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.

I prefer Financial Independence Work On Own Terms (FIWOOT) over FIRE

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

We all know what FIRE is in the personal finance community but what is FIWOOT?

(I’ve updated this original post from 2019 to reflect my current views and progress.)

Read on and find out why I still prefer FIWOOT vs. FIRE and what that means moving forward in 2025.

Why the FIRE burns bright on social media

Like any good movement, it takes courage to do what others won’t.

Financial Independence takes both know-how and long-term discipline. It takes time to remain invested when others are jumping in and out of the market. It also takes saving your brains out to retire early, usually from a high salary and a bit of luck.

This is not to say I disagree with the Financial Independence, Retire Early (FIRE) movement and what some folks are striving for. I think many FIRE principles have great merit:

  • Live well below your means.
  • Save early and often.
  • Avoid financial and lifestyle waste.
  • Avoid long-term debt that is not used for wealth generation.
  • Optimize your investing (i.e., keep your costs low and diversified).

I’ve written about FIRE concepts many times on this site. Many years ago I even questioned if FIRE was right for me at all.

Well, I know my answer.

Why I’m tired of retire early in FIRE and why FIWOOT works

In some circles (not all thankfully), the focus of FIRE is on the “retire early” part.

Work hard, make good money with the intention of leaving the corporate rat-race sooner than later.

That’s definitely aspirational:  if that were the end of it. But most of the “retire early” crowd doesn’t retire. They still work: just at something different.

If you expend energy, trade time or services for any income, that’s work. If that’s your blog or podcast or ebook or financial independence course that’s work.

And working is not a bad thing at any age. Just call it what it is.

Why I’m a fan of the Financial Independence (FI) part of FIRE

Maintaining your wealth and being happy doing it?

That sounds better and far more honest to me.

That’s the perspective that CFP Graeme Falco once shared on my site – when discussing his practical guide to financial independence book.

Like Graeme, I believe far more in the FI part of FIRE than the RE (retire early) part.

For me, financial independence is the amount wealth you need to be no longer dependent on any active source of income (i.e., work) to fund your lifestyle. That wealth could be from stocks, bonds, gold, real estate, and much more. Financial independence can also mean you might still want to work.

That’s something I intend to do in 2025 now I’m financially independent.

Financial Independence, Work On Own Terms (FIWOOT) Moving Forward

We realized financial independence in the summer of 2024 and since that date, I’ve been working on my employment status with my employer. I’ve been discussing the opportunity to scale back a bit and work part-time in 2025. After months of fruitful discussions, that plan is now in place.

As of April, I will be working three days per week versus five. Full-time work with my current employer is over: I’m starting a new chapter with them and thankful for it. Unless both parties decide something different, I will be working part-time from April to October 2025. After that date, I might be retired for good.

Our semi-retirement years are here. More life-work balance is ahead this year. 

via GIPHY

Actually, in this new part-time capacity, I’ve finally caught up to my wife!

My wife continues to work three days per week in 2025 (she started her scaled-back role in 2024).

Moving forward, it’s part-time work for both of us in this 2025 transition year.

FIWOOT Q&A:

Will this change how I invest?

Nope.

As subscribers to my site may know for well over a decade now, we invest this way and have no plans to change our hybrid investing strategy:

  1. We invest in many Canadian and a few U.S. dividend-paying stocks.
  2. We invest in some low-cost ETFs for extra diversification to own thousands of stocks. Continue Reading…

An Evidence-based Approach to Investing with Asset Allocation ETFs

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Getty Images, courtesy BMO ETFs

By Erin Allen, CIM®, BMO ETFs

(Sponsor Blog)

Introduction

The importance of asset allocation in investment management cannot be understated. Pioneering research by Brinson, Hood, and Beebower attributed over 90% of a portfolio’s performance variability to asset allocation decisions, making it the most important determinant in long-term investment outcomes1.

ETFs are remarkably effective market access tools, offering investors precision, liquidity, and cost efficiency to enhance portfolio construction.

This article explores asset allocation in depth, focusing on how Asset Allocation ETFs can serve as evidence-based approach for building resilient and diversified portfolios.

Theoretical Foundations of Asset Allocation: Modern Portfolio Theory (MPT)

Harry Markowitz’s (1952) Modern Portfolio Theory (MPT) laid the groundwork for efficient portfolio construction2, pointing out the benefits of diversification to manage risk levels. According to MPT, an optimal portfolio balances risk and return by combining assets with low or negative correlations, thereby reducing overall portfolio volatility2. This is the idea of diversification with which we are likely more than familiar, not putting all your eggs in one basket.  While some investments go up, others will go down, thereby mitigating losses.

MPT allows investors to find an optimal asset mix that reflects both their return aspirations and their risk tolerance, minimizing the prospect of unexpected outcomes.

BMO’s suite of Asset Allocation ETFs, such as the BMO All Equity ETF (ZEQT), enables investors to achieve broad global diversification — a key principle of MPT — by providing exposure to multiple geographies and sectors within a single vehicle.  Regular rebalancing helps to align your portfolio with your personal risk tolerance and types of assets needed to meet your financial goals.

Asset allocation decisions must align with an investor’s risk tolerance and time horizon. Younger investors with longer time horizons may favor equity-heavy allocations, while retirees may prioritize income and capital preservation through fixed-income or conservative balanced strategies.

The key here is that individual investor needs are unique, and ETFs provide the tools for investors to create the optimal portfolio for their needs or, in the case of asset allocation ETFs, to choose from a pre-set mix ranging from conservative all the way to 100% equity.

 A Note on Diversification

Diversification determines the level of volatility in your portfolio. A paper by S&P Dow Jones Indices research team titled Fooled by Conviction, showed that Between 1991 and May 2016, the average volatility of returns for the S&P 500 was 15%, while the average volatility of the index’s components was 28%.3 Looking at the variability between one stock and 500 is an extreme example, but it  illustrates the important point that if the typical active manager owns 100 stocks now and alters to holding only 20, the volatility of his portfolio will likely increase.

Behavioral Finance and Asset Allocation

Behavioral biases, such as loss aversion, confirmation bias or overconfidence, often lead investors to deviate from their optimal asset allocation strategy.4 Common mistakes include choosing portfolios that may be too conservative to meet their financial needs, panic selling, following the latest meme trend, or failing to strategically rebalance their portfolio over time.

It’s not about timing the market; it’s about time in the market that pays off in the long run.

Rebalancing a portfolio is another potentially daunting task for investors.  You have to remember to do it on a monthly or quarterly basis, but there’s also the emotional/psychological aspect which can often get in the way.  Rebalancing is essentially selling your winners and adding to your loser. Not an easy thing to do, though we all know to buy low and sell high, as the old adage goes.

Allen Roth did a study around the benefit of rebalancing over time5. In a moderate or balanced portfolio, you can see that it added close to 20% to returns over a year period of almost 20 years.  Although there is no guarantee rebalancing will add to your returns going forward, history has shown that it is effective, and it is an important risk control measure.

Investment Performance 12/31/99 – 12/31/17
Total Returns with/without Rebalance

Boosting Returns with Rebalancing, Allan Roth and etf.com, 2018 – For illustrative purposes only

An automated rebalancing facility, such as the one embedded in BMO’s Asset Allocation ETFs, can help mitigate the risks of a portfolio that becomes concentrated due to a failure to rebalance,  ensuring portfolios remain aligned to their predetermined asset mix and risk levels.

A Passive Approach to Investing

Asset allocation ETFs take a strategic approach to portfolio construction, using passive index-based investing tools to build the underlying portfolio.  Passive investing brings the benefits of being lower cost, efficient, diversified, and transparency to a portfolio. Here is a common misconception that is easily negated with SPIVA (Standard and Poors Index versus Active) research (SPIVA | S&P Dow Jones Indices).  The evidence shows that active managers are highly cyclical but can add alpha or outperformance. In the majority of cases, however passive out-performs because it does not make predictions or assumptions.  As is often said, the market, or its index, is a giant weighing machine that tracks capital movements over an economic cycle.

Continue Reading…

What the Carbon Tax teaches us about investing

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Image courtesy John De Goey

By John De Goey, CFP, CIM

Special to Financial Independence Hub

The very first thing Prime Minister Mark Carney did upon taking office was to scrap the consumer carbon tax. Depending on your degree of cynicism, the move was either desperate or brilliant. There is not much middle ground. He did so while noting that the tax had become divisive.

Few would disagree. The very large majority of economists who study the subject argue that putting a price on carbon is the most efficient and effective way of curbing CO2 emissions. Nobel laureate William Nordhaus has shown this convincingly.  Despite the evidence, retail investors simply hated the scheme.

Sometimes there’s a major disconnect between public policy and retail politics. Sensible policies can be rejected because a large percentage of the populace is determined to make decisions based on emotion rather than rationality. People will do what feels good you respective of what the evidence says.

It has been proven many times over that four out of five Canadians were better off paying the tax while cashing the rebate cheques, yet a large percentage of those same Canadians rejected putting a price on carbon at the consumer level. Since about 89% of all emissions come from industrial outputs, the political capital gained by Carney in dropping the consumer portion of the tax far exceeded the opportunity cost of a marginal emissions reduction. Why do so many people viscerally hate policies that conspicuously work against their own self-interest?

Confirmation Bias and Cognitive Dissonance

I believe the answer lies in both confirmation bias and cognitive dissonance. Simply put, people believe what they want to believe:

  1. a) because it makes them feel good; and
  2. b) because they engage in herding behaviour and conform to groupthink

It seems a substantial percentage of the human population actively resists evidence. Sometimes, that resistance appears in the form of political populism where ‘elites’, ‘globalists’ and ‘intelligentsia’ are rejected in favour of whatever populist leaders pass off as ‘common sense’. Confirmation bias is essentially pretending to look for evidence dispassionately, well actually looking for evidence that merely ‘confirms your priors.’ Stated differently, if you were predisposed to disliking a tax on carbon, no evidence to the contrary would have likely changed your opinion.

Similarly, in investing, there are several long-held beliefs that many people harbour that often go unchecked. Some are factually false, while others are merely dubious and open to interpretation and debate. In all cases, however, there is at least some suspension of disbelief to protect a pre-existing viewpoint that simply feels better than the evidence-based alternative. Continue Reading…

New to a RRIF? Make sure you have enough cash and consider dialing down risk

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My latest MoneySense Retired Money column has just been published and covers something that was a new experience for me: starting and managing a RRIF or Registered Retirement Income Fund.

You can find the full column by clicking on the highlighted headline: How to make sure you have enough money to fund your RRIF withdrawals. 

At the end of the year you turn 71, those with RRSPs are required either to cash them out  (not recommended from the standpoint of taxes), to to annuitize orto convert it into a RRIF, or Registered Retirement Income Fund. The latter is the most popular action and recommended by experts like The Successful Investor’s Patrick McKeough.

            However,  as I’ve discovered since my own RRIF started up this past January, the sweetness of the RRSP tax deduction over the decades is offset by the sourness of having to pay taxable withdrawals on your new RRIF.

            In my case, I am a DIY investor who uses one of the big-bank discount brokers to self-manage the taxable distributions and to manage the remaining investments, most of them carryovers from the RRSP.  While accumulating funds in an RRSP is a matter of making annual contributions and reinvesting dividends and interest, a RRIF represents a departure from the psychology needed to build an RRSP for the future. Suddenly, regular selling is necessary. The RRIF rules mean that in the first year you’ll have to withdraw something like 5.28% of what your balance was at the start of the year (rising to 5.4% at age 72 and every upwards each passing year).

Payments can quarterly, monthly or any frequency you choose

          If you choose monthly payments, as I did, that means every month you have to have 1/12th of the required annual distribution in the form of ready cash to be whooshed out monthly on whatever date you specify. As most retirees will be getting other pensions near the end of the month, I chose mid-month for the RRIF distribution. You also need to choose the percentage of tax you wish to pay to Canada Revenue Agency: I picked 30%, which automatically leaves your account each month. The remaining 70% transfers out into your main chequing account, ideally at the same financial institution where the RRIF is held: It’s easier that way.

Setting regular tax payments

          You also need to choose the percentage of tax you wish to pay to Canada Revenue Agency: I picked 30%, which automatically leaves your account each month. The remaining 70% transfers out into your main chequing account, ideally at the same financial institution where the RRIF is held: It’s easier that way. Sure, you could set the tax at 10% or 20% but if you have other sources of taxable income, like taxable dividends and other pensions, I’d rather not have the unpleasant surprise of a larger-than-expected tax bill a year from April. Once you have a year of RRIFing under your belt, you may see fit to adjust the 30% upwards or downwards. Continue Reading…

Retirement Club for Canadians 

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By Dale Roberts

Special to Financial Independence Hub

Hi, it’s Dale Roberts here. You know me from Cut The Crap Investing. My blog posts are often shared on Findependence Hub. 

Similar to Jonathan Chevreau I have a keen interest in helping Canadians prepare for retirement and make the most of retirement once they reach that wonderful stage in life. 

Too many Canadians enter retirement with some sense of anxiety. They may fear that they will outlast their money. They might not have created the all important life plan. 

More and more Canadians have self-directed their investment accounts. Now they need a resource that helps them set the course, and keep the course for a successful retirement. 

That’s why we created Retirement Club. Retirement Club for Canadians 

What is Retirement Club? 

Retirement Club is a community of like-minded Canadian retirees and near retirees. 

A successful retirement starts with financial security. Let’s call that fiscal fitness. We cover the financial essentials, in jargon-free plain-speak with clear demonstrations. You’ll learn how to spend down your portfolios in an efficient fashion. You’ll learn how to use free-use retirement calculators that create optimal retirement cash flow plans. That is, how to spend from your investment accounts, working in concert with CPP, OAS, pensions, and other income. 

The retirement portfolio will be discussed in detail. We need to align each account’s risk level to the task at hand: dictated by that retirement cash flow plan. 

As you may know, at Cut The Crap Investing I’ve offered a unique approach to managing risk: using lower volatility and defensive equities (consumer staples, healthcare and utilities) in concert with traditional risk managers such as cash, bonds, GICs, gold, annuities and more. During the volatility of 2025, these defensive assets have been the top performers. 

Of course the financial topics are numerous, from wills and estates, to insurance, tax tips, healthcare costs and more.

Retirement by design

Next comes the life plan. Each of us will decide on our level of travel and entertainment, family time, leisure and living life full of purpose. We’ll provide and share lifestyle inspiration. We’re doing it right when financial security enables a rich and rewarding lifestyle. We need to retire with vitality and purpose. How do we replace the ‘good stuff’ we got out of our working years? 

How do we learn and connect? 

At a minimum we’ll have …  

  • A monthly one hour Zoom presentation (the next one is April 25th at noon).
  • A monthly newsletter 

The Zoom presentations are lively and interactive. They start with a learning session but move on with Clubbers asking questions and taking part in break out sessions. We end with a 15 minute ‘after party.’ It’s a Club environment. 

Our Community Captain, Brent Schmidt of Strategic Fuel, l creates an engaging club experience.  Continue Reading…