on your life. Believe it or not, there are changes you can make right now if you would like to save yourself a lot of money.

Below are five tips you can follow if you would like to handle your finances in the best way possible.

1.) Save for Retirement

First, it’s never too early to start saving for retirement. For example, if you don’t already have one, you can open up a self directed IRA (or its Canadian equivalent, the RRSP.) Contributing money to your retirement account now can help you ensure that you save up enough money for when you are no longer able to work. If you start now, you can help ensure that you earn more in interest as well.

2.) Focus on Maintenance

Maintenance of your home, car and other things you own can be expensive. However, not maintaining your home or vehicle can actually be a lot more expensive in the long run. Therefore, even though it can be tough, it’s important to make maintenance a top priority. This can help you ensure that things last longer and can help you avoid more expensive repairs later on down the road.

3.) Take care of your Health

Along with focusing on taking good care of your car, your house and your other belongings, it is also important to take good care of yourself. Not only can taking care of your health help with your overall happiness and well-being, but it can save you a lot of money as well. Therefore, it’s important to avoid smoking or drinking too much alcohol, and it’s also critical to see your doctor and your dentist on a regular basis. Continue Reading…