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.

Unlocking Wealth: Insights from 11 experts on Impact of Financial Education

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Photo by Kampus Production on Pexels

Understanding the impact of financial education on wealth-building, we’ve gathered insights from Directors, Founders, and CEOs, among others, to share their experiences and lessons. From fostering open family financial talks to the importance of reinvesting profits for startup growth, explore the eleven valuable strategies these experts attribute to achieving financial independence.

  • Foster Open Family Financial Talks
  • Invest in Low-Cost Index Funds
  • Leverage Compound Interest Early
  • Learn from Real Estate Investment
  • Implement Simple Numbers Cash Flow Management
  • Educate to Protect Wealth
  • Invest Early, Understand Market Trends
  • Budget with The Total Money Makeover
  • Navigate with Financial Education
  • Avoid Emotional Investing
  • Reinvest Profits for Startup Growth

Foster open Family Financial Talks

I strongly advise families to prioritize open and honest communication about family finances. It is pretty common in most families to not discuss money. I am a firm believer that regular discussions about finances, budgeting, and investments will strengthen your relationship and prioritize a secure financial future. 

Financial literacy is crucial, regardless of asset levels. As a CFP®, my role extends beyond managing investments or creating financial plans; I also serve as an educator for families. By providing personalized guidance and educational resources, I help families bridge the gap in financial knowledge and deepen their understanding of their financial situation. This empowers both the parents and children to contribute meaningfully and reduces the likelihood of misunderstandings or financial disagreements. This collaborative approach with your certified financial planner can provide personalized guidance and help couples navigate these important decisions together.

The more you save and the earlier you save, the better. Your future self will thank you!

You also need an emergency fund. You need to expect the unexpected. Have six months of expenses earmarked in a high-yield savings account.

The secret to building wealth is living below your means. You need to be clear on the income coming in and the expenses going out. Pay yourself first. The results of compound interest are powerful. As your income increases, lifestyle inflation creeps in. Avoid the urge to spend more as you make more. Save more. Invest the difference. Your future self will thank you. — Melissa Pavone, Director of Investments CFP, CDFA, Oppenheimer & Co. Inc.

Invest in low-cost Index Funds

Despite working in Financial Services for over 20 years, I’ve only truly educated myself about Financial Independence within the last few years.

Fortunately, I had been doing most things right all along; saving a decent proportion of my salary each month, using tax-efficient savings vehicles, maximizing my employer’s pension contributions, etc. Where I messed up, to some extent, was in what I was investing my hard-earned savings in.

Being a sucker for actively managed funds, individual stocks, etc., has hampered the growth of my portfolio over the years. I am now invested exclusively in low-cost index-tracking funds, and I wish I had decided to do this years ago.

My eyes were finally opened to the low-cost passive index tracker approach when a friend recommended I read a book called The Little Book of Common Sense Investing by John Bogle (the founder of Vanguard). It’s a great book that totally changed my outlook on investing. — Jonathan Wright, Founder, Aiming For FIRE

Leverage Compound Interest early

I have built wealth and achieved financial independence primarily through financial education. It has provided me with the necessary tools for making informed investment decisions, managing risks effectively, and optimizing tax strategies. Financial education has been an important platform for understanding the dynamics of the market and developing a disciplined approach to saving, investing, and spending.

The most valuable lesson I ever learned was about compound interest. Compound interest can turn modest savings into substantial wealth over time. The key is to start early, save consistently, and reinvest earnings. Even small amounts saved regularly can grow exponentially due to the compounding effect, highlighting the importance of patience and discipline in wealth building.

Another critical lesson is the importance of living below your means and investing the surplus wisely. It’s not just about how much you earn, but how much you save and invest that counts towards building long-term wealth. When you prioritize savings and investments, you create a buffer for unexpected expenses and have the potential to achieve financial independence sooner. — Sherman Standberry, CPA and Managing Partner, My CPA Coach

Learn from Real Estate Investment

When I was growing up, my grandfather gave me an excellent financial education through his example. He was a real estate investor, and thanks to his investments, he was able to retire early while helping my brother and me pay for college. I decided to follow his example and started buying real estate after college. 

Now, my portfolio is worth seven figures. The big lesson I learned from my grandfather is that to be truly financially free, you have to find a way to earn money without having to work all the time. And with real estate, that’s possible. — Ryan Chaw, Founder and Real Estate Investor, Newbie Real Estate Investing

Implement Simple Numbers Cash Flow Management

We run a fast-growing small-business law firm and are devoted fans and implementers of Simple Numbers by Greg Crabtree. I frequently give copies of the book to our clients, and they invariably thank me later.

Greg’s advice about how to view your cash flow and responsibly manage it has been foundational to our and our clients’ success. — Matthew Davis, CEO, Davis Business Law

Educate to Protect Wealth

In co-founding Silver Fox Secure, I’ve directly observed the impact that financial education has on protecting and building wealth, especially among vulnerable populations. A key lesson that stands at the core of our mission is the critical role of preemptive measures in safeguarding one’s financial health. Through our work, we’ve implemented comprehensive identity-theft protection and credit-monitoring solutions that not only serve as a defense mechanism but also educate our clients on the importance of regular financial oversight.

One pivotal example from our experience was helping a group of seniors who were targeted in a sophisticated phishing scam. By providing them with personalized education on recognizing such threats and monitoring their financial activities through our services, we turned a potentially devastating situation into a valuable learning opportunity. This incident underscored the importance of proactive financial education, showing that knowledge is as vital as the technical solutions we offer in preventing financial exploitation.

Furthermore, our efforts have highlighted the necessity of tailored financial strategies to address specific risks associated with different demographics, such as active military personnel and individuals with mental or physical disadvantages. By focusing on the unique vulnerabilities of these groups, we’ve developed targeted educational materials and monitoring strategies. This approach has not only protected our clients’ financial assets but has also empowered them with the knowledge to make informed decisions about their financial security in the future. Through these experiences, I’ve learned that combining cutting-edge technological solutions with personalized education fosters a robust environment of financial independence and security. == Jenna Trigg, Co-Founder, Silver Fox Secure

Invest Early, Understand Market Trends

Financial education has been at the core of my journey in founding BlueSky Wealth Advisors and helping others achieve financial independence. A crucial lesson I’ve learned, and often share, is the importance of early investment and the power of understanding the market’s long-term trends. For instance, an initial $1 investment in the stock market in 1926 could have grown to over $13,000 today, despite numerous economic downturns along the way. This emphasizes not just the value of patience and perseverance in investing, but also the vital role of financial knowledge in distinguishing between short-term noise and long-term growth opportunities.

In the realm of education investment, I’ve observed the significant impact financial education has on making informed decisions regarding one’s or one’s child’s educational future. The story of my client’s son, Sammy, who pursued a $200,000 education in a competitive field only to start with a $30,000 salary, underlines the importance of weighing the value of a degree against its cost and potential debt burden. It’s not just about getting any education but making educated financial decisions regarding that education. This example highlights the necessity to have a financial plan that incorporates smart strategies towards education funding to avoid jeopardizing one’s financial independence. Continue Reading…

Financial Tips: Investing in a Boat for Retirement

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Boating is an adventure at any age, but it often becomes a lifestyle for retirees. If you’ve ever considered trying to save up for a boat one day this could be a good read. With a couple of these financial tips, you’ll be well on your way to living your boating dream!

 

Adobe Image courtesy Logical Position/Visionsi

By Dan Coconate

Special to Financial Independence Hub

 Retirement is a time for relaxation, adventure, and a well-deserved break from the toils of work. For many, it’s the perfect time for ticking off items on the bucket list and enjoying activities they couldn’t do before, such as boating. Setting sail on serene waters has a draw that’s hard to resist, especially once you’ve reached your golden years, but it can unfortunately be an expensive hobby. With these financial tips, investing in a boat for retirement is within reach.

Why Invest in a Boat?

Investing in a boat can offer several benefits depending on your interests as well as your lifestyle. In many cases, the most common reasons as to why one would invest in a boat is for recreation/leisure, family time, and adventure!

In the financial world, large purchases are seldom one-dimensional. However, they can be gateways to new experiences or investment opportunities. A boat, with its allure of freedom and tranquility, often blinds potential owners to its financial complexities. With a good understanding of your needs and what’s available, you can spend your glory days in luxury and comfort.

Don’t forget that investing in a boat depends greatly on the individual themselves and what they are comfortable in affording. As great as it is to own one, you don’t want it to feel like you’re being submerged by a financial burden especially towards your later years in life. Find something that you can truly afford and go from there.

Understanding the Cost of Ownership

As mentioned above, owning a boat depends greatly on the individual themself and what they can afford. The financial commitments of boat ownership extend far beyond the initial purchase price. From understanding the dos and don’ts of marine craft maintenance to preparing your vessel for foul weather, upkeep can turn the investment into a bottomless expense if not managed wisely.

Here are some common costs that every prospective boat owner should consider:

  • Purchase Price: The upfront cost varies widely based on the boat’s type and age.
  • Maintenance and Repairs: Regular upkeep, including engine maintenance, hull cleaning, and repairs.
  • Docking Fees: Charges for mooring or storing your boat at a marina or docking facility.
  • Insurance: Protection against accidents, theft, and natural disasters.
  • Fuel: Operational expense that can fluctuate with usage and fuel market prices.
  • Safety Equipment: Initial purchase and replacement costs for items such as life jackets, fire extinguishers, and flares.

Understanding these costs is imperative, as they can tally up faster than the wakes behind a speedboat.

Legal and Financial Considerations

There are also key legal and tax-based implications of boat ownership. When considering the various forms of state and federal taxes on a boat’s purchase, operation, and potential resale, the financial burden can become relatively heavy. Annual or biennial fees can add up and make it difficult to ascertain the full price of boat ownership beforehand. Continue Reading…

Defined Benefit plans in good health with opportunity to use surplus, but prepare for risks ahead

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Image courtesy Mercer/Getty Images

By Jared Mickall, Mercer Canada

Special to Financial Independence Hub

Since the beginning of the year, Canadians saw the Bank of Canada maintain the overnight rate at 5.00% as inflation eased to be less than the upper end of the Bank of Canada’s inflation-control target of 3%.

Amidst this economic backdrop, Canadians who participate in defined benefit (DB) pension plans may be interested in the financial health of their DB plans.

The Mercer Pension Health Pulse (MPHP) is a measure that tracks the median solvency ratio of the defined benefit (DB) pension plans in Mercer’s pension database. At March 29, 2024 the MPHP closed out the year at 118%, an improvement over the quarter from 116% as at December 31, 2023. The solvency ratio is one measure of the financial health of a pension plan.

Throughout Q1, most plans saw positive asset returns coupled with decreased DB liabilities, which resulted in an overall strengthening of solvency ratios. In addition, compared to the beginning of the year, there are more DB pension plans with solvency ratios above 100%.

In other words, Canadians who participate in DB plans are likely to have seen the financial health of their DB pension plans improve over Q1.

Inflation in Canada and interest rates

Canadian inflation eased to 2.9% in January, which is less than the upper end of the Bank of Canada’s inflation-control target of 3%. It is the Bank of Canada’s expectation for inflation to remain close to 3% during the first half of 2024 before gradually easing. On March 6, the Bank of Canada continued its policy of quantitative tightening by maintaining the overnight rate at 5.00%. On March 19, Canadian inflation for February 2024 came in at 2.8%, which ignited industry speculation on the timing and amount of a cut to the overnight rate.

In addition, on April 10, the Bank of Canada announced that it was maintaining the overnight rate at 5.00%. The next scheduled date for announcing the overnight rate target is June 5, 2024. Continue Reading…

Federal Budget 2024 features $53 billion new spending over 5 years; rise in capital gains inclusion rate for wealthy

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Prime Minister Justin Trudeau’s 8th federal budget features $52.9 billion in new spending over five years, according to the CBC.

You can find the 430-page budget — titled Fairness for Every Generation — at the Department of Finance website here.

Released at 4 pm Tuesday, the wealthiest 0.13% of Canadians will be hit with a higher capital gains inclusion rate: as of June 25, the inclusion rate will rise to 66% for capital gains  in excess of $250,000 a year, and this will also apply to corporations.

You can find details at the Globe & Mail’s coverage here. (may only be viewable by subscribers.) For those who can’t access, it says:

“The budget doesn’t make any changes to income tax rates, nor does it include an explicit wealth tax. Instead, the tax hikes are focused on capital gains … as of June 25, the inclusion rate on capital gains realized annually above $250,000 by individuals – and on all capital gains realized by corporations and trusts – will rise from one-half to two-thirds.­”

The lifetime capital-gains exemption for Canadians will rise from $1-million to $1.25-million, the Globe says, and “The total capital-gains exemption from the sale of a principal residence will not change.” Speaking on CBC, G&M columnist Andrew Coyne called it an “underwhelming” document.

Coyne’s G&M column on the budget bore the scathing headline A government with no priorities, no anchors, and when it comes to growth, no clue. Subscribers can read it here.

A typical passage from his piece:

“…. there is not a single measure in the budget aimed at boosting investment generally – as opposed to the usual slew of measures aimed at diverting investment

into the government’s favoured sectors: artificial intelligence, ‘clean’ technologies, and so on.”

Jamie Golombek’s take on Taxes

Here is  what CIBC Wealth’s tax guru, Jamie Golombek, had to say in the Financial Post.

The federal budget released on Tuesday did not contain a general tax rate increase for the wealthy, but the government did announce that the capital gains inclusion rate will be going up and it amended the draft alternative minimum tax rules in response to concerns of the charitable sector .

On the rise in the capital gains inclusion rate, Golombek says “the $250,000 threshold will apply to capital gains realized by an individual, net of any capital losses either in the current year or carried forward from prior years  .. Capital losses carried forward from prior years will continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. This effectively means that a capital loss realized at the current 50 per cent allowable rate will be fully available to offset an equivalent capital gain realized after the rate change.”

MoneySense’s Jason Heath

Fee-only financial planner Jason Heath penned this insightful analysis for MoneySense. He covers everything from the higher capital gains inclusion rate to impact on entrepreneurs, housing, renters and much more.

Rob Carrick’s Personal Finance report card

G&M personal finance columnist Rob Carrick created a personal finance Budget report card here. He gave Taxes a C-minus grade, Housing a B, Junk Fees a C and Open Banking a D, and Saving for postsecondary education an A.

On the other side, the Finance department says an Improving economy means higher tax revenue: $20 billion in new revenue in five years. The $40 billion deficit is projected to stay more or less pat till 2025/2026, after which it starts to inch down.

$46 billion next year on payments on the Debt

Here’s initial coverage of the budget from National Post. There, it reports that Ottawa will spend $480 billion next year, including $46 billion in payments on the national debt. Among the highlights mentioned:

“Among the new spending is more money for home building, including tax measures that allow first time buyers to take more money out of their RRSP for a down payment and to delay when they start repaying the money.There is also $1.1 billion for interest-free student loans and grants, more funding for the Liberal daycare program and for the first phases of national pharmacare that will cover insulin and contraceptives. There is also funding for a new disability benefit and money for artificial intelligence research.”

Mix of Bad Economics and Bad Politics

Also in the National Post, Philip Cross dubbed the budget “a continuation of the Trudeau government’s orgy of spending financed by debt and higher taxes.”

Sample passage:

“Besides being bad economics, the government’s massive spending is bad politics because it antagonizes most provinces without any obvious electoral return from its spending.” Continue Reading…

A Smart Balance for Retirees: HBIG Blends Tradition with Innovation

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Image by Harvest ETFs

By Ambrose O’Callaghan

(Sponsor Blog)

Canadians in or nearing retirement may be seeking out an investment that provides stability in the face of broader market and economic challenges. Balanced mutual fund portfolios have remained the most popular form of investment fund among Canadians.

However, most current balanced mutual funds and ETFs in the Canadian market provide income at levels below inflation rates. Moreover, these balanced funds/ETFs often pay quarterly, semi-annual, and annual distributions as opposed to monthly.

Today, we zero in on a balanced ETF designed to offer stability, growth opportunities, and high monthly cash distributions.

Today — April 15, 2024 — Harvest ETFs launches the Harvest Balanced Income & Growth ETF (HBIG:TSX). This exchange-traded fund (ETF) is designed to provide Canadian investors of all ages — and especially those in retirement — with access to a balanced portfolio consisting of primarily Harvest Equity Income ETFs and Harvest Fixed Income ETFs that deliver high monthly cash distributions.

For those  looking for more cash flows to help bridge the income gap, or who want to meet RRIF withdrawal minimums, we have also launched the Harvest Balanced Income & Growth Enhanced ETF (HBIE:TSX), an alternative fund that uses leverage. This ETF seeks to provide unitholders with high monthly cash distributions and the opportunity for capital appreciation by investing, on a levered basis, in a portfolio that seeks to replicate HBIG. With the use of the leverage, the risk rating for HBIE is slightly elevated relative to HBIG.

Here is a link to the Business Wire news release issued this morning.

What is a balanced portfolio? How is Harvest changing the original formula to meet investor needs in 2024? Let’s jump in.

What makes up the traditional 60/40 portfolio?

According to the Investment Funds Institute of Canada (IFIC), the number of mutual fund assets in Canada totalled $2.012 trillion at the end of February 2024. That was up 2.9%, or $57.1 billion, from January. Meanwhile, ETF assets totalled $403 billion at the end of the same period – up 4.1% month over month.

Balanced mutual funds make up $923 billion, nearly half of the total mutual funds operational in Canada. That means that Balanced portfolios are the most popular among Canadians who are invested in mutual funds. ETFs, by comparison, are heavily weighted in Equity and Bond funds, while Balanced ETFs only make up $16.5 billion out of $403 billion.

A balanced fund typically refers to a portfolio that is broken down by 60% equity and 40% fixed-income exposure. That ratio allows for capital appreciation while mitigating risk and providing protection from volatility with the exposure to bonds. While the 60/40 ratio is a proxy for the typical balanced portfolio, it is not one-size-fits-all. Some balanced portfolios may aim for ratios that weigh either equities or bonds more heavily.

How do covered calls generate high income?

Harvest ETFs believes wealth is created and preserved by owning leading businesses and high-quality fixed income securities. Moreover, Harvest is a market leader in covered call options ETFs. Harvest has been writing covered call options for 15 years. Moreover, the firm has a strong track record for delivering consistent distributions. Continue Reading…