All posts by Financial Independence Hub

Cultural Guide for Expats

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Panoramic view of Guanajuato City, Mexico. Photos courtesy RetirementLifestyle.com

By Akaisha Kaderli,

RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Recently, the media has been covering the influx of Expats into countries such as Portugal, Thailand, Mexico, Guatemala or Panama. Apparently, this rise of foreigners relocating in these cities and towns have the locals annoyed.

On occasion we even have readers expressing concern about moving from their own country and the possible attitude of the locals that might greet them when they arrive.

Here at Lake Chapala [in Mexico], we have also seen the inpouring of Gringos over the years. For the most part this has been a good thing. However, this influx does change the culture, prices do go up, and many of these “newbies” aren’t bothering to learn any Spanish.

This lack of interest in their newly adopted home country grates on the natives.

What to do?

Learn the local language and customs

Nothing irks a native more than a blissfully ignorant Expat.

Even if all you can muster are the words for “Thank you,” “Please,” and “Good morning” – show some respect for those who have lived in an area all their lives. Make an effort to communicate with them.

There are plenty of language courses online and learning a few local phrases will pay off hugely for you.

No matter where your home country is, this newly adopted place of residence has different customs, holidays, foods and ways of celebration. If you can, embrace them. If you can’t: at least have the cultural awareness not to complain loudly and daily.

Don’t just throw money at a situation, get personally involved

Sunset in Lake Atitlan, Mexico

Expats can be known for simply throwing money at problems instead of becoming involved in a solution.

Now granted, one’s health might prevent you from lifting, bending or standing long hours doing volunteer work. However, find out what your skills are and donate them.

Whether it’s re-homing a rescue pet, teaching English as a second language, or even instructing local children in music or art, that personal contribution is remembered. More importantly, your face and personality will be remembered, and if there is ever any trouble, this is human currency in your favor.

Billy imported an electronic scoreboard for the gymnasium here in Chapala which made him an overnight hero. Then he raised money and built two more tennis courts in the city park.

Needless to say, the fruit of his work is that he is well respected and known in the community.

Please don’t bring your politics and home problems with you

THIS. IS. HUGE.

Somehow for Americans and Canadians, this idea escapes them.

Moving to a foreign country, and then immediately setting about making your new location exactly like the one you just left is simply being tone deaf.

There is no advantage to arguing with other Expats – or the locals – about problems over which you left your own home country to begin with.

Seriously.

Adapt, adjust, get a mitt and get in the game… or go back home.

Your new location isn’t “just like home only cheaper.”

Further developing the idea above, one needs to realize that your new location will never be like where you grew up.

Buying a bigger, better house, utilizing all the services of a gardener and maid, and basically living large without any contribution to the community surrounding you upsets the societal balance. It causes the locals to become resentful of your presence. They don’t like that kind of snobbery where the Expats feel as if they are better, more entitled than the ones who were born there and grew up there.

Connect. This will be your saving grace.

Realize that your presence absolutely changes the local culture.

Unbeknownst to many Expats your presence increases the locals’ cost of living. Continue Reading…

How Real People manage their money in Retirement

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By Fritz Gilbert, TheRetirementManifesto.com

Special to the Financial Independence Hub

Managing a personal portfolio is always a challenge. It’s something we typically do alone (or with an advisor) and we seldom get insight into how others manage their money in retirement.

Are we doing it right?  What are other people doing?  What can I learn from them?

While reading various blogs is helpful (and appreciated by this writer), what if we could gain real insight into how other “real” people manage their money in retirement?

Today, we’re in luck.  I recently found a fascinating study that provides some rare insight.

Real people.  Real money.  Real answers.

Today, a look into how people manage their money in retirement.

 

Managing our money in retirement is something that we typically keep to ourselves.  Seldom do we get an opportunity to see what others are doing.  Fortunately, JP Morgan studied 31,000 people as they prepared for and entered retirement.  They compiled their findings for us in their report, “Mystery no more: Portfolio allocation, income, and spending in retirement.”

It’s a rare opportunity to compare ourselves to others, and I hope you’ll find it as interesting as I did.  Below is a summary of the report, organized by major topic.

Voyeurs rejoice, it’s time to see how others are managing their money in retirement.

Asset Allocation:  Dialing Down The Risk

When retirees roll over their 401(k) balances, an astounding 75% reduce their exposure to equities.  The median reduction is 17%, and those with a higher equity exposure tend to reduce it the most.  Note in the chart below that those with an 80-100% equity exposure reduced it by 42%!

asset allocation in retirement

Are You Doing It Right?  Reducing your risk as you approach/enter retirement is an important strategy to reduce your Sequence of Return Risk.  If you have too large an exposure to stocks, you’ve likely suffered some anxiety in this year’s bear market.  Moving some of that equity into lower-risk asset classes allows you to fund your retirement spending without having to sell equities after a downturn.  As I’ve outlined in my posts on The Bucket Strategy, we keep 3 years of cash, and I’m sleeping just fine these days.

Using RMDs As Withdrawal Guidance

Required Minimum Withdrawals (RMDs) are established guidelines from the IRS for mandatory withdrawals from pre-tax retirement accounts starting at age 72 (Uncle Sam wants his tax revenue, after all!).

I was surprised to find that 80% of those surveyed who are younger than RMD age took no withdrawals from their retirement accounts. Meanwhile, a full 84% of those subject to RMD’s took only the minimum required withdrawal.

A better approach is to do annual withdrawals or Roth conversions prior to reaching your RMD age, using your marginal tax bracket and your safe spending rate as guidelines for how much to withdraw. It’s also important to recognize your spending will likely be higher in your earlier vs. later retirement years.  You’ve saved that money to enjoy retirement, so don’t let an IRS guideline dictate how much you can safely withdraw or spend.  Quoting from the study:

“The RMD approach is inefficient. It does not generate income that supports retirees’ & declining spending behavior and may leave a sizable account balance at age 100.”  Continue Reading…

Cybersecurity tips to keep your Personal Finances safe

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Image by Pixels

By Beau Peters

Special to Financial Independence Hub

How we manage our personal finances has changed over the years, notably the transition to handling more of our financial tasks online. From banking to paying bills to applying for loans to budgeting, all these things are carried out primarily online now.

We love the convenience of doing these things online. However, there’s a greater chance of your financial data being compromised. But if you can adopt these cybersecurity practices, better financial management and security will result.

Educate yourself on Phishing and other Scams

To protect your personal finances from security threats, you must know what they are. Educating yourself on how your financial information could be potentially stolen and used in harmful or criminal activities is essential.

For example, phishing is when a person is contacted by someone that seems legitimate via email, phone, or text message. Because the person seems like they’re a legitimate contact or work for an honest company, people are more inclined to give up the personal information they’re asking for. Phishing scams surged in the wake of COVID-19 due to the urgent need for clarity.

To avoid having your finances compromised in a phishing scam, learn what different phishing communications look like. Look closely at the details and tone of the messages. And trust your gut if you feel like “something is off” with any communications you get.

Educate yourself on these common scams as well:

  • Overpayment scams;
  • Employment scams;
  • Lottery and prize fraud;
  • Debt collection scams;
  • Family emergency/kidnapping scams.

The more you know about potential security threats to your personal finances, the better. Continue Reading…

14 things you didn’t know Personal Capital® can do for you

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Personal Capital is a financial technology company that provides a range of financial services, including investment management, retirement planning, and financial planning through its website and mobile app. The company also provides personalized financial advice from certified financial advisors. But what exactly can Personal Capital do for YOU? 

We reached out to 14 Personal Capital clients and asked them this question –  “What are the most helpful things you didn’t know Personal Capital could do for you?” From how easy it is to plan retirement to getting multiple credit lines, here are 14 helpful things that Personal Capital can do for you: 

  • Easily Plan Retirement
  • Create and Manage a Budget
  • Provide Educational Resources
  • Guidance for Investment Portfolio Management 
  • Clearly Describe Your Asset Allocation
  • Track Spending
  • Analyze Investment Fees
  • Help to Maximize Retirement Savings
  • Breakdown Your Holdings Accurately
  • Generate a Tax-Optimized Investment Plan
  • Earn a 3.85% APY
  • Show Debt Paydown Progress
  • Monitor Student Loans
  • Grant Access to Two Lines of Credit

Easily Plan Retirement

Using Personal Capital has been of enormous help. I did not know I could plan or budget for my retirement until I read a post that said, “I am a retiree, and I can say that Personal Capital has made this retirement journey smooth for me as I began planning my retirement with the app seven years before I retired.” 

After reading this post, I started making my retirement plans using Personal Capital, which has been very pleasant and put me at ease. Personal Capital is an excellent tool for planning your retirement because it provides a retirement calculator that helps you track your long-term saving goals, an investment checkup tool that will tell how well your portfolio is performing, and a fee analyzer to track if your investment account loses money to hidden fees. 

Overall, I would say that the platform is very comprehensive, well thought out, and intuitive to use, making it even more appealing. — Peter Bryla, Community Manager, ResumeLab

Create and Manage a Budget

Personal Capital can help you create and manage a budget. With just a few clicks, you can quickly set up your budget categories, track and monitor your spending, and make adjustments as needed. You’ll be able to see where your money is going, how much you’re making each month, and what areas of your life could use improvement. 

Plus, you can set up reminders to ensure you stick to your budget, as well as get alerts if you exceed it. This way, you’ll have a better understanding of your overall financial picture and be able to make informed decisions about where to allocate your resources. — Amira Irfan, Founder & CEO, A Self Guru

Provide Educational Resources

An added benefit of the Personal Capital system is the immense library of resources on personal finance. Financial literacy is one of the few things you don’t get to learn about in school, but it applies to everyone. 

Even with very little knowledge about personal finance, you can learn through Personal Capital’s resources. You can find articles on retirement planning, understanding 401K plans, investment metrics, and more. This is a great tool for people who don’t know how to manage their finances but are looking to learn. — David Ring, Sr. Marketing Manager, MCT

Guidance for Investment Portfolio Management 

One thing that I recently learned about Personal Capital is that they offer investment portfolio management services

I think this is a really helpful feature for those who may not have a lot of experience with investing or who want professional guidance in managing their portfolio. With Personal Capital, you’ve got a team of advisors and some fancy technology on your side, helping you make informed decisions about your investments. And on top of that, they offer personalized recommendations based on individual goals and risk tolerance.

So in my opinion, it’s a great resource for anyone looking to make the most of their money. — Tiffany Homan, COO, Texas Divorce Laws

Clearly Describe your Asset Allocation

The analysis provided by Personal Capital on my asset allocation is far more thorough and precise. Did you realize, for instance, that VTSAX comprises 3% to 4% REITs? When I looked at Personal Capital’s blocky breakdown of what I actually invested in, I learned this. 

This tool not only examines broad categories but also allows you to click on any specific block to view a breakdown of that category. The US stock market now comprises a large-cap core, mid-cap growth, small-cap value, etc. Your overseas allocation is broken down similarly, and it will change daily based on your present holdings and the changing holdings of those holdings. — Steve Pogson, Founder & E-Commerce Strategy Lead, First Pier

Track Spending

Personal Capital is a useful tool that can track all of your spending in one place. I didn’t know this at first, but it makes sense. It syncs all of your checking account and credit card data in one place, so you have easy access to all of your financial information. 

Tracking your spending is a vital part of achieving financial stability and independence. Once you know your normal spending habits, you’ll be able to change them to achieve your financial goals, such as making a large purchase or going on that vacation you’ve always wanted. You can even create your own categories for expenditures if you don’t find a predetermined category that matches your needs. — Dustin Ray, Co-CEO & Chief Growth Officer, Incfile

Analyze Investment Fees

Personal Capital is a tool with many capabilities. The ability to analyze investment fees is one of the most surprising benefits of this tool. People don’t always think about the investment fees that they’ll need to pay when they’re looking into expanding their portfolios. 

Personal Capital has a built-in fee analyzer so you can get more out of your returns. It’s estimated that, on average, approximately 1% of returns are lost to fees. Personal Capital can ensure that you minimize that loss so that you can get the most out of your investments. This tool can analyze many investment accounts, from 401(k)s to Roth IRAs. — Alex Mastin, CEO & Founder, Home Grounds

Help to Maximize Retirement Savings

One thing that Personal Capital can do for me I didn’t know is that it can help me optimize my 401(k) plan. Personal Capital’s 401(k) Fee Analyzer tool suggests ways to reduce fees and improve returns. This can be useful if you have an employer-sponsored 401(k) plan and are looking to maximize your retirement savings. 

I recently learned that Personal Capital offers a retirement planner that helps users determine how much they need to save for retirement and provides recommendations for investments and saving strategies. — Karen Cate Agustin, Business Analyst, Investors Club

Breakdown your Holdings Accurately

Compared to using a spreadsheet, Personal Capital’s breakdown is much more thorough and accurate. This tool not only examines broad categories but also allows you to click on any specific block to view a detailed breakdown of such a category.  — Connie Glover, General Manager, Product & Market Development, BFX Furniture

Generate a Tax-Optimized Investment Plan

Personal Capital can help you create and manage an investment portfolio tailored to your individual goals and risk profile. The technology uses sophisticated algorithms to identify the best investments for your situation, taking into consideration your current savings rate, expected returns, taxes, fees, and more.  Continue Reading…

Call Option ETFs showed their value in 2022

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This was not an easy year for markets, but one asset class delivered cash flow for investors despite these headwinds

Pixels/Javon Swaby

By Paul MacDonald, CFA, Harvest ETFs

(Sponsor Content)

After the euphoria of 2021’s everything rally, 2022 brought many investors right back down to earth. The asset classes that led in the latter periods of the most recent bull market  lost ground in this year as the ‘permacrisis’ — Collins dictionary’s word of the year — was felt across markets and asset classes since the end of February.

We know the story: inflation, supply chain challenges, rate hikes, and war in Ukraine all conspired to wreak havoc.

As the graphs below show, few areas of the market were immune from 2022’s tribulations.

 

Source:  Bloomberg, Harvest Portfolios Group Inc. December 21, 2022

Sector & Market Returns YTD

 

Source:  Bloomberg | Data as on December 22, 2022; prices normalized to 100 (starting December 31, 2021)

While markets have been decisively in the red for the year, the path has been marked by significant volatility spikes – both to the upside and downside.  As a proxy for volatility, the VIX Index, aptly called the CBOE Volatility Index, visually shows the volatility spikes that were experienced by most investors. One can also see that volatility has been at levels on average that are meaningfully higher than in recent history.

Source:  Bloomberg, December 20, 2022.  Additional Information:  https://www.cboe.com/tradable_products/vix/

The dramatic and volatile swings in equity markets outlined above should, in a normal year, have been offset by investors’ bond holdings. That’s the logic of the traditional 60/40 equity/bond portfolio.

2022 was not a normal year. Rising interest rates pushed down the value of bonds at the same time as equities were falling. The FTSE Canada Universe Bond Index, for example, was down 9.91% YTD as at December 21st.

Certain funds in one asset class, despite the negative overall returns in the market, were able to earn and deliver solid tax efficient cash flows for investors by monetizing some of the market volatility: call option ETFs.

What are call option ETFs?

Call Option ETFs — also called equity-income ETFs — are investment funds that hold portfolios of equities, but use call option strategies to generate income for unitholders. Those call option strategies trade a certain amount of market upside potential for certainty of some cash flows during a specific period: selling the option to buy a stock tomorrow at today’s price in exchange for a premium. Call Option ETFs pass those premiums on to unitholders as tax-efficient cash flow. They forego a certain amount of market upside, if markets swing higher, but generate a consistent amount of ‘income’. A ‘bird in the hand’ as it were.

That ‘bird in the hand’ income came at high rates in 2022. Many of Harvest’s call option ETFs had annualized yields  of more than 8% or even 10% during the year. That income — when considered a portion of total returns — was able to offset some of the losses in underlying equity values through the year, as the below example of the Harvest Healthcare Leaders Income ETF (HHL:TSX) demonstrates.

For illustrative purposes only.

The chart above is based on a hypothetical initial $100,000 CAD investment and only shows the market value per unit of Harvest Healthcare Leaders Income ETF (“HHL”) using the daily market close on the TSX and identifies the monthly cash distributions paid by HHL on a cumulative basis. The cash distributions are not compounded or treated as reinvested, and the chart does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder. The chart is not a performance chart and is not indicative of future market values of HHL or returns on investment in HHL, which will vary.

Why actively managed call option ETFs offer advantages

All of Harvest’s call option ETFs use an active and flexible call option writing strategy. That means the ETFs’ portfolio managers can sell as many or as few calls as they need to generate the ETF’s monthly distribution: up to a hard 33% write limit. That means at all times a minimum of 67% of each ETF’s holdings is fully exposed to potential market upside. It also allows these ETFs to capture market opportunities in a way that passively managed call option ETFs cannot.

Key to this advantage is the fact that options generate a higher premium when markets are more volatile. When stock prices swing wildly in the way they did throughout 2022, options cost more. Therefore the premium earned is higher. Since covered call ETFs sell options, they can generate the cash for their monthly distributions by potentially selling fewer options when markets are more volatile. This means that more of the ETF’s portfolio may be exposed to potential market upside compared to a passive systematic covered call strategy.

As much as 2022 was treated as a down year on markets, it’s notable that many of the volatile swings we’ve seen have been to the upside. By earning higher premiums from options during periods of volatility, Harvest ETFs have been able to capture some of those upswings, but have also been able to generate high and consistent cash flows for investors.

Many of the macro conditions that had negatively impacted markets in 2022 have shown signs of abating, too. Inflationary pressures have let off slightly, and the final Federal reserve rate hike of 2022 was only 0.5%: lower than the year’s cadence of 0.75% increases. If a less hawkish fed and signs of inflation dropping manifest more fully in 2023 we may see a market recovery. In such an instance these actively managed call option ETFs may be better able to capture more market upside than a passively managed call option ETF, but until that recovery is in full bloom, the Harvest ETFs can generate significant monthly cash flows.

The right strategy for the right time

In a year where everything seemed to be falling, many call option ETFs offered Canadian investors attractive income yields: paid monthly these were a source of returns at a time when returns were hard to find. The greater opportunities for upside capture afforded by an active & flexible call option writing strategy may give Harvest’s call option ETFs an advantage over passively managed ETFs.

As predictions for 2023 roll in, with the prospects of both market recoveries and economic recession on the horizon, the aspects of call option ETFs that delivered for investors this past year may prove themselves valuable once again. 2022 may have been the year call option ETFs announced their importance for Canadian investors, but we believe that importance will continue to be borne out in the years to come.

Paul MacDonald is the Chief Investment Officer and Portfolio Manager with Harvest Portfolios Group Inc. 

 

 

 

Commissions, management fees and expenses all may be associated with investing in HARVEST Exchange Traded Funds (managed by Harvest Portfolios Group Inc.) Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. All comments, opinions and views are of a general nature and should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies. Tax, investment and all other decisions should be made with guidance from a qualified professional.