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.

Planning for Longevity: How to avoid Retirement Hell

Posted By |

I never thought that I would fail at retirement and end up in Retirement Hell. But I did.

You see, I spent my entire career – almost forty years- in the banking industry. While there, I learned a lot about money and investing and, over the years, I helped thousands of clients save for their own retirement. Furthermore, my wife is a financial advisor. And yet despite all that knowledge and expertise, I still managed to fail miserably at retirement.

Looking back, I now realize that many of my beliefs about retirement were wrong because they were all linked to the financial aspects of retirement. What I know for sure now is you just don’t fall into a happy retirement because you have a lot of money. You need financial security, of course. But designing a satisfying life takes thought, time and planning on many more levels. You need to know your needs and values, and what makes you happy, and then you have to find ways to satisfy these aspirations on a regular basis. Thinking that you will figure things out when you get there doesn’t work.

Traditional retirement planning has programmed us to think it’s all about the money, but it’s not. In conventional planning, the focus is always on the number: how much money you are going to need to retire. Few financial advisors/planners talk about the other important stuff: how you are going to replace your work identity, how you are going to stay relevant and connected, and how you are going to keep mentally sharp and physically fit, among other things.

Believe it or not most retirements fail for non-financial reasons rather than financial ones. I don’t want that to happen to you so for the past year and a half I along with five of my friends have been working on a new book — Longevity Lifestyle By Design — to help people design a life they would be happy to wake up too.

Retiring from work is simple. Figuring out what you are going to do with the rest of your life is the hard part.

Our mission is to help improve the transition to retirement and help retirees to design a life that they look forward to living everyday.

We know that many people are going to struggle with the non financial challenges that can often accompany retirement. It happened to me, my colleagues and through my discussions with other retirees discovered that it also happened to many of them as well. Continue Reading…

Issues that arise when Financing your Small Business yourself

Posted By |
Photo Credit: Unsplash

By Beau Peters

Special to the Financial Independence Hub

When you get an idea for a new business, it’s easy to want to launch it right away. It might seem like a “now or never” situation, and your eagerness makes it nearly impossible to think about waiting a year or two to get things running.

However, it’s not uncommon for small business start-ups to cost thousands of dollars. Applying for small business loans can take time, and if you’re worried about launching quickly, you might be tempted to bankroll your business and use your own money to finance it.

Unfortunately, that’s a risky move. While it might seem like an investment, it could be a bad idea for a small business looking to grow.

If you’ve got a great idea for a small business and you’re anxious to launch it, you already know the importance of funding. However, it’s just as important to recognize some of the risks of financing it on your own. Let’s talk about what that might look like, and some issues that often arise when you’re putting in your own money to get things off the ground.

Mixing Business and Personal Funds

One of the biggest problems that can arise when you finance your small business yourself is drawing a line between your personal funds and what you’re spending on the business. It might not seem like a big deal for the two to commingle, especially if you’re starting out as the only employee. Some of the most common ways of commingling funds include:

  • Using one bank account for business and personal needs
  • Moving money back and forth between accounts
  • Depositing personal money to pay for business expenses
  • Withdrawing from your business account to pay for personal expenses

Not only can commingling funds get confusing, but it could put both your business and your lifestyle at risk. First, if your business is listed as an LLC, you could end up being held personally responsible for any business debts or lawsuits. You’ll also risk your personal assets being exposed.

One of the easiest ways to keep yourself from commingling funds is to dedicate a separate bank account to your business. Even if you end up putting some of your personal money in there for funding, you’ll be less likely to tap into it for personal reasons, and it will be easier to keep things organized and easy to understand, especially when tax season rolls around.

Ignoring the Fine Print

Financing your small business yourself doesn’t always mean reaching into your own pocket. It could simply mean you’re taking other routes to fund your idea, rather than relying on a bank or small business loan.

One popular option nowadays is crowdfunding. In the United States, over $17 billion is generated each year through crowdfunding sites. If you need money quickly, setting up a crowdfunding campaign is a great way to get it while encouraging people to get excited about your new business. It can be a solid marketing tool if you invest some time into it.

However, don’t ignore the fine print when it comes to these campaigns.

There are several different sites and platforms that allow you to ask for money. Each of them has a different set of rules and regulations. Some might require a small percentage of whatever you make. Others will charge a fee. Even if you understand that part, make sure you know what you’re liable for if you reach your funding goal. Many platforms require you to offer incentives to people willing to donate or pledge. It’s important to follow through on those incentives. Not only could you end up getting reported and lose some of your funding, but it’s a bad look for your business if you don’t give the people helping you out what they deserve.

If you decide to go with a crowdfunding site, make sure you understand the rules and are willing to stand by them, whether you make your goal or not.

Not Building your Skills

When you’re starting a business, you have to wear many hats. You might have a great idea, but you’re going to have to learn how to market yourself, deal with accounting, work with technology, and even how to hire the right people. In addition to the hard skills you’ll need, there are plenty of soft skills small business owners should have, including:

  • Leadership
  • Strong communication
  • Organization
  • Emotional intelligence

Not only are these skills important for running your business, but they’re necessary if you’re trying to work with angel investors or you want to secure venture capital. Refining your soft skills can make it easier to communicate with potential investors. By communicating clearly and effectively and showcasing your leadership skills, they’ll be more likely to trust your business plan and your projections. Continue Reading…

Life after Twitter: Mastodon & other alternatives

Posted By |

As I posted on Twitter a few days ago, Elon Musk’s ownership is causing a lot of Twitter regulars to rethink their commitment to the platform. Personally, I have invested a lot in the Bird since joining in 2009 and so I am reluctant to storm out of there merely out of sheer petulance. Better, I think, to take a wait-and-see approach and give Elon a chance to salvage it or to burn it to the ground.

But it does behoove regulars to have a contingency plan or Plan B. Once upon a time, I viewed Google Plus as an alternative but it proved to be a virtual ghost town until Google pulled the plug on it. If Twitter keep imploding, perhaps the folks at Google will think of giving it a go again. But in the meantime, there are still LinkedIn and Facebook.

While in Spain this month, I started to experiment with the platform that seems most likely to accumulate disaffected Twitter users: Mastodon. (spelt with the letter o in two places, NOT the letter “a”!

Unlike the centralized Twitter platform, Mastodon is decentralized and that’s the first thing you need to know about it when signing on. First you have to pick a server, which is run by volunteers around the world. I picked one of the few (or only?) Canadian ones: mstdn.ca. It’s also called Mastodon Canada and bills itself as being run by Canadians for Canadians

A new meeting ground for Canadian finance Tweeters and bloggers?

 

Perhaps it’s too early to say, or that it’s wishful thinking, but it seems possible that a critical mass of disaffected Canadian Twitter users may be building there, including a subset of Canadian financial tweeters; I mean tooters!

For me, Truth Social was never an option, for reasons that should be obvious, given its ownership. If there are other Canadian Mastodon servers and there may be, Google Canadian Mastodon servers.

Mastodon takes some getting used to and the learning curve seems steeper than Twitter was in its heyday. At the same time, it’s fun to give one’s atrophied social media little grey cells a new workout, and it’s a learning experience to see new networks and patterns of networks evolve almost from the ground up.

It was helpful to be fairly early with Twitter and in the same way Mastodon has that pioneering feeling here in November of 2022, the first full month of Elon’s Twitter ownership. Mastodon has been around much longer but there’s little doubt there is now a wave of Twitter users descending on the place. Most of the new arrivals admit they’re looking for a possible alternative, or don’t really know why they are there, and most either need a bit of help or encouragement or are a bit more experienced and willing to offer assistance to the newbies.

In fact, mstdn.ca is so new they are still asking for volunteers to moderate and assist with the technical side for those who have the skills. They’ve also just set up a PayPal account to accept donations to offset the server costs.  Continue Reading…

Earning income from dividends: reality or fantasy?

Posted By |

By Anita Bruinsma, CFA

Clarity Personal Finance

Special to the Financial Independence Hub

Getting an income from dividends is a concept that is often mentioned in the personal finance world. It can seem like an elusive concept – a unicorn – or perhaps something for the super-rich or those with investment gurus at their disposal. In reality, though, anyone with some savings can earn dividends and it doesn’t require much expertise.

A dividend is a cash payment made by a company to its shareholders. Shareholders are simply people who own stock (or shares) in their company. If I own shares of TD Bank, I get $3.56 per year for every share I own. It might not sound like much, but if I invest $3,000 in TD Bank today, I’d be in line to get $132 over a year. It adds up!

Let’s get something straight though: living entirely off dividends requires a lot of money available to invest. It’s not a reality for most people.

Here are a few numbers to give you context. In order to earn $40,000 a year (before tax) from dividends, you’ll need a portfolio of about a million dollars to invest in stocks.* You’ll then have to pay tax on these dividends (except for those that are earned within your TFSA). As you can see, living off dividends isn’t a strategy available to most people.

If you are looking to supplement your income to maybe pay for your annual vacation, you can earn $5,000 a year (all figures are before tax) with $125,000 to invest. For $10,000 a year, you’ll need about $250,000.

Dividends have more benefits that just giving you cash flow – they also give you a reasonably reliable investment return and can protect against inflation. A company that has a long history of paying a dividend and consistently growing it over time provides a quasi-guaranteed return on a stock. (No dividend is guaranteed but it can be consistent and dependable.) Even though the stock prices goes up and down (unreliable), you’ll get the dividend (reliable). Even better, many companies increase their dividend year after year, sometimes at a rate higher than inflation, so dividends can help protect you from the ravages of inflation too.  You can read more about dividends in a prior blog post.

DRIPs

For those who don’t need the additional cash flow, another way of benefitting from dividends is to reinvest them. There are two ways to receive a dividend: it can be paid in cash into your account or it can be paid to you in shares. This is called a Dividend Reinvestment Plan, or DRIP. If you sign up for a DRIP, you’ll receive additional shares of the company you are invested in. For example, if you own BCE (Bell), and you own 100 shares, you’ll be entitled to a dividend payment of $368 every year. You could get that in cash, or you could get 6 more shares of BCE. This is great because then next year you’ll get a dividend on 106 shares – and the snowball keeps rolling.

There is important roadblock to this strategy for a lot of people: if you want to earn dividends, you have to invest the cash in dividend-paying stocks or funds. This means that if all of your savings amounts to $125,000, and you want to earn $5,000 in dividends, you will need to invest all of it and you will not be well-diversified nor will you have any money in less volatile investments like bonds or GICs. You also need to ensure you have enough money that isn’t invested in the market to use in emergencies or for near-term uses.

Dividend ETFs

If you’ve decided that you want income from dividends and you’re comfortable with having your savings invested in the market, you might asking “Now what?” How do you get these dividends flowing? Well, you’ll need to find investments that pay dividends, preferably reliable, consistent, high, and growing ones. Unless you have a large portfolio, the most efficient and the simplest way to invest for dividends it to put your money in a high dividend-paying exchange traded fund. This kind of ETF will invest in companies that pay high dividends and as an investor, this money will flow through to you via fund distributions, which you can choose to take as cash or re-invest in more units of the fund (like a DRIP).

To find an appropriate ETF, do a Google search for “high dividend yielding ETFs” and drill down into a few. There are three things to look at when choosing which to invest in:

  1. What is the yield? Higher is better.
  2. Does it invest in a broad swath of the stock market? Avoid ones that invest in a specific sector.
  3. What is the MER, or annual fee? The fees on these ETFs are higher than broad market ETFs but you can find a high yielding ETF for less than 0.20% per year.

Yield is the most relevant number to look at with dividend investing. It’s simply a measure of how much income you will get as a percent of the amount you invest. It’s like an interest rate on a GIC: if a GIC pays 4% interest, you get $40 for every $1,000 you invest. If a stock has a dividend yield of 4% you’ll get $40 of dividends for every $1,000 you invest. (Dividends don’t happen in nice round numbers like that, though.) If an ETF has a 4% yield, you’ll get $40 in distributions from the fund.

Although I am not usually a proponent of stock picking, this is one situation where I feel that owning individual, high-dividend paying stocks can be okay. If you have enough money to own a number of stocks, you could put together a portfolio of high-quality dividend stocks that have a long track record of paying and growing their dividends. In Canada, this list would probably include Canadian banks, telecom companies and utilities, among others. For example, a portfolio consisting of TD Bank, Royal Bank, Manulife, BCE, Telus, Enbridge, Fortis and Algonquin Power yields more than 5% right now.

Are you still with me? If that last paragraph made you want to stop reading, please don’t! If you’re not into investing in individual stocks, keep it simple and go the ETF route. Here are a few Canadian ones to look at:

iShares S&P/TSX Composite High Dividend ETF (XEI)

Vanguard FTSE Canadian High Dividend Yield Index (VDY)

BMO Canadian Dividend ETF (ZDV)

(Note: You can also buy U.S. and international dividend ETFs.)

The yields on these ETFs and on dividend-paying stocks are quite high right now. This is because the stock market has fallen. As the price of a stock falls, the dividend yield increases because you need to spend less per share to get the same dividend. To demonstrate, let’s look at BCE (Bell). BCE pays a dividend of $3.68 per year. If the stock is trading at $63 (as it was a year ago) you pay $63 to get a $3.68 dividend, which is a 5.8% yield ($3.68/$63). Today, BCE is trading at $57 which means it has a yield of 6.5% ($3.68/$57). (If you are ticked off at the amount of your internet, cable and cell phone bill with Bell, offset it with some sweet dividends!)

Living off dividends? Probably a pipe dream. Adding some cash flow, getting a good return on your investment, and fighting inflation? Not a unicorn – it’s totally doable!

*Assumes a 4% dividend yield.

Anita Bruinsma, CFA, has 25 years of experience in the financial industry. As a long-time investor, Anita is passionate about demystifying investing to make is accessible to more people. After a long and satisfying career in the world of banking and wealth management, including 15 years managing mutual funds with a Canadian bank, Anita started Clarity Personal Finance, and now helps people learn to better manage their finances, including how to invest for themselves.

Revenge Travel in the post-Covid era, global Market Volatility, US mid-terms, Confidence Man

Posted By |
Malaga, Spain. Image by Pixels: Oleksandr Pidvalnyi

By the time you read this, I should be in Malaga, Spain, where we’re spending a few weeks. Call this our version of what Robb Engen described in yesterday’s Hub as “Revenge Travel” in the post-Covid era.

I realize that the term post-Covid is hardly an apt one as, from where I sit, Covid and its ever-propagating new variants seem ever with us.

Back in 2020 and 2021, it seemed Covid was something a friend of a friend of a friend contracted: these days, it’s more likely to be a next-door neighbour, friends or family, or perhaps the person staring you in the mirror in the morning. This is not a time to be complacent: I still believe in being cautious, keeping vaccinated and boosted to the max, social distancing in public places, and masking wherever there are significant gatherings.

One thing we noticed early in this trip to Spain is a higher use of masks than in North America: masks are still mandatory or highly encouraged on public transit, trains and for air travel. Last week, the Washington Post and other papers warned of a resurgent Covid wave, possibly coupled with the ordinary Flu and other respiratory viruses, constituting a dreaded possible “tridemic.”

I’m writing this as a grab-bag of recent items. As per usual, the Hub will be publishing every business day, with the help of the many generous financial bloggers who grant permission to republish their excellent insights. You know who you are! (Looking at you, Robb Engen, Bob Lai, Michael Wiener (aka James), Dale Roberts, Kyle Prevost, Mark Seed, Pat McKeough, Steve Lowrie, Adrian Mastracci, Noah Solomon, Anita Bruinsma, Mark Venning, Fritz Gilbert, Billy and Akaisha Kaderli, Beau Peters, Victoria Davis, Emily Roberts, and occasional others, including our regular Sponsor bloggers.)

I do of course  have wireless access and my laptop while abroad, and am at least partly plugged into the blogosphere and markets. As I wrote recently in my monthly MoneySense Retired Money column, 2022 has been a challenging one for investors: even those holding a version of the classic 60/40 Balanced portfolio. Pretty distressing to see both sides of the stock/bond pendulum falling!

Are GICs the answer to the Fixed-income Rout?

I see Gordon Pape commenting recently in the Globe & Mail [paywall] about the fact that most investors will be looking at significant losses this year, unless they were mostly in energy stocks, GICs or short the market. He suggested 1-year GICs paying around 4.5% are one possible remedy. After last week’s Bank of Canada rate 0.5% rate hike, you can now get 5% or more on 5-year GICs, so it seems an apt time to start building or rebuilding 5-year GIC ladders. The way I figure it, the BOC will hike again at the end of the year, perhaps 0.25% or at most 0.5%, and perhaps once or twice in 2023. But if they do succeed in restraining inflation, then that will be that: if rates top out maybe 0.5% more from here and then start to fall again, you may end up kicking yourself for not locking in 5% for 5 years or as long as you can find. This is assuming you are building a ladder and reinvesting prior GICs every quarter or so: as long as SOME money is coming due every three or four months, the locking-in factor is less of a negative.

But before going overboard on GICs, read Robb Engen’s recent blog  at Boomer & Echo: The Trouble with GICs. Robb has an issue with locking your money up for 5 years: an Asset Allocation ETF can do much the same thing if things become normal again, with instant liquidity.

Of course, as many of our guest bloggers have been noting recently, it’s also a good time to “dollar-cost average” your way into high-quality decent-yielding Canadian and US dividend stocks, which to some extent I also have been doing. Continue Reading…