All posts by Financial Independence Hub

BMO ETFs: Tax Loss Harvesting

Posted By Financial Independence Hub | November 30, 2022

By Sa’ad Rana, Senior Associate – ETF Online Distribution, BMO ETFs

(Sponsor Content)

With volatile markets, rising inflation and a potential economic slowdown, 2022 has proven to be a challenging year for investors. Exchange traded funds (ETFs) are effective tools for investors to help navigate these uncertain markets and can be used to help crystallize losses from a tax perspective. As 2022-year end approaches, this article provides trade ideas to help you harvest tax savings from under-performing securities.

What is Tax-Loss Harvesting?

By disposing of securities with accrued capital losses, investors can help offset taxes otherwise payable from securities that were sold at a capital gain. The proceeds from the sale of these securities can then be reinvested in different securities with similar exposures to the securities that were sold, in order to maintain market exposure.

Realized capital gains from previous transactions can be offset by selling securities, which are trading at a lower price than their adjusted cost base.
Investors can then use the proceeds from the security that is sold to invest in a different security, i.e. BMO Exchange Traded Funds (ETF).
In addition to common shares, tax-loss harvesting can also be applied in respect of other financial instruments that are on capital account, such as bonds, preferred shares, ETFs, mutual funds, etc.

Considerations:

If capital gains are not available in the current year, the realized losses may be carried back for three years to shelter gains realized in those years or carried forward to reduce capital gains in upcoming years.

Why a focus on ‘leaders’ works in Call Option ETFs

Posted By Financial Independence Hub | November 29, 2022

By Paul MacDonald, CFA

(Sponsor Content)

Harvest ETFs Chief Investment Officer explains why the independent ETF firm focuses on 20-30 ‘leaders’ in its call option ETFs.

Harvest’s call options ETFs are built through a structured process. Portfolio managers begin by identifying an industry, sector or theme with long-term growth prospects such as healthcare, technology, or utilities. They then identify and select between 20 and 30 leaders: large-cap companies with significant financial reserves and market share. The portfolio managers then apply Harvest ETFs’ active & flexible call option strategy to the ETF holdings to generate consistent monthly income for unitholders.

But why do they only select between 20 and 30 companies for their call option ETFs? Diversity is a key to any investment strategy, so shouldn’t Harvest ETFs focus on the widest variety of holdings as possible?

In our experience, the focused approach taken in many Harvest ETFs is tied directly to the execution of Harvest’s active and flexible Covered Call Option strategy.

20-30 stocks is not a random number. When we select the stocks we want an ETF to hold, our goal is to create concentrated portfolios, but with large enough capitalization and a wide enough diversity of business styles and operations that we can give investors broadly diversified exposure to a single sector or industry.

We like diversity, and in a one-stop solution for market exposure, having a huge array of companies can make a lot of sense. But for a targeted strategy like a call option ETF, focusing on the leaders of a particular industry or sector means the managers making decisions have a deep familiarity with the companies they hold.

Why familiarity matters in Call Option ETFs?

Call Option trading in an actively managed ETF requires constant engagement with options premiums available on specific stocks. One of the key value adds of an active call option strategy is the flexibility portfolio managers can have, both to generate their consistent monthly distribution and capture higher options premiums when available to expose more of the portfolio to potential market upside.

The seven money myths that stand in the way of a good financial plan

Posted By Financial Independence Hub | November 28, 2022

Financial Literacy Month is natural moment for a reality check-up

By Jennifer Cook, EPD, PFA, PFA™, QAFP™

For the Financial Independence Hub

On the path to financial security, there are natural peaks and valleys that can be navigated via the help of a good advisor. It’s the map in the form of a personal plan that can help guide an individual toward their goals, whether it is saving for a house, planning for retirement or protecting against unforeseen events. But more than any other hazard along the journey, is when road signs are misread or misunderstood.

Financial literacy is key to unlocking an individual’s ability to realize their dreams, and that is why Financial Literacy Month in November is so important to us at Co-operators. It’s a moment for all of us to fill in some of the gaps in our knowledge about planning.

Many of us have developed habits or rely on inherited ideas about finances, so I look at financial literacy as an opportunity to put to rest some of the myths that can affect good financial planning.

As Canadians face year-end decisions on investments, taxes, and RRSPs, we at Co-operators have identified common gaps in financial preparedness stemming from the spread of money myths. There are many myths that can derail planning, but I’d like to talk about the top seven and offer a remedy in the form of a reality.

Myth 1: Saving is safe. Investing is risky.

Reality: As Canadians feel the impact of raising interest rates and inflation, it’s tempting to embrace the idea of “safe” or “lower-risk” investment options. But this strategy comes with a risk of considerable lost earning power. Investing in a diversified portfolio that matches individual needs with the help of a Financial Advisor can build long-term returns, while managing risk.

Myth 2: Single, young people don’t need insurance.

Reality: No one is free from the risk of loss or liability. When budgets are tight, tenant or renters’ insurance can provide critical coverage for unforeseen events like theft, fire, or water damage. Young people can also take advantage of lower insurance rates that provide continuing benefits as their lives develop and their needs grow.

Myth 3: RRSP season starts in mid-February.

Reality: Though the typical RRSP frenzy may suggest otherwise, there is no rule that says lump sum payments must be made to RRSPs before the annual March 1 deadline. Canadians can contribute to their RRSPs (up to individual contribution maximums) at any time of the year. The March 1 date is used to determine how tax benefits will apply to the previous year’s income. Depending on a person’s situation, a Financial Advisor may recommend contributing smaller amounts to an RRSP on a weekly, bi-weekly, or monthly basis.

Myth 4: Those who invest in mutual funds have sufficiently diversified portfolios.

Reality: Today’s spectrum of mutual funds is widespread. It’s not easy to gauge whether an individual investor is appropriately diversified. And that can leave some people vulnerable to losses from sectors. Leveraging the expertise of a Financial Advisor can help investors make nuanced adjustments to ensure their portfolio has the right balance of diversification aligned with their risk tolerance. Continue Reading…

12 unique ways to Change your Spending Habits

Posted By Financial Independence Hub | November 25, 2022

What is one unique way someone can change their spending habits for the better?
To help you improve your spending habits, we asked CEOs and business leaders this question for their best tips. From trying to not purchase anything online for one month to trying the envelope method, there are several unique tips to help you change your spending habits for the better.

Here are 12 unique ways to change your spending habits:

One Month No Online Purchases

Check How Long You Can Go Without Something

Change Paid Activities to Be Cost-effective

30-day Challenge

Track Your Spending for One Week

Buy from Your Local Market

Reduce Impulsive Purchases

Shop With Lists Only

Ask a Friend

Use Cash as a Payment Option

Set Savings Milestones and Rewards

The Envelope Method is One Way to Change Spending Habit

A Month with no Online Purchases

My wife and I recently did a one-month challenge on not purchasing anything online. The breaking point was coming home after a long weekend and finding over 10 packages on our doorstep between the two of us ordering online. We heard of a challenge where you don’t purchase anything for a month, but knew that wouldn’t work for us. We decided just not to purchase any items online. If we needed something we had to go to the store and purchase the item. We realized we didn’t have to buy as much stuff as we were previously ordering online. After the challenge month was over, we did both change our spending habits and don’t buy nearly as much as we previously did online. We also found out that the physical store tends to be less than purchasing your items online. –– Evan McCarthy, President CEO, SportingSmiles

Check how long you can Go without Something

When you’re contemplating buying something, the best way to evaluate your intentions is to check how long you can go without it. If you decide on a date until which you believe you will not need this product or service, postpone your spending until that date. Once the new date arrives, ask yourself the same question and set another date. Do this thrice, and chances are the futility of adding it to your list of purchases will finally hit. It’s also highly probable that you won’t even choose to remember the later dates and forget all about spending your hard-earned money on something you never required in the first place. —Riley Beam, Managing Attorney, Douglas R. Beam, P.A.

Change Paid Activities to be Cost-effective

Going out for drinks, going bowling with friends, dancing at the club: these are all fun activities that are definitely worth your time and money. These expenses, however, add up in the long run and one way to still enjoy yourself but save a little money in your wallet is to substitute some activities with cost-effective alternatives. For example, instead of going to a bar for drinks, create a makeshift bar at home. Try hiking or scope your community newsletter for other free, public events. — Adam Shlomi, Founder, SoFlo Tutors

30-day Challenge

One unique way someone can change their spending habits for the better is by doing a 30-day challenge. One of the most significant barriers to saving money is impulsive buying. It’s easy to fall for an online advertisement that claims to anticipate your needs and wants. But there is a workaround:

– Take a screenshot of the ad rather than clicking on it.
– Create a folder on your desktop to store all these screenshots.
– Check the folder after 30 days to see if you still wish to purchase that item.

The 30-day challenge is also applicable to offline purchases. Write down what you want to buy, give yourself 30 days, and then decide if you still wish to purchase. After a 30-day wait, you may be shocked by the items that no longer interest you. —Tiffany Homan, COO, Texas Divorce Laws

Young Investors vs Inflation

Posted By Financial Independence Hub | November 24, 2022

By Shiraz Ahmed, Raymond James Ltd.

Special to the Financial Independence Hub

Until recently young investors were not terribly concerned with inflation. Why should they have been? It was so low for such a long time that we could predict with pretty good accuracy what was around the corner, at least, in terms of the cost of living. But those days are long gone.

Simply speaking, inflation can be defined as the general increase in prices for those staple ingredients of daily life. Food. Gas. Housing. What have you. And as those prices rise the value of a purchasing dollar falls. When these things are rising at 1% a year, or even less, investors can plan and strategize accordingly. But when inflation is rising quickly, and with no end in sight, that is very different and this is where we find ourselves today.

Someone with hundreds of thousands of dollars to invest, but who must wrestle with mortgage payments that suddenly double, is into an entirely new area. It happened back in the early 1980s when mortgage rates went as high as 21%. Many people lost their homes. But even rates like that pale in comparison to historical examples of hyperinflation.

In the 1920s, the decade known as The Roaring Twenties, the stock market rose to heights never seen before and for investors it was seen as a gravy train with no end in sight. But that was not the case in Germany where a fledgling government – the Weimer Republic – was desperately trying to bring the country out of its disastrous defeat in World War I. Inflation in Weimer Germany rose so quickly that the price of your dinner could increase in the time it took to eat it!

Consider that a loaf of bread in Berlin that cost 160 German marks at the end of 1922 cost 200 million marks one year later. By the end of 1923 one U.S. dollar was worth more than four trillion German marks. The end result was that prices spiralled out of control and anyone with savings or fixed incomes lost everything they had. That in no small way paved the way for Adolf Hitler and the Nazis. Let us also not forget that the gravy train of the Roaring Twenties eventually culminated in the stock market crash of 1929 which led to the Great Depression.