All posts by Financial Independence Hub

Is Fat FIRE realistic?

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

 

Weekend Reading - is Fat FIRE Realistic
Image Source: Pexels, Gantas Vaičiulėnas

Is Fat FIRE realistic?

Before my answer to that question, for those outside the personal finance, devout FIRE (Financial Independence, Retire Early) bubble, a primer based on what I know …

What is FIRE?

I would like to provide a universal definition from the personal finance community today but there isn’t one. There are, however, some general thoughts/themes when it comes to FIRE and those who follow the philosophy around it:

  • Financial Independence, Retire Early (FIRE) is a movement related to extreme/aggressive savings rates and investment tactics that allow individuals to retire sooner than potentially any traditional budgeting or retirement planning approach might permit.
  • When it comes to savings rates: in some circles, by saving up to 70% of your annual income, some FIRE enthusiasts aim to retire early (and live off small portfolio withdrawals from their accumulated assets).
  • When it comes to portfolio withdrawals: in some circles, by withdrawing a small % of the accumulated assets (e.g., 4% of the portfolio), said FIRE enthusiasts may expect their portfolio to last a lifetime without fear of running out of money.

The FIRE movement – new term, old concept

The FIRE movement takes direct aim at some traditional retirement ages, such as age 60, 65 or even later on but there is no consensus on what is / is not a retirement age, of course.

The theory and movement goes: by dedicating the majority of your after-tax income to savings and specifically saving for retirement, well, you could “retire” sooner than most. Probably true.

From this perspective, FIRE is not a new concept even though the moniker is somewhat newish.

I’ve written multiple times about the FIRE movement and my thoughts on FIRE.

I’ll link to those thoughts here for additional reading as well.

I’m hardly anti-FIRE; this movement/approach/philosophy has always resonated how I live for the most part:

  • To live within your means or slightly below what you make as income.
  • To save early and often.
  • To avoid long-term debt that is not used for wealth generation.
  • To optimize your investing (i.e., keep your costs low and diversified, and avoid money managers).

Several FIRE retirement variations have emerged over the years to frame a particular lifestyle expectation that could come with FIRE. I’ll rank them in order of cashflow significance although these terms also vary based on the FIRE enthusiast you’re talking to:

1. Lean FIRE

As the first word suggests, lean is a strict adherence to a minimalist lifestyle. Many Lean FIRE adherents live on $25,000 per year, or less per year. Here are a few examples:

Jacob Fisker – Early Retirement Extreme. How he used to live on just $7,000 per year. Not a typo.

There is Jessica from Financial Mechanic, who spent less than $20,000 in 2020.

In more recent years, A Purple Life, wrote about a nomadic life earlier this year, living off less than $25K USD.

These are certainly jaw-dropping low numbers …

2. Barista FIRE

Not that you have to become a barista, rather, the term is used to highlight a combination of work-life balance that can be juggled – a form of semi-retirement if you will.

Barista FIRE is a type of semi-retirement whereby you can consider part-time work or work on your own terms, and still enjoy the benefits of some income and workplace benefits. (The term was coined as such since Starbucks offers benefits to part-time workers … something to consider for your semi-retirement plans!?) Continue Reading…

Was Inflation transitory?

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

Inflation is coming down in Canada and the U.S. And one can argue that the rate hikes have had little effect. After all, Canadians and Americans are spending money, and employment is strong. The economy has been very resilient. Perhaps inflation was transitory after all, caused by the pandemic and the invasion of Ukraine. This is not the traditional inflation fight script. The economic soft landing argument is getting more support. Was inflation transitory?

Total inflation in Canada is back ‘on target’ in the 2% to 3% range.

That said, core inflation is still sticky.

From this MoneySense post …

According to Statistics Canada, the June slowdown was driven primarily by a year-over-year drop of 21.6% in gasoline prices. Meanwhile, the largest contributors to the rise in consumer prices are food costs — which rose 9.1% in June — and mortgage interest costs (up 30.1%).

It’s likely a very good guess that rates are staying higher for longer. The bond market is certainly suggesting that as well.

The 5-year remains elevated.

Fixed-rate mortgage holders will likely be resetting at higher borrowing costs over the next 2 to 3 years – adding several hundred dollars a month to the typical mortgage payment. Of course, that takes money out of the economy and money that would have been spent on goods and services.

Next year may be sunnier than forecast

In the Globe & Mail, Ian McGugen offered a very interesting post. Ian looks to one of the most optimistic economists, and that is a growing group.

Jan Hatzius, chief economist at investment banker Goldman Sachs, has set himself apart from the crowd in recent months by declaring that the United States will not sink into a recession. Continue Reading…

Achieve Financial Independence with a Franchise

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By Joel Bissitt

(Sponsored Post)

Are you looking for a smart and easy way to achieve financial independence?

Investing in a franchise may be the perfect solution. Franchises offer an established system with great potential for success and are a great way to get into the world of business ownership.

With the proper support, a franchise can help you reach your financial goals and provide a secure future for you and your family. This blog post will discuss why investing in a franchise is a great way to achieve financial independence.

The Benefits of Investing in a Franchise

Investing in a franchise is a smart way to achieve financial independence because it has many benefits. Firstly, you will have a low-risk, high-reward investment. Franchisors provide an established business model that has been proven to work. You also have access to resources and support from the franchisor, including training, marketing, and ongoing assistance. Building a resilient business with a proven track record increases your chances of success. Finding franchise opportunities is relatively easy, as many franchisors are actively looking for new investors.

●     Low-Risk, High-Reward Investment

Investing in a franchise is a low-risk, high-reward investment opportunity. Franchisees benefit from a proven business model, an established customer base, and ongoing support from the franchisor. The initial investment required to start a franchise may seem high, but the risk is significantly lower compared to starting a business from scratch.

●     Established Business Model

The established business model is one of the biggest advantages of investing in a franchise. This means the franchise has already figured out what works and what doesn’t, saving you the time, money, and effort required to establish a business from scratch. Franchisors have honed their processes and systems to create a winning formula that franchisees can easily replicate. This saves you time and effort and ensures that you start your business on a solid foundation with a proven track record of success.

●     Access to Resources and Support

Investing in a franchise comes with the unique advantage of accessing a network of resources and support. Franchisors provide extensive training and support to ensure franchisees have the necessary knowledge and skills to run their businesses effectively. Continue Reading…

The great migration to Cash: Money Market and Short-Term Fixed Income

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Image from Pixabay: Alexander Lesnitsky

By Matt Montemurro, CFA, MBA, BMO ETFs

(Sponsor Content)

One of the biggest trends in the market, thus far in 2023, has been the flurry of inflows ($AUM) into money market and short-term fixed income. We have seen a “great migration to cash” as investors are literally being paid, handsomely, to park cash on the sidelines. We are now 6 months through the year and flows into the short end do not seem to be slowing down. Thus far YTD, we have seen $5.7bln flow into money market and ultra short-term fixed income ETFs, accounting for over 50% of all flows into fixed income ETFs in 2023 (Source: NBCFM ETF).

Money Market and Ultra Short-Term Fixed Income:  after years of being a forgotten segment of the market, how and why are they the leading asset gatherer?

With the accelerated path of rising rates, we have seen in the short end of the yield curve; (the overnight rate) the yield curve inverted. An inversion of the yield curve is caused when shorter-term rates rise faster than longer-term rates. Generally, this is something that occurs but reverses quite quickly.

Not this time. We are currently in a period of a prolonged yield curve inversion, which could be a leading indicator of economic weakness to come. This inversion is exactly what these money market and ultra short-term fixed income investors are looking to cash in on. Lock in higher shorter-term rates and take advantage of the inverted yield curve.

For too long, investors were forced to move outside of investment grade bonds and further out the yield curve to achieve their yield and return expectations. The market has shifted that paradigm on its head and allowed investors to truly get paid to wait on the sidelines in cash.

 Current Canadian Yield Curve

Source: Bloomberg, June 30, 2023

The short end appears to be the sweet spot for many investors, in terms of risk and reward.

Risk: by targeting the short end of the curve, investors will be minimizing their interest rate sensitivity (Duration exposure) and will generally be buying bonds that will be maturing in less than 1 year. Buying investment grade bonds, issued by high quality issuers, this close to maturity provides investors with downside protection as all these bonds will mature at par.[1]

Reward: Achieve a higher yield to maturity than further out the curve. Allowing investors to earn higher yields for lower interest rate sensitivity risk. The current market isn’t paying investors to lend money for longer periods. The front end provides an extremely attractive proposition for investors.

Today’s market is uniquely positioned and many market participants expect volatility to be on the horizon and as higher interest rates make their way through the economy, potentially causing growth to slowdown. Money market and short-term fixed income are well positioned for this environment, as investors can weather the potential volatility in the market while still meeting income and return needs. Continue Reading…

A Financial Guide for the Sandwich Generation: Navigating the Challenges of Caregiving

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By Aman Raina, MBA

 (Special to Financial Independence Hub)

As an investment coach, my job is to educate and empower people with the knowledge to make informed investment decisions and set them on their journey towards financial freedom. However, over the last several years, I’ve found myself on a unique financial journey of my own.

Several years ago, my father was diagnosed with dementia. As his ability to manage his and my mother’s financial affairs began to diminish, I stepped into the role of their primary caregiver. This responsibility, layered on top of raising my two young boys, growing my investment coaching practice, and navigating a global health emergency, placed me firmly within the Sandwich Generation.

The Sandwich Generation refers to those caught in the middle of caregiving, balancing the needs of aging parents with the needs of their own families. According to a report by the Pew Research Center, nearly half (47%) of U.S. adults in their 40s and 50s fall into the Sandwich Generation. They are responsible for a parent who is 65 or older and either raising a young child or financially supporting a grown child.

In Canada, according to a 2020 report from Statistics Canada, around one in four Canadians aged 15 and older (7.8 million people) provided care to a family member or friend with a long-term health condition, a disability, or problems associated with aging. However, these figures likely underestimate the true prevalence of caregiving, especially in the context of the COVID-19 pandemic, which has increased the demand for home care.

With an aging population, these percentages are predicted to increase in the coming years, further magnifying the importance of addressing the challenges faced by the Sandwich Generation and all caregivers. It has been and continues to be an experience that has been for me mentally, emotionally, and physically stressful, filled with difficult conversations, worries about the future, and moments of feeling overwhelmed.

Despite my financial background, there were times when the responsibilities felt like a juggling act. The multitude of financial decisions to be made, from managing cash flow and long-term care planning for my parents to ensuring the financial stability of my own family, felt daunting. If I was experiencing this, I shudder to think what others who were not as well-versed financially were trying to cope?

Support from Caregiver Groups

In seeking support, I turned to various caregiver groups. It quickly became apparent that many others were grappling with the same challenges. They, too, were struggling to tackle the unique financial demands of being part of the Sandwich Generation.

From my experience, I found the core areas caregivers need to focus on revolved around these critical financial issues: Continue Reading…