Posted By 
All posts by Jonathan Chevreau
A Q&A on FIRE and Geo-Arbitrage between FindependenceHub.com & RetireEarlyLifestyle.com
Almost since the Hub’s inception in 2014, the principals behind the popular RetireEarlyLifestyle.com have provided in-depth coverage of global travel and the tips to achieve early Financial Independence they used themselves to “retire” in their early 30s.
The following email interview was between myself and Billy and Akaisha Kaderli. Our intention is to publish it on both sites. Here’s the link to their version, which ran Dec. 14th.
So without further ado:
JC Q1: Akaisha and Billy, you are about the same age as myself and my wife Ruth and apart from being American and Canadian, we appear to have several things in common: we both run sites focused on Financial Independence, have written some books on same, and continue to be working at least on our own terms even though we have achieved Findependence years ago: more than 30 in your case, seven in ours. One difference is you travel a lot more, while we are content to stay in our Toronto home near Lake Ontario and take just a few weeks abroad, preferably if it’s a business expense. So let me start with the provocative statement that I think travel is expensive and over-rated. I have no doubt you can rebut that!
A&B: First, let us clarify that the time we spend on our website is what we consider to be our volunteer time. Yes, there are products that we sell, but 99% of our information is free because we are passionate about teaching financial literacy to those who want to learn.
In regards to your comment about travel being expensive and over-rated, it depends.
We think that there are differing styles of travel. There are tourists, visitors and travelers. There is no one-right-way to journey around, and we love it that people get out and about, expanding their minds.
Tourists tend to go on vacation for a week or two, spending a good deal of money on lodging, transport, entertainment and meals. Every day must be “perfect” and if the weather doesn’t cooperate or if service is not great, then there is this sense of disappointment. They tend to go to resorts or even exotic locations, but the lodging and amenities have a sense of Disneyland unreality, and are often over-priced.
Sure, there might be a water buffalo in some rice fields, with “workers” wearing a “traditional clothing uniform” but the real locals are miles away. Tourists will pay $10 or more for a beer that the residents of the area would purchase for about a buck.
Also, Tourists might like the idea of a vacation or might not. Mostly, they like the comfort and routine of home, and a vacation is an interruption in their experience of the familiar. Many times, it borders on the feeling that “this is a waste of time. I’d rather be home.” They don’t know any local phrases in a foreign language except maybe Yes, No, Thank you, Bathroom and Beer. Tourists have more of a passive approach to their excursion and want to be entertained. Then they rate their experience with their friends when they return home.
In order to go on this vacation, they stop their mail, perhaps have a house sitter or family member/friend water their plants or watch their pet. They have probably cleaned out their refrigerator and have to stock up once again when they return home. And it all seems to be a hassle. “Would have been easier to just stay at home in the first place. Plus, now we have this credit card bill and all these souvenirs to give to friends.”
Visitors on the other hand stay in a location for a bit longer – maybe even a month or so. They know some survival phrases in the local language and choose lodging that is more middle range than a resort option. About half the time, they will eat outside of big chain restaurants with well-known names and take a chance on a local restaurant.
They are a bit more self-guided in their entertainment choices, perhaps utilizing Google maps or a local tour of the area to become familiar with their surroundings. They may select local transportation or hire a driver to go from archaeological ruins and museums or they might take a self-directed walking tour.
Using a daypack, they bring their own drinking water and perhaps some snacks to munch on as they go from place to place in their day.
Traveling for them is not necessarily a “vacation” but more of an experience, or a sabbatical. They could take cooking classes, language classes, painting courses and the like and they interact with the local people.
After their time away from home, their lives have altered in some way, perhaps expanding their perspectives or dropping an outworn routine. They look forward to their next adventure.
Then you have Travelers.
These are the people who go from place-to-place with no itinerary other than their own style of meandering. They usually buy only one-way tickets, figuring out how to return – if they do – at another time. They communicate with the native inhabitants in their own language, purchase food, clothing and travel equipment from markets in the area and will often eat street food or dine in local restaurants.
These people travel for months, sometimes years at a time and rent apart-hotels, AirBnBs, house sit or bargain for a hotel room for a monthly rate. They may or may not have a home base for when they return from their wandering.
Travelers are more flexible mentally and are willing to have their routines interrupted. If the weather pattern is not to their liking, they might move on, or hunker down till the cold, heat, or rain stops. They do not live their traveling life as in “Today is Tuesday so it must be Belgium.” They speak with other travelers to get insight into their possible next stop.
Travelers employ digital equipment and apps to communicate with family and friends. They utilize email, sending digital photos or videos taken of their experiences, and they travel lightly. They throw their daypacks onto a bus or carry them on an affordable inter-country flight. Getting their cash in the currency of the country they are living in, they work the ATMs with a debit card that pays the withdrawal fee back.
They manage their lives online and have been receiving paperless mail for a long time. Photos are placed up in the cloud and they take care of business via Skype, WhatsApp or Signal, benefitting from medical tourism for their health care.
Travel does not cost them “more.” In fact, if they were spending their time “at home” they would still have a baseline of expenses – lodging, food, transport, entertainment for instance. But now they have incorporated these same expenses along with globe-trotting which creates memories for a lifetime and stories to share.
In general, travel has broadened their minds, giving them a unique perspective of the world and a confidence and self-reliance that pervades daily living.
We think it’s important to know one’s traveling style and enjoy who you are. There is not a one-size-fits-all, and we recognize that travel isn’t for everyone.
Someone has to stay home, attend the roses and mow the lawn!
How does extensive travel differ from short vacations from full-time employment?
JC Q2: To clarify, we enjoy travel too; was just playing devil’s advocate. Before we switch to Findependence, do you think there’s a big difference between the expensive two-week vacations many salaried employees take, and actually renting a house or suite abroad for 3 or 4 months at a time in Semi-retirement?
A&B: Yes, there is a big difference, actually.
When one is still working, vacations are stress busters. Work hard, play hard.
These holidays tend to be results of pent up demand for luxury; things we have denied ourselves during our working life like splurging on fine meals out, visiting an exotic place far from home, a ski vacation, or a safari. Continue Reading…
Vanguard 2022 Outlook projects lower 10-year returns for 60/40 portfolios
Global stocks are expected to outperform U.S. stocks bonds significantly over the next ten years while US and global bonds will be in the range of 1.3% to 2.4% annualized ,
Here are Vanguard’s 10-year annualized return projections:
- Global equities: 5.2% – 7.2%
- U.S. equities: 2.3% – 4.3%
- Global bonds: 1.3% – 2.3%
- U.S. bonds: 1.4%– 2.4%
The report issued by Valley Forge, PA-based Vanguard is titled Striking a better balance: ironic given its projections for performance of balanced portfolios.
“The road ahead for investors promises to be a challenging one,” said Joe Davis, Vanguard’s global chief economist and co-author of the report. “Global markets will test investors’ discipline as they navigate the risks of unwinding monetary policy support, slower growth, and rising real rates.”
In an advance webinar aired last Thursday, Davis said: “Wage inflation will dictates the pace of rate hikes in 2022.” He said the US Federal reserve is likely to raise rates to at least 2.5% this cycle in order to maintain price stability. As for stocks, we are in an era of “high valuations and low rates,” which creates a “fragile backdrop for markets ….[which] will chip away at future returns.” Better valuations are in developed markets outside the US, small-caps and Value. More stretched valuations are in Emerging Markets, the US, Growth and Large-cap, Davis said.
US equities have not been this overvalued since the dot-com bubble, Davis said, adding that a secular decline in rates has been three decades in the marking.
For Bond markets, best values is in TIPS and short-term treasuries. Most stretched are long-term treasuries, mortgage backed securities and international credit. In between are intermediate treasures and high-yield bonds.
Policy accommodations
In Monday’s press release, Vanguard said challenges are likely to be most evident with the unwind of monetary policy, a critical factor in 2022 as central bankers assess a rapidly evolving economic landscape. Inflationary pressures have sharpened the focus on monetary policymakers as these pressures may drive changes in central bank communications and actions. Vanguard projects that central banks will largely try to avoid sharp and unexpected shifts in the timing of policy changes, particularly of policy rate increases, but that conditions will force them to act in 2022 and quite possibly by more than markets are anticipating.
Economic outlook
With the global economic recovery expected to continue in 2022, Vanguard economists foresee the low-hanging fruit of rebounding activity to give way to slower growth, regardless of supply- chain dynamics. In both the U.S. and the Euro area, Vanguard expects economic growth to normalize to 4%. In the U.K., Vanguard expects growth of about 5.5%, and in China, expectations are that growth will fall to about 5%.
Inflation
Vanguard expects labor markets will continue to tighten, with several major economies quickly approaching full employment. Vanguard estimates the cyclical effects of supply constraints will persist well into early 2022 and then normalize as the structural deflationary forces of technology and unemployment take hold again. These factors contribute to expectations that inflation will trend higher for some time before slowing in the second half of 2022.
Don’t fear a “lost decade” for US stocks but a lower-return one
Vanguard’s long-term outlook for global asset returns for 2022 and beyond remains guarded, particularly for equities where valuations are high and low real interest rates continue to act as a strong gravitational pull on future returns. Investors should not fear a “lost decade” for U.S. stocks, but rather, a lower-return one, it says. For fixed income, low interest rates mean investors should expect lower returns. However, because rates have risen modestly since 2020, Vanguard’s outlook is commensurately higher.
International equities will outperform US in coming decades
Given the differences in valuations between the U.S. and non-U.S. developed markets, Vanguard projects international equities will outperform U.S. equities in the coming decades and value stocks will outperform growth in the U.S.
It says investors are best served in a broadly-diversified portfolio, including international equities.
“While the economic recovery is expected to continue through 2022, easy gains in growth from rebounding activity are behind us, and policy will replace health as the leading consideration for investors,” Davis said, “Despite a potential low-return environment, we are still expecting a positive premium for bearing equity risk. Investors should continue to focus on what they can control, and if they have the patience to weather potential periods of underperformance, we believe accepting some active risk offers the opportunity to offset low future returns.”
Inflation: Transitory with a Twist
At the advance webinar, Vanguard America’s Senior Economist Roger Aliaga-Diaz projects inflation to be “Transitory with a Twist.” He foresees only a modest decline in inflation in 2022. Central banks, including the Fed, will have to normalize sooner than later. “We may see next week [i.e. this week: Dec. 13 to Dec 17] accelerating tapering but not likely to hike rates.” He expects “one or two” hikes in the second half of 2022. Inflation will be around 5% early in 2022 but this should be in the low 3s by the end of 2022. Continue Reading…
Stocks expected to keep outperforming bonds next 10 years: Franklin Templeton
Investors should expect North American and international equities to continue to outperform bonds over the next ten years, according to senior portfolio managers for Franklin Templeton Investment Solutions. As the accompanying chart illustrates, expected returns for equities the next 10 years range from a 4.6% for US stocks to a high of 6.5% for Emerging Markets stocks. Canadian stocks are expected to do almost as well, at 6%, and EAFE equities will also outperform US stocks, with retiring expectations of 4.9%.
Returns for bonds are more modest: Franklin Templeton projects 1.8% return for Government of Canada Bonds and 2.4% for Global Investment Grade Bonds. The chart shows the volatility, topped by Emerging Markets at 16.9% and Canadian equities at 15%.
The forecasts were provided Tuesday at a virtual webinar at the Franklin Templeton 2022 Global Investment Outlook.
3% Global Growth should keep pace with Inflation
Over the next 7 to 10 years, the firm expects 3% annual global growth, roughly keeping up with inflation, said CFA William Yun, executive vice president for Franklin Templeton Investment Solutions. Over that time, equities should outperform fixed income and non-US equities should outperform US equities, he said.
Looking to Canada, Canadian stocks should have slightly higher expected returns, albeit with greater volatility, said Senior Vice President Ian Riach. The outperformance will be because of lower “more reasonable” valuations for Canadian stocks, he added. “We are quite positive on the Energy and Financial Services sectors.”
Continue Reading…
How the new MoneySense ETF Finder Tool combines with the MoneySense ETF All-stars
I will be giving a half-hour virtual presentation on Dec 2, 2021 on how the annual MoneySense ETF All-stars package can help retirees and near-retirees build their nest eggs and then draw income from them. (i.e. Accumulation and Decumulation).]
There will also be some new content on the new MoneySense ETF Finder Tool, which you can find here at the MoneySense site.
Below I describe how the new tool combines with the annual ETF All-star feature to help retail investors craft effective low-cost portfolios of ETFs.
The Canada Virtual Expo talk is on Nov 30 to Dec 2. Registration is free. For more information, see this link posted at MoneySense.ca. Below is an ad that ran last week in the Globe & Mail: one of the event’s media sponsors:
Here’s how MoneySense describes the virtual talk it in the following post published Monday (Nov 29): What the right ETFs can do for you.
Jonathan Chevreau will be presenting: The MoneySense ETF All-Stars and Their Role in Establishing Financial Independence and Generating Retirement Income on Thursday, December 2, 2021 at 12:25 p.m. to 12:55 p.m. EST. Now in its ninth year, the ETF All-Stars helps Canadian investors narrow down the field of ETFs from the more than 1,000 currently available to a short list of roughly 50, spanning Canadian equities, US equities, international, fixed income, and one-decision asset allocation ETFs. Chevreau spearheads a panel of eight ETF experts, who also contribute more eclectic individual picks through the popular Desert Island pick feature. This talk will also cover the new MoneySense ETF Finder tool and how it works with the ETF All-Stars, covering core low-cost diversified investments as well as explore specialized theme, sector and regional ETFs.
ETFs have become so popular that there are now more than 1,000 listed on Canadian exchanges alone, with thousands more on US and international stock exchanges. Now in its 9th annual edition, I write up the feature each spring after conferring with an all-star panel of eight investing professionals and specialists. Together, we narrow the field to the very best options across five categories: Canadian, U.S., International, fixed-income and all-in-one asset-allocation funds.
In addition individual panelists provides their unique “Desert-Island Picks” that they are particularly passionate about and that may merit consideration, but don’t achieve the full-consensus vote otherwise required to make the cut.
Personally, ETFs are the “Core” of my personal portfolio now that I’m living in “semi-retirement” — working part-time, on my own terms, while also drawing income from investments. This lifestyle was described in my coauthored book (with Mike Drak): Victory Lap Retirement. Continue Reading…
