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 12 Business Leaders invest to Grow their Income

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From getting over the fear of starting to looking into REITs, here are 12 answers to the question, “Can you share your most recommended tips for how you can invest your money to grow your wealth and increase your income, specifically for financial independence through investing?” 

  • Get Started Right Now 
  • Maximize Tax-advantaged Investments
  • Avoid Trying to Time the Market
  • Remember Diversification is More Important Than You Think
  • Put Your Tax Refunds to work
  • Create a High-Yield Savings Account
  • Think of the Market as a Game
  • Prioritize Risk Management Over Chasing High Returns
  • Be Patient and Plan
  • Raise Your Savings Rate by 5% Each Year
  • Repay High-interest Debt
  • Try REIT Index Funds 

Get Started Right Now 

Investing is one of those things that seems like an insurmountable barrier to entry for many people. How can I invest when I don’t have thousands of dollars just kicking around is a common attitude I’ve come across, and in my opinion, it is one of the biggest mistakes toward actually growing your wealth and becoming financially independent. 

The thing is that you actually have to get started: even if it’s a few dollars at a time invested in penny stocks, you’ve got to make a start. Even if the amounts are negligible, you’re gaining invaluable experience in financial markets and financial literacy that will pay massive dividends down the line. — Dragos Badea, CEO, Yarooms

Maximize Tax-advantaged Investments

Both IRAs and 401(k)s have tax advantages [and the equivalent RRSPs and group RRSPs in Canada: editor]. You can choose to deduct your contributions from your taxes or contribute after taxes and avoid taxes when you withdraw during retirement. 

IRAs and 401(k)s are easy to set up. A 401(k) is offered through employers, so if your workplace offers one and matches a percentage of your contributions, take advantage of that matching benefit.

Anyone can start an IRA. You can open an account online today with Fidelity or another firm. Many people assume it’s hard to set up, but it’s not. You can do it in half an hour. 

With both options, you can set up automatic withdrawals from your paycheck. That option helps you succeed in saving because you don’t have to think about it. — Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Avoid trying to Time the Market

Almost 80% of active fund managers fall behind the major index funds. 

So if these financial professionals can’t beat the market, what chance do ordinary people like you and me have? 

This is why my best investing tip is consistently putting money into an index fund like the S&P 500 without trying to time the market. 

By putting a portion of your salary into an index fund every month for decades, your investments compound, allowing you to build unimaginable amounts of wealth. 

For example, if you put just $300 a month into an index fund growing 8% annually, you’ll have over one million dollars after 40 years. — Scott Lieberman, Owner, Touchdown Money

Remember Diversification is more Important than you Think

Portfolio diversification is a powerful tool that can help protect your investments against large losses due to market downturns. By selecting assets with low correlation, you are essentially increasing the safety of your portfolio while pursuing rewards. This strategy has become indispensable for individual investors and financial advisors alike: after all, who wouldn’t want some extra security for their hard-earned money?

If you split them between two different companies, such as Invest A and B — one providing package deliveries and another offering video conferencing services — you’ll have far less reason for worry in times of economic hardship or other disruptive events! Look at how gas shortages can fuel success with Investment B: when stock prices dip on account of limited resources, people switch to digital communication tools from home, which ultimately benefits Investment B’s performance. — Derek Sall, Founder and Financial Expert, Life and My Finances

Put your Tax Refunds to work

Using your tax refunds to invest is a wise investing tactic to consider that you may have never thought about: for many, the short-term sacrifice is worth the long-term benefits, especially as you settle into life after work. 

This is a great way to supplement your current income or even a retirement account, or jump-start a new investment account. Tax refunds can also be used for other pivotal financial reasons, including paying off debt, funding an IRA, building a health savings account, and creating an emergency stash. — Dakota McDaniels, Chief Product Officer, Pluto

Open a High-Yield Savings Account

While savings accounts aren’t exciting ways to grow your wealth, online banks are currently paying 3-4% interest. While 3-4% might not seem like much, it only takes a few minutes to set up an account, meaning you can earn interest risk-free while also keeping your money easily accessible. — Larissa Pickens, Co-Founder, Worksion

Think of the Market as a Game

For investing, I always tell people to think of the stock market as a big game of poker.

Invest in real estate: “I like to think of real estate as the gift that keeps on giving. With rental properties, you’re not just earning income from tenants, but also building equity over time.”

Start your own business: “Entrepreneurship is not for the faint of heart, but neither is settling for a mediocre 9-5 job. Starting your own business is like taking a leap of faith and trusting that you’ve got what it takes to make it happen. Just remember to pack a parachute.”

Invest in yourself: “Investing in yourself is like planting a money tree, except instead of watering it with H2O, you’re watering it with knowledge and experience. So, go ahead and take that online course, attend that industry conference, or volunteer for that new project. Your future self will thank you.” — Russ Turner, Director, GallantCEO 

Prioritize Risk Management over Chasing High Returns

Although even small returns can accumulate into significant wealth through compounding, a single failed investment can cause a substantial loss. 

To mitigate risk, I employ the dollar-cost averaging (DCA) strategy when investing in the S&P 500. The S&P 500 is already a diversified index, reducing the risk associated with individual stock investing. Furthermore, the DCA strategy further minimizes risk by investing fixed amounts of money at regular intervals, regardless of the market’s ups and downs.  Continue Reading…

Hedged vs Unhedged ETFs explained

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Currency hedging can impact an ETF’s price and overall performance; learn about hedged and unhedged ETFs in Canada here.

 

By David Kitai, Harvest ETFs

(Sponsor Content)

The idea behind an ETF is relatively simple. At the most basic level, an ETF issuer creates a basket of securities and lists that basket on a stock exchange for investors to buy and sell. The ETF tracks the value of that basket and moves on the market accordingly.

The trouble is, nothing is ever quite so simple. Many Canadian investors want exposure to US securities, as US markets are the largest and most important in the world. What happens when the securities an ETF issuer uses are based in the US, and trade in US dollars, but their ETF will be listed on the TSX and trade in Canadian dollars?

Now, two factors are impacting the ETF: the value of its basket of securities, and the fluctuating exchange rate between USD and CAD. That means, regardless of the value of its holdings, if the USD goes up, the value of the ETF will also go up. If the USD falls, the ETF will also fall. This is called currency risk.

Some ETFs will employ a strategy called currency hedging to minimize the impact of currency risk on an ETF’s value. Those ETFs will usually be described as “Hedged CAD.”

What “Hedged CAD” means

Generally, when an ETF is Hedged to CAD its portfolio managers use a tool called a “currency forward” to lock in a specific exchange rate on a future date. In our Canadian ETF holding US securities example, if the USD has fallen by that date, the ETF makes a gain from the contract which offsets the value it lost from a falling USD on the portfolio holdings. If the USD has risen, the ETF nets a loss from the contract, which also offsets the value it gained from the rising USD.

The goal of currency hedging is not to maximize returns: the goal is to reduce the impact from currency risk as much as possible.

Harvest offers both hedged and unhedged ETFs in its lineup. A select group of Harvest Equity Income ETFs offer a Hedged “A” series and an unhedged “B” series to suit the goals of different investors. You can find a schedule of hedged and unhedged ETFs here.

Hedged vs Unhedged ETFs

So why would some investors want an unhedged ETF? The answer can vary somewhat. Currency hedging also comes with a small cost that is factored into performance over time.

Some investors may buy an unhedged ETF because they want to take on  exposure to currency risk. Some investors want to be exposed to certain currencies, and getting currency exposure through an ETF holding foreign securities is one way to achieve that. If an investor believes in the thesis behind a specific ETF, for example the US healthcare sector, and also believes the USD will rise against the Canadian dollar, then buying the unhedged “B” series of the Harvest Healthcare Leaders Income ETF (HHL:TSX) would give them exposure to both a basket of US healthcare stocks and the value of the US dollar against the Canadian dollar. Continue Reading…

When Women Succeed, we all Succeed. We just need to “Embrace Equity”

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By Christine Van Cauwenberghe

Special to Financial Independence Hub

Today is International Women’s Day (IWD), an opportunity to mark the social, political, economic, and cultural achievements of women.

The day also serves as a global call-to-action to promote gender parity. This year’s theme – embrace equity – is pertinent as equity is no longer a nice-to-have, but a must-have.

Over the years, we’ve come to better understand the impact of gender bias and discrimination, specifically in finance where women are traditionally overlooked and underrepresented – as advisors and as clients. By investing in gender equity, we can unlock economic growth and lay the groundwork for generations of women to take greater control of their financial futures.

Stereotypically and historically, financial planning has largely been viewed as a man’s job. While progress has been made to change this narrative, we need to see a greater shift away from monolithic thinking around traditional gender roles. Now more than ever, Canadians are seeking financial advice – this is creating an exciting opportunity for women to break the gender bias and get certified as a financial planner to catalyze representation in financial services. Relationship-building, intuitive insight, emotional intelligence, and trust are all traits that differentiate a good financial planner from a great one. These are skills that many women inherently hold and could further hone, making them well-suited to excel in an advisor role. They just need an entryway.

Canadian women will soon control half of accumulated financial wealth

Today, women are playing an active role in financial decision-making – for themselves and their households. Research shows that by 2026, women in Canada will control almost half of all accumulated financial wealth, pointing to a probable surge in demand for financial advice among females. Not to mention, women, on average, live longer than men, meaning that at some point in their lives they will take on the role of sole financial decision-maker. Despite this need, many women are unable to find a financial planner they connect with and 70 per cent change their advisor within one year following the death of their partner or spouse. Continue Reading…

Fraudsters more active than ever but less than half of us take protective measures

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Image www.antifraudcentre-centreantifraude.ca/

Yes, it’s March, also dubbed Fraud Prevention Month. To mark it, a TD survey has been released that finds fraudsters are getting more persistent as the cost of living keeps soaring.

While 62% of Canadians agree they are being targeted now more than ever, a whopping 46% haven’t taken any measures to educate themselves or take protective measures in the past year.

Among the findings:

  • 47% believe the rising cost of living and other financial hardships will expose them to more scams
  • 78% don’t have much confidence in their ability to identify fraud or scams
  • 54% feel stressed or anxious about financial fraud
  • 31% are too embarrassed to tell anyone if they were the victim of a fraud or scam
  • 66% of Gen Z and 44% of Millennials admit they wouldn’t tell someone if they were swindled

The full press release is here.

“As Canadians report being targeted by a record number of financial fraud attempts, many can benefit from using the tools and resources available to protect themselves and their loved ones,” says Mohamed Manji, Vice President of Canadian Fraud Management at TD in the release, “It’s very important to exercise caution, especially at a time when fraudsters may take advantage of the economic challenges many Canadians are currently facing. In addition to the robust security measures TD has in place for its customers, the best defence against financial fraud is being aware and knowing how to spot it.”

Both TD and the Canadian Anti-Fraud Centre offer a comprehensive library of articles discussing the latest trends in scams and measures Canadians can take to enhance their awareness and avoid falling victim to fraudsters.

Targeting mostly via e-mail or telephone 

The survey found 72% of Canadians reported being targeted by email/text message fraud, up 14 percentage points from last year, while 66% were targeted over the phone. Oddly, the poll finds Fraudsters seem to be pivoting away from social media, with only 26% targeted this way, 10 percentage points less than 2022.

Those polled were most concerned about identity theft (52%), title fraud (23%) and fake emergencies (20%).

Factors likely to increase vulnerability to fraud include age (43%),  loneliness or isolation (35%), moving recently to Canada (34%) and financial hardship or job loss (32%).

“We’re seeing more fraudsters preying on customers through the ‘grandparent’ or ’emergency’ scam,” adds Manji. “This cruel crime is often successful because it exploits someone’s desire to care for their loved ones. If you get a call from somebody claiming to be a family member or friend in immediate need of funds, hang up the phone and call them back using a number you have for them.”

TD says that with 31% saying they’d be too embarrassed to tell anyone if they were a fraud or scam victim, it’s clear there’s some stigma in talking about this type of crime. If someone believes they’ve fallen victim to a scam, they should immediately report it to their financial institution, local police department, credit bureaus (Equifax and TransUnion) and the Canadian Anti-Fraud Centre.

How can Canadians protect themselves?

TD recommends the following tips and advice: Continue Reading…

Sector ETFs for Defensive Plays

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By Mirza Shakir, Associate Portfolio Manager, BMO ETFs

(Sponsor Content)

What are Sector ETFs?

Sector ETFs allow targeted exposure to sectors or industries like financials, materials, or information technology – domestic, regional, or global. The sectors are usually classified according to the Global Industry Classification Standard (GICS), but other classifications can also be used. While sector ETFs could be active funds, most track an index, offering transparency, liquidity, and low fees.

There are eleven broad GICS sectors that can be invested in with sector ETFs.

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Utilities
  • Real Estate
  • Communication Services
  • Financials
  • Health Care
  • Consumer Staples
  • Information Technology

There are two common approaches in constructing a sector portfolio: market capitalization weighted and equal weighted. As the names suggest, the former approach weights securities in the portfolio by market capitalization while the latter weights them equally.

At BMO ETFs, our suite of sector ETFs covers equal-weighted and market-weighted strategies across all sectors, locally and globally. We opt for equal-weighted strategies for sectors that have the potential to get concentrated in a few large names with the market-capitalization approach, ensuring effective diversification and mitigating individual company risk.

 

Source: BMO GAM, BMO ETF Roadmap February 2023 (Visit ETF Centre – CA EN INVESTORS (bmogam.com)

Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV.

Risk is defined as the uncertainty of return and the potential for capital loss in your investments.

Why Invest in Sector ETFs?

Sector ETFs can offer differentiated return and risk profiles for investors, not only from broad market portfolios but also from other sectors. Additionally, investing in a sector ETF allows access to a broad range of companies that have businesses that operate in similar or related industries, which can be more diversified than investing in a single stock. The investor does not have to place individual bets on single companies, which helps limit company-specific risks.

The table shown at the top of this blog, and shown to the right in miniature, shows the performance of all sectors in the U.S. from 2011 to 2022. Notably, the best and worst performing sectors change every year, leaving an opportunity for market timing to generate high returns. However, timing the markets can be extremely difficult. A more effective strategy can be sector rotation, which involves overweighting or underweighting sectors relative to the stage of the business cycle.

Playing Defense – Sector Rotation Strategies

The business or economic cycle refers to a cycle of expansion and contraction that economies undergo, accompanied by similar upswings and downswings in economic output and employment. Continue Reading…