All posts by Financial Independence Hub

Are guaranteed investments worth the premium?

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Editor’s note: the piece below was written a few weeks before the market chaos of last Friday and this Monday, which only makes it  that much more relevant now. Even more prescient was a B&E guest post on August 13th entitled What you can do about the upcoming stock market crash.

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Marie Engen, Boomer & Echo

By Marie Engen, Boomer & Echo

Special to the Financial Independence Hub

The stock markets have shown some volatility this summer and this has concerned some investors who have been riding the latest “full steam ahead” bull market and think a market correction is imminent.

These concerns have increased interest in investment products that have a principal guarantee. But are they worth it? These guarantees come with a steep cost.

Market-linked GICs

Market-linked GICs, also called equity-linked GICs, are hybrid products that proclaim to capitalize on the growth potential of the stock market without risking your original investment. The return is derived from gains in the equity markets over the term of the GIC – usually 3 or 5 years.

The portion of the return derived from the equity markets depends on various components:

  • The benchmark used to calculate the return e.g. S&P/TSX Bank Index or Capped Utility Index, Nikkei 225 Index
  • Pre-set maximum return e.g. 6% for a 3-year term
  • Dividends are not included in the calculations

Interest income is paid on maturity. If the equity portion produces no return, you receive no interest at all. Pay particular attention to how the equity portion of the return is calculated.

Like conventional GICs they are guaranteed by the Canada Deposit Insurance Corporation to the maximum allowable limits and are available for purchase in registered and non-registered vehicles.

Segregated Funds

 A segregated fund is essentially an insurance product based on an underlying mutual fund that is offered by insurance companies. Under the insurance contract – usually for 10 years – part, or all, of the original principal amount may be guaranteed. In some cases there is the ability to reset the guarantee at a higher amount in future years. Continue Reading…

Three key investment strategies hidden in plain sight; #1 — Being There

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Paul Philip CLI, CFP

By Paul Philip, CLU, CFP Financial Wealth Builders Securities

Special to the Financial Independence Hub

If you’ve ever dabbled in graphic design, you’re familiar with the concept of white space. When viewing an illustration, we typically pay the most attention to the visible ink on the page, such as a paragraph of text, a bar chart or an entertaining illustration. White space is the essential empty areas in between that are hidden in plain sight. We barely notice them … until they’re not there:

Pretty cheerful girl pointing white space over hands
Where’s the white space? (Deposit Photos)

When making investment decisions, most people likewise assume that the most eye-catching ink matters the most: an alarming economic forecast, an exciting Initial Public Offering, hot trading tips. But there’s a catch. This evident assumption does not hold up under evidence-based scrutiny. In reality, you have little or no control over how the most obvious news impacts your investments. The most exciting action has already been priced into any trade you might make well before you decide to make it.

Stop fixating on headlines

Instead of fixating on the headline news, consider that liberating financial white space. There, hidden in plain sight, you’ll find a number of powerful investment strategies that are freely available and far more within our control. In this series, we’ll introduce three of our favorite “plain sight” investment strategies:

  1. Being there
  2. Managing for market risks
  3. Controlling costs

Continue Reading…

Beware the sales pitch of “downside protection”

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Ben Felix

By Ben Felix, PWL Capital Inc.

Special to the Financial Independence Hub

I often hear the phrase protect your downside. It’s the sales pitch that a large part of the investment management industry thrives on, and it plays to the myopic loss aversion that most investors exhibit.

Myopic loss aversion is the tendency of investors to evaluate their portfolios frequently with greater sensitivity to losses than gains, causing them to act as if their time horizon is much shorter than it actually is.

Let’s look at the example of John, who wants to invest for his retirement 30 years from now. After happily watching his portfolio increase with steady returns for a few years, he panics when the market trends down slightly for a week. He knows he doesn’t plan to touch the money for a long time, but the thought of a decline, even over a relatively short period of time, makes him feel sick. He may even pull his money out of the market until things feel safe again.

Myopic loss aversion

An obvious path to safety would seem to be hiring a person or a company that knows how to protect your downside, and the investment industry has answered this calling. Continue Reading…

Planet Boomer: The Beginning

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Jim Herrier and Ellen Ma, PlanetBoomer.com

By Jim Herrier

Special to the Financial Independence Hub

When my wife Ellen and I announced to our friends and family that we were moving to Asia the consensus was we would be back in less than two years.

That was ten years ago.

Our first move to Singapore was simply fantastic. A beautiful and sophisticated city on the doorstep of every dream destination you can imagine. Within weeks we were in Bali (the weekend retreat of Singapore ) and we’ve now been 17 times. Beijing was next, then Hanoi, then Phuket and Bangkok in Thailand. We never stopped travelling in Asia and have never run out of amazing places to go.

After two years we left for a business opportunity in Shanghai. The drama and pace of living among 23 million people in what is surely one of the most dramatic cities in the world was exciting but getting out of it was a necessity. We kept travelling, throughout China and farther afield: Sri Lanka, India and all over Australia.

While in China we made friends with two respected Australian journalists: Steve and Colleen Wyatt. As reporters for the Australian Financial Review they went to places we had only heard of, covering stories ranging from worker unrest in Mongolia to riots by Uyghur peasants in Urumqi. Dinner with them was never dull.

After three years, business — this time our own — took us back to Singapore and our travels continued unabated. More India, Laos, Cambodia and the delightful towns and villages of Hoi An, Danang, Ho Chi Minh, Luang Prabang, Chiang Mai, and Phnom Penh. Our Australian friends were posted back to Sydney and then to their hillside home in Byron Bay. On a Skype call Steve revealed they were writing a new book. No surprise, they had written a number of business books; usually exposes of big business and government fiascos. But this one was different.

A new book on Retirement

Continue Reading…

A rare breed of financial planner

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Piggy Bank Cuts with Money Savings Financial concept on Chalkboard Background
Photo credit: iStockphoto

by Doug Dahmer,  EmeritusFinancial.com

Special to the Financial Independence Hub 

Retirement Income Specialists are a very rare breed of financial planner. So rare, in fact, that to date, the vast majority of North Americans are unaware of their existence and consequently very few have benefitted from the valuable, and much needed, services they provide.

This new specialized category of financial advisor is at the leading edge of strategically assisting North Americans to convert their accumulated retirement nest egg into a reliable and sustainable income stream.

Long-lived boomers face greater saving challenge

The challenges are not for the faint of heart. With baby boomers living longer, the years to be funded have increased significantly. There is no clear path to follow, as baby boomers are redefining retirement in terms of both planned activity level and their desire to slowly transition out of active employment.

Most importantly, baby boomers represent the first generation where the vast majority will be left to their own devices to cobble together a process to fund their lifestyle after work ends. Continue Reading…