All posts by Jonathan Chevreau

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

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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?

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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…

Vanguard reduces fees on three passive Canadian Bond ETFs

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With interest rates falling ever closer to zero, the mantra that costs matter in investment funds is truer than ever.

So it’s good news that on Tuesday Vanguard Canada cut fees on three passively managed Canadian bond ETFs, the sixth fee reduction in its Canadian operation in the last seven years. With the latest fee cuts, Vanguard says its average Management Expense Ratios on its ETFs are 57% lower than the industry average.

As the graphic to the left shows, the management fee will now be 0.15% on the Vanguard Canadian Long-Term Bond Index ETF (VLB/TSX), the Vanguard Canadian Government Bond Index ETF (VGV) and the Vanguard Canadian Corporate Bond Index ETF (VCB). Previously the fee on VLB was 0.17%, VGV’s was 0.25% and VCB’s was 0.23%.

Vanguard Canadian Long-Term Bond Index ETF seeks to track the Bloomberg Barclays Global Aggregate Canadian 10+ Year Float Adjusted Bond Index, investing primarily in public, investment-grade fixed income securities issued in Canada. Vanguard Canadian Government Bond Index ETF seeks to track seeks to track the Bloomberg Barclays Global Aggregate Canadian Government Float Adjusted Bond Index, and invests primarily in public, investment-grade government fixed income securities issued in Canada. Vanguard Canadian Corporate Bond Index ETF  seeks to track the Bloomberg Barclays Global Aggregate Canadian Credit Float Adjusted Bond Index  and invests primarily in public, investment-grade non-government fixed income securities issued in Canada.

Kathy Bock, Managing Director and Head of Vanguard Investments Canada Inc.

“For us, low costs are not a pricing strategy. We are built to pass on the benefits of our size and scale to investors in helping them achieve investment success,” said Kathy Bock, Managing Director and Head of Vanguard Investments Canada Inc. in a press release, “This is even more important in the current market climate, where low returns mean that costs erode an even larger share of returns than they would normally.”

The extreme volatility of the last few months has challenged both individual investors and financial advisors and in such an environment “high-quality bond ETFs can play a key role as a stabilizing force in a portfolio,” said Scott Johnston, Vanguard Canada’s Head of Product, “We are pleased to support investors with these fee reductions to help them keep more of their returns.”

Low fees and the “Vanguard Effect” in Canada

Including fee reductions from 2013 to 2015, and in 2018 and 2019, Vanguard estimates the cumulative reductions have saved Canadians more than $10 million.

As competitors adjust fees down in response, industry investment fees have come down significantly over the last several years, typically after Vanguard enters a particular geographic market. This “Vanguard Effect” phenomenon has occurred in the United States, the United Kingdom and Australia as well as Canada.

For more information on Vanguard’s broad pricing impact on the ETF market, see this infographic.

 

 

   

The MoneySense ETF All-Stars 2020

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After a slight delay because of the Coronavirus and the bear market, MoneySense.ca has just published the 2020 edition of its annual feature, the ETF All-Stars. You can find the full report by clicking on the highlighted headline: Best ETFs for Canada 2020.

There you’ll find an overview of the changes this year as well as how our 8-person panel of ETF experts view the bear market. You can click on each tab (example Canadian equities, fixed income, etc.) to find the chart of the updated All-stars list. Each of the subheadings below contain hyperlinks to the underlying MoneySense content.

While our expert panel added a number of new ETFs this year – some in global fixed income, several low-volatility ETFs and two new families in the One-Decision Asset Allocation category – virtually all our last year’s picks returned, most unanimously. The only 2019 pick that was removed for the 2020 edition is ZPR, as preferred shares had another year of disappointing performance.

This seems to vindicate our long-term approach. Our list now consists of an elite 42 “All-Star” picks: a big jump up from 25 last year, plus 8 more individual “Desert Island” picks. So in total, we have 50 recommended ETFs, which should be a good start for readers in narrowing down the wealth of possible choices in this growing cornucopia of choice.

Canadian Equities

All four Canadian equity ETFs return: VCN, XIC, HXT and ZCN (See accompanying chart for full ETF names) plus we added BMO’s low-volatility Canadian equity ETF,  ZLB. See discussion on Low-vol ETFs further down. Remember that Canadian stocks are also amply represented in the One-Decision Asset Allocation ETFs discussed below.

US equities

The panel opted to retain all four of our 2019 US equity ETF picks, while adding three low-volatility ETFs. Returning picks are the U.S. Total US Market XUU from iShares, and three low-cost plays on the S&P500 index: VFV and VSP from Vanguard, and BMO’s ZSP. Readers should also check the latest crop of desert island picks: several panelists went with specialty US equity ETFs, such as HXQ.U from Mark Yamada and, — new this year — Yves Rebetez selected NXTG as a 5G (fifth generation wireless) Nasdaq play. The PWL team of Felix and Passmore picked a US small-cap value play: Avantis U.S. Small Cap ETF (AVUV/NYSE Arca).  And Dale Roberts chose the Vanguard Dividend Appreciation ETF (VIG/NYSE Arca).

International and Global equities

The panel retained our five international or global ETF All-stars from 2019: two from iShares (XAW and XEF) and three from Vanguard (VXC, VEE and VIU). But we also added the three low-volatility ETFs: ZLI, RWW/B and XMW. See the extended discussion of all these new low-volatility ETFs in the relevant section below. Continue Reading…

Retired Money: Should seniors take the 25% RRIF reduction option in 2020?

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My latest MoneySense Retired Money column looks at a specific Covid-19 measure the federal Government provided to seniors with RRIFs: the option to take 25% less than usually required in 2020. you can get full details by clicking on the highlighted text: Should retirees reduce RRIF payments during COVID-19?

Normally, seniors must convert their RRSPs to a RRIF or a registered annuity before the end of the calendar year they turn 71. Then they must start withdrawing a certain mandated annual percentage of the value of the RRIF each year, starting the year after it was set up. In recent years, it has started at a 5.28% rate at age 71, rising steadily until it hits 20% at age 95.

These withdrawals are fully taxable, and there have been concerns that this may deplete capital faster than can be replenished by the miniscule returns on fixed income.

On March 25, 2020, soon after the Coronavirus panic became apparent, the federal government’s COVID-19 Economic Response Plan gave RRIF owners the option of taking 25% less than the mandated annual minimums in 2020. (This also applies to Life Income Funds and locked-in RRIFs.)

Matthew Ardrey, vice president and wealth advisor with Toronto-based Tridelta Financial, cites the hypothetical example of Dave, who has $100,000 in his RRIF on Jan 1. 2020 and turns 72 later in 2020. Normally his 5.4% minimum withdrawal would be $5,400 but with the change in legislation he can choose to take out just 4.05%, or $4,050. He can also choose to take more than the minimum if he wants.

Various reasons to take out less than required

MoneySense.ca/Photo created by freepik – www.freepik.com

Why go this route? The main reason is to reduce taxes payable for the year, keeping in mind RRIF payments are fully taxable income. RRIF income may impact OAS benefit repayments: a client near the OAS threshold for repayment may end up under that threshold it if the election is chosen.

Apart from tax and OAS considerations, there may be valid investment reasons. If the RRIF holder is heavy in equities and underwater after market declines, Ardrey says the reduced minimums may give the portfolio a chance to recover, and on a tax-deferred basis. Continue Reading…