Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Book Review of Beyond Brochures: an insider’s guide to the Travel Business

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By Ruth Snowden

Special to the Financial Independence Hub

Hopefully by summer’s end, travel will start to return.

In this little gem of a Traveller’s guide readers will find dozens of precious nuggets, gleaned from the experience of a ‘well-seasoned’ Traveller, written with a light touch, a definite opinion and a good sprinkling of humour.

A bit skeptical at first, I wasn’t sure how anyone could write a book targeted to two different readers, the Traveller and the Travel Advisor, as announced in the introduction.  Within a few pages, though, it was evident that Picken honestly believes that although Travellers and Travel Advisors are on different sides of the same transaction, mutual understanding is a good thing and ‘the more people travel intelligently the better the world should be.’

He then proceeds to draw his readers into the joy of travelling, in 98 chapters: each a succinct one or two pages, divided into three distinct parts: Travellers, Travel Advisors, Travelling.  In every section are valuable hints and suggestions to help Travel Advisors make their customers’ experiences favourable and unforgettable, in a good way.

Building trust is not easy, especially in this world of virtual engagement and digital communication. In Beyond Brochures Picken provides readers with such solid insights that the Traveller reader naturally trusts him and Travel Advisors who follow his advice will be better able to create trust with their customers.

I am another seasoned traveller, having logged thousands of miles on business and leisure travel over many decades, much of which I’ve booked myself and some for which we needed a Travel Advisor.  For both the neophyte Traveller and for someone who has been there and done that, Section A is chock-a-block with important information: government websites; the regulatory environment and jurisdictions governing air travel; demystifying how airlines price seats; and agreeing that in many cases it is easy to book your own hotel room, without the assistance of a Travel Advisor.

Even when booking your own hotel rooms, the author shares great tips on how to use the ubiquitous on-line booking engines and suggests additional actions you can take to save money. Beyond Brochures will make me a better customer of a Travel Advisor and will make my self-directed and self-booked travel more enjoyable.

The philosophy behind why we travel

Early in this section he looks at what we look for in travel that is interesting and enjoyable to us: the philosophy behind why we travel. Continue Reading…

The Dividend Aristocrats fight back

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

The Dividend Aristocrats are S&P 500 companies that have increased their dividends each year, for at least 25 years running. That is an exclusive group. Companies that have increased their dividends for 50 years or more are dividend royalty – they are dividend kings. The Aristocrats have underperformed over the last year and more. You won’t find an Apple, or Amazon or Alphabet (Google) or Tesla in that index. That made it more than difficult to keep up with the market. But those high quality Aristocrats are fighting back as value takes over from growth in 2021. With few dramatic high flyers, that might be its greatest strength in 2021 and beyond.

There is a US listed ETF for the dividend aristocrats ProShares NOBL. Here’s an overview from their landing page.

Here’s my previous post on the US and Canadian Dividend Aristocrats.

Rising dividends and equal weight magic

The Dividend Aristocrats offer a very simple one-two punch. We have that meaningful dividend growth history and the equal weighting of the index constituents. That compensates for a few of the key weaknesses of the S&P 500 cap weighted index. That is the most replicated index on earth, of course. A cap weighted index will follow the momentum of the market as more investors flow into the most popular stocks.

That can create a bubble based on enthusiasm over fundamentals.

Yes, you’ll find those cap weighted ETFs at work in the ETF Portfolio page. The methodology can work wonderfully until it doesn’t, such as in the dot-com crash of the early 2000’s. US stock markets and Canadian stock markets were crushed thanks largely to the over concentration in very popular tech stocks. Most of the US tech stocks had no earnings or very poor earnings. Of course, Canada went over the ledge thanks to Nortel. You can throw in the odd JDS Uniphase and a few other names as well.

You have a choice

None of the those tech stocks would have qualified as a dividend aristocrat in the year 1999 or 2000. The index side stepped much of the carnage. The dividend aristocrats greatly outperformed the S&P 500 through the dot-com crash and well beyond. It is an investment approach that beats the market with less volatility.

The first column is year, then Aristocrats, S&P 500, and then differential.

Incredibly, we see the Aristocrats offer positive returns in 2000 and 2001 while the cap weighted S&P 500 is two years into its three year venture of delivering negative returns. That began the lost decade for US stocks.

Are we about to enter another lost decade?

Many or most market commentators will offer that US stocks are in a bubble, again. The PE ratios, CAPE ratio and Buffett indicator all place today’s US stock market in dot-com crash territory. Continue Reading…

Fine Wine: The Alternative Asset for today’s challenges 

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By Atul Tiwari

Special to the Financial Independence Hub

The current market backdrop is making the case for alternative assets, such as fine wine, even stronger. Traditional financial asset classes have grown expensive and concentrated, and initiating or increasing an exposure to fine wine can provide important diversification and enhance potential returns.  

It is no secret that equity valuations are stretched. The massive levels of fiscal and monetary stimulus globally have propped up asset prices despite ongoing disruption from the COVID-19 pandemic. The S&P 500 price/earnings ratio exceeded 30 in mid-April, its highest level since the 1990s dotcom bubble, which did not end well for investors. With a potential economic recovery following vaccine rollouts largely priced in, prices appear to leave limited upside in the near term. 

Investors will also struggle to find attractive returns in the bond market. Even before the pandemic, yields globally were low, or even negative. Again, the downside appears to outweigh the upside as the recent selloffs in government bonds indicate.  Both fixed income and equity markets remain susceptible to a shift in the economic outlook or macro policy, which should prompt investors to consider alternative ways to diversify their portfolios.  

The increasing concentration of equity markets forms another reason why alternative assets make sense in the current backdrop. The sky-high equity returns of the past year have come overwhelmingly from the tech sector with the FAANG stocks — Facebook, Amazon, Apple, Netflix and Google (Alphabet) — significantly outperforming the wider market. Consequently, ETFs and other index-linked investments may not be as diverse as they might appear.  

This is where fine wine can help. As a real asset, fine wine prices are primarily driven by their own market dynamics, meaning they have low correlation to traditional asset classes and can help de-link an investment portfolio from swings in the wider markets.  

Fine wine’s limited and decreasing supply over time (as wine is consumed) alongside demand that goes beyond wine’s immediate benefit as a financial instrument can support wine prices regardless of the wider macro environment. Indeed, prior to the recent tech stock surge, fine wine often delivered better performance with significantly lower volatility over a range of backdrops going back to before the financial crisis.  

Healthy returns with low volatility  

Comparison of volatility and annualised return across financial assets 

 

Source: S&P, Bloomberg, Liv-ex & ishares. Data as of 31 Mar 2021  Continue Reading…

How to generate retirement income

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By Mark Seed, My Own Advisor

Special to the Financial independence Hub

You could argue beyond the how much do I need to retire question, this need comes up next: how to generate retirement income.

Rightly so.

I mean, we all want to know how best to use our retirement incomes sources wisely. Those retirement incomes sources are necessary to help fulfill income needs, while being tax efficient; income to provide some luxuries now and them, or to potentially deliver generational wealth should that be your goal.

My retirement income plan and options

I’ve been thinking about my income plan, or at least my semi-retirement income plan, for some time now.

I captured a list of overlooked retirement income planning considerations here.

Yet I can appreciate not everyone writes about nor thinks about this stuff.

There are obvious ways to generate retirement income but I suspect some might not appeal to you for a few reasons!

Option #1 – Save more

I doubt most people will like this option but it’s probably necessary for many Canadians: you’re going to need to save more than you think to fund your retirement. This is especially true if you have no workplace pension of any kind to rely on and/or you haven’t assessed your spending needs. More money saved will help combat inflationary pressure, rising healthcare costs and longevity risk.  Which brings me to option #2.

Option #2 – Work longer

If you didn’t like option #1, you might not like this one! Working longer into your 60s or potentially to your 70s might be the reality for a good percentage of Gen X and Y.  Part of the reasons these cohorts will need to work longer is because many Boomers remain in the workforce so they can fund their retirement. Some Boomers are continuing to work because they enjoy it. Some are continuing to work because they absolutely have to.

Option #3 – Spend less

The 4% rule remains a decent rule of thumb – it tells us we should be “safe” to withdraw approximately 4% of our portfolio with a minimal chance of running out of money.

Using 4%, a retiree would need $1-million invested to produce a steady income of $40,000 a year. Spending less, will absolutely help portfolio longevity and give stocks in your portfolio a longer time frame to run.

Our initial retirement income plan has us leveraging a mix of income streams in semi-retirement:

  1. Part-time work – to remain mentally engaged – in our 50s.
  2. Taxable but tax-efficient dividend income.
  3. Strategic RRSP withdrawals.

I’m not quite “there” yet in terms of other incomes streams, including TFSA withdrawals and exactly when to take those, but I’m working through that.

Generating retirement income

When it comes to you, options abound. You might have similar income streams or other ideas altogether. Remember, personal finance is personal.

I’ve had the pleasure of working with a few advice-only planners on this site and I’m happy to bring back Steve Bridge, a CFP from Vancouver for his detailed thoughts on this subject. Steve works as an advice-only financial planner with Money Coaches Canada (no affiliation with My Own Advisor). You can find him on that site for his services and you can follow him often on Twitter like I do at @SteveMoneyCoach.

Steve, welcome back to chat about this important subject!

Always a pleasure Mark. I love what you do here and I follow your journey. Continue Reading…

Are life settlements key to solving America’s retirement crisis?

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By Lucas Siegel

Special to the Financial Independence Hub

As the retirement crisis continues, the need for workable options for funding retirement becomes even more vital. Today’s senior Americans are at risk of not having enough for necessary living expenses.

Over the years, misconceptions have developed about life settlements and their viability. The truth is, under the right circumstances, taking advantage of a life settlement and selling a life insurance policy to a third-party investor can help seniors unlock much-needed cash.

In the case of life settlements, we are talking about seniors having access to a significant amount of money. For instance, if eligible Americans took full advantage of life settlements, it could help cover more than US$42 billion in long-term care and retirement costs each year.

So, what is a life settlement?

A life settlement enables a qualifying life insurance policyholder to obtain a lump sum cash payment in exchange for selling their policy to a third party. The buyer takes on all responsibilities for the policy, including paying the premiums. The resulting money from the life settlement allows retirees to pay for necessary living and healthcare expenses, rather than struggle to make life insurance policy payments.

How to qualify for a life settlement

Many seniors are surprised to find how straightforward it is to qualify for a life settlement. They discover it isn’t necessary to have failing health or a terminal illness to receive a life settlement. The main requirements for a life settlement are being at least 70 years old and owning a life insurance policy valued at US$50,000 or more.

There is also no requirement in terms of how the money from a life settlement is spent. The money can be used for whatever the recipient wishes. Many seniors find the funds enable them to afford the rising costs of retirement. For instance, after receiving a life settlement, they may choose to pay down debt to decrease fixed expenses, pay for long-term care, pay for general living expenses, create an emergency fund, invest the money, or even spend the money on home renovations or a vacation.

Best states for life settlements

If you’re interested in learning more, you may be excited to find that you live in a state that is highly accommodating to life settlements. Our U.S. Life Settlement Index: The Best and Worst States for Life Settlements took a close look at seven attributes that affect life settlements in each state.

These attributes included existing state regulations for life settlements, the median monthly cost of long-term care, the face amount of life insurance per capita, and whether the state requires that policyholders receive life settlement disclosures. Additional considerations included the median household income, size of the population of those 75 and older, and average life expectancy.

Considering the various data, the U.S. Life Settlement Index identified the most and least accommodating states for life settlements. The top spots for most amenable went to California, which came in first, followed by Washington, New Jersey, and Illinois. Wisconsin and Massachusetts tied for fifth on the Index. Continue Reading…