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.
When considering investing in emerging markets, explore opportunities in the rise of emerging economies, exports, and shifting trade patterns
BRICS countries/Deposit Photos
Global trade has undergone a remarkable transformation over the past four decades, with its share in the global economy increasing from 36% to 57% by 2022. This surge in international trade has created opportunities for investing in emerging markets, which have become pivotal players in the ever-changing global trade landscape. Notably, China experienced a remarkable ascent, transitioning from a mid-size player to the world’s largest exporter within a mere two decades. Alongside China, other emerging economies, like Mexico, exhibited impressive growth, propelling them to the top echelons of global exporters.
In fact, Mexico is now among the top 10 exporters and a number of smaller emerging economies are growing their exports rapidly.
China still Dominates Global Exports
Although it has slowed lately, China remains the largest exporting country in the world. It delivered goods worth $3.6 trillion to global customers in 2022, or 16% of all global exports. This was roughly the same value of exports from the second and third-ranked U.S. and Germany combined.
Fellow Asian countries received almost half of Chinese exports while European and North American customers both imported 20% of the total. The largest single-country customers for Chinese goods are the U.S. (16%), Japan (5%), Germany (3%), Netherlands (3%), South Korea (5%), Vietnam (4%), and India (3%).
Chinese exports grew rapidly in the years after its entry into the World Trade Organization in 2001. For the decade after 2001, exports increased by 20% per year and contributed almost 30% of the Chinese economy for that decade.
However, growth in Chinese exports has slowed down over the past decade to around 5% per year. Also, when expressed as a portion of GDP, the importance of exports began dropping — averaging 20% over the past decade, down from over 30% in the previous decade. Continue Reading…
Canadians have faced cost pressures in many facets of their daily lives, including housing costs, food and gas prices, and insurance premiums to name a few. At the same time, Canadians may be thinking about how inflation and volatile interest rates may have impacted their retirement savings over Q4.
Canadians that participate in defined benefit (DB) pension plans are likely to have seen the financial health of their DB pension plans weaken in Q4, but show an overall improvement over the whole of 2023. DB pension plans that used fixed income leverage may have experienced stable or improved solvency ratios over the quarter.
The Mercer Pension Health Pulse (MPHP) is a measure that tracks the median solvency ratio of the defined benefit (DB) pension plans in Mercer’s pension database. At December 31, 2023 the MPHP closed out the year at 116%, which is a decline over the quarter from 125% as at September 30, 2023, but an improvement from 113% at the beginning of the year. The solvency ratio is one measure of the financial health of a pension plan.
In the final quarter, plans saw positive asset returns, but these returns were not enough to offset an increase in DB liabilities due to a decline in bond yields. While we saw a decline in the financial health of DB pension plans over Q4, it improved over the whole of 2023. In addition, compared to the beginning of year, there are more DB pension plans with solvency ratios above 100%.
Canadian inflation and interest rates
Canadian inflation came down over 2023 and is approaching the upper end of the Bank of Canada’s inflation-control target of 3%. General views are that inflation will continue to decline in 2024 and reach the policy target of 2% in 2025. In 2023 the Bank of Canada increased the overnight rate to 5.00% from 4.25%, which was a continuation of increases that commenced in 2022, to mitigate inflation and to balance against the risk of a recession.
However, DB pension plan benefits are accumulated and paid over periods that are significantly longer than the overnight rate. Interest rates on Canadian bonds with longer terms were volatile throughout the year and finished at lower levels than at the start of the year. It’s unclear whether the interest rates that apply to DB pension plans will stabilize in 2024, and if so, at what level. As such, interest rates continue to pose a significant risk for many DB pension plans. Continue Reading…
Below is an edited transcript of a podcast interview conducted late in 2023 between myself and Burn Your Mortgage podcaster and author Sean Cooper.
The conversation starts with our thoughts on the high price of housing in Canada and how newcomers trying to get on the first rung of the housing ladder can get a start by saving up in Tax-Free Savings Accounts (TFSAs) and the new First Home Savings Accounts (FHSAs.)
From there we move on a discussion of saving for Retirement, my concept of Findependence (or Financial Independence) and Semi-Retirement: aka Victory Lap Retirement.
Click any of the links below to hear the full audio podcast on your favorite podcast app. Below that is a shortened edited transcript of the interview.
Let’s get started with our interesting discussion today on findependence as well as your daughter’s journey to homeownership. I remember you being on a segment of CBC on the money back in the day a few years ago, with your daughter. So yes, the first thing I want to ask you about is the challenge of younger folks buying a property around that housing affordability issue, so maybe we can talk a bit about your daughter’s journey to homeownership and also about the new First Home Savings Account (FHSA.)
Jonathan Chevreau
Sure. first of all, as an only child, we remind her that eventually we’ll be gone and that this current house will be hers in any case. So that removes some pressure. Is it a challenge right now in places like Toronto and Vancouver to buy a first home? Yes, it is. Is it impossible? No, it’s like anything else in personal finance. It’s priorities. I think I’ve educated her to the point that she’s been saving in a TFSA and maximizing it since she was 18 years old.
The point is between the TFSA and now the First Home Savings Account, it’s a lot better to receive interest than to pay it out once you commit to a house, which is a lot more expensive than the baby boomers ever had to pay … We’d rather collect rent, in effect, or interest income than than pay it out.
FHSA versus TFSA and Homebuyers Plan
Sean Cooper
Could you share your thoughts on how the FHSA compares to the TFSA and the RRSP homebuyer plan?
Jonathan Chevreau
As you know, the FHSA has only been out for about a year. And it allows you to invest $8,000 a year into basically anything that an RRSP or a TFSA would allow you to invest in. So not just fixed income, but you can invest in stocks, ETFs, asset allocation ETFs, etc. And you get a deduction similar to how an RRSP generates one.
But the beauty of it is it’s very flexible, like a TFSA. You don’t have to buy a first home. But it’s only good for people who have never bought a home yet, so it’s a one-time only deal. I would say it would be a priority. But whether or not you think you’re going to buy a home, you certainly will want to retire at some point. And therefore the FHSA does double duty.
Sean Cooper
I agree completely. And the FHSA is a lot more flexible than the homebuyer plan, you can actually use both of them together. So if you have a lot of money in your RRSP, then you can use them in combination. But a couple cool things that I learned is that with the RRSP home buyers plan, there’s actually the rule that basically any contributions that you make, it has to sit in the account for 90 days before you can take the money out. But with the FHSA, it doesn’t have that same rule, you can essentially contribute money and then pretty much take it out. And you don’t have to wait 90 days or anything like that.
Jonathan Chevreau
The good thing about home equity and a paid for-home because as you know, Sean, I’ve written that the foundation of financial independence is a paid-for home, but once it’s paid for there is home equity, then, if you have to, in the last five years of Old Age would tap it to pay for, I don’t know, $6,000 or $7,000 a month for a nursing home or retirement home. Nice to have in the back of your pocket, the home equity.
My view is, there’s no rush to get out there and buy a first home at these high interest rates and home prices are also almost near record high though they’ve come down a bit.
Retirement savings, pensions, CPP, OAS
Sean Cooper
Why don’t we switch gears and talk about the second topic that we want to discuss: financial independence. If all the money is in the house, and you don’t have a gold-plated pension plan, you have a bit of a challenge there. Now, certainly you can downsize but then there is the cost of moving and the land transfer tax, and all that.
Jonathan Chevreau
Well, I don’t have a gold-plated pension. I would call it more like a bronze-plated one. Mostly from National Post, since I was there for 19 years. My wife has no employer pension, but always maximized her RRSP. And we obviously eat our own cooking, so we have maximized our TFSAs since it began. We delayed CPP as long as we could, but didn’t quite wait until 70 because actuary and author Fred Vettese had an article in The Globe the last couple of weeks arguing that those who are 68 or 69 now are probably better off taking CPP a year or two earlier, so you get the inflation adjustment.
Most financial planners would say you should look at CPP and OAS really nice additions to savings and that can be the foundation or your findependence, especially if you don’t have an employer-provided Defined Benefit pension plan. Some worry that if the worst happens, like Alberta leaving CPP, what if somehow they renege on the CPP promise? But I don’t think it’s going to happen.
Retiree money fears and Asset Allocation
Still, it doesn’t hurt to have financial assets so in the end, you’re not going to be dependent on the government or any one employer. One thing you can count on is your personal investments like RRSPs/RRIFs, TFSAs, and non registered savings. Then of course, if you’re managing your own money , you have to worry about the fear of every retiree: running out of money or losing money if the stock market crashes. Asset allocation is the proper protection there: my own financial advisor recommends 60% fixed income to 40% stocks, I guess we’re close to that. Right now GICs — guaranteed investment certificates — are paying roughly 4 or 5%, depending where you go. If you ladder them so they mature one to five years from now, then you don’t have to worry about the reinvestment risk. You just reinvest whenever they come due at current rates. Continue Reading…
You might have read some of these articles also, you know, the ones that say Americans have not saved enough to retire.
Many of these pieces proclaim that you must save enough in your investments to throw off 80% of your current annual salary so that you can afford a comfortable life away from a job. Lots of them will say that you need US$2 million in investments (or more) and woe to the person who thinks they can do it on less.
Approximately 10% of the households in the U.S. have a net worth of one million dollars or more. What are the other 90% supposed to do? Not retire? What kind of common sense does this make? Expecting the regular “Joe”to meet this $2 million dollar mark is not realistic.
As you know, we have over three decades of financial independence behind us. And while everyone’s idea of a perfect lifestyle sans paycheck is different, we can tell you that for these 33-years, we have kept our annual spending around $30,000.
The secret: Living within your means
In all of our years of retirement and travel we cannot recall one retiree who regrets their decision to retire. In fact, most have told us that they wished they had done it sooner.
The Society of Actuaries (SOA) recently conducted 62 in-depth interviews of retired individuals across both the U.S. and Canada. These people were not wealthy and had done little to no financial planning. But the vast majority of them shared that they had adapted to their situation and live within their means. Translation: they have adjusted their spending to the amount of money they have coming in every month.
So basically, it’s really that simple and this is why we say if you want to know about retirement, Go to the Source.
It doesn’t have to be complicated
In our books and in our articles about finance, we say over and over that there are four categories of highest spending in any household. We personally have made adjustments in all four of these categories, and have therefore reaped the benefits of having done so. We discuss these four categories in more depth below.
The financial guys and gals will have you tap dance all over the place with investment products, and a certain financial goal you must achieve. They will press upon you the seriousness of the decision to leave your job for a couple of decades of jobless living. We say it doesn’t really have to be that complicated, but it’s very important to pay attention to these four categories.
Listen up
Housing is THE most expensive category for you to manage. It’s not just the house itself, it’s the maintenance, the property taxes, the insurance, and any updating you might want to do to a place where you are going to be living for years down the road.
If you want to rebuild that boat dock to the lake where your boat is parked during the summer, that takes money. If you are tired of the style of faucets, sinks, tile and tub areas of your bathroom and want to upgrade, that is a large expense. Now that you are retired and want a more modern kitchen, more counter space, better lighting, prettier cabinet covers – Ka-Ching! You are hearing the cash register tallying up the cost.
If you have a hot tub, an extensive garden, or if you want to build a deck to connect the house to the garden, or put in a Koi pond … Well, you get the idea.
I understand that for some people, their home is their castle, and those homes are gorgeous and a comfortable place to stay. All we are suggesting is that homes will never say no to having money poured into them.
If you want to travel or to snow bird part time, then you will find yourself paying twice for housing – the one you have left in your first location, and the hotel or the vacation home in which you will spend part of the year.
If you are not vigilant, this one category will suck the life out of your retirement. We just want you to know that you have a choice.
Downsizing in retirement is not a bad thing. Relocating to a state or country with less taxation is a smart move. You could move to an Active Adult Community where you could choose to own the land or lease it. Here a variety of social activities are offered and the maintenance of your front yard is taken care of in your lifestyle fees.
When you travel, you could choose to house sit. Or take advantage of better pricing for apartments or hotels that rent for the month and include utilities, WiFi, and a maid. You could try AirBnB for less than a hotel room, and live like a local instead of a tourist.
Do you know how much your home (including the taxes, insurance and utilities) costs you per day? It is a figure that might startle you.
Transportation is the second highest category of expense. Now we realize that especially in the States, it is a bit more challenging to wrap your mind around the idea of not owning a car, or just having one for your household instead of three.
According to the latest AAA’s report on car ownership in 2023, it costs an average of $12,182 every year — $1,015.17 every month — to drive for five years at 15,000 miles per year.
So then, in the category of transportation, if you decide you want to fly to an island for a vacation, you must add in the cost of the flight… and any boat trips you might take, and any taxis from the airport to your hotel, and the price of a car rental for the week or two that you will be vacationing.
It all adds up and it’s all a part of this category. Continue Reading…
Overall, if you were in low-cost, diversified ETFs, including some all-in-one ETFs, it should have been a VERY good year for you!
To answer the question, our portfolio performed just fine – since I/we tend to focus on the meaningful income our portfolio generates to eventually cover expenses along with returns. Staying invested in a number of stocks and low-cost ETFs as we do are designed to generate market-like returns since we don’t trade nor tinker with the portfolio, and low-cost ETFs invested in stocks outside Canada offer growth.
If your bias was more simplicity than my approach and seeking total returns, then these ETFs including some great all-in-one ETFs might have done very well for you in 2023 after a terrible 2022:
ETF
2023
2022
VEQT (100% equity)
16.95%
-10.92%
XEQT (100% equity)
17.05%
-10.93%
ZEQT (100% equity)
16.75%
-5.25%
HEQT (100% equity
22.64%
-19.20%
XAW (100% equity ex-Canada)
18.16%
-11.77%
Beyond some of these great all-equity ETFs for your portfolio, consider these in this post that might hold a mix of stocks and bonds to match your risk tolerance and investing objectives:
No financial advisor or money manager needed for these ETFs. The wise ones would tell you to index invest in some diversified ETFs anyhow. Just food for thought in 2024 if you haven’t considered DIY investing.
Here are some interesting, early YTD returns from the oil and gas sector. Gurgen is a must-follow IMO.
What does 2024 have in store?
I have a few (fun) predictions that I will share soon but they are just that, some thoughts and this is a good reminder that experts know nothing about what the financial future might hold – but they have to put food on the table as well…
Vanguard still took a leap of faith though, will they be right in 2024?
Mark Seed is a passionate DIY investor who lives in Ottawa. He invests in Canadian and U.S. dividend paying stocks and low-cost Exchange Traded Funds on his quest to own a $1 million portfolio for an early retirement. You can follow Mark’s insights and perspectives on investing, and much more, by visiting My Own Advisor. This blog originally appeared on his site Jan. 6, 2024 and is republished on the Hub with his permission.
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