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.

Playing Defence on the Gaza conflict with the All-Weather Portfolio

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By Dale Roberts

Special to Financial Independence Hub

There is no avoiding the crisis and tragedy of the Israel-Hamas war. While nothing can begin to match the humanitarian concerns, we will address the financial, economic and global risks. Preparing for war is preparing for risk and uncertainty whether that be a humanitarian crisis or a financial calamity. The risks and events can commingle and merge together as well. In the past this blog has looked at the global war on COVID-19, the invasion of and ongoing war in Ukraine and now the war in the Middle East. To no surprise the risk management answers are quite similar.

It was a week Saturday that we woke up to the tragedy in Israel. A declaration of war soon followed. The potential of escalation and economic shocks is real. Of course we pray for the most peaceful outcome as is possible. As of this writing, that peace appears to be a distant hope.

While stock markets mostly took the events in stride, risk-off assets certainly did respond. Gold, bonds and energy moved higher.

The memory of oil shocks

A headline on Seeking Alpha offered that – Oil prices rise as investors fear a wider war with Israel’s advance into Gaza. From that post …

Energy stocks enjoyed their best week since June, with the S&P 500 Energy Index +4.5%, as oil prices surged ahead of Israel’s imminent advance into Gaza that could cause violence to spill over into other parts of the Middle East, potentially causing disruptions to oil production and shipments.

And this is surprising, from that same Seeking Alpha post …

A less publicized factor also affected oil prices: The Biden administration for the first time began enforcing Russian oil sanctions announced last year, penalizing two tankers for carrying Russian crude oil above the West’s $60/bbl price cap.

Oil is up over 7%, while gold is up 5.5% over the last several days. Don’t forget to rebalance when risk-off assets move in violent fashion. We can see how gold moved up considerably in 2020 with the invasion of Ukraine. It then settled into a range as the world ‘got used’ to the ongoing conflict. Gold price …

Of course, no one knows how events in the Middle East will evolve, and how far the conflict might spread around the globe. Let’s not forget that it was the oil shock that ignited the stagflation period of the 1970’s.

The Purpose Real Asset ETF PRA/TSX was up 2.5% over the week ended October 13.

Even bonds caught a bid as a defensive asset with the Canadian bond market (XBB/TSX) up 1.6% and longer term U.S. treasuries up 2.5%.

Defense stocks for defense

And it should be no surprise that defense stocks are on the move as the world powers militarize to face the mounting threats in the Middle East, Europe and Asia. Northrop Grumman Corporation (NOC/NYSE) is up over 14% over the last several days and Raytheon (RTX/NYSE) is up over 6%. We hold Raytheon in one account. It was a spin-off from United Technologies. Continue Reading…

5 Ways to Increase the Value of your Business before Selling

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If you want to pass along your highly valuable company to a new owner, here are five ways to increase the value of your business before selling.

Image Adobe/PeopleImages.com

By Dan Coconate

Special to Financial Independence Hub

As retirement looms on the horizon, you are probably thinking about taking the next steps in your journey. If you are a business owner, one of these steps may include selling your business. When placing your business on the market, it is important to protect your financial well-being by getting the highest sale price possible. Here are five ways to increase the value of your business before selling.

Strengthen your Financial Records

Your financial records are the heart of your business. Potential buyers will scrutinize them to gauge the health and potential of your enterprise. To increase the value of your business before selling, ensure your financial statements are in order, transparent, and show consistent growth. Sound financial statements will build trust and make your business a lucrative investment.

Build a Strong Management Team

A strong and cohesive management team is the backbone of any successful business, and a significant selling point for many potential buyers. These buyers often assess the depth and breadth of leadership skills present within the team. They need confidence that the business will continue to thrive and adapt in a dynamic market environment, especially if the original owner is no longer at the helm. Continue Reading…

Canadian Financial Summit starts online October 18

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https://canadianfinancialsummit.com

 

The annual Canadian Financial Summit kicks on online tomorrow: Wednesday, Oct. 18, 2023.

The all-virtual summit, now in its 7th year, features more than 35 speakers, including Yours Truly, as well as several other financial commentators pictured to the left: Ellen Roseman, Rob Carrick, Preet Banerjee, Ed Rempel, Lisa Hannam and many more.

Other familiar names that will be familiar to Hub readers include Dale Roberts, Jason Heath, Robb Engen, Kornel Szrejber and Barry Choi.

Here are some of the topics:

  • How to plan your own retirement at any age
  • How to save money on taxes by optimizing your RRSP to RRIF transition
  • Get Into Your First House with the New FHSA (First Time Home Savings Account)
  • Retirement Decumulation Strategies
  • Adjusting to the World of High Interest Rates
  • Using Annuities and Equities to Create a Retirement Paycheque
  • The Pension Paradox: Lump Sum vs Cash for Life
  • Plan your personalized combination of a DIY portfolio alongside an annuity for a customized stream of retirement asset growth + monthly income.
  • What Canadian real estate investments looks like in 2023
  • How to deal with inflation on your bills and in your investment portfolio
  • The best Canadian personal finance books of all time! (That’s my topic).
  • When to take your OAS and CPP
  • Travel for free with Canada’s loyalty rewards programs

The founder of the Summit is Kyle Prevost (pictured right), who is also a writer at Million Dollar Journey, and writes the weekly MoneySense Making Sense of the Markets column, among other things.

Kyle also is the creator of a multi-media course titled 4 Steps to a Worry-Free Retirement, which I’ll be featuring in my next MoneySense Retired Money column.

The All-Access pass costs $89 if you act quickly enough. Plus, there’s a no questions asked money-back guarantee for those who change their mind.
Prevost will be sending email updates most of the week. Here’s what Monday’s said (in part):

Invest in the Index, not in individual stocks

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By Alain Guillot

Special to Financial Independence Hub

Every day, there are many companies experiencing significant price drops. There is a section on Yahoo Finance called “Day Losers” where the biggest losers of the day are highlighted.

Are those good buying opportunities?

Maybe.

All of our favorite Blue Chip stocks have been part of this list. Some of those stocks have recovered, while others continued their downward slide. The truth is that we never know for sure which stock will recover and which one will just disappear. Remember Nortel, Nokia, Kodak, BlackBerry, Blockbuster, RadioShack, Toys R Us? These were stock market leaders that never recovered.

On the other hand, for those investors who have bought the U.S. or Canadian index, they have always seen their money coming back after any major drop.

Instead of discussing the pros and cons of buying any individual stock, I think we should look at the big picture and talk about the difference between buying a basket of individual stocks when they are down versus buying the index.

The main difference between buying any individual stock and buying the index when they both go down is that, up until now, the index has always bounced back, while some of the blue-chip stocks that we have learned to love/trust might never recuperate. Kodak, Blockbuster and Nokia never recuperated. They slowly declined into the graveyard of market history.

On the other hand, the S&P 500, which came into existence in 1957, has seen many deep declines and it has always recovered:

  • Black Monday: Oct. 19, 1987
  • Dotcom bubble crash: 2000-2002
  • Global financial crisis: 2008-2009
  • COVID-19 pandemic: 2020

Why? Because, unlike individual stocks, the S&P 500 is always changing.

S&P 500 from 1927 to 2023 from 20 to 4,090; a 17,620% gain.

Looking at this graph, you might think that you could have invested $20 in the most popular stocks of 1927 and just waited to get rich. But it doesn’t work out that way. The companies that represented U.S. stocks in 1927 are very different from the companies that represent U.S. stocks in 2023. Most of the original companies composing the S&P 500 no longer exist, but the S&P is still going strong.

Regardless of how quickly companies are moving in and out of the index, you can see that owning an index is fundamentally different from owning a basket of individual stocks. While your basket of individual stocks might remain the same over time, the index will not.

There are many benefits provided to index investors.

We get the highest returns and pay the lowest fees. Hundreds of analysts go on a hunt for the best stocks; they spend their time, money, and energy crunching numbers, buying the stocks that are going up and selling the stocks that are going down, and we get to reap the rewards.

According to the SPIVA Report, the S&P 500 index has outperformed 92% of money manager professional over the past 15 years, and the cost to us is usually 0.05%/year. There is no better deal in town.

Alain Guillot is a part time event photographer, part time Salsa teacher, and part time personal finance blogger. He came to Quebec as an immigrant from Colombia. Due to his mediocre French he was never able to find a suitable job, so he opened a Salsa/Tango dance school and started his entrepreneurship journey. Entrepreneurship got him started into personal finance and eventually into blogging. Now he lives a Lean FIRE lifestyle and shares his thoughts in his blog AlainGuillot.com. This blog originally appeared on his blog on Oct. 9, 2023 and is republished here with permission. 

Misleading Retirement Study?

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Ben Carlson, A Wealth of Common Sense

By Michael J. Wiener

Special to Financial Independence Hub

 

Ben Carlson says You Probably Need Less Money Than You Think for Retirement.  His “favorite research on this topic comes from an Employee Benefit Research Institute study in 2018 that analyzed the spending habits of retirees during their first two decades of retirement.”  Unfortunately, this study’s results aren’t what they appear to be.

The study results

Here are the main conclusions from this study:

  • Individuals with less than $200,000 in non-housing assets immediately before retirement had spent down (at the median) about one-quarter of their assets.
  • Those with between $200,000 and $500,000 immediately before retirement had spent down 27.2 percent.
  • Retirees with at least $500,000 immediately before retirement had spent down only 11.8 percent within the first 20 years of retirement at the median.
  • About one-third of all sampled retirees had increased their assets over the first 18 years of retirement.

The natural conclusion from these results is that retirees aren’t spending enough, or that they oversaved before retirement.  However, reading these results left me with some questions.  Fortunately, the study’s author answered them clearly.

At what moment do we consider someone to be retired?

People’s lives are messy.  Couples don’t always retire at the same time, and some people continue to earn money after leaving their long-term careers.  This study measures retirement spending relative to the assets people have at the moment they retire.  Choosing this moment can make a big difference in measuring spending rates.

From the study:

Definition of Retirement: A primary worker is identified for each household. For couples, the spouse with higher Social Security earnings is the assigned primary worker as he/she has higher average lifetime earnings. Self-reported retirement (month and year) for the primary worker in 2014 (latest survey) is used as the retirement (month and year) for the household.

There is a lot to unpack here.  Let’s begin with the “self-reported retirement” date.  People who leave their long-term careers tend to think of themselves as retired, even if they continue to earn money in some way.  Depending on how much they continue to earn, it is reasonable for their retirement savings either to decline slowly or even increase until they stop earning money.  What first looks like underspending turns out to be reasonable in the sense of seeking smooth consumption over the years.

The next thing to look at is couples who retire at different times.  Consider the hypothetical couple Jim and Kate.  Jim is 6 years older than Kate, and he is deemed to be the “primary worker” according to this study’s definition.  Years ago, Jim left his insurance career and declared himself retired, but he built and repaired fences part time for 12 more years.  Kate worked for 8 years after Jim’s initial retirement.

Their investments rose from $250,000 to $450,000 over those first 8 years of retirement, declined to $400,000 twelve years after retirement, and returned to $250,000 after 18 years.  Given the lifestyle Jim and Kate are living, this $250,000 amount is about right to cover their remaining years.  Although Jim and Kate have no problem spending their money sensibly, they and others like them skew the study’s results to make it seem like retirees don’t spend enough.

What is included in non-housing assets?

From the study:

Definition of Non-Housing Assets: Non-housing assets include any real estate other than primary residence; net value of vehicles owned; individual retirement accounts (IRAs), stocks and mutual funds, checking, savings and money market accounts, certificates of deposit (CDs), government savings bonds, Treasury bills, bonds and bond funds; and any other source of wealth minus all debt (such as consumer loans).

So cottages and winter homes count as non-housing assets.  This means that a large fraction of many people’s assets is a property that tends to appreciate in value.  Even if they spend down other assets, the rising property value will make it seem like they’re not spending enough.  It is perfectly reasonable for people to prefer to keep their cottages and winter homes rather than sell them and spend the money. Continue Reading…