All posts by Jonathan Chevreau

Retired Money: Should Retirees speculate?

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My latest MoneySense Retired Money column has just been published, and looks at whether speculation has any place in the portfolios of retirees or those almost retired. Click on the highlighted headline to access the full column: Should retirees speculate? 

As I confess in the piece, even at the ripe old age of 67, Yours Truly has been known to indulge in the odd speculative investment, not always with positive results. You may have seen the oft-used distinction between “Serious Money” and Play Money, aka Fun Money or Mad Money. Mad Money typically means investing money you “can afford to lose,” which usually means relatively small amounts in individual stocks.

No one wishes to lose money, of course; on the other hand, the inevitable trade-off is risk and return. These days, young Millennial day traders congregate at the Robinhood platform: since the Covid crisis hit many of the most popular trades there would strike retirees as unabashed speculations: betting, for instance, that depressed airlines, hotels and cruise line stocks will soar once a Covid vaccine is available. The operative word with this cohort seems to be FOMO: Fear of Missing Out.

The advisors consulted in my MoneySense column say no more than 10% of your total equity portfolio should be allocated to speculations like penny stocks, marijuana, cryptocurrencies or other flyers. To me, speculations should be managed just like a venture capital fund approaches investing in risky startups: Of five specs, they figure one may go to zero, three break even and you hope the fifth results in the proverbial 10-bagger or even 100-bagger, assuming you’ve identified the next Apple, Amazon or Netflix.

Analogy to Las Vegas

While being governed by the 10% rule — which means the more you have the more you have available to speculate — personally I imagine myself in Las Vegas and set limits on what I intend to gamble with. (Let’s use that word, for in a way that’s what it is). Continue Reading…

BBC StoryWorks #3: The case for locking in to Fixed-rate Mortgages at today’s ultra-low interest rates

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The third article of six planned to appear on the BBC StoryWorks website in Canada has now been published. You can find it by clicking on the highlighted headline here: Embracing the Fixed Rate Mortgage.

As explained in the first instalment, the articles look at Covid-19 and the impact on the real estate and mortgage industry. The articles appear weekly and run into November.  The last three articles will look at the case for locking the investing experience following Covid, optimum strategies going forward and close with retirement strategies in the age of Covid.

In the second article of the series we made the case for why you might want to go with a variable rate mortgage and keep your interest costs as low as possible at today’s historically rock-bottom rates. In this article — written with my input and sponsored by TD Bank — we take the opposite view and present the argument why you might consider locking in to the safety and security of a 5-year fixed rate mortgage.

After all, there’s a lot more room for rates to rise than fall from here, and staying variable may be especially stressful for those with larger mortgages. True, you may be able to save a few basis points in interest charges by staying short but at what cost in anxiety and sleepless nights?

Variable mortgage rates remain a tad lower than fixed but is it worth taking a gamble with variable to get the absolute lowest rate or is it better to choose the safety and security of a fixed rate mortgage? Today’s record low 5-year fixed rates has made Lethbridge-based fee-only financial planner Robb Engen (and regular Hub contributor) rethink his past strategy of staying variable.  He points out any upside with variable rates is largely gone now as the prime rate is likely as low as it’s going to get.

Both variable and fixed rates may be under 2% these days

“Fixed and variable mortgage interest rates [for the same term] are pretty comparable these days,” says fee-only financial planner Jason Heath, managing director of Toronto-based Objective Financial Partners.
Continue Reading…

Retired Money: 2 useful Retirement books have starkly different views of wisdom of deferring CPP and even OAS to age 70

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My latest MoneySense Retired Money column looks at two recently published books by two of the country’s top authors on Retirement Income Planning. You can find the full column by clicking on this highlighted headline: Near retirement without a Defined Benefit pension? Here’s what you need to know.

One of the new books is retired actuary Fred Vettese’s new revised edition of his book, Retirement Income For Life, which I first reviewed in 2018, and which you can find here. Vettese has revised and expanded the book to the spring of 2020, allowing him to look at the Covid-19 issue and how an extended Covid-related bear market could put further wrenches in retirement plans.

The book describes several “enhancements” to a base case of an average almost-retired couple with no DB pensions and roughly $600,000 in savings. This base case – Vettese dubs them the Thompson family — pay high investment management fees (on the order of 2%, typically via mutual funds).

Couples in his base case also tend to take CPP as soon as it’s on offer at age 60 and OAS as soon as possible at age 65. Vettese continues to pound the table about the value of these government pensions and recommends that people like the Thompsons delay CPP till age 70 if at all possible. Remember, in the absence of a DB plan, CPP and OAS are worth their weight in gold, being government-guaranteed-for-life sources of income that are inflation-indexed to boot.

Vettese is fine with ordinary average folk taking OAS at 65. However, and this seemed new to me, in a section for high-net worth couples (which he defines as having $3 million in investable assets), he suggests they should also delay OAS to age 70, along with CPP.

As an actuary, Vettese sees this enhancement as a simple case of transferring risk from a retiree’s shoulders to the government’s. Why worry about investment risk and longevity risk when the government can worry about it on your behalf?

Similarly, a related enhancement is to engage in the same type of risk transfer by converting a portion of registered savings to the shoulders of life insurance companies: he suggests 20% can be annuitized, ideally after age 70. That’s a bit less than the 30% his first edition he recommended immediately upon retirement.

One of Vettese’s enhancements to the base case is simple enough: to cut investment management fees. Larry Bates devoted an entire book to this theme: Beat the Bank, which I reviewed two years ago here.

Try the free PERC calculator

There are two other less compelling enhancements: knowing how much income to draw and having a backstop. Knowing how much income can be figured out with a free calculator that Vettese twigs readers to: PERC or the Personal Enhanced Retirement Calculator, available at perc.morneaushepell.com. Continue Reading…

BBC StoryWorks #2: The case for staying with variable rate mortgages at today’s interest rates

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The second article of six planned to appear on the BBC StoryWorks website in Canada has now been published. You can find it by clicking on the highlighted headline here: Strategies for a Low-Interest World.

As explained in the first instalment, the articles (written by me) looks at Covid-19 and the impact on the real estate and mortgage industry. The articles will appear every week and run into November.  Later articles will look at the case for locking in to fixed-rate mortgages, the investing experience following Covid, optimum strategies going forward and close with retirement strategies in the age of Covid.

The second article just posted looks at why variable-rate mortgages may still be the optimum route for homeowners to go, seeing as interest rates seem destined to remain “lower for longer.” Mortgage rates are as low as anyone could reasonably have hoped to see in their lifetimes, but rock-bottom rates are also putting upward pressure on home prices. As noted in the first article, even prices of suburban and rural properties are rising, as the pandemic changes the supply/demand dynamics of where we work and live.

Rates are unlikely to spike upwards as long as the pandemic is a factor. Based on recent statements by central Banks around the world, it’s reasonable to expect interest rates will remain “lower for longer,” if not indefinitely at least for the foreseeable future. In mid-September the US federal reserve said rates won’t be raised before 2023.

Both fixed and variable rate mortgages are under 2%

In Canada, fixed and variable rate mortgages are being offered at less than 2%.   Continue Reading…

Canadian Financial Summit 2020 is now online

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The four-day Canadian Financial Summit 2020 edition kicks off at 8 pm EST (5 pm PST) tonight (Oct. 14): an all-virtual event featuring 30 personal finance speakers and financial bloggers. You can get tickets and catch up here. Tickets are free via the website.

After kicking off with a webcast tonight, the online event runs till this Saturday, October 17.

Kornel Szrejber

The summit’s host is Kornel Szrejber, who runs the finance and investing podcast The Build Wealth Canada Show.  Szrejber [pictured right] says on the site that he became one of Canada’s youngest retirees at age 32 (“before I got bored and took on the Podcast and Summit as passion projects,”) following a career in the financial planning and investing industry.

The event will also feature the experiences of two others who are among Canada’s youngest retirees, Kristy Shen and Bryce Leung, who will pass on their wisdom about how they reached retirement at so tender an age.

Scheduled speakers include Rob Carrick of the Globe & Mail, former Toronto Star financial columnist and consumer advocate Ellen Roseman, and Financial Post columnist Peter Hodson.

There are also several names that should be familiar to regular Hub readers: BoomerandEcho’s Robb Engen, MyOwnAdvisor’s Mark Seed and certified financial planner Ed Rempel. (The Hub often republishes their blogs.)

You can see some of the other speakers below, including Tom Drake, Kyle Prevost and other well known bloggers and personal finance gurus.

 

Continue Reading…