All posts by Financial Independence Hub

The Art of Boring: Three Investment Lessons from 2015

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Kara Lilly 4x6 Formal blue bg
Kara Lilly

By Kara Lilly, CFA

Special to the Financial Independence Hub

Every year our team devotes a couple of our regular Wednesday morning meetings for reflection on the year that has passed. This is a chance for our team to review the insights, errors and observations that were made in the preceding twelve months and learn from each other.

We thought we’d share three of these lessons with our readers:

1.) Beware the assumption of mean reversion

One of the greatest surprises to investors this year was the continued slide in the price of oil. Like other structural/thematic trends, the decline in the price of oil due to international oversupply and weakening global demand has gone on far longer than some initially anticipated. Many assumed that prices would dip and then return to a more normalized range between $60 and $80. This is a good example of assuming mean reversion, i.e., that prices will naturally revert back to their mean. Continue Reading…

It’s Blue Monday, and we’re ashamed of credit-card debt, study finds

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Borrowell Blue Monday InfographicThe holidays are over, the weather is cold and dreary and credit-card bills are rolling in—it’s no wonder the third Monday in January is considered the most depressing day of the year, known as Blue Monday.

We know that Canadians carry a lot of credit-card debt, but beyond the numbers we wanted to understand how Canadians feel about their debt. So the team at Borrowell commissioned a survey of 1,500 Canadians to understand our emotions around credit-card debt.

To see Borrowell’s Blue Monday video, click on the red/white button in the centre of the video image above.

Shame can affect our relationships

It turns out Canadians feel a lot of shame around carrying debt, and it’s not only affecting how we feel and what we can do, but our personal relationships as well, as the infographic to the left shows.

Like many issues, shame can prevent us from seeking solutions. Feeling shame may be a factor in explaining why so many Canadians carry expensive credit-card debt – even those who have good credit and could get a lower interest rate somewhere else!

Take control of your finances

Although Blue Monday is supposed to be depressing, let’s not just wallow in self-pity with a tub of ice cream. Take control of your finances, take a step in the right direction and if you’re carrying a balance on your credit card, look into a lower-interest loan to pay it off.

For more information on Blue Monday, including more on the survey, check out www.borrowell.com/bluemonday.

 

Falling Loonie strategies

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The Canadian dollar or loonie is under pressure amid weak oil prices and a strengthening U.S. currency. Today, the loonie dropped to 78.39 cents for a U.S dollar the lowest in a many years.By Adrian Mastracci, KCM Wealth

Special to the Financial Independence Hub

“Investors who have US cash and/or US portfolios are advised to revisit their currency strategies.”

Canada’s Loonie has been falling to under 70 Cents against the US Dollar.
Recall it climbed from near 86 cents in mid-2009 to over parity.

Many market forces, such as currencies, are well beyond investor control.
Currency adds yet another potential hazard or reward to portfolios.

Of course, currencies are extremely hard to predict. They can also move very quickly in either direction.

Treat currency as an asset class

Treat currency as an investment with longer time horizons. Those with US cash and/or US portfolio may consider the merits, if any, of converting to Canadian Dollars.

It is important to get a handle on the Canadian tax cost of the US cash/portfolio before taking any action. It may also make good sense, depending on account values, to convert on more than one occasion.

Other considerations: Continue Reading…

The economy in 2016: half-speed ahead

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Couple Relaxing on BoatBy Aubrey Basdeo

Special to the Financial Independence Hub

Coming off a tumultuous 2015, Canadians are ready for some good news in 2016. When it comes to the economy, however, they might have to wait a while longer.

This is not to say we foresee uniform doom and gloom. One bright spot remains the U.S. economy, which was given a vote of confidence last month when the Federal Reserve raised its target interest rate. If the U.S. expansion is as robust as the Fed thinks it is, that should bode well for the Canadian economy and exporters, which rely heavily on the American market.

On a broader level, the Fed liftoff was also a signal that monetary policy, which has dominated the macroeconomic landscape for years now, will be less important going forward. The days of easy money may have begun to draw (slowly) to a close, and as they recede we’ll have a clearer picture of other factors – like the business cycle and asset valuations – which have been masked by accommodative monetary policies for nearly a decade.

But we might not like what we see. Growth globally is poised to be slow in 2016. Canada’s prospects will be tied to this low-flying trajectory, in large part because there are so few potential growth drivers in the domestic economy.

5 reasons for only modest growth in 2016

Continue Reading…

Video: How to Win the Loser’s Game, Part 5

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UntitledThe fifth video instalment in SensibleInvesting.TV’s How to Win the Loser’s Game has been posted here and at Findependence.TV.

Often we hear say someone ask us the question, “Do you play the market?” The answer should be a resounding no, as the market is not a game. In fact, it’s quite scientific. A trio of Nobel Prize winning economists each have created a model that better helps us to understand the science behind the market.

This 8-and-a-half minute video features interviews with various executives from DFA and Vanguard and reviews the groundbreaking academic research on modern portfolio theory spearheaded by Harry Markowitz, William F. Sharpe and Eugene Fama. The screen shot above shows Eugene Fama on the left and DFA board member Ken French on the right. Continue Reading…