All posts by Financial Independence Hub

3 rookie mistakes that seasoned investors still make

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By Neville Joanes

(Sponsor Content)

We’ve all been enjoying the bull market. But getting a historically respectable 6 per cent return, or even doubling it, can feel underwhelming when the economy is roaring ahead and the Nasdaq has gone up 30 per cent.  From what I see, the difference between the big winners and the also-ran-investors often comes down to whether or not they let their biases cloud their judgement. Even experienced investors are not immune.

It’s such a big problem that an entire field of study has sprouted out of this: behavioral economics. Economist Richard Thaler won a Nobel prize for his work looking at how these biases operate among humans in a supposedly rational market.

Here’s a roundup of the worst mistakes I see again and again from DIY investors (which is why a lot of these people would be better off with a set-it-and-forget-it strategy).

Running with the herd

If you want an above-average return, then don’t rush into what the crowd is doing.

Probably the most outrageous example of this mistake is to be found in the irrational exuberance over Bitcoin. Just $1,000 worth of Bitcoin from a few years ago would be over $1 million today. If you threw caution to the wind and invested in this years ago, then you have certainly seen the kind of ROI that Wall Street hedge fund managers can only dream of. But all those gains are in the past, to the benefit of the early adopters.

The vast majority of investors have arrived late to this party. Most of the large gains have already been captured. And while there may be more growth yet to come, experts say that Bitcoin eventually seems destined to repeat its bust cycles of 2011 and 2014. The herd is about to race off a cliff. Usually, by the time your neighbor next door is jumping on the bandwagon, it’s already past time to get off.

Recency bias

We all know that past performance is no guarantee of future returns. And yet, it is basically human nature to ignore that knowledge.

In life, recency bias is actually a useful rule of thumb a lot of the time. Your friend who always shows up late will show up late again. The restaurant you liked years ago, but whose quality keeps declining will continue to suck, in new and intolerable ways.

For investing, recency bias can really do harm. We see a line graph showing a steadily-rising return, like with the Nasdaq: well, why wouldn’t that trend continue? Because it can’t. Over time, as an asset rises in value, we can expect it to fall back down to the mean.

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4 ways to avoid a financial crisis before it happens

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By Lidia Staron

Special to the Financial Independence Hub

Do you want to avoid a financial crisis before it happens? Everyone does, but few are willing to take the essential steps. You might have heard rumors of a significant economic crisis just looming around the corner. Whether it happens at a personal or national level, it feels good to know that you have done something to avoid it or at least soften its impact in your life.

In this post, let us take a look at some of the most effective ways to avoid a financial crisis before it happens:

1.) Save before you spend

Benjamin Franklin said “a penny saved is a penny earned.” Nothing can be truer than that! Every time you spend on something, you take out cash from your pocket. It decreases your wealth. Spending on unnecessary things may mean that you could have used precious resources for other things.

Now, it doesn’t mean that enjoying the fruits of your labor and buying things that you love are bad things. The point is that sometimes you just have to make small sacrifices today to enjoy great rewards in the future. And that’s precisely what saving can do for you.

The best way to avoid a financial crisis is as simple as saving a penny a day. You can then gradually increase your savings each month. It may sound small at first, but great things start from little things. The key here is consistency. Just keep on saving, and you will soon see how it can help you become financially secure.

2.) Make a Budget

It’s helpful to be reminded of this adage, “If you failed to plan, you planned to fail.” Budgeting is a form of planning for the future. Some people mistakenly thought that they could go on with their lives without a budget. Almost always, without fail, those who don’t have a budget are the same people who are in a financial strait.

Making a budget does not have to be complicated. It only takes a few minutes. Decide where your money goes and ensure that you track every penny from your wallet. If you made a personal loan online, then make it a point to pay off debt first as much as possible before spending on things that are just optional. Continue Reading…

Why you might get more for your home in January

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

When it comes to nuggets of real estate wisdom, a persistent adage is that one should avoid selling in the winter at all costs:  after all, bad weather, limited sunlight and poor driving conditions don’t inspire shoppers to peruse open houses.

But while it’s a fact that the winter housing market is a slower one — there were 25 per cent fewer sales in the Toronto real estate market in January 2017 compared to the previous May —  having to list your home in the new year doesn’t necessarily mean compromising on your profits.

In fact, due to a few seasonal phenomena, listing your home for sale in January can translate to a higher sales price; here’s why.

Winter buyers are extra motivated

Just as January sellers are likely listing for a reason, early-winter buyers are also likely driven by a sense of urgency. In fact, a small but persistent bump in activity is typically seen in the weeks following New Year’s Day, as buyers who shelved their holiday home purchases jump back into the market.

January also tends to be a busy season for mortgage pre-approvals, especially for organized buyers seeking every advantage in preparation of the spring market. However, once these buyers have confirmed their maximum buying power, they may be tempted to take a preliminary look at what’s available now, including your listing.

“The fact is, if you’ve waited until spring to get a mortgage pre-approval, you’re already late, and there are a few real estate market factors that will work in your favour if you act now,” says Mike Bricknell, a mortgage broker at CanWise Financial.

“It is very beneficial to get your mortgage pre-approval when the housing market is quieter, especially as there have been many recent industry changes that may have affected what you can afford.”

Low supply means higher prices

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Your (last) greatest show on earth

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By Heather Compton

Special to the Financial Independence Hub

What do you envision when it comes to your final wishes? Would there be a formal service? If so, who would officiate? Do you wish to be cremated or buried or donate your remains to science?

I get it, end of life conversations are difficult and even if you are prepared to have the discussion, dollars-to-donuts your kids or responsible family members don’t want to go there.

Regretfully I’ve been involved with funeral planning for a number of relatives, and even some clients, and these are the decisions families find most difficult. When the time comes —  and it will —  the question inevitably asked is some variation of “What do you think mom would have wanted?”

If those closest to you know your personal wishes they don’t have to make it up in the funeral director’s showroom while debating between the grand showcase coffin and the budget version you might have preferred!

Bless Mom — she was very clear — cremation by the most frugal means possible, and a nice lunch for our friends.  My Scottish depression-era mother liked the memorial society option because they negotiate funeral cost discounts.

The Memorial Society Association of Canada’s website identifies contacts across the country. A modest membership fee gets you an information package to help document decisions plus they pre-negotiate cost-conscious plans with funeral homes. You can file your wishes with the funeral home or with a memorial society but keep a copy with your other important documents.

Fire Drill Conversations

Because these are difficult conversations, I suggest you treat them like a fire drill: keep it short, discuss what’s needed, make sure everyone understands, document and call it done.  Have another fire drill if your thoughts or wishes change.

Here goes:

► Style of service Continue Reading…

What to do and not to do when with your IRA

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By Sia Hasan

Special to the Financial Independence Hub

If you have decided to invest in a self directed IRA (Individual Retirement Account: the American equivalent of Canada’s RRSP), you have taken the first step to enjoying a better financial future and to preparing for peace of mind in retirement. However, simply opening an IRA account is not all that it takes to benefit from this type of retirement account. If you want to maximize the benefits of your IRA fully, follow these helpful tips:

Choose the right type of Retirement Account

There are several types of IRA accounts that you can open, and two of the most common options are a traditional and Roth IRA. There are significant differences between these accounts. By learning more about these differences, you may be able to find the account type that is best for your financial planning efforts.

Both have similar contribution limits, but a Roth IRA uses money that has already been taxed as contributions. When you withdraw the money after you reach age 59 and a half, you can enjoy tax-free distributions. A traditional IRA, on the other hand, uses pre-tax dollars as contributions, and the money is taxed at a later date when you withdraw the funds. Depending on your current tax rate and your projected tax bracket in retirement, you may find one of these options to be far more useful than the other.. For example, if you expect to be in a lower tax bracket in retirement, a traditional IRA may be a better option for you because it minimizes your tax liability.

Maximize your contributions

If you want your account balance to grow at the fastest rate possible, you should make regular contributions into it each year. More than that, you should maximize your contributions annually to fully take advantage of the tax benefits associated with the account. Any additional investment funds that are available can be invested in another tax advantageous account or in a non-investment stock account.

Be aggressive in your younger years

With a self-directed IRA, you are in complete control over how your funds are invested. This means you can choose to take less risk or more risk. While taking more risk may sound unwise, the reality is that riskier investments generally have a higher return. In your younger years when you have decades before retirement, you can more comfortably take these risks with your investments. When risks are intelligent and moderated, you can grow your nest egg substantially in the younger years of your adult life. Then you can comfortably reduce your risk and return later in life without negatively impacting your financial security in retirement. Continue Reading…