All posts by Jonathan Chevreau

Retired Money: Work Optional and the FIRE movement

Posted By |

My latest MoneySense Retired Money column looks at the so-called FIRE movement: (an acronym for Financial Independence/Retire Early), as well as a new book by a FIRE blogger titled Work Optional. You can find the full column by clicking on the highlighted headline here: How “Work Optional” can fit into your Retirement Plan.

You’ll see that regular Hub blogger Doug Dahmer — founder of the Retirement Navigator planning software — has been using the phrase Work Optional for at least five years, even though the new book of that name was just published in January 2019. It’s a useful phrase that describes the kind of thing Mike Dark and I refer to as Victory Lap Retirement in our jointly authored book of the same name.

There are many ways to describe this phase, but generally it refers to a period after full-time employment. FIRE proponents often declare that they “retired” in their 30s or 40s but of course most of them do not spend the next half century doing absolutely nothing. They really create encore careers based on self-employment, and often build businesses based on book-publishing, blogging and public speaking, wherein they reveal “how they did it.”

Victory Lap and Findependence

To some extent this very website does a similar thing, focused as it is on Financial Independence, or my contraction of it, Findependence. Continue Reading…

FP: Bank on Yourself — Why women need to focus on Financial Independence with or without a spouse

Posted By |

My latest Financial Post column looks at an upcoming book, Bank on Yourself, which focuses on how Canadian women need to focus on Financial Independence, whether or not they are currently part of a couple. Click on the highlighted headline here for the full review: Why Women shouldn’t let a solo retirement catch them by surprise. The review also appears in the print edition of Tuesday’s Financial Post (page FP 3, April 2, 2019).

The book, which is being published this month (April) by Milner & Associates, is co-authored by a lifelong single woman, Ardelle Harrison, and a financial advisor, Leslie McCormick. McCormick is a Senior Wealth Advisor with Scotia Wealth Management but Ardelle is not a client.

The subtitle says it all: “Why every woman should plan financially to be single. Even if she’s not.”

The authors say 90% of women will end up managing their own finances at some point, whether because of divorce, widowhood or because they never married in the first place. And because women tend to live longer, expect five female centenarians for every male who reaches 100 years (according to the 2016 Canadian census).

Allegedly one of women’s biggest fears is ending up in old age as a “bag lady” destitute on the streets. In fact, 28.3% of unattached women live in poverty and single older women are 13 times more likely to be poor than seniors living in families, the authors say.

They cite Pew Research’s eye-opening finding that when today’s young adults reach their mid 40s and mid 50s, 25% of them are likely to never have been married, and that by then “the chances of marrying for the first time after that age are very small.” (Whether by choice or circumstance.)

But even those who do “couple” earlier in life may not always remain in that state. A 2013 Vanier Institute of the Family report says 41% of Canadian marriages end before their 30th wedding anniversary. 68% of divorced couples cited fighting over money as the top reason for the split. 2011 Canadian census data shows the average age at which women are widowed is 56.

Multiple Streams of Income

A key concept emphasized throughout the book is having Multiple Streams of Income, at least three in Retirement. Employment income is the springboard to other income streams,  including employer pensions.

A second is government benefits unlike CPP and OAS. Other streams are business, investment and real estate income, and annuities. Home owners have a potential backup in their home equity, although the authors rightly say “Debt is not something you want in retirement.”

I asked McCormick if these principles apply equally to single men. General financial planning principles apply across genders, she replied, but women have longer life expectancies, so when you add the gender wage cap, it’s harder for women to build wealth. Female baby boomers can expect to outlive their spouses by 10 to 15 years, “yet so few women plan for it.” While 31% of women view themselves as being financially knowledgeable, 80% of men do.  Her hope is the book will help bridge that gap. So might a planning tool at her Plan Single website (www.Plansingle.ca).

 

MoneySense ETF All-stars 2019

Posted By |

 

The latest MoneySense ETF All-stars has just been published for 2019. click on the highlighted text in the headline to access the full article: Best ETFs in Canada for 2019 (you don’t need to subscribe to access).

I’ve been writing this annual feature every year since 2013, always with the help of several ETF experts. This year, as the article reprises, there were a few changes in the makeup of the panel but we more than replaced the departing analysts, for a total of nine in total, including several returning experts. Among the newcomers are two regular Hub contributors: fee-only planner Robb Engen of Boomer & Echo, and CuttheCrapInvesting blogger Dale Roberts. Bios of the rest are below.

While there are more than 800 ETFs available on Canadian stock exchanges, our “All-Star” list remains an elite one: despite the multitude of new product launches in 2018, we increased the number of All-stars from just 21 to 25, although we also added a new feature we dubbed “Desert Island picks” to give a little more latitude to the individual preferences of each analyst.

Canadian Equity ETFs

All four Canadian equity ETFs are returning under the new revised panel: VCN, XIC, HXT and ZCN. There were also a couple of vigorous debates about Canadian equities, particularly about the fate of Horizons HXT, a swap-based total return product that has long been a pick of the All-Star panelists because of its tax-efficiency in non-registered portfolios. Last week’s federal budget added the possibility of regulatory risk to HXT and more than a dozen other similar products from Horizons. For 2019 at least, the panel opted to retain HXT as an All-Star, and we will monitor developments in the meantime. In the meantime, caveat emptor. (See Dale Roberts’ post on the topic.) Go to this MoneySense link for the chart of the winners and further commentary.

US equities

Here the panel again stood pat, opting to retain all four of our 2018 US equity picks: XUU, VFV,  VSP and ZSP. Go to this MoneySense link for the chart of the US equity winners and further commentary.

International Equities

The panel was in favor of retaining our three international ETF All-stars from previous years but also decided to add two new ones, both from Vanguard. The returning picks include the two from BlackRock: the iShares Core MSCI All Country World ex Canada Index ETF (XAW) and the iShares Core MSCI EAFE IMI Index ETF (XEF.) Also back is Vanguard’s Emerging Markets ETF (VEE). A new addition this year is VXC, the Vanguard FTSE Global All Cap ex Canada ETF. Also new this year is VIU, the Vanguard FTSE Developed All Cap ex North America Index ETF. Go to this MoneySense link for the chart of the International winners and further commentary. Continue Reading…

Federal Budget 2019: Liberals unveil $22.8 billion in new spending in pre-election budget

Posted By |

Not surprisingly, the Liberals’ fourth federal budget released Tuesday afternoon is the predicted pre-election spendathon targeting the two big voting blocks of Seniors and Millennials. You may wish to refresh this link from time to time, or check my Twitter feed at @JonChevreau. Also check out FP Live’s “Everything you need to know about Federal Budget 2019.”

One of the first reports out was the CBC: Liberals table a pre-election budget designed to ease Canadians’ anxieties. It said that Morneau’s fourth budget includes $22.8 billion in new spending. The 460-page document is titled Investing in the Middle Class. Not surprisingly, the CBC noted, there is no timeline for erasing the Deficit, projected to be $20 billion next year, then falling to $15 billion two years later, and then to $10 billion in 2023-24.

First-time home buyers can tap RRSPs for $35,000

As predicted, the Budget targets Millennials who are finding it hard to get a foot on the housing ladder. It  boosts the amount of money that can be withdrawn from RRSPs for a first-time home purchase, from the previous $25,000 to $35,000 ($70,000 for couples). Low-income seniors will be able to keep more of the Guaranteed Income Supplement (GIS) if they opt to remain in the workforce and safeguards are being introduced to protect employer pensions in the event of bankruptcies.

Among other spending initiatives is ensuring access to high-speed Internet by 2030 across the country, $1.2 billon over three years to help First Nations children access health and social services, an additional $739 million over five years to repair water systems on First Nations reserves, and a federal purchase incentive of up to $5,000 for electric battery or hydrogen fuel cell vehicles with sticker prices below $45,000.

Little wiggle room in a Recession

The Financial Post’s Kevin Carmichael filed a piece headlined “Liberals leave themselves little wiggle room in the event of a recession.” And Andrew Coyne commented that “the federal budget is a testament to the pleasures of endless growth. Forget productivity, tax cuts or investment.” One of his colourful quips was this:

“I’ve said before that these are deficits of choice, rather than necessity. A better way to describe them might be deficits for show.”

The Globe noted that the $23-billion in new spending spans more than a hundred different areas, although the focus is on new home buyers and training programs for workers. Later this year there will be $1.25 billion (over 3 years) “First Time Home Buyer Incentive” managed by the Canada Mortgage and Housing Corporation. The Globe added that “CMHC would put up 10 per cent of the price of a newly constructed home and 5 per cent of an existing home, and share in the homeowner’s equity.” To qualify you must be a first-time home buyer with annual household income below $120,000.

8 ways personal finances will be affected: GIS, CPP & more

G&M personal finance columnist Rob Carrick listed 8 ways the budget will impact ordinary citizens’ finances. He noted that seniors receiving the GIS will be able to earn $5,000 without affecting benefits, up from $3,500, and that there will also be an additional 50% exemption of up to $10,000. Contributors to the Canada Pension Plan who are 70 and older and haven’t applied for benefits will be “proactively enrolled” starting next year. Carrick said Ottawa says about 40,000 people over 70 miss out on CPP benefits averaging $302 a month. He also writes that the tax break on stock options will be limited for employees of larger, mature companies (as opposed to startups), with annual caps of $200,000 on stock options eligible for preferential tax treatment. Continue Reading…

Alternative assets in ETFs and mutual funds, including a new one from Franklin Templeton

Posted By |

 

Alternative asset classes like private equity and real estate have long been in vogue with pension funds, institutional investors and some high-net-worth individual investors but the pickings have been slim for retail mutual fund investors. Now, Franklin Templeton Investments Canada has introduced the Franklin K2 Alternatives Fund.

The company says its new mutual fund, announced on Monday, March 11, uses “a multi-strategy approach in seeking to dampen volatility and offer downside protection, while providing added diversification and low-correlation to asset classes typically held in a traditional portfolio.

Franklin Templeton Canada Duane Green pointed to the unpredictable market environment of the past year and said “investors are looking to reduce volatility and protect capital … Our alternatives fund addresses these investor needs and combines the benefits of a sophisticated solution with the liquidity, convenience and fee transparency of a mutual fund.”

In a piece this weekend in the Financial Post, which mentioned the new Templeton fund among others, investing reporter Victor Ferreira said Canadian retail investors looking for exposure to hedge-fund like strategies that can involve leverage and short-selling are being inundated with new options, following a rule change in January. At least six firms have brought so-called “liquid alternative” products (some of them ETFs and some of them mutual funds from firms like Mackenzie and C.I. Funds) to market since regulations barring them from doing so were lifted at the beginning of 2019. Prior to the regulations being altered, he said, only a few firms were able to offer such products after applying for exclusions.

As the Post pointed out, some alternative assets — notably real estate and private equity — are seldom easily liquidated if you need some cash. It cited a 2018 Scotiabank report that projects the Canadian market for these kind of products could grow to be worth $20 billion.

According to Franklin Templeton marketing documents, alternative asset classes or hedging products can improve return potential without significantly increasing risk. It describes three possible “buckets” investors can choose from: traditional Equity Beta or “Risk On,” traditional Bond Beta or “Risk Off” and Alpha Alternatives, or “Risk Uncertain.” It said Alternative Assets can also protect client assets during declining equity markets. In addition, Alternatives have “held up well in weak bond markets.”

Green told the Post that the new Franklin Templeton fund gives investors access to three different strategies: the fund will index 50 hedge funds and aim to replicate their returns. On the long/short side, the fund will also identify the most popular stocks that alternative asset managers are buying and take long positions in them while shorting S&P 500 or futures contracts and any individual names it deems unattractive. Thirdly, the fund will target risk premia.

Or, in the language used in the Franklin Templeton press release: Continue Reading…