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.

Retired Money: Are pricey U.S. stock valuations a threat to new Retirees? Plus David Chilton on retiree market timing

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My latest MoneySense Retired Money column looks at the currently near record high valuations of U.S. stocks and the risks that may pose to those in the Retirement Risk Zone. Full column can be accessed by clicking on the highlighted headline: Why retirement planners are getting defensive. 

Retirement Club co-founder Dale Roberts recently posted a typical anxious link to a Globe & Mail column by Dr. Norman Rothery, (CFA) which suggested the current environment of Trump-inspired Tariffs and global Trade Wars, are causing plenty of anxiety for this group.

In the piece posted under Managing Risk in Retirement – and headlined With today’s market, investors close to retirement face precarious times – Rothery said investors on the cusp of retirement are “facing peril from a combination of the unusually lofty U.S. stock market and political uncertainty that’s disrupting world trade.”

U.S. stocks trading at “worrying levels”

The U.S. stock market is “trading at worrying levels,” based on several Value factors, Rothery said: the S&P 500 Index is “trading at a cyclically adjusted price-to-earnings ratio (developed by Robert Shiller) near 39, which is above its peak of 33 in 1929 and it is approaching its top of 44 in late 1999, based on monthly data. Similarly the index’s price-to-sales ratio is approaching its 1999 high. A broader composite measure that includes many different market factors indicates that the U.S. market’s valuation is at record levels. “

Rothery, who also publishes StingyInvestor.com, concluded that it’s “likely that the U.S. stock market will generate unusually poor average real returns over the next decade or so.” Unfortunately, the U.S. stock market now represents about 65% of the world’s market by market capitalization based on its weight in the MSCI All-Country World Index at the end of August. So if the U.S. market flops, “It’ll likely take the rest of the world with it – at least temporarily,” Rothery cautioned.

This could impact recent retirees just beginning to draw down portfolios, due to “sequence of returns risk.” That means that those in the so-called Retirement Risk Zone  who suffer early losses could down the road be in danger of outliving their savings. Rothery also reference the famous 4% Rule of financial planner and author William Bengen: the theory that investors in a 55/40/5 portfolio should be able to sustain retirement savings for 30 years provided the annual “SafeMax” withdrawal not exceed 4% a year (actually 4.7%) after adjusting for inflation. Bengen just released a new book titled A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, which the Retired Money column plans to  review next month.

What recent Retirees can do to lower their risk

Retirement Club members anxiously posed questions on the related chat room about whether they should be moving to cash and bonds, gold or other alternatives to U.S. stocks. To this, Dale Roberts – who also runs his own Cutthecrapinvesting blog – warned against getting too defensive but agreed a move to a 70% fixed income/30% stocks allocation might work for some nervous early retirees. Personally, he has trimmed back on his US growth stock exposure and added to defensive ETF sectors like consumer staples, healthcare and utilities. He also mentioned a US equity ETF trading in Canadian dollars: XDU.T

Advisors and their clients suffer from Optimist bias

Advisor John De Goey came to a similar cautious stance in a recent (Sept 12) speech at the MoneyShow in Toronto, archived here on YouTube. Titled Bullshift and Misguided beliefs (see this recent Hub blog) De Goey expanded on his usual themes of advisor bullishness and complacent investors, also articulated in his book Bullshift. Continue Reading…

Bullshift and Misguided Beliefs

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John De Goey, a financial advisor and portfolio manager with Designed Securities, and long-time commentator on the financial services industry, was a keynote speaker at The Money Show recently held at the Metro Toronto Convention Centre.

Author of the book ‘Bullshift – How optimism bias threatens your finances’ (Dundurn Press, Toronto, 2023) and host of the popular podcast Make Better Wealth Decisions, De Goey delivered a presentation called Bullshift and Misguided Beliefs.

‘Bullshift,’ the term De Goey has coined, refers to his view about how the financial services industry makes people feel bullish in order to do the industry’s bidding. To make his point, he noted full-page ads appearing in such publications as The Globe and Mail; one of them ran under the headline ‘Be bullish.’

As for misguided beliefs, De Goey says there is ample evidence that Canadian mutual fund registrants believe things which are patently untrue. To illustrate the latter, he referred to Brandolini’s Law.

Alberto Brandolini was an Italian programmer who developed the term in 2013 and his rule goes like this: The amount of energy required to refute BS is an order of magnitude bigger than what was needed to produce it in the first place. Or, put another way, it compares the considerable effort needed to debunk misinformation to the relative ease in creating that misinformation.

American writer and humourist Mark Twain had a take on this at a much earlier time, and De Goey cited that. Said Twain: “It’s easier to fool people than to convince them that they have been fooled.” The point beyond all this, said De Goey, is that people must unlearn what they think they already know. No easy task.

His presentation at The Money Show covered a number of topics including:

  • The difference between misinformation (an honest mistake) and disinformation (saying something that is deliberately false), and how to unlearn the latter and think for yourself.
  • How behavioural economics and social psychology affect your investing decisions.
  • How the industry uses motivated reasoning and tribalism as opposed to critical thinking and evidence.
  • Why 90% of our financial decisions are based on emotions, not logical thinking.
  • Why governments and financial advisors like optimism over realism.

De Goey, always a student of history, observed that the market is 30% more expensive now than it was in 1929 just before the stock-market crash that led to the Great Depression. He mentioned the Smoot-Hawley tariffs of 1930 and their catastrophic impact on the U.S. economy, not to mention worldwide economy, and compared this to today’s on-and-off tariffs coming out of the Trump White House. He also noted recent credit downgrades and their effect on the U.S., and, of course, the very real pain of the tariffs which he believes will be much worse in the fourth quarter of 2025. What’s more, De Goey says this will be accompanied by higher inflation.

Bear market looming?

De Goey said the current bull market is “taking its final bow” and the bear market is “waiting in the wings.” In fact, he warned that gains made over the past six years could be entirely wiped out in the next four years if the historical regression to the mean for CAPE occurs. For those who are retired or nearing retirement, this would be devastating news indeed.

One of De Goey’s pet peeves – ‘optimism bias’ – refers to a) people thinking the good times will continue despite blatant warning signs, and b) the very human sentiment that bad things happen but only to other people. Not true, says De Goey. The trouble, he says, is that optimism can sometimes put you in trouble.

Normally, a presentation about money, economics and investing doesn’t get into wisdom imparted by such luminaries as Mark Twain, but De Goey didn’t stop there. He also took a page from Carl Sagan, notably, his 1997 book ‘The Demon-Haunted World. Said Sagan: “If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.” Continue Reading…

Challenging Times for Recent Retirees?

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By Dale Roberts, CutTheCrap Investing, Retirement Club

Special to Financial Independence Hub

The following is a special to Findependence Hub. This post is derived from a newsletter from Retirement Club for Canadians, re-shaped and enhanced for this audience. 

In the Globe & Mail Norm Rothery offered an article with the title – With today’s market, investors close to retirement face precarious times (sub required).  Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.

Retirees typically face the greatest risk in the first few years of retirement. A severe market correction or bout of inflation can permanently impair retirement plans. In fact, the risk for retirees starts several years before the retirement start date, they’re already in the retirement risk zone. 

Norm suggested … 

“Planning for retirement is tricky at the best of times because it is beset by uncertainties both known and unknowable. High valuations are one of the known problems but that doesn’t make them easy to deal with.”

While a severe market correction early in retirement is a great risk for retirees who will rely extensively on balanced or growth-oriented portfolios, a longer period of low returns can also create risk. The U.S. stock market is trading at worrying levels based on a variety of value factors. 

Norm demonstrated that the S&P 500 Index is trading at a cyclically adjusted price-to-earnings ratio near 39, which is approaching the 44 level that we saw in late 1999 as we approached the dot com crash. 

Source: Charlie Billelo / Twitter X 

The price-to-sales ratio is approaching its 1999 high. 

This ‘everything metric’ says we have the most expensive U.S. market – EVER! 

Source: Bloomberg

Dale’s related read: The lost decade for U.S. stocks.

And we can pile on with the Buffett Indicator … 

We certainly can’t just step aside and wait for the next recession. Valuation metrics provide no market-timing opportunity. Nothing provides any market timing opportunity. Valuation tends to be a poor near-term market predictor, but it can ‘predict’ the potential returns over the next several years to decade. The data suggest returns for U.S. stocks could be very low in the range of 1-4% annual or even negative in real dollar (inflation-adjusted) returns. 

And keep in mind that Canadian stocks (after a very healthy run) are expensive as well. After their big run-up this year, Canadian stocks now trade for nearly 29 times their average inflation-adjusted earnings of the past decade, according to Citigroup, the historical average is 16, TSX returns over the next several years might be challenged as well. 

So, there is a risk of a major correction inspired by the lofty levels. And low returns in the first decade can put a strain on the spending plans.  Continue Reading…

8 Effective Strategies for Managing Retirement Income and RMDs

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Pexels photo by Marcus Aurelius

Retirement income management and Required Minimum Distributions (RMDs) can be complex topics for many Americans. This article presents effective strategies to help readers navigate these financial challenges. Drawing on insights from financial experts, the following tips offer practical approaches to optimize retirement income and manage RMDs efficiently.

  • Purchase Annuity for Guaranteed Retirement Income
  • Leverage Qualified Charitable Distributions for RMDs
  • Optimize Asset Location for Tax-Efficient RMDs
  • Consider Annuities for Steady Retirement Income
  • Use Trusts to Manage RMDs Strategically
  • Convert to Roth During Market Downturns
  • Implement Bucket Approach with Beneficiary Designations
  • Start Home-Based Business to Offset RMDs

Purchase Annuity for Guaranteed Retirement Income

It is important to always consider broader planning needs, but one strategy that can be useful for generating retirement income and managing required minimum distributions (RMDs) is purchasing an annuity. This annuity would be purchased within an IRA and would create a level stream of guaranteed income for the rest of one’s retirement. This will not only satisfy one’s RMDs, but it can also lower taxes by stretching income across many years. In particular, it could help avoid large, irregular distributions that might push one into higher tax brackets. — Aaron Brask, Retirement planner, Aaron Brask Capital LLC

Leverage Qualified Charitable Distributions for RMDs

The obvious choice is to find a part-time job that aligns with your passion. This way, you can generate income and get paid to enjoy your favorite hobby. For example, if you love golfing, getting a part-time job at a golf course may give you discounts or even free games.

As far as managing RMDs, the amount that you must distribute is not determined by your income. It is based on the value of your Traditional IRA at the end of the year and the IRS Uniform Lifetime Table or Joint Life and Last Survivor Table.

This doesn’t include Roth IRAs. There are no RMDs in these accounts.

The best way to manage the increase in income, which can lower benefits such as Social Security or Medicare Part B (which are based on annual income), is to leverage Qualified Charitable Distributions (QCDs) for those who are philanthropic or give to a 501(c)(3) religious institution such as tithing.

When you reach the age to take RMDs, you can directly give to your favorite charity without incurring the tax implication or the increase in income that comes with RMD distributions. In 2025, you can donate up to US$108,000.

This will eliminate the RMD from being counted in your gross income and, at the same time, qualify for satisfying your annual distribution requirement.

I think this is useful because their favorite cause still receives donations, they satisfy their RMD, and they don’t have to pay the taxes up to that amount.

One thing I love about it is that you can make as many QCDs as you wish during the year as long as the total doesn’t exceed the threshold. — Alajahwon Ridgeway, Owner, A.B. Ridgeway Wealth Management, LLC

Optimize Asset Location for Tax-Efficient RMDs

After 15+ years managing corporate finances and helping businesses with cash flow optimization, I’ve seen how asset location strategy can be a game-changer for Required Minimum Distribution (RMD) management. The approach involves strategically placing different types of investments across taxable, tax-deferred, and tax-free accounts to minimize the tax impact when RMDs hit.

I worked with a client in the software technology space who had accumulated significant wealth through stock options and 401(k) contributions. We repositioned his bond holdings and REITs into his traditional IRA while moving growth stocks to his Roth accounts. When his RMDs started, he was pulling from bond interest and dividend income rather than forcing the sale of appreciating assets.

The key insight from my Financial Planning and Analysis (FP&A) background is treating this like portfolio optimization: you’re maximizing after-tax income rather than pre-tax returns. His RMD tax bill dropped by 18% because we were distributing lower-growth, income-generating assets instead of his high-performing tech stocks.

This works especially well for anyone with diverse investment types across multiple account structures. The planning needs to start at least 5-7 years before RMDs begin, but the tax savings compound significantly over time. — Michael J. Spitz, Principal, SPITZ CPA

Consider Annuities for Steady Retirement Income

Although annuities are often a source of debate and critique, they are still a functional and conservative way to generate income in retirement. If set up early enough, the steady income can often account for Required Minimum Distributions (RMDs) across all Individual Retirement Account (IRA) assets since the withdrawal rates are higher than the often quoted 4-4.5%. — Pedro Silva, Financial Advisor, Apex Investment Group, LLC

Use Trusts to Manage RMDs Strategically

After 25 years of helping clients navigate estate planning and witnessing countless families deal with Required Minimum Distribution (RMD) challenges, I’ve discovered the most effective strategy: creating an offshore Asset Protection Trust that feeds into a domestic charitable remainder trust for your RMDs. While this may sound complex, it’s incredibly powerful for the right situation.

Here’s how it works: I had a client with US$2.3 million in retirement accounts who was facing substantial RMDs that would push him into the highest tax brackets. We transferred a portion of his Individual Retirement Account (IRA) into a charitable remainder trust, which allowed him to take his RMDs as annuity payments over 20 years at a much lower effective tax rate. The added benefit? The remainder goes to charity, providing him with immediate tax deductions that offset other income. Continue Reading…

DIY Investing: Is it really for you?

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Some investors do just fine on their own. But what if that is not you, and you are only realizing it now?

Canva Custom Creation: Lowrie Financial 

By Steve Lowrie, CFA

Special to Financial Independence Hub

Let us get something out of the way upfront.

Many do-it-yourself (DIY) investors do not need an advisor. They enjoy the process. They understand the risks and they successfully meet their needs over time.

Also true: many people who work with an advisor could probably manage their investments on their own but choose not to. They are looking for structure, coaching, planning strategies, process with structure, and a buffer between their emotions and their money.

And then there is a third group. These are investors who began managing their own portfolios, sometimes successfully, sometimes not, but are now questioning whether they are still on the right track. Complexity has crept in. Time is limited. Markets feel more confusing. They are not failing, but they are starting to wonder whether they are optimizing what they are doing and beginning to feel overwhelmed.

There is also a fourth group. These are investors who are managing their own portfolios but do not realize they are making mistakes. They are not actively questioning their approach because they believe everything is fine. Often, they are unaware of the behavioural traps, tax inefficiencies, or investment risks they have unknowingly taken on. It is only when a serious mistake occurs, one that threatens their financial future, that they start to seek advice. Even then, they may not ever realize or fully acknowledge where they went wrong.

If the third or fourth groups sound familiar, read on because this blog is for you.

When Smart Investors Recognize the Limits of Going it Alone

Some of my best clients have at one point self-managed a portion or all their investments. Many had built portfolios that were perfectly reasonable. Some described their results as poor, some average, others felt they had done well. But all of them eventually reached a point where they realized something was missing. They were spending too much time second-guessing decisions. They were reacting to market news more than they cared to admit. And they began to realize they craved the structure and behavioural coaching that professional advice can provide.

What makes DIY Investing so hard?

Dr. William Bernstein, a neurologist turned financial theorist and author, has written extensively about the challenges of investing, particularly for individuals managing their own portfolios. Bernstein is best known for books such as The Four Pillars of Investing and The Investor’s Manifesto and is widely respected for his clear thinking on asset allocation, market history, and investor behaviour.

In his view, only a very small percentage of the population is truly equipped to succeed as DIY investors over the long term. To do so, he argues, you need to possess four rare qualities:

  1. An interest in the investment process. Not just in the outcomes, but in the work itself. Like how a gardener must enjoy digging in the dirt.
  2. Sufficient mathematical skill. This does not mean advanced calculus, but it does require comfort with probability, statistics, and the often-counterintuitive nature of compounding and risk.
  3. A strong grasp of financial history. Understanding past market cycles and common behavioural traps helps prevent repeated mistakes.
  4. Emotional discipline. The ability to remain committed to your strategy even when markets are volatile or unsettling.

Bernstein estimates that only a tiny fraction of people possesses all four. Not because people are not smart or motivated, but because successful investing is as much about temperament and consistency as it is about knowledge. It is no wonder that so many capable individuals eventually seek professional guidance. Not because they cannot do it, but because they realize the cost of getting it wrong can far exceed the cost of getting help.

Personally, I believe Bernstein misses an important point. In my experience, even when someone does check all four of Bernstein’s boxes, the biggest limiting factor is often time, energy, and focus. Personally, many of my clients are highly capable individuals who could manage their portfolios themselves. But they choose not to. Not because they are unable, but because they would rather devote their time and energy to running their business, pursuing their careers, or enjoying other priorities in life. Delegating the day-to-day investment work and high-level financial planning is a strategic decision that allows them to stay focused on what matters most to them.

Most Investors do not get the Returns of the Funds they own

In your day-to-day life, you get feedback quickly. You make a decision, and usually that decision, especially if it is a business decision, you see results right away. You work hard in your career and earn recognition. But investing plays by different rules. You can make the right decision and still lose money. Or the wrong decision and still come out ahead. The feedback is delayed, noisy, and often misleading.

That is what makes investing such fertile ground for overconfidence bias. Most people believe they are better-than-average investors, just as most drivers believe they are better-than-average drivers. But that math does not add up.

In reality, most investors underperform the very investments they hold. Morningstar has tracked this phenomenon for years, as referenced in The Big Picture’s Mind the Gap article. Investors in mutual funds and ETFs often earn significantly less than the funds themselves deliver. The problem is not the products. It is the behaviour. Investors buy when markets feel good and sell when they feel scary. Put another way, they get caught in investment fads in up markets, and panic in a down markets.  Either way, they let emotions and behavioural biases interfere with execution. Even when they pick good investments, they struggle to stick with them.

The result is a silent drag on performance. Not from bad investments, but from poorly timed decisions.

Revisiting Hidden Costs of DIY Investing

In my earlier post, The Hidden Costs of DIY Financial Planning, I discussed how emotional decisions and inefficient implementation, whether through poorly chosen products or tax mistakes, can quietly erode long-term results. Those risks remain very real. Continue Reading…