All posts by Financial Independence Hub

Is Inflation making a comeback?

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

In a noticeable turn of events, one of the key talking points for the 2017 investment landscape has been the potential return of inflation. Indeed, only a little more than a year ago, a rather different take on this topic was dominating market discussion: deflation. However, since the results of the U.S. election became known, market participants began to shift their focus to what is being referred to as the “Trump Reflation Trade.”

Quite simply, the logic behind this “trade” is that fiscal stimulus will now take the baton from monetary policy and provide a newfound jolt to the economy, spurring potentially higher growth and elevated inflation readings, accordingly. For the most part, the financial markets appeared to buy into this line of reasoning, as the S&P 500 has risen +10% since Election Day while the U.S. Treasury (UST) 10-Year yield has climbed by about 65 basis points (bps) during this same time frame. Interestingly, broader commodity prices, as measured by the Thomson Reuters/CoreCommodity CRB Index,  rose in the two-month period following the election to as high as +6.3% but have since reversed course and were basically unchanged as of this writing.

The most widely followed inflation gauge in the U.S. is the Consumer Price Index (CPI). This monthly report is released by the Bureau of Labor Statistics (BLS), with both the overall and core (excluding food and energy) readings receiving the most attention.

Inflation rise of 2.7% highest in 5 years

The February CPI report revealed that overall inflation rose at a year-over-year rate of +2.7%, the highest in almost five years. Continue Reading…

What first-time home buyers should know about FHA loans (U.S.)

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By Cher Zevala

Special to the Financial Independence Hub

For most people, a home is the most significant purchase they will ever make, as well as one of the most complex. Finding a home is actually the easiest part in most cases, but financing the purchase can be stressful.

That stress is only amplified when you want to purchase a home, but don’t necessarily meet lender qualifications for an attractive mortgage. Simply put, it’s not always easy to get a mortgage for a home. Lenders have strict criteria in terms of down payment, income, and credit history, and failing to meet those criteria can mean disappointment, at least when you work with a traditional lender. Thankfully, there are other options for purchasing a home, such as an FHA mortgage.

What Is an FHA Mortgage?

An FHA mortgage or loan is a home loan backed by the Federal Housing Administration (in the United States).  Borrowers who get a mortgage under this program must purchase mortgage insurance, which protects the lender in the event of a default. The agency itself does not issue the loan, but instead works with traditional lenders, providing assurance that the bank will not lose money on the deal.

FHA loans are attractive to many home buyers because they typically have less stringent qualifications in terms of down payment and credit score, but still offer competitive interest rates. For instance, while a buyer who only has a 10 per cent down payment and a credit score of 600 is not likely to qualify for a traditional loan, he or she has a better chance of getting financing via an FHA loan. Continue Reading…

U.S. Treasuries: Who’s buying, who’s selling?

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Major Foreign Holders of U.S. Treasuries Dec. 2016

By Kevin Flanagan, Senior Fixed Income Strategist, WisdomTree

Special to the Financial Independence Hub

One of the linchpins supporting the U.S. Treasury (UST) market in recent years has been the relative yield advantage against the rates that have existed among the sovereign debt of other G7 nations. In the post-U.S. presidential election landscape, fixed-income investors have witnessed a back-up in G7 government bond yields on a global basis, and questions have arisen as to whether said advantage would remain a key contributor to the UST market outlook in 2017, now that the “zero rate club” has shrunk. The best way to answer this query is to examine just who exactly has been buying and who’s been selling, with the first data point looking at developments from the foreign perspective.

Each month, the Treasury Department releases statistics on this front, but it should be noted that the actual data are provided with a one-month lag. Thus, the latest report did not provide any fresh details on how 2017 got started, but it does offer interesting information for calendar year 2016. The report itself is called Treasury International Capital data, or TIC, as it is known in fixed income trading circles, and includes the figures for “Major Foreign Holders of Treasury Securities.” Continue Reading…

On the Middle Class & paying one’s fair share of taxes

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By Tim Paziuk

Special to the Financial Independence Hub

The Liberal Government has stated it wants to build a strong middle class, but who comprises the middle class?  Mr. Morneau in his 2017 budget speech stated, “All Canadians must pay their fair share of taxes,” but what is a “fair share”?  Does fair share mean the total amount of taxes one pays as a percentage of their gross income?  Is this based on an annual consideration or a lifetime consideration?  Or does fair share mean positively contributing to the general revenue?

The answer to the first question is an ongoing contentious debate.  According to former Finance Minister Mr. Joe Oliver, the middle class could include households earning as much as $120,000.  Given research completed by MoneySense Magazine[1], the middle class could include households earning incomes ranging from $38,800 to $125,000 (average second, third, and fourth quintiles for Canadian households), but this varies considerably between Provinces and Territories, and even between cities.  But does owning a private corporation automatically exclude you from the middle class?  The continued witch hunt on private corporations by the Liberal Government would indicate this is the case since it directly contradicts their mandate to build a strong middle class.

Comparing a private-sector and public-sector worker

It is at this time I would like to introduce Sally.  Sally could be a physician or accountant, an engineer or architect, a therapist or life coach, or a hairstylist or clothing retailer.  Suffice to say that either out of choice or necessity, she is self employed.  Let’s make her a plumber who is in a position where it makes sense for her to incorporate because she can defer income within her corporation and income split with her spouse under present tax legislation.  Her spouse works part-time.  Their situation can be summarized as follows:

  • Sally’s taxable corporate income: $100,000
  • Spouse’s gross income: $25,000
  • Net income required to meet their lifestyle: $80,000
  • Spouse’s CPP income: $4,300

Continue Reading…

Men and women approach taxes & investing differently

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By Gennaro De Luca

Special to the Financial Independence Hub

Anyone who is in financial services, and especially wealth management, knows there are big differences between men and women in terms of how they invest. But what isn’t as well known is that there are also big differences between men and women when they do their tax returns.

I started working at a bank at the age of 19, have been in financial services since 1990, and have spent the past 18 years in wealth management. But I also have a company that specializes in doing tax returns for small businesses, families and students. All this experience has provided a lot of insight into how men and women differ when it comes to financial matters.

Let’s first look at tax returns. Nine times out of ten it is the woman who takes the bull by the horns to get the family’s taxes done. Women tend to be more involved and are much more apt to ask questions of their accountant or tax preparer. Men may not ask any questions at all; they just hand over their documents and see you later.

What kind of questions am I talking about? Women want to know things like this:

  • What kind of tax credits are we eligible for?
  • Are there any government benefits we are eligible for?

That latter point is especially important for women who have small children. Indeed, many young families are really squeezed nowadays, so every opportunity for a tax break is vital.

Here is a perfect example from a client that illustrates what I mean. The woman is a teacher who could claim certain expenses for driving her car to work. Her husband is not a teacher, but does work for an employer. She asked us if her husband is also eligible for this same deduction because, like her, he drives a car for his employer and has lots of expenses.

As it turned out, he was eligible for what is known as a T2200, which is a declaration of conditions of employment –- effectively work-related expenses –- and in his case it meant deductions of $10,475, which resulted in a tax saving of over $3,000 on his tax return. But if his wife had never asked the question, none of this would have been claimed.

Men are more resistant to change

Another difference with doing taxes concerns technology. Today more than 80% of tax returns in Canada are done digitally, Continue Reading…