All posts by Jonathan Chevreau

Retired Money: What to do with “Found Money” from the Covid lockdown

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My latest MoneySense Retired Money column looks at what to do with the “found money” most of us are experiencing during this extended Covid-19 lockdown. Click on the highlighted text to access the full column: What to do with $500, $1,000 or $10,000 right now.

In it, four experts are asked what they’d recommend clients do with an extra $500, $1,000 and $10,000. One was Adrian Mastracci, portfolio manager with Vancouver-based Lycos Asset Management Inc., who suggests any extra savings should be “parked out of sight” for a month or two while you analyze your needs and options.   Repaying debt – particularly high-interest credit card debt – is always a top-notch, risk-free way of deploying cash, Mastracci says.

Certified financial planner Aaron Hector, vice president of Calgary-based Doherty Bryant Financial Strategists, suggests those nervous about their employment status should leave the money parked while they “wait and see” what transpires. “Cash provides flexibility,” he says. You also need to determine if there really are true savings or you are simply experiencing a delayed expense, as may be the case if a planned vacation abroad was cancelled because of Covid. If so, that money will eventually be spent.

Covid-19 has forced everyone to re-think our financial goals and objectives, says fee-only planner Robb Engen, the blogger behind Boomer and Echo, “For some retirees, that has meant putting off large projects such as a home renovation until better times. But for those who have enough income to meet their spending needs and then some, I’d recommend squirreling away any extra cash savings in a high-interest savings account to ensure you can pay cash for your next big-ticket purchase without cashing in any investments.”

Asset Allocation ETFs a good choice for $10,000

Engen — one of the MoneySense experts on the annual ETF All-Stars feature — suggests an asset allocation ETF, assuming all short-term goals have been funded and accounted for. For older folk wanting some fixed income to cushion any further Covid-related market volatility, consider VBAL or VCNS (60% and 40% equities respectively.) Keep in mind that iShares has a similar set of asset allocation ETFs, as does Horizons ETFs, all highlighted in the latest ETF All-stars package. Continue Reading…

Retired Money: Can the Work-from-Home theme protect growth stock portfolios from Covid damage?

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MoneySense.ca/Photo by Claudio Schwarz on Unsplash

My latest MoneySense Retired Money column looks at the theme of emphasizing Work-from-Home (WFH) and Stay-at-Home (SAH) stocks to stay partially invested in stocks but to protect against the ravages of a second wave of the Coronavirus bear market. Click on the highlighted headline to access the full column: Unpacking the new Work-from-Home ETFs.

Thus far, investors have enjoyed a solid recovery from the initial shock of March. How much depends on the extent to which they embraced the SAH stocks and avoided those directly in the Covid-19 blast zone: airlines, cruise ships, hotels, office REITs and others directly affected by global lockdowns.

Periodically the latter rebound on renewed Covid optimism, and are hence dubbed “Recovery” stocks. These have so far proven to be short-lived bounces. But the hoped-for V shape economic recovery expected by optimists seems now more elusive as major American states like Texas and Florida lock down again over a second Covid wave. That bolsters the case for a more long-term stance on WFH/SAH stocks like Zoom Video (ZM), DocuSign, Netflix and Teledoc (to name four I own and so far have profited from.)

Don’t forget the big tech companies like Facebook, Amazon, Google and Netflix (FANG) as well as Apple and Microsoft, all of which locked-down consumers rely on to keep a semblance of social interaction going with the outside world.

2 WFH ETFs coming

At least two WFH ETFs are in development to capitalize on this trend, more on which below. But by the time they are available it may be a bit late: most of the names are obvious ones and can be purchased individually at full-service or discount brokerages. There are 100 (mostly U.S.) stocks in Jim Cramer’s Covid-19 index, which he created soon after the pandemic and bear market began. Continue Reading…

Retired Money: When do Pension Buybacks of extra service make sense?

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My latest MoneySense Retired Money column looks at the complex question of Pension Buybacks: putting extra money into a Defined Benefit pension to in effect “buy back” extra years of service. You can find the full column by clicking on the highlighted headline: Should you buy back pensions from your Employer? It ran on June 19th.

While this column often adds my own personal experience, this is a topic that I have never had the opportunity to explore. I can say that while I am now receiving pension income from two rather modest employer DB pension plans, the chance to buy back service never arose. If it had I probably would have jumped to take advantage of it as the guraranteed-for-life annuity-like nature of a DB plan strikes me as being particularly valuable, especially in these days of ultra-low interest rates and ever-more-volatile stock markets.

If your DB pension is inflation-indexed all the better. Again I lack such an employer pension and my wife is not in any pension at all, so our only experience in inflation-indexed pensions are the Government-issue CPP and OAS, so far deferred by my partner.

You will need cash for a buyback, or you can tap RRSPs or both. If cash, you must have available RRSP contribution room this year. Buybacks fall under the Past Service Pension Adjustment calculation, or PSPA. The PSPA reduces your RRSP in the current year, and Ottawa permits an $8,000 contribution beyond your RRSP room. Thus, the value of your buyback may be greater than your RRSP room once you consider employer contributions and future benefits.

In the MoneySense column, financial planner Matthew Ardrey of Tridelta Financial says the biggest “pro” for a buyback is simply a bigger pension at retirement. Since pensions reward longer service, buybacks let you buy more past service, and the deal is sweeter still if your employer matches contributions.

Longevity, interest rates, employer matching all considerations

Longevity can be a pro or a con, depending on when you die. The longer you live the more attractive the pension becomes, and with it the value of a buyback.   Continue Reading…

Retired Money: What I’m reading this summer in personal finance

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Amazon

My latest MoneySense Retired Money column is a mini review of roughly a dozen personal finance or Retirement books I’ve been reading of late, or intending to finish. You can find the full column by clicking on the highlighted headline here: 12 Top Personal Finance books to read this summer.

First up are a couple of macroeconomics books: Graham Summers’ The Everything Bubble: The Endgame for Central Bank Policy, first published in 2017. It describes what the author calls “serial bubbles” – not just stocks but virtually every asset class, including fixed income and real estate. The book also tackles the two sources of financial repression for retirees hoping to live on interest income: ZIRP and NIRP, which stand respectively for Zero Interest Rate Policy and Negative Interest Rate Policy.

Like it or not, the November 2020 U.S. election is likely to have an impact on investors and would-be retirees, no matter how it works out. Two years ago, my MoneySense column reviewed several other Trump books in an attempt to understand the investment implications of his presidency.

Have we reached Peak Trump?

Amazon

Since then, I’ve also read Peak Trump: The Undrainable Swamp and the Fantasy of MAGA, by David Stockman, published in 2019.  Peak Trump includes a chapter also titled The Everything Bubble. Stockman believes the Trump boom – aided by the Federal Reserve’s “rotten regime of Bubble Finance” — has been a mirage and is fated to fade away. Presidential incumbents usually win re-election if the economy and stock market stay strong, but that’s hardly a slam dunk after the depression-level unemployment and social unrest that has come about in the wake of Covid-19.

Dual citizen and political pundit David Frum has just released his second Trump book: Trumpocalypse: Restoring American Democracy, a followup to his earlier Trumpocracy, which was mentioned in the link above. The blizzard of online and media reviews seem to suggest Frum believes Trump has lost the plot and may be vulnerable in the upcoming election.

With all this talk of asset bubbles and negative interest rates, it seems everyone is fated to worry about money and not just near-retirees. Worry-Free Money, by financial planner Shannon Lee Simmons, was published in 2017, and will primarily interest younger investors with a long time horizon. Simmons declares “everyone is worried about money” and says social media has only aggravated the situation. But if you’re worried she will nag you about things like budgeting, fear not: she gives reasons why “you need to stop budgeting.” Rather, you have to control your spending, living within your “hard limit” and say “No” to unhappy spending.

The Joy of Being Retired

For those closer to Retirement The Joy of Being Retired, by the prolific Edmonton-based international self-publishing master Ernie J. Zelinski, is a light read, with 365 reasons (and cartoons) on why Retirement Rocks “and Work Sucks.” Continue Reading…

Podcast on Squeezing All the Juice out of Retirement

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Earlier this week, financial planner and author Riley Moynes featured me on his weekly podcast, Squeezing All the Juice out of Retirement. You can find the 24-minute interview here, using any number of podcasting platforms.

I have written about Moynes’ books in the past (such as The Four Phases of Retirement) as well as his son Chris Moyne’s book about the Retirement of pro athletes: After the Game.

While both those books come up in the podcast, Riley Moynes starts by asking me about why I coined the term Findependence instead of using the more traditional term Retirement.

Most readers of the Hub will by now be familiar with this topic. In fact, one of the first blogs we published when we launched the site in November 2014 was this one on “Which is the better goal: Findependence or Retirement?”

However, for the sake of more recent subscribers, I’ll recap that Findependence is merely a contraction for Financial Independence. And Findependence Day is the day you estimate  you will reach your Findependence. All this is explained in the Hub’s sister site and processor, FindependenceDay.com. There you can purchase the Canadian edition of Findependence Day or find a link to the Trafford site to buy the U.S. edition. (The book is a financial novel.) There is also a button at the top right of this site that will take you to the site.

Moynes elicits a fair bit of my recent history since leaving full-time employment in 2014. As i said, I was working from home long before the Covid-19 crisis hit! What is different — and is also discussed in the podcast — is that a year ago, my wife also left her full-time job in the transportation industry, so we’re experiencing the joys and challenges of Findependence together, albeit aided by two well-equipped home offices.

The 4-hour workday

Another topic that we spent some time during the podcast is the concept of the four-hour day. I used to write about this back in my days at the Financial Post, and it also comes up in the book I co-authored with Mike Drak: Victory Lap Retirement. The 4-hour day concept was brought to my attention by a former employer and friend:  published in 1955 by William J. Reilly it was titled “How to make your living in Four Hours a Day Without Feeling Guilty About It.” (not to be confused with the more recent Tim Ferris book, The 4-Hour Workweek).  Continue Reading…