Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Advice matters: Here’s why

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By Bernard Letendre

Special to the Financial Independence Hub

The investments landscape has witnessed seismic changes in North America and around the globe in recent years. Although the vast majority of customers are either satisfied or extremely satisfied with the services they receive from their advisor — based on The Investment Funds Institute of Canada and Pollara Strategic Insights 2019 Canadian investor survey –one narrative that has been gathering a lot of attention focuses narrowly on fees and goes as far as questioning the value of advice. Like all generalizations, this narrative oversimplifies things and can create misleading perceptions.

If you’re a seasoned investor, you know that picking individual securities to create a desired return isn’t a simple task. Investing to achieve a meaningful goal is even harder: it involves developing a good plan and focusing on outcomes rather than fees and performance alone. And that’s hard work.

That’s why I believe in the value of advice. Studies like the one conducted by CIRANO and the University of Montreal have shown that financial advice results in better outcomes: pure and simple. In fact, findings revealed that investors who worked with an advisor over a 15-year period accumulated 3.9 times more assets than those who invested on their own during the same period. Another interesting finding revealed that the difference in outcomes wasn’t mostly due to investment performance (Alpha) but to other factors such as discipline and increased savings rate associated with the advice received by investors: grouped under the concept of Gamma by the study’s authors.

One explanation for those better outcomes could be that in creating a financial plan, an advisor will ask their clients important questions that DIY investors may not think about: or wish to ask themselves. Secondly, once a plan is put in place, an advisor can play a unique role in holding clients accountable towards their own goals, which may result in better financial outcomes compared to people who rely on self-discipline to keep themselves in check.

When it comes to navigating the big moments in life, like passing down a business to the next generation, recognizing early signs of mental health issues that come with age, or handling the death of a spouse, the complexity of such precarious situations often requires a human touch. Investors need someone with the expertise, emotional intelligence and compassion who goes above and beyond to help them every step of the way. Advisors do that.

Advisors focus on more than just Asset Allocation

As is clear by now, advisors focus on more than just asset allocation to help clients achieve their goals. They’re able to support them with a more holistic approach, which could include advice around tax planning, estate planning, insurance planning and more. This is why investors who benefit from the support of an advisor often achieve better outcomes than if they were to try and do it themselves. Continue Reading…

7 ways retirees can weather the Coronavirus storm

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By David Field, CFP

Special to the Financial Independence Hub

If you’re a retiree or looking to retire soon, the COVID-19 Coronavirus is likely causing you anxiety about your finances: and I want to help relieve it.

As a financial planner, I’ve spent the last couple weeks providing guidance to my clients during this tumultuous time.

While I have no medical advice to offer (nor should I), nor do I have any way to predict the future, I’ve heard some very dangerous generic advice regarding people’s personal finances.

Simply advising people to “wait for the markets to go back up, and all will be well” ignores the fact that you may need income now, meaning you can’t just “wait it out.”

If you are retired, or looking to retire soon, here are seven actions you can take now to help reduce your financial anxiety.

1.) Create or maintain a cash reserve

Having cash easily accessible gives you options, especially in stressful times. There is a lot of noise out there in the financial media suggesting that “stocks are on sale right now,” and, as a result, you should allocate some of your resources to buying them.

If you are close to retiring (in the next year or so), or you are retired, I advise you to make sure you have enough cash to cover your living expenses for the next three years.

Then, and only then, if you have cash left over then you may want to take advantage of depressed stock prices.

2.) Sell your bonds, not your stocks

If you need to create cash, don’t sell your stocks: sell your government bonds. Assuming you have a balanced investment portfolio, you likely have government bonds somewhere in there.

With stocks decreasing, along with interest rates, those bonds have increased in value. This is why you have government bonds as part of your portfolio. (Be careful: don’t mistake government bonds for corporate bonds when selling your bonds.)

If you are in balanced mutual funds or ETFs, you may not be able to sell just your government bonds. If you sell your balanced mutual funds or ETFs to create your cash reserves, you’ll likely suffer some investment losses: but those losses should be much smaller than if you were to sell all-equity funds or ETFs.

Human behaviour causes us to want the safety of government bonds when we see our stocks decreasing in value: that means we’re selling stocks at a discount and buying government bonds at super-high prices. Try to avoid this behaviour, as it means your portfolio will get hurt on both sides.

3.) Postpone your retirement date, if you can

If you were planning on retiring soon, I recommend delaying implementing that decision by at least a few months. (The exception would be if you have a defined benefit pension that will provide most of your retirement income, and which gives you a defined retirement date.)

Once you start your retirement income, which is likely to come from many different sources, it can be difficult — or even near impossible — to make changes. With the COVID-19 virus changing the narrative every day, there’s a ton of uncertainty out there; meaning it is likely prudent to hold off retiring if you can.

In addition, if your employer needs to reduce its workforce in response to the current crisis, there may be some attractive options or financial offers that provide incentives for you to retire. If this happens, any kind of severance will provide an income cushion before you start your retirement income.

4.) Cut back spending

The math is very basic: If you reduce what you spend, then you will require less income from your investments.

While this is always the case, right now cutting back might be easier than ever. With vacation plans cancelled or postponed and no sports, music or performances to go to, it may be easier to save money than if you’ve tried in the past.

5.) Expecting a refund? File your 2019 tax return ASAP Continue Reading…

Tips for lowering the stress of filing your Taxes

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By Sia Hasan

Special to the Financial Independence Hub

When April rolls around, everyone seems to be squirming around attempting to get their taxes completed. The complex world of taxes is full of intricate legal jargon that makes it difficult for anyone other than a tax expert to understand. Luckily, if you follow the tips we’ve outlined for you below, you’ll be well on your way to having a stress-free tax season this year.

Give yourself time

One of the biggest mistakes that people make when it comes to tax season is simply not giving themselves time to file their taxes. Most people wait until the last minute for fear of owing money. The truth is that you’re better off knowing what you owe months ahead of time so you can come up with the money.

Secondly, you can be assured that you’ll get a visit with a local tax professional or you’ll have leeway if online tax preparation software is down. Lastly, you can get the stress of taxes off of your mind sooner. The longer you sit with the idea of having to fill out your taxes, the bigger a deal you’re going to make the process in your head. Simply start your taxes early so you can get them done and handled stress-free.

Use an Online Tax Preparer

In this digital age, there’s no real reason that you shouldn’t be filing your taxes online. It allows you to seamlessly get your return accepted by the Government. There are various tax preparation software programs available online. Continue Reading…

Retired Money: The trouble with playing with FIRE

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My latest MoneySense Retired Money column looks at the trouble with playing with FIRE. Click on the highlighted headline to retrieve the full column: Is Early Retirement a realistic goal for most people?

FIRE is of course an acronym for Financial Independence Retire Early. It turns out that Canadian financial bloggers are a tad more cynical about the term than their American counterparts, some of whom make a very good living evangelizing FIRE through blogs, books and public speaking.

The Hub has periodically republished some of these FIRE critiques from regular contributors Mark Seed, Michael James, Dale Roberts, Robb Engen and a few others, including one prominent American blogger, Fritz Gilbert (of Retirement Manifesto).

No one objects to the FI part of the acronym: Financial Independence. We’re just not so enthusiastic about the RE part: Retire Early. For many FIRE evangelists, “Retire” is hardly an accurate description of what they are doing. If by Retire, they mean the classic full-stop retirement that involves endless rounds of golf and daytime television, then practically no successful FIRE blogger is actually doing this in their 30s, even if through frugal saving and shrewd investing they have generated enough dividend income to actually do nothing if they so chose.

What the FIRE crowd really is doing is shifting from salaried employment or wage slavery to self-employment and entrepreneurship. Most of them launch a FIRE blog that accepts advertising, and publish or self-publish books meant to generate revenue, and/or launch speaking careers with paid gigs that tell everyone else how they “retired” so early in life.

How about FIE or FIWOOT or Findependence?

Some of us don’t consider such a lifestyle to be truly retired in the classic sense of the word. Continue Reading…

Do Americans want Free Health Care or complete Student Loan Forgiveness?

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A LendEDU study shows more Americans want free health care than student loan forgiveness. Free health care is a big plank for Democratic presidential candidate Bernie Sanders.

By Mike Brown

Special to the Financial Independence Hub

In Canada, the debate over health care isn’t nearly as fiery as the one that is going on within the confines of its southern neighbor, the United States. 

That is because Canadian citizens and permanent residents already have access to public health insurance that alleviates them from paying for health care services most of the time. 

But in the U.S., the debate rages on, especially with 2020 being a presidential election year. 

This election cycle is no different than any other one in recent memory because health care is once again a core issue amongst the candidates and constituents. Plans from both sides of the aisle range from maintaining the status quo to free universal health care. 

What is different about this year’s presidential election is the much greater emphasis that is being placed on the student loan debt crisis and the growing cost of higher education. 

Whereas before these joint-issues would have rarely been discussed at debates and rallies, they are now amongst the most discussed topics. 

And it’s easy to understand why; in the U.S., the total outstanding student loan debt figure is now roughly $1.61 trillion, which makes it the second largest class of consumer debt in the country behind mortgage debt. There are 44.5 million student loan borrowers and recent ones owe $28,565 in student loan debt. 

Student loan debt has gotten so out of hand in the U.S. in large part due to the ever-inflating cost of college tuition, which has outpaced the inflation rate by at least three times. Whereas the average cost of college in Canada for a Canadian citizen costs around $5,000 per year, it costs between $20,000 and $50,000 per year for an American attending college in the U.S. 

So, both health care and student loan debt plus the cost of higher education will be issues that weigh heavily on the minds of American voters in the 2020 presidential election. 

With this in mind, LendEDU, a personal finance company, conducted a survey of 1,000 Americans of voting age to gauge their preferences on the two topics. 

60% of Americans prefer free Universal Health Care to complete Student Loan Debt Forgiveness

LendEDU’s survey first asked respondents the following: “Would you rather have the United States’ $1.61 trillion in outstanding student loan debt be completely forgiven or have a free health care for all policy be implemented in the U.S.?”

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While 40% of poll participants opted for complete student loan forgiveness, the majority (60%) still wanted free universal health care instead.

In terms of cost, forgiving the nation’s student loan debt would cost somewhere around $1.61 trillion, while free universal health care would cost anywhere from $25 trillion to $36 trillion over 10 years. Further, while the average student loan debtor owes $28,565 in student loan debt, the average cost of health insurance was $18,764 for the average American family in 2017, with $5,714 of that coming from out of the pocket.  Continue Reading…