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With higher rates arriving sooner than expected, Canadian’s finances are certainly being stress tested. In this article we’ll look at the history of the mortgage stress test and how higher rates are impacted it.
History of the Mortgage Stress Test
The mortgage stress test was introduced by the federal government several years back to stop homebuyers from overextending themselves. Previously, Canadians homebuyers only had to qualify based on the mortgage rate at the time of application. This was problematic for a couple of reasons.
First of all, mortgage rates could be higher when your mortgage came up for renewal. This could mean that you could face a much higher payment at renewal if mortgage rates were a lot higher then.
Most Canadians choose a five-year mortgage term. However, for those who chose a shorter mortgage term, that means the payment shock can be that much more if your mortgage comes up for renewal sooner.
The second reason it was a problem is that if someone chooses a variable rate mortgage, there’s really no limit to how high mortgage rates can go. You’re only asked to prove that you can qualify at the date that you applied. You’re not being asked to qualify again later on if and when rates rise.
What is the Mortgage Stress Test?
To avoid a similar meltdown as Americans experienced in the real estate market, the mortgage stress test came to be.
With the mortgage stress test, the borrower must prove that they can qualify at the greater of the stress test rate or your mortgage rate at application time plus 2%. The idea was to better protect homebuyers, but this came at a cost. Homebuyers saw their home purchasing power drop by 15% to 20% overnight. This is a direct result of having to qualify at a much higher rate.
Where we are Today
We’re in an interesting situation today. The mortgage stress test is still here. We’re seeing it put to good use, as interest rates are increasing faster than expected. Continue Reading…
The Canadian working population feels anxiety about retirement. Numeroussurveyshaveshown that Canadians lack knowledge about how to save for retirement and stress about it. And for good reason – it’s difficult for someone with no personal finance background to know where or how to start. Canadian workers recognize that retirement investing is becoming increasingly important, as 75 per cent of Canadian employees believe there’s an emerging retirement crisis.
So how can you avoid your own retirement crisis? What do you need to do to get started? Generally, the first step is to open an investment account, and to do what is commonly referred to as “self-directed investing” or “DIY investing.” Once set up, here are five tips to ensure you are successfully investing for retirement:
1.) Start early
Compounded returns work their magic over longer periods of time, so it’s crucial to invest for retirement as early as possible.
For instance, if you invested $1,000 at age 25 and earned a return of 5.00% over 40 years, you would have $7,040 at age 65 (in today’s dollars). If you invested that same $1,000 at age 45, you would need to realize annual returns of 10.25% to have that same amount at age 65. This percentage only increases as you age. Starting early lowers your hurdle rates.
2.) Be consistent
Create a realistic savings plan. Whether it’s setting aside $20 or $200 of your paycheck, it’s important to set the amount and stick to it.
Avoid trying to time the market. So much hasbeenwritten about how nobody can time markets; some people can be lucky over short periods, but nobody can do this consistently – not a fund manager, not your brother-in-law, not your neighbour.
You might also be enticed to put off saving for a couple of months, putting that money towards a vacation or something. Deviating from your savings plan could lead to forgetting to resume with your plan, or believing that you don’t need to continue with it.
3.) Keep fees low
Most people might not think much about a 1% or 2% difference in fees. After all, whether you tip 15% or 16% at your local breakfast diner might be the difference of a few dimes. However, when incurred over years and decades, these fees can substantially eat into your investment portfolio. Continue Reading…
Harvest ETFs CIO explains that as markets take a breather, the healthcare sector continues to show defensive characteristics with exposure to growth prospects
The healthcare sector offers a unique combination of defensive and growth-oriented prospects. Photo Shutterstock/Harvest ETFs
By Paul MacDonald, CIO, Harvest ETFs
(Sponsor Content)
US large-cap healthcare has been a bastion for investors in an otherwise rough market. While not fully insulated from the broad sell-off we’ve seen in recent months, the sector has outperformed due to stable demand, high margins and relatively low commodity price exposure. The Harvest Healthcare Leaders Income ETF (HHL:TSX) combines a portfolio of diversified large-cap healthcare companies with an active covered call strategy to generate consistent monthly cash distributions. The portfolio’s defensive positions, plus its income payments, has resulted in significant outperformance of broader markets.
In the wake of July earnings data, however, we saw some relief come to the broader markets as companies across sectors reported largely in line with expectations, providing much-needed visibility. As markets breathed a sigh of relief, growth-oriented sectors like tech started to pare back losses from earlier in the year. While the healthcare sector has shown its reputation for defensiveness in recent months, we are also seeing that the sector’s growth tailwinds are making a greater impact.
This whole space is innovative: whether that’s a company leading the way on robotic-assisted surgery, or a huge established player like Eli Lily making strides in obesity medication. Healthcare companies have significant growth tailwinds and, in our most recent rebalance of HHL we’ve taken some steps to capture more of those growth prospects.
Positioning HHL for growth prospects
We would stress that the recent rebalance in HHL maintained the ETF’s commitment to subsector and style diversification within the healthcare sector. However, some of the new additions to HHL have positioned the portfolio for greater growth opportunity.
The first move was replacing Agilent Technologies with Danaher in the portfolio holdings. Both companies focus on life sciences, tools & diagnostics, but Danaher has a more diverse line of businesses and a larger market share, which in our experience better positions Danaher for any potential market recovery.
The second move in the rebalance was to remove HCA Healthcare Inc, a value position which had shown worsening earnings visibility and rising costs due to labour issues and add Intuitive Surgical. Intuitive Surgical is the market leader in robotic-assisted surgery, with technology almost a decade ahead of its closest competitor. The robotic-assisted surgery market is currently underpenetrated, and a number of companies are making strides in the space: including Stryker, another HHL portfolio holding. The addition of Intuitive Surgical positions HHL to better participate in that subsector’s growth prospects.
While moves like these are designed to position HHL for improved growth prospects, we should emphasize that the whole portfolio is designed for diversified exposure to the growth opportunities and defensive characteristics inherent in the healthcare sector.
Maintaining defense while capturing growth opportunity
It’s ironic. We can easily think of specific investment sectors as a value-growth binary, trading off one for the other. But the healthcare sector isn’t so simple. Some of the largest companies in this sector have incredible growth prospects due to innovations in treatments, pharmaceuticals, and patient service. At the same time, given the large-cap focus we take in HHL, even our more growth-oriented names have market shares and barriers to entry that can be seen as highly defensive.
Those characteristics have shown themselves throughout 2022, as low commodity price exposures and high margins kept the sector in a state of outperformance. HHL is also one of the 6 Harvest ETFs held in the Harvest Diversified Monthly Income ETF (HDIF:TSX), where it contributes to the overall defensive position of that core portfolio.
There are also two aspects of HHL that beef up its defensive traits: diversification and covered calls. Continue Reading…
When you live a salaried life, money is always on your mind. No matter how meticulously you plan your monthly expenses, unexpected expenses may crop up anytime. It could be repairs for your home, a medical expense, a veterinary bill, or a loss in business. In such cases, it is wise to maintain an emergency fund that you can dip into to meet the unexpected expense. But sometimes, savings may not be enough to meet the emergency expenses.
Thankfully, with advanced fintech, it is possible to avail of a loan: big and small. Not only that, you can get the funds quickly in your account.
If you ever face a financial crunch, here are some options you can explore to get funds in a short time.
Ways to pay for Unexpected Expenses
1.) Credit Card
Financial experts usually don’t recommend using a credit card to fund a sizeable emergency expense. A significant expenditure can land you in substantial credit card debt with rising interest rates. However, if your expense is something you can pay back within the interest-free period or your emergency fund is falling short by a small amount, using your credit card can help.
It is also wise to scan the market for other options in such cases. You could explore new financial instruments such as a virtual credit card. Virtual credit cards are digital cards available online. The usage is similar to a conventional credit card with a card number, CVV, and validity. But it works like a flexible personal loan wherein a predetermined amount is transferred to your account, and you pay interest only on the amount you spend using your card. You may use your virtual credit card for limited purposes.
2.) Personal Loan
A personal loan is a valuable financial instrument to tide you over an unexpected financial crunch. Personal loans usually have high interest rates, but depending on your credit score, repayment records, and the loan amount you may find personal loans affordable compared to other financial instruments. Flexible personal loans with shorter repayment cycles allow you to take a loan but only pay for the amount that you use. Flexi personal loans are also available for amounts as small as one thousand, and with affordable interest rates. Salaried people can opt for other kinds of personal loans that enable you to repay the amount in convenient monthly instalments.
3.) Line of Credit
A line of credit enables you to borrow money with a predetermined credit limit. In times of emergency, lines of credit can be valuable financial instruments. A line of credit allows you to borrow as much as needed within a predetermined credit limit. Even if you are unsure of the total amount, you need to meet your emergency expense. The exact repayment plan you get for your line of credit depends on your lender. You may pay back in instalments, or your lender may ask for a lump sum repayment.
4.) Salary Advance
Employers usually support their employees by giving them the option of a salary advance. A salary advance implies that your employer gives you an amount you can repay with small deductions in your future pay-cheques. Usually, payroll advance is convenient and a quick way to get some funds in an emergency. Every company has its own salary advance policy and a specific period for repaying the advance amount. Talk to your finance department to understand the policy and interest rates better. Continue Reading…
So far, the fine wine market remains one of the few bastions of stability in an increasingly volatile investment environment. The Liv-ex 1000, the broadest measure of the global fine wine market, has returned 25.45% this year (as of 30 June).
These gains stand in stark contrast to most of the financial markets, where selloffs have hit a wide range of industry sectors, asset classes and geographies. The initial shock from the war in Ukraine has led to surging commodity and food prices, triggering the highest inflation in decades in several major economies including Canada which now stands at 8.1%.
LONG TERM RETURNS
Fine wine boasts a track record of strong growth that has resulted in positive real returns over the long-term.
Index
Month
YTD
12-month
5-year
10-year
5 year volatility*
Liv-ex 1000
0.76%
11.12%
25.45%
50.26%
92.14%
1.12%
S&P 500
-8.39%
-20.58%
-11.92%
56.20%
177.90%
4.89%
FTSE 100
-5.76%
-2.92%
1.87%
-1.96%
28.69%
3.92%
Nasdaq
-9.00%
-29.51%
-20.96%
103.72%
339.79%
5.72%
MSCI AC Asia Pacific
-6.78%
-18.18%
-24.02%
2.21%
34.80%
4.19%
Gold in ($/oz)
-1.64%
0.58%
-0.37%
42.38%
12.00%
3.72%
Bitcoin
-37.32%
-56.89%
-43.11%
703.30%
297311.94%
25.18%
Bloomberg Commodity
-10.88%
18.03%
23.81%
41.70%
-13.57%
4.39%
Source: Investing.com, Liv-ex as of June 30, 2022. Past performance is not indicative of future returns. *Volatility = 5 year standard deviation of monthly returns.
Stable
Fine wine’s year-to-date relative strength does not come as a surprise. During previous periods of volatility, such as the COVID-19 outbreak, fine wine prices experienced shorter and less severe downturns compared to equities and faster bounce backs compared to other haven assets, such as bonds.
Figure 2 – Weathering the storm
Fine wine’s relative performance during market downturns
Source: Liv-ex, investing.com. Past performance is not a guarantee of future returns.
This track record may be contributing to fine wine’s recent performance as more buyers, whether collectors or investors, realise fine wine’s ability to form a stable store of value.
Additionally, low fine wine supply levels are also supporting prices. Low harvest yields in 2021 and 2022 have dented production levels for leading fine wine regions, including Bordeaux, Burgundy, Champagne and California, creating fierce competition for top wines. Continue Reading…
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