All posts by Financial Independence Hub

“Stop Doing” # 3: Stop Investing Without a Plan

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Steve Lowrie

By Steve Lowrie, Lowrie Financial 

Special to the Financial Independence Hub

We’re on a roll with our “STOP Doing” ideas. In prior posts, we advised you to STOP feeding on junk media and STOP reacting to market noise.

Today, we’ll cover a great way to stop doing nearly every other bad investment idea out there: STOP trying to invest without a plan. Typically, this plan should come in the form of a detailed Investment Policy Statement (IPS) – a written agreement that you and anyone else who is helping you manage your money signs off on initially, and whenever you make changes to it.

Why be so formal about it? As a financial advisor, I often field questions from family, friends or acquaintances, asking me what I think about some current hot investment tip. The specific “opportunity” changes each time, but the reason I’m being asked about it does not. It’s almost always after strong past performance has captured everyone’s attention. A recent example: I was golfing with a friend last Sunday who proceeded to tell me about the great recent returns from Apple and Google. “If I had only had the guts to buy Apple at $6,” he bemoaned, “I would be really rich now.”

I think he was hoping I could name the next big Apple for him so, this time, he could get in on the action. Instead, I concentrated on my golf game – and mulled over how some things never change and some lessons are rarely learned.

The importance of a formal Investment Policy Statement

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The Sabattical as a Dress Rehearsal for Retirement

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Adrian
Adrian Mastracci, KCM Wealth

By Adrian Mastracci, KCM Wealth Management

Special to the Financial Independence Hub

“Life is a great big canvas, and you should throw all the paint on it you can.”
— Danny Kaye, (1913 – 1987), actor, singer, dancer.

“We are often reminded of not pursuing enough personal enjoyment. Well, here is to rectifying that — your coveted sabbatical.”  — Adrian Mastracci.

How many dream of arranging a sabbatical — not just a vacation? Leaving the office behind for a long time — say, three months to one year, maybe more.

blue, green and white oil paint on canvas

I can attest from experience, having had a 17-month one, that a sabbatical is magnificent.

I threw some paint on my canvas of life — it’s one of the best personal investments I’ve made.

Sabbaticals are well known among educational institutions. Teaching faculty often arrange one to pursue research and personal interests.

Sabbaticals have plenty of appeal.
Imagine an extra long time to pursue whatever you fancy, without your ties to the office.

My 17 months away from the office were a series of very refreshing experiences.
I had no pressing daily agenda, long lunches, pursuing avenues of interest, travel and no need to rush anywhere.

A sabbatical offers immense personal satisfaction. It can be a time to reflect, explore, slow the pace, relax and change.

Perhaps, all of these at once. Think of it as your dress rehearsal to a healthy retirement.

Adrian’s sabbatical tips

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How RRSP meltdown strategies could jeopardize your retirement

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Patrick McKeough, TSInetwork.ca

By Patrick McKeough, TSInetwork.ca

Special to the Financial Independence Hub

Investment tip: “RRSP meltdown strategies promise to ease your tax burden on withdrawals, but these complicated manouvres are usually more lucrative for brokers than for investors.”

Investors sometimes ask us what we think of the so-called “RRSP meltdown.” This is a strategy that would let them make withdrawals from their RRSPs without paying income tax.

How the RRSP meltdown works

When you take money out of your RRSP, you have to pay tax on your withdrawal at the same rate as ordinary income in the year you make the withdrawal. However, under an RRSP meltdown strategy, you would offset the additional tax by taking out an investment loan and making the interest payments from funds you withdraw from your RRSP (the withdrawals must be equal to the interest payment).

Since the interest on the loan is tax deductible, the tax on the RRSP withdrawal is cancelled out. This, in theory, results in zero tax owing on your withdrawal.

You can then use the investment loan to buy dividend-paying stocks, which you would use to provide income during retirement. Dividend-paying stocks also have the advantage of being very tax efficient.

RRSP meltdown by the numbers

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“Stop Doing” #2: Stop Reacting to Market Noise

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Steve Lowrie

By Steve Lowrie, Lowrie Financial

Special to the Financial Independence Hub

In recently revisiting Jim Collins’ classic, bestselling business book “Good to Great,” I was reminded of this timeless tip:

Successful business owners make as much use of “stop doing” lists as they do of “to do” lists.

“Most of us lead busy but undisciplined lives,” says Collins. “We have ever-expanding ‘to do’ lists, trying to build momentum by doing, doing, doing – and doing more. And it rarely works.”  In his related piece, “Pulling the Plug,” He adds: “One key decision about what to stop doing might have as much impact as five new initiatives.”

Stop Reacting to Market Noise

Having a “stop doing” list seems like a fantastic idea – in business, in life and especially in your financial management. So often, I see investors who would probably be doing fine if they would just form a plan that reflects their personal goals, build a low-cost, globally diversified portfolio that complements those plans … then STOP reacting to near-term market noise that distracts them from their focus.

And Stop Reacting to Others Who React to Market Noise

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Investment Fees Are Costing You Way More Than You Think … Here’s Why

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Vita Nelson

 By Vita Nelson, Editor and Publisher of Moneypaper’s Guide to Direct Investment Plans

Special to the Financial Independence Hub

You may not give much thought to the investment fees you pay. That’s because they seem so small. Right?

According to an October, 2014 survey by investment management firm Rebalance IRA, many Americans incorrectly believe they pay no fees in their retirement accounts. Among baby boomers between ages 50 and 68, all with full-time jobs, “forty-six per cent believed they paid nothing, and 19 per cent were under the impression that their fees totaled less than 0.5 per cent.” (In fact, research reveals that actual expenses average 1.5 per cent of their assets per year every year.)

Chances are that fees are costing you much more than you realize! Why?

Because the fee itself isn’t the real culprit. The real killer is the opportunity cost of not investing the money you’re spending on fees. That’s why John Bogle, founder of Vanguard, calls investment fees the “tyranny of compounding costs” in a recent Forbes interview.

The real cost of investment fees is the value of the shares you never bought, and how much those shares would have increased your wealth over the long term. That is, you’ve lost the compounding effect of owning those shares: the dividends that would have been paid to you on the shares and the compounding effect on those dividends. Continue Reading…