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.

Kornel Szrejber’s Podcast interview with me and PWL’s Ben Felix about the 2021 MoneySense ETF All-Stars

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An interesting analysis of the annual MoneySense ETF All-stars feature is now available on a one-hour podcast interview hosted by BuildWealthCanada.ca’s Kornel Szrejber, with myself and PWL Capital’s Ben Felix. Click on this highlighted text for the full session: The Best ETFs in Canada for 2021.

Initially, the interview is audio-only, available through iTunes and the usual podcast services. Later there will be a version that also shows video.

The full 2021 edition of the ETF all-stars can be found here at the MoneySense site, and the Hub’s summary here. The feature appeared early in April.

There are various links to the ETFs, including the ticker symbols (most of them trading on the TSX).

Kornel Szrejber

After kind introductions of both me and Ben Felix, both of us then added a few more details about our careers before Kornel started the formal interview. He did so by asking about the general philosophy behind the All-Stars and the mechanics of how we got eight ETF experts to agree on designating roughly 50 ETFs (from a universe of near a thousand) as ETF All-Stars.

The philosophy underlying the All-stars

As I explain in the MoneySense overview, the feature – now in its 8th year – aims to help individual investors (with or without the assistance of advisors) whittle down the overwhelming choice of ETFs now on the market. The goal has never been to whipsaw investors with change for the sake of change, but rather we strive to pick “buy and hold” broadly diversified low-cost ETFs that can be held over the years and ideally the decades.

Except for the individual “Desert Island Picks” (see below), generally the idea has been to avoid flavor-of-the-month theme funds or regional equity ETFs too narrowly focused on single countries (apart from Canada and the US). As a result, we try to keep the list to a manageable number that don’t necessarily change with every passing year. Of course, once in a while there is a “game-changer” that requires a revamp: the Asset Allocation ETFs from Vanguard Canada and subsequently its major competitors being the best example.

We also assume our readers are probably not day traders but looking for low-cost manageable portfolios that might be tweaked annually but likely won’t welcome a total revamp of their investments every year. We assume some are DIY investors buying them from discount brokerages, some have full-service advisors (including shops like PWL Capital), and some are hybrid investors who largely invest on their own but like to validate their approach through perhaps a fee-only advisor.

How the panel “votes” 

As for the mechanics of choosing the ETFs, as I tell Kornel, the eight expert panelists simply debate by email or Slack and “vote” on a spreadsheet. We have four teams of two each and once each team agrees, we try and find a consensus among the four teams. So 5 out of 8 votes would carry the day: I myself don’t vote unless there is a 4-4 tie and the tie needs to be broken.

After the introductory chat, there is a brief interlude where Kornel describes his own personal transition to financial independence and semi-retirement, and addresses his own personal ETF picks, and why he holds his emergency cash with EQ Bank (as does our family). Continue Reading…

63% neglected Retirement saving during Covid; study sees urgent need for Workplace pensions

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Over the course of the Covid pandemic the past year, almost two thirds of Canadians (63%) did not put aside anything for retirement, up from 58% last year, according to a study being released today.

That’s according to the third annual Canadian Retirement Survey from Healthcare of Ontario Pension Plan (HOOPP) and Abacus Data.

Not surprisingly, the survey also found a widespread belief that better access to workplace pensions is needed to avoid a retirement crisis.

The findings, based on an April 2021 survey of 2,500 Canadians, affirm there is a high level of anxiety about ability to save for retirement. Half (48%) said they are “very concerned” about not having enough money in retirement. That was more than the concern for one’s own physical health (44%), mental health (40%), debt load (31%) and job security (26%).  Only the daily cost of living was a greater concern than Retirement.

Steven McCormick, hoopp.com

“After more than a year of COVID-19, Canadians remain steadfast in their personal and societal concerns around retirement security,” said Steven McCormick, SVP, Plan Operations, HOOPP in a press release [pictured on right]. “As day-to-day financial pressures mount for some and ease for others, Canadians across the board are acutely aware of the importance, and challenge, of saving for retirement.”

While 46% of Canadians said they saved more money during COVID than they otherwise would have, more than half (52%) set aside nothing for retirement during the past year. Of those who said they saved less than usual, 72% saved nothing for retirement.

McCormick added: “HOOPP is proud to do its part by providing retirement security to healthcare workers, many of whom fall into groups that often don’t have access to pensions, such as women, part-time workers and younger Canadians. For our membership, the impacts of this pandemic will continue to be felt even after we emerge from the immediate crisis; but they can take some comfort in knowing their pension is secure.”

Covid disproportionately hurt finances of younger low-income groups

The COVID-19 pandemic harmed the finances of half of Canadians (52%) and did so disproportionately amongst younger and lower-income groups. Those aged 44 and younger are twice as likely to have had their finances greatly harmed (24%) than those 60+ (11%). Likewise, those earning less than $50,000 are twice as likely to have had their finances greatly harmed (25%) than those earning $100,000+ (12%). Continue Reading…

What are Cryptocurrency Loans and how do you get one?

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By Hristina Nikolovska

Special to the Financial Independence Hub

If you urgently need some extra money, a personal loan is the most viable option. There are various kinds of loans like mortgages, credit cards, or personal loans. Usually, you’d head over to banks or credit unions to get the funds. However, there’s another way to get a personal loan you probably haven’t considered. This article will explain what you need to know about crypto loans.

What are Crypto Loans? 

Cryptocurrency has evolved and entered multiple markets. That’s why you also have the option of getting a cryptocurrency loan, just like you would get one from a bank. However, there are some differences. 

Cryptocurrency is decentralized, meaning you don’t need an intermediary to deal with your financial transactions. The same applies to a crypto loan. There still is a platform you should register on, but you won’t be borrowing funds from it. Instead, you’ll borrow funds from other cryptocurrency owners. You also won’t need any credit checks. 

How do you borrow Crypto?

One thing you should know is that you’re required to over-collateralize a crypto loan to be eligible for it. This proves you have enough financial power to get the loan, and it protects both sides. 

Usually, you’ll collateralize your loan with some other cryptocurrency. Once you pay off your loan, you’ll get your cryptocurrency back. If you’re worried about the high volatility of cryptocurrencies, some platforms allow you to collateralize your loans with cars, real estate, or other off-chain assets. 

The cryptocurrency loan process is quick, and you’ll receive your money almost immediately. The first thing you need to do is verify your identity. Identity verification or know your customer (KYC) is there to protect the platforms and lenders from frauds, money laundering, terrorist financing, and similar acts. 

This identity verification is fast. Typically, you need to take a photo of one of your official documents and send it in for a scan together with your data. After this step, you’re required to deposit collateral. Depositing is as fast as the blockchain. 

Since this form of lending doesn’t require any assessment of your credit score, it’s a great choice if you don’t have any financial history, bank account, or you’re self-employed. It also allows you to switch between crypto assets and make your funds liquid without triggering a taxable event. 

What are the safest Crypto Lending Platforms? 

There are many crypto lending platforms out there that differ in fees, interest rates, withdrawal terms, and other aspects. 

The most famous platform is Binance. Loan duration lasts from 7 to 90 days. Daily interest rates are 0.0244%, while annual interest rates are 8.90%. Binance offers two types of lending, fixed deposits and flexible deposits, where the fixed one locks your funds, and the flexible one lets you withdraw funds whenever you want.  Continue Reading…

Retired Money: Has Purpose uncorked the next Retirement income game changer?

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Purpose Investments: www.retirewithlongevity.com/

My latest MoneySense Retired Money column has just been published: you can find the full version by clicking on this highlighted text: Is the Longevity Pension Fund a cure for Retirement Income Worries? 

The topic is last Tuesday’s announcement by Purpose Investments of its new Longevity Pension Fund (LPF). In the column retired actuary Malcolm Hamilton describes LPF as “partly variable annuity, part tontine and part Mutual Fund.”

We described tontines in this MoneySense piece three years ago. Milevsky wasn’t available for comment but his colleague Alexandra Macqueen does offer her insights in the column.

The initial publicity splash as far as I know came early last week with this column from the Globe & Mail’s Rob Carrick, and fellow MoneySense columnist Dale Roberts in his Cutthecrapinvesting blog: Canadian retirees get a massive raise thanks to the Purpose Longevity Fund. Dale kindly granted permission for that to be republished soon after on the Hub. There Roberts described the LPF as a game changer, a moniker the Canadian personal finance blogger community last used to describe Vanguard’s Asset Allocation ETFs. Also at the G&M, Ian McGugan filed Money for life: The pros and cons of the Purpose Longevity Pension Fund, which may be restricted to Globe subscribers.

A mix of variable annuity, tontine, mutual fund and ETFs

So what exactly is this mysterious vehicle? While technically a mutual fund, the underlying investments are in a mix of Purpose ETFs, and the overall mix is not unlike some of the more aggressive Asset Allocation ETFs or indeed Vanguard’s subsequent VRIF: Vanguard Retirement Income Portfolio. The latter “targets” (but like Purpose, does not guarantee) a 4% annual return.

The asset mix is a fairly aggressive 47% stocks, 38% fixed income and 15% alternative investments that include gold and a real assets fund, according to the Purpose brochure. The geographic mix is 25% Canada, 60% United States, 9% international and 6% Emerging Markets.

There are two main classes of fund: an Accumulation Class for those under 65 who are  still saving for retirement; and a Decumulation class for those 65 and older. There is a tax-free rollover from Accumulation to Decumulation class.

There are four Decumulation cohorts in three-year spans for those born 1945 to 1947, 1948 to 1950, 1951 to 1953 and 1954 to 1956. Depending on the class of fund (A or F),  management fees are either 1.1% or 0.6%. [Advisors may receive trailer commissions.] There will also be a D series for self-directed investors.

Initial distribution rates for purchases made in 2021 range from 5.65% to 6.15% for the youngest cohort, rising to 6.4 to 6.5% for the second youngest, 6.4% to 6.9% for the second oldest, and 6.9% to 7.4% for the oldest cohort.

Note that in the MoneySense column, Malcolm Hamilton provides the following caution about how to interpret those seemingly tantalizing 6% (or so) returns: “The 6.15% target distribution should not be confused with a 6.15% rate of return … The targeted return is approximately 3.5% net of fees. Consequently approximately 50% of the distribution is expected to be return of capital. People should not imagine that they are earning 6.15%; a 3.5% net return is quite attractive in this environment. Of course, there is no guarantee that you will earn the 3.5%.”

Full details of the LPF can be found in the MoneySense column and at the Purpose website.

What can we learn by scrutinizing Warren Buffett’s portfolio?

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By Ian Duncan MacDonald

Special to the Financial Independence Hub

Warren Buffett has a reputation of being the most successful stock market investor ever.  What companies does he invest in? What do these stocks have in common? What can we learn by looking at his portfolio?

Once every quarter large holding companies like Berkshire Hathaway are required to disclose what stocks they hold. There  are 31 stocks in the Berkshire portfolio.  The value of the ten largest stocks of these 31 make up almost 90% of the portfolio’s total value.  One stock, Apple, makes up 40% of it . The other nine of the top ten stocks have values for Berkshire ranging from Bank of America worth 44 billion dollars  down to .$4 billion dollars invested in DaVita Inc.

Are all these 10 stocks headquartered in the United States?  No

Do they all make profits?  They do but the profits, as reflected in their operating margins, are not remarkable.

Do they all pay dividends?

Are they all paying dividends? No. Are those that do pay dividends paying remarkably high dividends? No.  Two of the 10 pay no dividends and 5 pay dividends of less than 1%.

Do they all trade millions of shares ever day?  No.  While six of them do have daily trading volumes exceeding a  million, one of them only trades fewer than 100,000 shares in a day.

Have the ten all increased their share prices since Berkshire Hathaway acquired them?  No.

Would any of them be considered to be a speculative investment?  Yes.

Do many of the share prices, as reflected in their Price-to-Earnings ratios and book values, appear to be inflated?  Yes,

Stocks that can grow steadily, not dramatically

There are 14,000 North American stocks that Berkshire could invest in. Many stocks could provide a better dividend income, and many have much greater potential for share price growth than these 10 stocks.  However, what most of these 14,000 lack is “survivability.” Buffett seeks stocks that he can depend on to produce reliable profits from their established, loyal customer bases for decades.  These are stocks that can grow steadily, not dramatically.

Berkshire Hathaway has invested 249 billion dollars in the following 10 companies [all US$]:

American Express Company (AXP) with $24 billion invested.

Apple Inc (AAPL) with $114 billion invested.

Bank of America Corp (BAC) with $44 billion invested.

BYD Co. Ltd (BYDDF) with $5 billion invested.

Coca-Cola Co (KO) with $22 billion invested

DaVita Inc (DVA) with $4 billion invested

Kraft Heinz Co ( KHC) with $14 billion invested

Moody’s Corporation (MCO) with $8 billion invested

US Bancorp (USB) with $9 billion invested.

Verizon Communications Inc (VZ) with $9 billion invested.

The wisdom of Buffet’s buy and hold investment strategy is reflected in some remarkable share price gains over the last 20 years:

American Express in 2001 could be purchased for $35.46 and is now trading at $157.95.

Apple is even more remarkable: in 2001 the share price was 33 cents. It is now at $126.90. Like most of these stocks, there have been some share price declines: Bank of America could be bought in 2001 for $29.20.  It can now be bought for $47.05  However, in 2006 it was at its highest price of $53.85.  In 2017 it was only $22.41.  There are many bank stocks whose share prices have had better gains than Bank of America and paid dividends more than double Bank of America’s 1.71% dividend yield.

BYD Company Limited is an unusual stock for this portfolio.  Berkshire has invested almost $5 billion in it. It is a Chinese electric vehicle manufacturer.  Fewer than 100,000 shares are being traded daily, which is small when compared to  the 15,935,074 Verizon Communications shares traded daily or the 11,915,739 Coca-Cola Shares. With a Price-to-Earnings ration of 97.5x the current $42.05 share price for BYD appears to be inflated.  In 2017 its share price was $5.95. This is barely above penny stock status. Its current operating margin of 4.14% would be typical of a speculative investment. This is one of the two foreign stocks among the 31 stocks in Berkshire’s portfolio.

Isn’t it interesting that Buffett invests in BYD instead of Tesla?  Could the contracts BYD is signing with long established car manufacturers to get them into electric vehicles be the attraction? Competition is fast approaching Tesla.

Coca-Cola has provided Berkshire with a solid investment foundation for decades.  Coke is the kind of established brand leader you expect Berkshire to invest in.  In 4 years, its share price has grown by $9.00. In 20 years, it has grown by $22.  Its dividend yield of 3.07% is the second highest of the 10 stocks (only Verizon paying 4.44% is paying a higher yield). Coke’s operating margin of 27.48% was the third highest after Moody Corporation and US Bancorp.

DaVita Inc. is another stock that arouses curiosity as to how it ended up in the top 10 of the Berkshire investments  It provides kidney dialysis services through hundreds of sites in 9 countries. Even though its share price has grown nicely, only one analyst currently recommends it as a buy In 2001 the share price was $7.15, by 2017 it was up to $77.32 and it is now at $120.94. DaVita pays no dividends.

Is there a pending increased need for dialysis services that the rest of the world is ignorant of? Perhaps Buffett just sees DaVita as a steady, profitable, growing stock with an ever increasing potential as the population ages?

Kraft Heinz Company is more typical of the big name, stable, reliable stocks that Buffett favors. However, the current price of $44.15 is significantly below what he paid for it a few years ago.  It is also well below the $99.20 it reached in 2017. Does the Price-to-Earnings ratio of 124.0x indicate that the current  price is greatly inflated?  The operating margin of 3.26% seems leave no room for a dividend these days. There was a 55 cent dividend paid in 2015.  What long term potential does Buffett see for Kraft Heinz?

Moody Corporation is the most profitable of the ten companies.  Its operating margin of 46.63% is much higher than Berkshire Hathaway’s 6% operating margin. Moody’s is a long-established leader in the financial risk information industry. With a small dividend yield of 0.75% the profits are not being paid to shareholders.  Four years ago, the share price was $118.45.  The current price is $332.85. This is a winner for Mr. Buffett.

US Bancorp did not have the highest dividend yield nor was it the highest priced stock nor did it have the highest operating margin, but its financial figures were good in all areas.  It scored a 70, which was the best score of the ten stocks.  The highest score I have ever calculated was 78.  The lowest score was 8.  I personally avoid investing in stocks scoring less than 50. The scoring system was designed to identify the best high dividend paying stocks with the potential to realize ever increasing share prices (The stock scoring software is emailed buyers of my investment books when requested).

Verizon Communications is the second highest scoring stock. Its dividend yield of 4.44% was the highest of the 10 stocks.  Like Moody, it also had good financial figures. It is another example of the solid, well established businesses Buffet wants in his portfolio.

The following are the 10 stocks sorted in descending order by desirability score:

  • US Bancorp – 70
  • Verizon Communications – 66
  • Bank of America Corp – 65
  • American Express – 62
  • Coca-Cola – 60
  • Apple Inc – 58
  • Moody’s Corp – 56
  • DaVita Inc – 51
  • Kraft Heinz – 43
  • BYD Company – 38

You will notice that these top 10 stocks do not include industries negatively impacted by the COVID-19 pandemic and recession, such as hotel chains, cruise lines or air lines. As well, Steel mills, mining companies, oil companies, construction companies or other industries whose fortunes often rise and fall on world price fluctuations have no presence. However, financial organizations like US Bancorp, Bank of America Corp, American express and Moody’s are well represented in the top 10.

The following are the other 21 companies appearing in the Berkshire portfolio of 31 stocks:

AbbVie Inc (ABBV)

Amazon.com, Inc (AMZN)

Aon PLC (AON)

Axalta Coating Systems Ltd (AXTA)

Bank of New York Mellon Corp (BK)

Biogen Inc (BIIB)

Bristol-Myers Squibb Co (BMY)

Charter Communications Inc (CHTR)

Chevron Corporation (CVX)

General Motors Company (GM)

Globe Life Inc (GL)

Itochu Corporation (ITOCF)

Johnson & Johnson (JNJ)

Kroger Co (KR)

Liberty Global PLC Class A (LBTYA)

Liberty Global PLC Class C (LBTYK)

Liberty Latin America Ltd Class A (LILA)

Liberty Latin America Ltd Class C (LILAK)

Liberty Sirius XM Group Series A (LSXMA)

Liberty Sirius XM Group Series C (LSXMK)

Marsh & McLennan Companies Inc (MMC)

Mastercard Inc (MA)

Merk & Co Inc (MRK)

Mondelez International (MDLZ)

Procter & Gamble Co (PG)

Restoration Hardware Holdings Inc. (RH)

Sirius XM Holdings Inc (SIR)

Snowflake Inc (SNOW)

SPDR S&P ETF Trust (SPY)

StoneCo Ltd (STNE)

Store Capital Corp (STOR)

Teva Pharmaceutical Industries Ltd (TEVA)

T-Mobile Us Inc (TMUS)

United Parcel Service Inc (UPS)

Vanguard 500 Index Fund ETF (VOO)

Verisign Inc. (VRSN)

Visa Inc (V)

Wells Fargo & Co (WFC)

If your objective is to build a financially strong portfolio that will endure and grow for decades, then choosing the kind of stocks that Warren Buffett chooses would be a proven, effective strategy.  In my last investment book, ”Safer Better Dividend Investing,” the highest dividend paying stocks in the USA (and Canada) were scored and sorted in descending order.  These charts would help you find outstanding stocks to add to your portfolio.

You do not need hundreds of stocks in your portfolio. The number of stocks Berkshire invests in is thirty-one.  My recommendation is always twenty. This gives you an easily manageable number of stocks while providing safe diversification. Unlike Warren Buffett, you do not have billions to invest but a carefully chosen portfolio can, in time, provide you with generous reliable income and eventual financial independence.

After graduating from McMaster University, with $100 left in his pocket (but no student debt), Ian Duncan MacDonald hitch hiked home to Sudbury to work four months as a labourer in International Nickel’s smelter. In four months, he had saved enough to seek his fortune in the big city.

In Toronto, he was immediately hired by Dun & Bradstreet as a credit reporter. While he had expected to be a reporter for the rest of his life, D&B had other plans. Within four years, he was General Manager of their Marketing Services Division. Three years later, at the age of 28, he was responsible for the sales, marketing and advertising for all three divisions of the company.

At 32, he left D&B to build Screening Systems International Ltd, for a large conglomerate, which led to his interest in collections.  Moving to Creditel of Canada Ltd. he became  Senior Vice President. Subsequently bought by Equifax, he remained there until his retirement in 2005. In anticipation of his retirement he incorporated Informus Inc. to sell his art, his publications and consulting services (www.informus.ca.) 

His investment books “Income and Wealth from Self-Directed Investing” and “Safer Better Dividend Investing” provide a detailed system, scored charts of all high dividend stocks traded on the NYSE, NASDAQ and TSX, plus stock scoring software. They arm someone who has never invested with the knowledge and tools  they need to successfully and safely generate income and wealth for the rest of their lives