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.

6 Expenses that First-time Homeowners should plan for

Posted By |
Image Source: Unsplash (https://unsplash.com/photos/cqAX2wlK-Yw)

By Beau Peters

Special to the Financial Independence Hub

Becoming a first-time homeowner is an exciting prospect. It’s a chance to have a place you can call your own, where you can make memories for years to come.

With that said, proper planning is necessary, or your dream can become a financial nightmare. The fact is that there are many unavoidable and potential expenses that could occur over time, and if you don’t understand the realities or you don’t save appropriately, then you could be in for some hard times.

To help you out, we have compiled a list of common expenses that most first-time homeowners will experience and how to prepare accordingly.

1. Closing Costs

As you are looking at potential homes and comparing your financial situation, you will want to keep in mind that there are some upfront expenses that you will want to consider, especially closing costs, which may amount to 3-6% of the total loan value. It is important that you have those funds fluid and ready to go when you sign your new mortgage.

If you are short on funds, then consider creating an agreement with the seller to share these costs or look into government programs if you are short.

2. HVAC Issues

No matter where you live, yyour HVAC (Heating, Ventilation, and Air Conditioning) units will likely need to be repaired either soon or down the road. While most units can last 10 to 15 years, if you run your heat or AC all day, every day, then you could be looking at a repair sooner than later, especially if you bought a home with an existing unit.

When preparing for the expenses associated with a damaged air conditioner, you will need to decide if you can have your unit repaired or if it will need to be completely replaced. The first thing you should do is get a quote from a professional to see if the cost to repair is almost as much as the cost to replace. If it is, consider getting a brand new unit because you know it will last a long time and work at high efficiency. Also, consider the fact that if your AC had to be repaired once, it will probably require maintenance again. Include these considerations in your final decision.

3. Appliance Lifetimes

Whether you are moving into a home with existing appliances or you are buying them brand new, you must realize that all appliances have their expiration date. For instance, refrigerators often last about 10 years, and even if they are still usable after that time, their efficiency will begin to dwindle. As far as other appliances:

  • Washers and dryers typically last about 10-13 years.
  • Dishwashers have about 10 years.
  • Microwaves typically last around seven years.

Knowing these dates is important so you can begin to budget accordingly to pay for a replacement.

As a new homeowner, an expense that you may want to incur is the cost of a home warranty. Many of these programs cover a portion of the price of the service calls necessary to fix your appliances, and your annual fee will also help with the cost of a new unit. As soon as you move into your home, look for home warranty programs and find one that suits your needs and financial situation.

4. Roof Damage

The roof is arguably one of the most important aspects of your home, and if it is damaged by weather or general wear and tear, then you will want to have it inspected and repaired immediately. Typical roofs built with asphalt shingles will last about 20 years, so if you have a new home, you may be good for a while, but if you bought a used home, then you will want to see how much time is left. Continue Reading…

When did Retirement Income Planning get so complicated?

Posted By |
Photo by Gustavo Fring from Pexels

By Ian Moyer

(Sponsor Content)

Retirement planning used to be easy: you simply applied for your government benefits and your company pension at age 65. So, when did it get so complicated?

Things started to change in 2007 when pension splitting came into effect. While we did have Canada Pension Plan (CPP) sharing before that, not too many people took advantage of it. Then Tax Free Savings Accounts (TFSA) came along in 2009. At first you could only deposit small amounts into your TFSA, but in 2015 the contribution limit went to $10,000 (it’s since been reduced to $6,000 per year). Accounts that had been opened in 2009 were building in value, and the market was rebounding from the 2008 downturn. Registered Retirement Savings Plan (RRSP) dollars were now competing with TFSA dollars and people had to choose where they were going to put their retirement money.

In 2015 or 2016 financial planners suddenly started paying attention to how all of these assets (including income properties) were interconnected. There were articles about downsizing, succession planning, and selling the family cottage. This information got people thinking about their different sources of retirement income and which funds they should draw down first.

Of course, there is more to consider, such as the Old Age Security (OAS) clawback. When, where, and how much could this affect your retirement planning? People selling their business are often surprised that their OAS is clawed back in the year they sell the business, even if they’re eligible for the capital gains exemption. Not to mention what you need to do to leave some money behind for your loved ones. Even with all this planning, the fact that we pay so much tax when we die is never discussed, although the final tax bill always seems to be the elephant in the room. We just ignore it, and hope it’ll go away.

Income Tax doesn’t disappear at 65

Unfortunately, income tax doesn’t disappear at age 65, and you need time to plan ahead so you can reduce the amount of tax you pay in retirement. A good way to do this is to use a specialized software that takes all your sources of income and figures out the best strategy to get the most out of your retirement funds. Continue Reading…

MoneySense Retired Money: CDRs reduce currency risk of US stocks for Canadian investors

Posted By |
https://www.neo.inc/

My latest MoneySense Retired Money column looks at the newish CDRs, or Canadian Depositary Receipts. You can find the full column by clicking on the highlighted text: CDRs versus U.S. Blue-chip stocks: which makes more sense for Canadian investors?

CDRs resemble the much more established American Depositary Receipts (ADRs), which I’d wager most seasoned investors have used. See also this article on CDRs republished on the Hub early in 2022: Should you invest in CDRs? 

ADRs were launched by J.P. Morgan in 1927 for the British retailer Selfridges and are a way to gain easy access to global stocks in US dollars trading on US stock exchanges. According to Seeking Alpha, among the ten most actively traded ADRs are China’s Baidu [Bidu/Nasdaq], the UK’s BP [BP/NYSE], Brazil’s Vale [Vale/NYSE], and Switzerland’s Novartis. Here’s Wikipedia’s entry on ADRs.

Dividends paid by ADRs are in US dollars. Canadians are of course free to buy ADRs just as they buy US stocks or US ETFs trading on American stock exchanges. But they will have to convert their C$ to US$ to do so, and ultimately if they plan to retire here, they will have to pay again to repatriate that money.

By contrast, CDRs give Canadian investors a way to buy popular US stocks (particularly the FAANG stocks) in Canadian dollars and trading on the Canadian NEO exchange. As you can see in the above image, there are also such popular stocks as Pfizer, Berkshire Hathaway, IBM and MasterCard. You can find more information at CIBC, which developed CDRs. As you might expect, CIBC puts a positive spin on CDRs, saying they provide the “same stocks, lower risks,” with a “built-in currency hedge,” while also offering “fractional ownership, easier diversification.”

They even went so far as to trademark the slogan “Own the company, not the currency.” A video found here says that while Canadian stocks only account for 3.1% of the world’s stock market capitalization, most Canadians have 59% of their investments in Canadian stocks. To the extent foreign [and especially American] stocks have generated stronger returns, arguably Canadians are missing out. It suggests that one reason for this is Foreign Exchange.

CDRs may be of particular advantage to younger investors with limited wealth, since they are a way of accessing high-priced stocks that may have prohibitive minimum investments. For example, Amazon (AMZN) currently costs a whopping US $3,200 for a single share. Compare that to the CDR version, AMZN.NE, which costs just C$20 a share. Generally, the CDR version has the same ticker as the underlying US stock, so be careful when you are buying to specify which version you wish to acquire.

If the US company pays a dividend, then so will the CDR. The two main advantages then are that you don’t get dinged on currency conversions between the US and Canadian dollar, and those with modest amounts to invest have the equivalent of buying fractional shares in some of their favorite stocks. Since most retirees will spend their golden years in Canada, you can diversify beyond Canada’s resource and financial-concentrated market, but still have your assets and dividends in Canadian dollars.

CDRs still count as Foreign Content

When I first heard about CDRs, I had a faint hope that perhaps they would not be considered foreign content by the Canada Revenue Agency. However, that is not the case. So investors with large foreign taxable portfolios will be disappointed to learn that even though they trade in Toronto, CDRs are still considered foreign content, so must be included in the CRA’s requirement that portfolios with more than C$100,000 (book value) must complete its T1135 Foreign Income Verification Statement.  The MoneySense column goes into this aspect in more depth.

Target Date Retirement ETFs

Posted By |
Image licensed by Evermore from Adobe

By Myron Genyk

Special to the Financial Independence Hub

Over the years, many close friends and family have come to me for guidance on how to become DIY (do-it-yourself) investors, and how to think about investing.

My knowledge and experience lead me to suggest that they manage a portfolio of a few low-fee, index-based ETFs, diversified by asset class and geography.  Some family members were less adept at using a computer, let alone a spreadsheet, and so, after they became available, I would suggest they invest in a low-fee asset allocation ETF.

What would almost always happen several months later is that, as savings accumulated or distributions were paid, these friends and family would ask me how they should invest this new money. We’d look at how geographical weights may have changed, as well as their stock/bond mix, and invest accordingly.  And for those in the asset allocation ETFs, there would inevitably be a discussion about transitioning to a lower risk fund.

DIY investors less comfortable with Asset Allocation

After a few years of doing this, I realized that although most of these friends and family were comfortable with the mechanics of DIY investing (opening a direct investing account, placing trades, etc.) they were much less comfortable with the asset allocation process.  I also realized that, as good a sounding board as I was to help them, there were millions of Canadians who didn’t have easy access to someone like me who they could call at any time.

Clearly, there was a looming issue.  How can someone looking to self-direct their investments, but with little training, be expected to sensibly invest for their retirement?  What would be the consequences to them if they failed to do so?  What would be the consequences for us as a society if thousands or even millions of Canadians failed to properly invest for retirement?  

What are Target Date Funds?

The vast majority of Canadians need to save and invest for retirement.  But most of these investors lack the time, interest, and expertise to construct a well-diversified and efficient portfolio with the appropriate level of risk over their entire life cycle.  Target date funds were created specifically to address this issue: they are one-ticket product solutions that help investors achieve their retirement goals. This is why target date funds are one of the most common solutions implemented in employer sponsored plans, like group RRSPs (Registered Retirement Savings Plans).

Generally, most target date funds invest in some combination of stocks, bonds, and sometimes other asset classes, like gold and other commodities, or even inflation-linked bonds.  Over time, these funds change their asset allocation, decreasing exposure to stocks and adding to bonds.  This gradually changing asset allocation is commonly referred to as a glide path.

Glide paths ideal for Retirement investing

Glide paths are ideal for retirement investing because of two basic principles.  First, in the long run, historically and theoretically in the future, stocks tend to outperform bonds – the so-called equity risk premium – which generally pays long-term equity investors higher returns than long-term bond investors in exchange for accepting greater short-term volatility (the uncertain up and down movements in returns).  Second, precisely because of the greater short-term uncertainty of stock returns relative to bond returns, older investors who are less able to withstand short-term volatility should have less exposure to stocks and more in less risky asset classes like bonds than younger investors. Continue Reading…

Life imitates art big time with Zelenksyy’s Servant of the People re-airing on Netflix

Posted By |
The accidental politician: ex-comedian and now Ukraine president Vlodomyr Zelenskyy.

Netflix is again showing the popular Ukraine TV show,  Servant of the People, which of course stars Ukraine president Volodmyr Zelenskyy.

Here’s Wikipedia’s summary of the show, which it categorizes as political satire. [I’m using its spelling of his surname, which seems to vary by media outlet]

Airing first in the Ukraine in 2015, Netflix originally ran the show’s four seasons between 2017 and 2021 [with English subtitles]. Evidently interest has been rekindled by Zelenskyy’s Churchillian fight against Russia’s mad dictator, Vladimir Putin.

Last week, Netflix announced Season 1 of the series  was back. There are 23 episodes in the opening season, most of them about 25 minutes, although the pilot episode is twice that length.

I had missed it when it first came out but was keen to watch in light of the profile the war has generated for Zelenskyy. I’d be surprised if millions of Netflix viewers don’t think similarly and propel the show to the top of its rankings.

Based on the first nine episodes I’ve seen, it’s fascinating to see a modern democracy and actual shots of Kiev and other parts of a beautiful Ukraine as it was a few years before the February 2022 invasion: the highways and late-model cars, young people embracing social media, smart phones, Skype and Zoom calls and even crowdfunding for the teacher’s political campaign: talk about life imitating art! At one point, after a kiss, one character declares “I have to tweet this!” There are plenty of shots of TV news standup reports so familiar to North American viewers of CNN or Fox 24/7 cable news.

All of which makes a stark contrast with Russia’s current post-invasion Iron Curtain on independent media and social media, where the only sources of information are state-sanctioned television believed only by older Russians who aren’t technology literate. See a recent New York Times piece on the thousands of tech-savvy young Russians fleeing the country for Armenia and other parts of western Europe, where they gather in cafes with their Apple laptops and Smartphones.

“Shockingly prescient”

With the benefit of hindsight, it’s heart-wrenching to see so much foreshadowing of the calamity to come in the show’s occasional references to Russia and even to Putin himself in the opening episodes. At one point, the TV president says “Putin has been deposed,” quickly adding “I was kidding.”

Then, in episode 7, one character portrays the Zelenskyy character’s options as “to flee or to stay.”

Little wonder that in its review of the series last week, the Daily Beast describes it as “shockingly prescient.”

For those who are new to the series, here’s one website’s brief plot description:

“After a Ukrainian high school teacher’s tirade against government corruption goes viral, he soon finds himself sitting the president’s seat.”

Zelenskyy played a history teacher named Vasily Petrovych Goloborodko.  But life began to imitate art in earnest early in 2018, when a political party named after the television series was registered with the Ministry of Justice. In real life, Zelenskyy was elected President of Ukraine in April 2019, with more than 70 per cent of the second-round vote. Continue Reading…