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.

MoneySense Retired Money: Should GICs be the bedrock of Canadian retirement portfolios?

My latest MoneySense Retired Money column, just published, looks at the role Guaranteed Investment Certificates (GICs) should play in the retirement portfolios of Canadians. You can find the full column by going to MoneySense.ca and clicking on the highlighted headline: Are GICs a no-brainer for retirees? 

(If link doesn’t work try this: the latest Retired Money column.)

Now that you can find GICs paying 5% or so (1-year GICs at least), there is an argument they could be the bedrock of the fixed-income portfolios, especially now that the world is embroiled in two major conflicts: Ukraine and Israel/Gaza. Should this embolden China to invade Taiwan, you’re starting to see more talk about a more global conflict, up to an including the much-feared World War 3.

Of course, trying to time the market — especially in relation to catastrophes like global war and armageddon — generally proves to be a mug’s game, so we certainly maintain just as much exposure to the equity side of our portfolios.

I don’t think retirees need to apologize for sheltering between 40 and 60% of their portfolios in such safe guaranteed vehicles. Certainly, my wife and I are glad that the lion’s share of our fixed-income investments have been in GICs rather than money-losing bond ETFs: the latter, and Asset Allocation ETFs with heavy bond exposure, were as most are aware, badly hit in 2022. But not GICs; thanks to a prescient financial advisor we have long used (he used to be quoted but now he’s semi-retired chooses to be anonymous), we had in recent years been sheltering that portion of our RRSPs and TFSAs in laddered 2-year GICs. Since rates have soared in 2023, we have gradually been reinvesting our GICs into 5-year GICs, albeit still laddered.

The MoneySense column describes a recent survey by the site about “Bad Money advice,” which touched in part on GICs. Almost 900 readers were polled about what financial trends they had “bought into” at some point. The list included AI, crypto, meme stocks, side hustles, tech and Magnificent 7 stocks and GICs. Perhaps it speaks well of our readers that the single most-cited response was the 49% who said “none of the above.” The next most cited was the 16% who cited a “heavier allocation to GICs.” You can read the full overview here but I did find a couple of other findings to be worthy of note for the retirees and would-be retirees who read this column: Not surprisingly, tech stocks (FANG, MAMAA. etc. were the first runnerup to GICs, receiving 13.24% of the responses. Not far behind were the 10.55% who plumped for crypto and NFTs (Non-fungible tokens). AI was cited by 3.7%: less than I might have predicted; and meme stocks were only 2.81%.

As I said to executive editor Lisa Hannam in her insightful article on the 50 worst pieces of financial advice, GICs are at the opposite end of the spectrum from such dubious investments as meme stocks and crypto. (I’d put Tech stocks and A.I. in the middle).

GICs won’t grow Wealth for younger investors, aren’t tax-efficient in non-registered accounts

The GIC column passes on the thoughts of several influential financial advisors. One is Allan Small, a Toronto-based advisor who occasionally writes MoneySense’s popular weekly Making Sense of the Markets column. He is among GIC skeptics. He told me his problem with GIC is that they “don’t grow wealth. They can act as a parking lot for money for some people but over time there have been very few years in which people have made money with GICs, factoring in inflation and taxation.” Continue Reading…

2024 Canadian Retirement Income Guide: 10 potential sources of income

By Ted Rechtshaffen, CFP

Special to Financial Independence Hub

Over the years, we have received thousands of questions from clients related to a wide range of financial and planning issues.  Without doubt, the highest volume of questions relate to how to manage the transitions from working to retirement.

To help address many of these questions, we have put together the 2024 Canadian Retirement Income Guide.  This can be found on the link here: Canadian Retirement Income Guide – TriDelta Private Wealth.

The Guide highlights ten different sources of retirement income.  Some range from the very common, Canada Pension Plan, to those that may only apply to some – life insurance, corporations, or home equity. The Guide is free and doesn’t require any input to get it (such as name or email.)

Perhaps the most common question is whether to take CPP at age 60 or 65 or even 70.  The thoughts around a potential answer are discussed in the Guide as well as providing a link to a CPP calculator (CPP Calculator – TriDelta Private Wealth) and guidance on how to work with Service Canada.  Similar discussions and links relate to Old Age Security (OAS), ranging from taking it at 65 to age 70, and also factors that might help you to avoid any clawbacks.

Other factors that need to be considered include minimizing taxes, not just for one year, but over the entire post-work period.  One of the reasons for looking at every possible source of retirement income is that this can be the key to planning out the lowest tax retirement.

Some strategies discussed that could lower taxes could include:

  • Delaying OAS and CPP to age 70, but drawing down RRSPs between retirement and age 70 – if you are healthy. The lower income drawdown of RRSPs will result in lower taxes, while helping to maximize government pensions and potentially maintaining full OAS payments.
  • Using a balance of non-registered assets or a home equity line of credit, to keep taxable RRIF income a little lower. Continue Reading…

Market Forecasts: Moonshine & Fooling Yourself

Outcome/Shutterstock

By Noah Solomon

Special to Financial Independence Hub

American journalist H.L. Mencken stated that “We are here and this is now. Further than that, all human knowledge is moonshine.” His warning always comes to mind at this time of year, when it is customary for market strategists to produce their forecasts for the coming year.

The two main groups of variables that strategists use to ordain the future of markets are (1) macroeconomic factors (interest rates, inflation, employment, economic growth, etc.), and (2) valuations.

As I have previously written, macroeconomic factors are of little use. They are extremely difficult to forecast. Moreover, even if they could be accurately predicted, their effects on markets can vary highly from one cycle to the next. Given these challenges, it is no wonder that producing accurate forecasts has been a fool’s errand. The predictions of major Wall St. strategists have historically been no more accurate than those which could have been made by the toss of a coin. Notwithstanding all the brainpower and analysis involved, their track record suggests that they have merely been fooling themselves.

Turning to valuations, they have historically been unhelpful for forecasting markets over shorter time horizons. History is replete with examples which show that overvalued markets can not only stay overvalued for extended periods but can become even more so before finally reverting to average levels.  Fed Chair Alan Greenspan delivered his “irrational exuberance” speech in December 1996, in which he warned that the stock market might be overvalued. Notwithstanding that he was ultimately right, the S&P 500 Index rose a stunning 116% from the date of his speech to its pre-bear market peak in March 2000.

The same is true of undervalued markets, which can remain cheap and get considerably cheaper before reverting to average levels. By the end of October 2008, precipitous declines in stock prices caused the S&P 500 Index’s valuation to fall below average levels. However, this did not stop markets from continuing to plummet another 29% over the next four months. Nor did it prevent the Index from reaching a bargain basement PE ratio of less than 12 by early March of the following year.

These examples strongly validate John Maynard’s claim that “markets can stay irrational longer than you can stay solvent.”

Good is not the Enemy of Great

Best-selling author Jim Collins has studied what makes great companies tick for more than 25 years. According to Collins:

“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”

With all due respect, this statement does not apply to market forecasting. Predicting what markets will do over the next 12 months has not produced “good” results, and therefore cannot be regarded as a disincentive for producing great ones. Let’s not worry about resting on our laurels until there are some laurels on which to rest!

Putting aside the aforementioned naysaying, there is some hope on the horizon. Although valuations have been (and likely will continue to be) a poor predictor of returns over shorter holding periods, they have proven somewhat effective for longer-term forecasting.

Rolling 5-Year Returns (Past 20 Years)

History clearly illustrates that higher valuations tend to precede lower than average returns over the next five years. Conversely, lower multiples generally portend above average returns over the same time horizon.

Of note, the U.S. has vastly outperformed other markets over the past 20 years. The returns of U.S. stocks following above average valuations have exceeded those of others following below average valuations. This “heads the U.S. wins, tails the U.S. wins less” phenomenon can be largely explained by the global dominance of U.S. companies across leading sectors, and particularly within the technology, pharmaceutical and biotech realms. Alternately stated, rising valuations in the U.S. have been justified by underlying fundamentals, thereby resulting in both high valuations and high returns (relative to those of other countries) for an extended period.

The Punchline: Go Local AND Global

The following return estimates were produced by calculating historical, statistical relationships between valuation and return and then applying these relationships to current valuation levels.

Forecasted 5-Year Returns Based on Current Valuations

To be clear, there are innumerable factors other than valuations that can and will influence markets going forward. However, the fact remains that valuation is an important determinant of returns over the medium term. Continue Reading…

4 Financial Scams all Senior Citizens should know about

As senior citizens get closer to retirement, scammers see them as financial prey. Learn about different financial scams so you can protect your money.

Image courtesy Logical Position/Summit Art Creations

By Dan Coconate

Special to Financial Independence Hub

Approaching retirement is an exciting time for senior citizens. You’re about to experience the golden years of your life and have worked hard to save up a nest egg to enjoy this relaxing time.

Unfortunately, many scammers know that you probably have that nest egg, and they want to drain it. Scammers are growing increasingly creative in how they target people. All senior citizens should know about the following four financial scams so they can see through this creative criminal behavior.

Loved-One Impersonation

While some technology has changed the world for the better, some has fallen into the hands of criminals. Scammers can now use various voice-changing and phone-cloning technology to impersonate the people we know and love. They often pretend to be a loved one who is in a sudden difficult situation, such as a grandchild in need of bail money or a friend stuck on an overseas trip.

Before you try to help your loved one, verify who and where they are through another communication channel. For example, contact your grandchild’s parents to check where the family is or hang up and call your friend on the number saved in your phone.

Dating-Service Swindle

The retirement years open up free time for seniors, which is a boon when you’re looking for a special someone to date. However, many scammers know that senior citizens may not be as tech-savvy when it comes to the personals. They create fake profiles on dating websites and try to foster a connection with the senior. Before the relationship can develop in-person, they mention financial trouble or ask for money.

The best way to avoid scams while looking for love is to meet prospective dates in person after getting to know them either through email or phone/video conversations. Arrange to meet in a public place that you’re familiar with. But above all, don’t share financial information or lend/give money.

Job-Interview Scam

Everyone should have a chance to love what they do. As you get ready to retire from one career, you may consider transitioning to a job you love instead of a job you need. Unfortunately, scammers can create fake job posts and even hold fake interviews so they can offer you a job. Once you accept, they request your financial information so they can supposedly start your human resources paperwork. Continue Reading…

Investing in Emerging Markets: Capitalizing on the Changing Global Export Landscape

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…