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.

How to Create a Crisis Budget that Supports your Path to Findependence

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Image by Rilson S. Avelar from Pixabay

By Devin Partida

Special to Financial Independence Hub

No one expects a monetary crisis to strike until it does. Some events that might throw you into a tizzy include losing your job, a pet getting ill and needing emergency veterinary services or the family vehicle breaking down.

To stick to financial goals, you must have a plan for when the current one falls to pieces. Creating a budget that allows you to survive a sudden catastrophe while saving for a home, travel or retirement is the secret ingredient to keeping the nest egg you need.

Amid the Storm: Identify and Prioritize Essential Expenses

An annual emergency savings report by Bankrate, YouGov and SSRS found that 59% of Americans are not comfortable with their emergency savings. For millions of people struggling paycheck to paycheck, anything outside their normal costs spells trouble.

The first thing to do when you experience fewer funds than bills coming in is to assess where you are and how much money you need to survive.

Identify Needs versus Wants

Although your favorite treat from the grocery store may seem like a need, you can likely find something less expensive to fuel your body. Some examples of needs include:

  • Shelter
  • Food
  • Heating and cooling

Once you have a list of the things you can’t live without, you’ll be better able to assess your priorities. In the short term, calling creditors or subscription services to pause payments or end plans can free up enough money to get through the predicament or assess how much money you need now.

Renegotiate Bills

The next step is to call each company to see what flexibility you have. For example, you need utilities to cook, heat your home and use the lights. Many local utility companies will put you on a payment plan so the bill remains the same around the calendar year rather than increasing exponentially during extreme weather.

For credit cards or subscriptions, explain your financial crisis and ask how to reduce monthly payments. Remember that delaying them may increase the total interest paid on the debt, so only use this technique to survive a short-term spending mess.

Cut to the Bare Bones

If you lose your income or have an unexpected expense, you may need to slash spending even more. Look to local resources for help. Food banks can provide sustenance when you lack grocery funds. Talk to your local county, township or public trustee about help with power bills and other resources in your area.

3 things to do to prepare for Financial Emergencies and Unexpected Expenditures

Life is filled with surprise charges. One way to plan for any crisis is to budget for it now. Weathering the next monetary tsunami will feel more like jogging up a hill than crawling up a steep mountain when you’re prepared. Here are some things you can do to be ready:

Create Multiple Streams of Income

Prepare for extra expenses like medical emergencies or the added costs of parenthood by finding ways to bring in more income. If the raises at work are lower than inflation, you can pick up a side hustle and join the gig economy to cover emergency funding.

In addition to diversifying your income sources, you can receive education to become eligible for higher-paying roles at work. Get an online certification, take a course through the local community college or enter management training through the workplace.

Add apps that earn you money for doing things like walking, taking surveys or buying things online. Look for creative ways to bring in extra cash, such as selling art you create or selling used items. Continue Reading…

Low-Volatility ETFs for a Volatile World

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Image courtesy Harvest ETFs

By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog)

Canadians in retirement, or those nearing retirement, are faced with unique challenges in the present-day market. Interest rates have moved up from their historic lows since 2022. The benchmark rate for the Bank of Canada (BoC) reached its zenith of 5.00% in July 2023. Economic headwinds forced the hand of the BoC in 2024 and 2025. The benchmark rate now stands at 2.75%, with more rate cuts expected before the end of the year. (The BOC stood pat on April 16th).

This downward trend for interest rates means that investors who want a secure investment while outpacing inflation may have to look beyond GICs and other fixed-income products in this changing climate. Market volatility is another headwind investors are now contending with, spurred on by a new and aggressive U.S. administration.

There was enthusiasm surrounding the broader economy and the stock market coming into 2025. The previous GOP administration cultivated a reputation as a market-friendly one in the late 2010s. That momentum ground to a halt due to the COVID-19 pandemic, but the perception of a market-friendly GOP largely remained.

Investor outlook has soured in the late winter and early spring, in large part due to the uncertainty surrounding U.S. government policy, particularly when it comes to tariffs.

Source: American Association of Individual Investors, Bloomberg, Harvest ETFs. As of March 21, 2025.

This uncertainty has resulted in elevated levels of market volatility. Some names have suffered retracements of 50% or more over the past two months. This market is unique in that the sell-off was not triggered by one significant catalyst. Indeed, it is lingering trade policy uncertainty that is fuelling negative sentiment.

Source: American Association of Individual Investors, CNN (Fear and Greed Index). As of March 20, 2025.

The S&P 500 has dropped 8% in the year-to-date period as of close on Friday, April 10, 2025. A research note from Vanguard recently speculated that volatility was likely to remain due to factors like policy uncertainty, disruptive currents in the economy like artificial intelligence development, and the shifting policy of the Federal Reserve.

Demand for Low Volatility products has increased in this environment. These ETFs offer Canadian retirees a pure low volatility play with exposure to 100% Canadian equities. Moreover, we have introduced Harvest’s trusted option writing strategy to the second Low Volatility ETF. It aims to lower portfolio volatility while generating high monthly cash distributions.

Harvest Low Volatility ETFs:  A smoother Investment Experience

Harvest’s new Low Volatility ETF suite could be appealing to defensive and long-term investors. This approach to equity investing is factor-based, disciplined, outcome-oriented, is designed to mitigate risk, as well as provide long-term growth. Moreover, the suite includes a high-income solution that generates monthly cash distributions through an active covered call writing strategy. Continue Reading…

An Evidence-based Approach to Investing with Asset Allocation ETFs

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Getty Images, courtesy BMO ETFs

By Erin Allen, CIM®, BMO ETFs

(Sponsor Blog)

Introduction

The importance of asset allocation in investment management cannot be understated. Pioneering research by Brinson, Hood, and Beebower attributed over 90% of a portfolio’s performance variability to asset allocation decisions, making it the most important determinant in long-term investment outcomes1.

ETFs are remarkably effective market access tools, offering investors precision, liquidity, and cost efficiency to enhance portfolio construction.

This article explores asset allocation in depth, focusing on how Asset Allocation ETFs can serve as evidence-based approach for building resilient and diversified portfolios.

Theoretical Foundations of Asset Allocation: Modern Portfolio Theory (MPT)

Harry Markowitz’s (1952) Modern Portfolio Theory (MPT) laid the groundwork for efficient portfolio construction2, pointing out the benefits of diversification to manage risk levels. According to MPT, an optimal portfolio balances risk and return by combining assets with low or negative correlations, thereby reducing overall portfolio volatility2. This is the idea of diversification with which we are likely more than familiar, not putting all your eggs in one basket.  While some investments go up, others will go down, thereby mitigating losses.

MPT allows investors to find an optimal asset mix that reflects both their return aspirations and their risk tolerance, minimizing the prospect of unexpected outcomes.

BMO’s suite of Asset Allocation ETFs, such as the BMO All Equity ETF (ZEQT), enables investors to achieve broad global diversification — a key principle of MPT — by providing exposure to multiple geographies and sectors within a single vehicle.  Regular rebalancing helps to align your portfolio with your personal risk tolerance and types of assets needed to meet your financial goals.

Asset allocation decisions must align with an investor’s risk tolerance and time horizon. Younger investors with longer time horizons may favor equity-heavy allocations, while retirees may prioritize income and capital preservation through fixed-income or conservative balanced strategies.

The key here is that individual investor needs are unique, and ETFs provide the tools for investors to create the optimal portfolio for their needs or, in the case of asset allocation ETFs, to choose from a pre-set mix ranging from conservative all the way to 100% equity.

 A Note on Diversification

Diversification determines the level of volatility in your portfolio. A paper by S&P Dow Jones Indices research team titled Fooled by Conviction, showed that Between 1991 and May 2016, the average volatility of returns for the S&P 500 was 15%, while the average volatility of the index’s components was 28%.3 Looking at the variability between one stock and 500 is an extreme example, but it  illustrates the important point that if the typical active manager owns 100 stocks now and alters to holding only 20, the volatility of his portfolio will likely increase.

Behavioral Finance and Asset Allocation

Behavioral biases, such as loss aversion, confirmation bias or overconfidence, often lead investors to deviate from their optimal asset allocation strategy.4 Common mistakes include choosing portfolios that may be too conservative to meet their financial needs, panic selling, following the latest meme trend, or failing to strategically rebalance their portfolio over time.

It’s not about timing the market; it’s about time in the market that pays off in the long run.

Rebalancing a portfolio is another potentially daunting task for investors.  You have to remember to do it on a monthly or quarterly basis, but there’s also the emotional/psychological aspect which can often get in the way.  Rebalancing is essentially selling your winners and adding to your loser. Not an easy thing to do, though we all know to buy low and sell high, as the old adage goes.

Allen Roth did a study around the benefit of rebalancing over time5. In a moderate or balanced portfolio, you can see that it added close to 20% to returns over a year period of almost 20 years.  Although there is no guarantee rebalancing will add to your returns going forward, history has shown that it is effective, and it is an important risk control measure.

Investment Performance 12/31/99 – 12/31/17
Total Returns with/without Rebalance

Boosting Returns with Rebalancing, Allan Roth and etf.com, 2018 – For illustrative purposes only

An automated rebalancing facility, such as the one embedded in BMO’s Asset Allocation ETFs, can help mitigate the risks of a portfolio that becomes concentrated due to a failure to rebalance,  ensuring portfolios remain aligned to their predetermined asset mix and risk levels.

A Passive Approach to Investing

Asset allocation ETFs take a strategic approach to portfolio construction, using passive index-based investing tools to build the underlying portfolio.  Passive investing brings the benefits of being lower cost, efficient, diversified, and transparency to a portfolio. Here is a common misconception that is easily negated with SPIVA (Standard and Poors Index versus Active) research (SPIVA | S&P Dow Jones Indices).  The evidence shows that active managers are highly cyclical but can add alpha or outperformance. In the majority of cases, however passive out-performs because it does not make predictions or assumptions.  As is often said, the market, or its index, is a giant weighing machine that tracks capital movements over an economic cycle.

Continue Reading…

What the Carbon Tax teaches us about investing

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Image courtesy John De Goey

By John De Goey, CFP, CIM

Special to Financial Independence Hub

The very first thing Prime Minister Mark Carney did upon taking office was to scrap the consumer carbon tax. Depending on your degree of cynicism, the move was either desperate or brilliant. There is not much middle ground. He did so while noting that the tax had become divisive.

Few would disagree. The very large majority of economists who study the subject argue that putting a price on carbon is the most efficient and effective way of curbing CO2 emissions. Nobel laureate William Nordhaus has shown this convincingly.  Despite the evidence, retail investors simply hated the scheme.

Sometimes there’s a major disconnect between public policy and retail politics. Sensible policies can be rejected because a large percentage of the populace is determined to make decisions based on emotion rather than rationality. People will do what feels good you respective of what the evidence says.

It has been proven many times over that four out of five Canadians were better off paying the tax while cashing the rebate cheques, yet a large percentage of those same Canadians rejected putting a price on carbon at the consumer level. Since about 89% of all emissions come from industrial outputs, the political capital gained by Carney in dropping the consumer portion of the tax far exceeded the opportunity cost of a marginal emissions reduction. Why do so many people viscerally hate policies that conspicuously work against their own self-interest?

Confirmation Bias and Cognitive Dissonance

I believe the answer lies in both confirmation bias and cognitive dissonance. Simply put, people believe what they want to believe:

  1. a) because it makes them feel good; and
  2. b) because they engage in herding behaviour and conform to groupthink

It seems a substantial percentage of the human population actively resists evidence. Sometimes, that resistance appears in the form of political populism where ‘elites’, ‘globalists’ and ‘intelligentsia’ are rejected in favour of whatever populist leaders pass off as ‘common sense’. Confirmation bias is essentially pretending to look for evidence dispassionately, well actually looking for evidence that merely ‘confirms your priors.’ Stated differently, if you were predisposed to disliking a tax on carbon, no evidence to the contrary would have likely changed your opinion.

Similarly, in investing, there are several long-held beliefs that many people harbour that often go unchecked. Some are factually false, while others are merely dubious and open to interpretation and debate. In all cases, however, there is at least some suspension of disbelief to protect a pre-existing viewpoint that simply feels better than the evidence-based alternative. Continue Reading…

New to a RRIF? Make sure you have enough cash and consider dialing down risk

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My latest MoneySense Retired Money column has just been published and covers something that was a new experience for me: starting and managing a RRIF or Registered Retirement Income Fund.

You can find the full column by clicking on the highlighted headline: How to make sure you have enough money to fund your RRIF withdrawals. 

At the end of the year you turn 71, those with RRSPs are required either to cash them out  (not recommended from the standpoint of taxes), to to annuitize orto convert it into a RRIF, or Registered Retirement Income Fund. The latter is the most popular action and recommended by experts like The Successful Investor’s Patrick McKeough.

            However,  as I’ve discovered since my own RRIF started up this past January, the sweetness of the RRSP tax deduction over the decades is offset by the sourness of having to pay taxable withdrawals on your new RRIF.

            In my case, I am a DIY investor who uses one of the big-bank discount brokers to self-manage the taxable distributions and to manage the remaining investments, most of them carryovers from the RRSP.  While accumulating funds in an RRSP is a matter of making annual contributions and reinvesting dividends and interest, a RRIF represents a departure from the psychology needed to build an RRSP for the future. Suddenly, regular selling is necessary. The RRIF rules mean that in the first year you’ll have to withdraw something like 5.28% of what your balance was at the start of the year (rising to 5.4% at age 72 and every upwards each passing year).

Payments can quarterly, monthly or any frequency you choose

          If you choose monthly payments, as I did, that means every month you have to have 1/12th of the required annual distribution in the form of ready cash to be whooshed out monthly on whatever date you specify. As most retirees will be getting other pensions near the end of the month, I chose mid-month for the RRIF distribution. You also need to choose the percentage of tax you wish to pay to Canada Revenue Agency: I picked 30%, which automatically leaves your account each month. The remaining 70% transfers out into your main chequing account, ideally at the same financial institution where the RRIF is held: It’s easier that way.

Setting regular tax payments

          You also need to choose the percentage of tax you wish to pay to Canada Revenue Agency: I picked 30%, which automatically leaves your account each month. The remaining 70% transfers out into your main chequing account, ideally at the same financial institution where the RRIF is held: It’s easier that way. Sure, you could set the tax at 10% or 20% but if you have other sources of taxable income, like taxable dividends and other pensions, I’d rather not have the unpleasant surprise of a larger-than-expected tax bill a year from April. Once you have a year of RRIFing under your belt, you may see fit to adjust the 30% upwards or downwards. Continue Reading…