All posts by Financial Independence Hub

Why this blogger doesn’t invest in Canadian Dividend ETFs [An oldie but goodie from 2019, updated for 2023]

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

It’s fun to look back and see how things change…or not. :)

Fans of this site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others … I do too … but I still don’t invest in any Canadian Dividend ETFs.

That’s because when it comes to investing I believe you often get what you don’t pay for.

One way to reduce your investment fees, is to own lower-cost dividend ETFs but that doesn’t mean such funds are automatically suited for you and your approach.

In this updated post, I remind readers why I like some low-cost ETFs, why I own a few in my portfolio but when it comes to investing in Canada I’ve decided to build my own ETF per se.

I wrote about this in 2011. Yup, that long ago. I updated that post in 2017. And, it’s now 2023.

Learn how things change or what stays the same in this updated post and share your own story or comment about stocks or ETFs held for many years in a comment on the site. I read every comment and I try to answer every one of them as well.

Read on: Why I (still) don’t invest in Canadian Dividend ETFs.

Why I don’t invest in Canadian Dividend ETFs

Fans of this site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others…but I still don’t invest in any Canadian Dividend ETFs.

That’s because when it comes to investing I believe you often get what you don’t pay for.

One way to reduce your investment fees, is to own lower-cost dividend ETFs.

In fact, here are some of the great benefits that come from investing in dividend ETFs beyond just ETF distribution income:

  • Transparency – within a few taps of my phone I can see what every single holding is in these funds. I can also read up on the fund’s prospectus to learn how fund turnover is managed and how often. Portfolio turnover within the fund costs money – someone needs to get paid! That brings me to my next point below.
  • Modest fees – you might recall, active fund management costs more because money managers are paid to perform. A pay for performance mandate encourages the mutual fund money manager to buy and sell stocks frequently in an attempt to beat the market or the index they are tracking. Fund management, buying and selling, incurs time and resources. Time is money. Those costs are passed on to you. Instead of this model, I think investors should strive to invest in a low-cost ETF that follows a reputable, established, broad market index such as the S&P/TSX Composite Total Return Index or for dividend investors in Canada, an established dividend-oriented index such as:
    • S&P/TSX 60 Index (my favourite – see low-cost ETF from iShares XIU), or
    • S&P/TSX Composite High Dividend Index, or
    • FTSE Canada High Dividend Yield Index.
  • Lower effort – if you’re going to invest in some individual stocks, you need to spend some time understanding these companies and understanding what you own, why you own it. I read a few annual reports every year and follow metrics like yield, payout ratio, earnings per share, cash flow to name a few. Dividend ETFs don’t have this complexity – they bundle all these companies together for you.

There are certainly many benefits to owning Canadian dividend ETFs…but I still don’t invest in any of these Canadian funds. 

Read on in this updated post…

Why I don’t invest in Canadian Dividend ETFs

Here are my reasons why:

1. I built my own Canadian Dividend ETF.

Many years ago, I learned there is merit to owning the same Canadian stocks the big funds own – so I started that process. I’ve never looked back.

In 2011 and updated again in 2017, I went so far as to say Canadian dividend stock selection could be made easy.

Here is one quick example – look at this RBC Canadian Dividend Fund in 2011:

RBC Fund 2011

And now the same fund’s top fund holdings as of April 2017:

RBC Fund 2017

And what does the RBC Canadian Dividend Fund own in 2023?

Lots of differences eh? (Images courtesy of RBC’s site.)

Source: https://www.rbcgam.com/en/ca/products/mutual-funds/RBF266/detail

Let’s look at another example and pick on one of my favourite ETFs: XIU.

Now, again, if you don’t want to buy and hold certain stocks, nor try and create your own Canadian Dividend ETF like I have, then no problem. This fund is arguably one of the best ETFs to own in Canada.

(I recall iShares XIU was one of the world’s first ETFs.)

XIU holds the largest of the largest Canadian companies. My perspective is, if collectively the largest 60 companies in Canada aren’t making money year-over-year, nobody is.

This ETF has provided strong Canadian market returns over the last decade and remains a great choice for your indexed portfolio should you decide to go that route.

Here are the top holdings from XIU, from April 2017:

XIU April Holdings 2017

And as of April 2019:

XIU April Holdings 2019

And what does low-cost XIU in 2023?

XIU ETF June 2023

Humm, not too many changes. Something to consider…

2. I control the portfolio turnover (which is largely non-existent)!

I can count on my hands how many stocks I’ve bought then sold over the last 15 years. Yes, full disclosure, I have sold a few stocks over the years. I believe that comes with the DIY investor territory.

However, for the most part, instead of buying and selling any stocks including Beat the TSX stocks, I buy and hold and reinvest dividends for higher income over time.

You can see how that (boring) approach is working out for me below. Continue Reading…

Using ETFs for International Investing

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Image from Pexels/Anton Uniqueton

By Erin Allen, VP, Online Distribution, BMO ETFs

(Sponsor Content)

As an investor, diversification is crucial to reducing risk and achieving long-term growth. International investing is a great way to diversify your portfolio, but it can be challenging for Canadians to navigate the complex world of foreign stocks and currencies. One solution is to use exchange-traded funds (ETFs) for international investing.

Benefits

There are many advantages to using ETFs for international investing. First, they provide exposure to a broad range of international markets, including developed and emerging markets. This diversification can help reduce risk (when one market zigs and another zags) and increase returns over the long term.

Second, ETFs are typically more cost-effective than other forms of international investing. They have lower fees than traditional mutual funds, and you can invest in them for no commission at many online brokerages in Canada.

Third, ETFs provide transparency and ease of access. You can easily track the performance of your international ETFs and adjust your portfolio as needed. Additionally, most ETFs are denominated in Canadian dollars, so you don’t have to worry about currency conversion fees or fluctuations.

Considerations

  • Currency: Currency returns are an important factor impacting investors purchasing a non-Canadian asset. Foreign currency fluctuations can affect the total return of assets bought in that currency when compared to the Canadian dollar. ETF providers offer both hedged and unhedged options, giving Canadian investors more tools to efficiently execute their investment strategies. The objective of currency hedging is to remove the effects of foreign exchange movements, giving Canadian investors a return that approximates the return of the local market. Continue Reading…

Why digital transformation is critical for the smooth transition of newcomers to Canada

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By Hamed Arbabi, VoPay

Special to Financial Independence Hub

Canada welcomed over 400,000 new immigrants in 2022, and that number is only expected to increase in 2023 with up to 505,000 new permanent residents.

These record immigration goals require critical planning from a workforce management perspective and should prompt employers to consider how digital transformation and embedded payment processing services can support the transition.

Organizations that intend to set new employees up for success must understand the responsibility to create a structure that supports financial inclusion: a vital consideration, especially amidst ongoing concerns of recession and inflation. If you are unfamiliar with the term financial inclusion, think of it as ensuring individuals have access to the tools and resources which enable them to have control over their financial health: a passion of mine as both a company founder and advocate for easy, affordable and accessible financial services.

Understanding the payment gap

For some of us, we have forgotten (or never experienced) the days of manually paying bills and waiting in line to cash a bi-weekly pay cheque; we’ve discounted the luxuries we have adapted to over the years thanks to automated technology. However, there is a disproportionate number of individuals in Canada, including newcomers, who still need faster and easier access to funds.

It is estimated that 10 to 20 per cent of Canadians are “unbanked” or “underbanked,” meaning they are not accessing the banking services available to them. These Canadians are often from low-income households, specifically those living in remote communities, including Indigenous peoples, people with disabilities and newcomers to Canada.

This means that some newcomers are still relying on cheque-cashing services and payday loans to fund purchases, minimize time gaps between pay periods, and manage their finances. While this is a short-term solution, it poses long-term challenges as cheques are sometimes difficult to deposit, easy to lose and prone to theft. Further, funds are not available immediately, do not allow for online purchases and are heavily reliant on slow payment processing practices such as mail delivery.

How organizations are advancing payments

Across all sectors and businesses, the goal is to ensure all Canadians have control over their financial health. Savvy employers recognize that outdated payment methods, such as cheques, are slowing down economic operations and can cause challenges for the unbanked and the underbanked. In response to this, these organizations are ensuring they welcome new immigrants with real-time payments to help newcomers get “banked” and join the economic ecosystem in Canada.

Continue Reading…

11 Strategies to Reduce Debt and Improve your Credit Score

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To help you take control of your finances and improve your credit score, we’ve gathered advice from 11 professionals across various industries. From embracing the snowball method to celebrating debt reduction milestones, these experts share their top strategies for reducing debt and boosting your credit standing.   

  • Embrace the Snowball Method
  • Develop a Debt Repayment Plan
  • Make Incremental Financial Changes
  • Dispute Credit Report Errors
  • Diversify Your Credit Accounts
  • Use the Debt Avalanche Method
  • Avoid Excessive Hard Inquiries
  • Cut Expenses to Pay Off Debt
  • Seek Professional Credit Counseling
  • Request a Higher Credit Limit
  • Celebrate Debt Reduction Milestones

Embrace the Snowball Method

Debt can feel like a mountain, but there’s a strategy I’ve found effective called the snowball method. Here’s how it works:

Start by listing all your debts from smallest to largest. Forget about the interest rates for now, just focus on the amounts. Then, aggressively pay off the smallest debt while making minimum payments on the rest.

Years ago, I was juggling a couple of credit card debts alongside a student loan. I knocked off the smallest credit card debt first. Seeing that zero balance gave me such a boost, like a minor victory. This momentum propelled me to tackle the next one. I was making consistent payments, which positively affected my credit score. So, it’s a two-pronged approach: reducing debt while improving credit. It’s about gaining momentum and keeping it rolling, just like a snowball!  –– Evander Nelson, NASM-Certified Personal Trainer, evandernelson

Develop a Debt Repayment Plan

Creating a debt repayment plan is one strategy for reducing debt and improving your credit score. So here you go. Make a list of all your debts, including outstanding amounts, interest rates, and minimum monthly payments. This will give you an idea of where to start.

Identify which debts have the highest interest rates or the largest balances. You should focus on paying off these debts first, as they cost you the most in the long run.

Develop a budget that allows you to allocate a portion of your income toward debt repayment. Cut unnecessary expenses and use that money towards repaying your debts. Pay more than the minimum monthly payment on your debts. By paying more, you’ll reduce the principal balance faster.

If you have multiple high-interest debts, you may opt for debt consolidation, where you combine your debts into a single loan with a lower interest rate. You can also negotiate with creditors for a lower payoff amount through debt settlement. –– Lyle Solomon, Principal Attorney, Oak View Law Group

Make Incremental Financial Changes

You probably didn’t suddenly fall deeply into debt. That means you’re unlikely to suddenly get out of it. Changing your spending and payment habits will gradually reduce your debt load while improving your credit score. 

The first step is to not miss any payments. This can be easier said than done, but it’s key. You might not pay your credit card bills in their entirety each month in the beginning, but you should do whatever you can to exceed the minimum payments. 

For other types of bills, it’s helpful to reduce your costs by lowering your level of service, for example by getting a cheaper cell phone plan.

None of these changes by themselves will magically get you out of debt, but they are all steps along the right path that will meaningfully lower your debt. — Temmo Kinoshita, Co-founder, Lindenwood Marketing

Dispute Credit Report Errors

One strategy that has proven quite effective in reducing debt and improving credit scores is disputing credit report errors. A couple of years ago, I noticed an unfamiliar charge on my credit report. Instead of ignoring it, I took prompt action to dispute it with the credit bureau.

I gathered all the documentation and, after some back and forth, they acknowledged the error and corrected it. This removal of an erroneous charge not only reduced my debt but also led to a significant improvement in my credit score. It reminded me that keeping a vigilant eye on your credit report and challenging any inaccuracies can play a significant role in maintaining financial health. –– Hafsa Unnar, Executive Assistant, On-Site First Aid Training

Diversify your Credit Accounts

One effective strategy I will recommend is diversifying your accounts. The idea is not to concentrate on a single type of credit but to have a mix of credit types, like mortgages, credit cards, and loans. 

This approach shows your ability to manage different credit responsibly. I once faced a period of financial strain with overwhelming credit-card debt. Instead of sticking to paying off just that, I took out a small, manageable personal loan. 

While it might seem counterintuitive to borrow more, the fresh line of credit actually improved my credit mix and overall score. Over time, this strategy, combined with prompt payments, helped me significantly reduce my debt and boost my credit score. –– Ben McInerney, Director and Founder, Home Garden Guides

Use the Debt Avalanche Method

Allow me to share the debt avalanche method and how it’s been my trusted ally on my journey toward financial freedom.

The secret is to prioritize your debts based on their interest rates. Identify the debt with the highest interest rate and focus all your extra resources on closing it. Do this while you continue to make minimum payments on your other debts. Continue Reading…

How to Invest your way to Findependence

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By Devin Partida

Special to Financial Independence Hub

Today’s economic and job-growth landscape might have you turning to investing as a prominent option.

It takes patience and effort, but anyone can save up enough through intelligent investments.

How do you begin the Investment Process?

As of 2023, the average American makes around US$57,000 annually, which is lower for minority groups. Even if you’re careful with your spending, becoming financially independent with that salary can take a long time.

The average person from the United States only has about $5,000 in savings. Before beginning the process, you must consider how much money you can invest. The ultimate goal is financial independence [aka “Findependence” on this site], but getting there can take a while. Only put in what you’re willing to lose because things might not pan out as expected.

The formula for Findependence takes your yearly spending and divides it by your safe withdrawal rate to calculate your goal savings figure. Then, it subtracts the amount you’ve already saved and divides that amount by how much you can save each year. It’s only an estimation, but it can help you know how much your investments need to make.

What Investments should you Consider?

There are plenty of investment types. The stable ones often have lower returns and you usually need to take some risk to see a high reward quickly.

1.) Real Estate Investment Trust

A real estate investment trust (REIT) receives money from investors to purchase and manage property. Most generate revenue through rental income and pay dividends in return for the initial payment you made. It’s similar to owning by yourself, but you pool funds for the purchase and let someone else take care of the tenants. There are also other REIT types, so you have more options than rental properties.

2.) Stocks

The stock market usually requires more attention to detail because you must keep up with it. Anything from an upcoming brand deal to an overseas political event can affect this investment type. You should frequently check the stocks you hold and the businesses they belong to so you can quickly respond to changes.

The Canadian stock market differs from the United States version. Firstly, you need a brokerage account. Most brokerages charge about $5 to $10 per trade, with average commission fees of $6.95. It might seem minor, but paying to invest or shift your stocks around puts you at a loss before you begin. The flat rate cut you must pay can also make investing smaller amounts challenging because it takes a higher percentage the less you put in. Continue Reading…