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.

What Tawcan is doing to cope with this Bear Market

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By Bob Lai, Tawcan

Special to the Financial Independence Hub

Unless you’ve been living under a rock, you probably have heard that the stock market is crashing. Year-to-date, the S&P 500 is down by 23.55% and the NASDAQ is down by 32.76%, and the Russell 2000 is down by 27.4%. The TSX YTD performance of -10.51% actually doesn’t seem too bad when we compare it to its US counterparts.

S&P 500 YTD performance_1

NASDAQ YTD performance_1

I’ll be frank. It’s tough to be an investor right now. Every day your portfolio value is probably down compared to the day before and when you check your net worth at the beginning of each month (if you check that often), it is shrinking fast like an ice cream cone inside a kid’s mouth.When the market is crashing and you’re losing your hard-earned money on paper, it can get really tough for investors. Some investors are probably losing sleep because of the beet-red stock market and want to sell everything and hide cash under their mattresses.Back in February 2020, when there were a lot of uncertainties and fear over the COVID-19 pandemic, the market tanked too. But as the uncertainties and fear cleared away, the market recovered and went for an amazing run.I’d say the current situation is entirely different than what we saw in Q1 2020. The key driver of the stock market crash is the high inflation rate.

Battling high inflation rate

Because interest rates were very low throughout 2020 and 2021, as pandemic restrictions started to lift and pent-up consumer demands for travel, cars, electronics, food, fuel, etc increased, this caused the inflation rate to rise quickly. The Russian invasion of Ukraine caused the price of oil and some commodities to soar further, which drove the CPI even higher.

Inflation rose 8.6% in May in the US, the highest since 1981 – more than four decades!. Here in Canada, we saw an inflation rate of around 6.7% in the same period. This is causing a lot of fear and angst. Both the Federal Reserve and the Bank of Canada are hiking interest rates quickly in an attempt to try to tame the high inflation rate.

Are we going to see the inflation rate start to go down quickly? Or are we’re now battling hyperinflation?

I don’t believe we’ll see hyperinflation like post-WWI in Germany and I think there’s no appetite to see inflation rates in the teens like in the early 80s. The central banks will simply not allow that to happen under their watch. But I have my doubts that the inflation rate will start to go down quickly.

I believe interest rates are still way too low and both the Fed and the BoC should be raising interest rates more aggressively (the Fed did hike interest rates by the biggest amount (0.75%) since 1994 recently). Can we agree that the central banks were too slow in reacting to the pandemic recovery and the pent-up consumer demands? Interest rates probably should have gone up last year but didn’t because there were still a lot of pandemic-related uncertainties.

One thing to keep in mind is that the Fed and the BoC are being very careful about hiking interest rates too quickly. Since many people purchased properties during the past couple of years in a heightened housing price period, some of them do not have additional cash each month to pay for higher mortgage interests. If the Fed and the BoC start to raise interest rates too quickly, this can cause people to default on their mortgages, creating a housing crash, similar to what we saw in the US during the financial crisis. (Apparently nearly 1 in 4 Canadian homeowners ay they’d have to sell their home if interest rates rise more, according to a survey)

Interest rates also impact the unemployment rate. As interest rates rise, companies may decide to freeze hires and lay off people to reduce operational costs and company debt levels. As people lose their jobs, they won’t spend as much money buying things and may have issues paying off mortgages and consumer debt. High unemployment rates also hurt the country’s GDP.

As you can see, interest rates can create a lot of cascade effects and this is why monetary policy can be a very interesting topic.

So what’s my guess when it comes to the high inflation rate? My guess is that the high inflation rate will peak and flatten out later in 2022 or early 2023 before it starts to trend down to the inflation target rates in late 2023.

That’s just a pure guess on my part. As we all know, it is nearly impossible to predict the future.

How do interest rates affect the stock market?  

Well, as interest rates go up, the yield for new bonds also goes up. Since bonds are safer than stocks, once bond yields reach a certain rate, bonds become more attractive to some investors and money starts to shift from the stock market to bonds. As people sell their stocks and buy more bonds, this puts pressure on the stock market (remember, stock prices are determined by demand and supply).

Furthermore, rising interest rates mean it is increasingly expensive for businesses to take out loans. So rising interest rates typically have a negative impact on companies that require a lot of new capital to grow. Tech companies usually are considered in this bucket, hence we’re seeing the likes of Amazon, Google, Tesla, Apple, and other major tech companies’ stock prices dropping like stones in the water.

Warren Buffett has repeatedly compared interest rates to gravity, as they represent the risk-free rate of return available to investors. This in turn affects the relative value of other assets. Since high interest rates make borrowing money more expensive, leveraged bets are therefore discouraged.

“The most important item over time in valuation is obviously interest rates,” Buffett said last year. “If interest rates are destined to be at low levels. … It makes any stream of earnings from investments worth more money. The bogey is always what government bonds yield.” Continue Reading…

24 Expert tips on how Networking can grow your Career

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By Ellie Williams

Special to the Financial Independence Hub

Meeting people through networking has a huge impact on you in more ways than you think. By connecting with people in your field or with colleagues in vastly different industries at networking events, you can benefit from a multitude of tools and skills that will help further your career. As a professional, it’s essential that you take advantage of networking opportunities so you can maximize your career growth. Here are some ways that networking can help you advance your career.

Make Long Lasting Professional Relationships

“Networking is an important part of being an entrepreneur, but it’s not always easy. It can be awkward to be at a networking event where everyone is hovering above the hors d’oeuvres or clutching their cocktails. However, networking can help you create long-lasting professional relationships. Networking events are a great way to meet like-minded people with the same interests, passions and goals as you. These connections can become essential for your career growth and can help you climb the professional ladder. Sometimes these relationships can turn into real friendships!” – Rich Rudzinski, Founder and CEO of Tragic Media, Oversight.co, and Drivey.com

More Opportunities

“While networking is great for building verbal skills and branding yourself as a worker, it can also open the door to tons of opportunities that you would’ve never had access to before. The more people you connect with, the more opportunities you’ll be exposed to, such as an inside scoop about a job that hasn’t been posted about yet or someone who wants to mentor you. Knowing people at different professional levels is beneficial when it comes to different job opportunities, so it’s best to make sure you’re taking the time to build relationships with everyone. People will appreciate you going out of your way to talk to them so it’s always smart to push yourself and connect with new people – you never know what may come out of it!”  – Jim Williams, Outreach Manager for Ziebart

Build Interpersonal Skills

“While it can be a little daunting and even quite scary walking into a room when you don’t know anyone, it may prove to be the best thing you have done yet. Networking to grow your career is also a great way of building your interpersonal skills while getting to know someone. People want to work with those who are easily approachable and personable. By showing your true character and letting your personality shine, you can garner more interest from those alike. In doing so, it’ll become easier to build connections and network with others. It’ll also make you feel comfortable talking about yourself, your achievements and your career goals moving forward. This may also lead to potential business partnerships, especially if your goals align with those of other people you end up networking with. “ – Gregg Dean, Co-Founder and CEO of Layla Sleep

Help get your Face Noticed

“The best thing about networking is that you are able to get your face out there, so that you are easily noticed the next time you attend another networking event. Sometimes getting noticed in a room full of people is half the battle. Once you make your presence known, it could work to your favor by attracting more people to you and getting to know them better. In addition to this, you can learn how to build a rapport with those you are networking with as well as learn to listen attentively in order to ask more follow-up questions. So, don’t be afraid to put yourself out there.” – Kate Lipman, Sales & Marketing Consultant of embrace Scar Therapy

Find a Mentor

“Working with a mentor is life-changing because it helps you understand who you are and what you want to become. Networking can help you choose a mentor who will give you the best insight into your current phase of life or career level. Once they understand your skills and abilities, they may put you to work on a specific task to see how well you perform. The relationship between a mentor and a mentee must be built upon trust, honesty, and transparency. When you need someone that you can trust, having a mentor as an objective third party is a great resource. After you’ve experienced life with them, you may want to share your experiences with others too, which helps you become a better leader yourself and provides you with a new perspective on life.” – Megan Jones, Community Outreach Manager for NutraSweet Natural

Hidden Job Opportunities

“You’ll want to build aspiring relationships for potential opportunities, especially for a small business. Whether it’s through family, friends, an acquaintance, or small talk at the store, this is one of the best ways to stand out from others. If you have a genuine interest in getting to know someone’s career that you know of or recently met, ask them for coffee or if they have time for a quick chat to learn more about what they do. Even if there are no current job openings for the position, one might open later down the road and they might remember you over someone else.” – Chris Hunter, Co-Founder & CEO of Koia

Build up your Confidence

“Everyone knows how it feels to attend their first career fair, job interview, or any business event. The training you gain from networking events helps you boost your self-confidence and promote self-esteem. 

First, start with your physical appearance. Dress well, groom yourself, and learn to walk and talk like a confident person. Now, focus on your personality and how you conversate. Confidence grows with your success in life and these networking events are key to help you excel in your self-esteem. It is a trait that comes with experience. Over time, you will get better at everything you do. This happens to everybody, even the people who are confident. These business events and networking will eventually become a breeze and you will feel confident, comfortable and optimistic. Keep putting yourself out there and you will only continue to grow!” – Adrian Pereira, Founder and Ceo of ecopeaco.com

Find Additions to your Team

“You never know who you’ll come across; you may meet a great addition to the team you’re building or managing. Whether you’re building a real estate team or are a gym owner looking for personal trainers, it’s beneficial to network whenever you have the opportunity. Getting to know someone personally, shaking their hand, and listening to their stories/experiences can be more beneficial than traditional interviews. You’ll likely get to speak to them and get open and honest responses, whereas in an office interview, they may say what they think you want to hear.” -Kevin Mako, Founder of Mako Design + Invent

Boost Collaboration

“Developing new professional contacts is always a beneficial way to advance your career.  Aside from increasing your potential job opportunities, networking can also lead to new and innovative ideas.  For example, if you establish a professional relationship with someone from a completely different industry, they can help you think outside of your usual parameters. By expanding your network with a diverse group of individuals, you can learn different ways of viewing problems, creating solutions, and even generating creative ideas.  Thus, networking can help you become a  more well-rounded and valuable professional.” – Lev Berlin, Founder of Recipal

Gain Valuable Knowledge

“Listening is an art, and it’s a pivotal part of networking. Not only can you gain trust and create genuine connections by taking a break and listening to what people are saying, but you can also gain valuable business knowledge. A good listener does not impose their thoughts and opinions when someone else is speaking to them because they’re focused on what they can learn from the interaction. If you want to learn as much as you can about your specific industry – or business in general – you must be a good listener.”  – Hilary Kozak, VP of Marketing for LivSmooth

Amplify Clarity

“All connections that you create will have an impact in one way or another. Connecting and sharing with others allows you to gain a new perspective and gives you the opportunity to gain clarity about your career goals. To amplify your networking and career, it can be great to network with weaker connections, or acquaintances that lie outside of your immediate social group or circle. By stepping out of your comfort zone and expanding your reach, you can increase your social skills and build your knowledge base which will advance your career. Leverage networking to find clarity in your current situation and a roadmap for getting ahead.” – Bill Lyons, CEO of Griffin Funding

Stay up to date with Industry Trends

“A great way to grow your career with networking is by gaining valuable insight on trends! When networking with people in your field in-person or on social media platforms, you will become aware of new trends and the latest industry developments through sharing, during meetings, while having small talk with co-worker, while going through LinkedIn, and more. The digital world will be a huge ally in this aspect as most new industry news will be posted on social media. Therefore, networking puts you and your business at the front of the competition when it comes to new ideas and trends you can utilize in your social media and marketing campaigns. ” – Himanshu Agarwal, Senior VP of Solutions for WorkBoard

Create an Interpersonal Brand 

“Networking becomes a major part of creating a personal brand because as an individual all of your professional interactions play a part in your brand identity. Not all of us work at a small company where we all know each other, but oftentimes you’ll get put on a project where your reputation and personal brand will be discussed. Each time you interact with a client, or another professional outside of your job, you don’t know the potential these interactions have. It is from these weak networking ties that your confidence in yourself and personal branding will matter. Creating a personal brand for how you want to be perceived and what your values will give you a sense of self which will be evident while networking.  – David Ring, Senior Marketing Manager at MCT Trading

Reciprocal Assistance

“Reciprocity is a virtue, and this extends to professional networking as well. The more you help others, the more you prove yourself to be a trustworthy and reliable partner in times of need, which is an asset that everyone desires. As your professional network grows your positive reputation will reach farther in turn. This can become a great boon when you need assistance with or a fresh perspective on a new project that’s coming up. We tend to help others who have helped us, so by expanding your network as far as possible and being courteous and helpful along the way you bring on many more potential hands who can assist you. This is a powerful tool and can quickly turn a daunting task into child’s play due to the expertise from people willing to assist you.” – Adrien Dissous, Global SVP of Marketing at Babo Botanicals

Find New Clients 

“One of the best ways networking can help grow your career is by finding new business clients. Networking events are filled with opportunities that could prove fruitful for business-client relationships. Especially for small or personal businesses, great networking can establish long term relationships. Building strong business relationships relies on trust and credibility which can be established through communication and raport. Once you have made the connection, be sure to continually maintain the relationship. Not only does this help increase business for your company and personal business, but it can show upper management that you are commited to the overall success of the company which can contribute to the success of your career.”  – Jeffery Pitrak, Marketing and Account Manager at Transient Specialists

Continue Reading…

Case Study: Am I going to be okay when I retire?

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Photo by LinkedIn Sales Navigator from Pexels

By Ian Moyer

(Sponsor Content)

Pamela is a 63-year-old widow residing in Ontario, Canada with two adult children who live on their own. Pamela worked for more than 30 years as a Payroll Manager and was able to pay off her mortgage with the life insurance inheritance she received from her husband’s passing and put her savings towards retirement.

She is preparing to retire in two years and has increasing concerns about the amount she has saved for retirement.

Pamela earns $76,000 a year. Now age 63, she has saved:

  • $306,000 in a Registered Retirement Savings Plan (RRSP), contributing $5000 annually until retirement
  • $36,000 in A Tax-Free Savings Account (TFSA), contributing $1000 annually, which doubles as an emergency fund.
  • At age 65 Pamela plans on selling her cottage and adding $400,000 to her retirement funds.

Using Cascades Financial Solutions retirement income planning software, we help Pamela determine if she can retire at the age of 65 and sustain her lifestyle and accommodate traveling.

Pamela will decide to retire at the age of 65 if the after-tax income will meet her needs. With retirement fast approaching, she has three main questions:

  1. Do I have enough to retire? Pamala assumes she will need approximately 50% of her income to travel for five years.
  2. What are other income sources I can rely on? Pamela is concerned about the sustainability of her RRSP, TFSA and sale of the cottage alone.
  3. How do I deal with taxes? Pamela is unsure about the amount of taxes she will need to set aside.

Answering Pamela’s first question: “Do I have enough to retire?” The answer is YES! Based on her needs.

Using Cascades Financial Solutions, we’ve run a retirement income withdrawal plan resulting in three different ways to produce an after-tax annual retirement income of $45,703 for Pamela:

We’ve selected an asset allocation as moderate in the software: Moderate: 60% Fixed Income, 40% Equity,  5% rate of return and 2% inflation. All income and savings are reported in “today’s dollars” by Cascades.

Strategy Descriptions

Registered Funds First: This strategy involves creating retirement income from registered funds first, reducing the risk of leaving highly taxable investment accounts to an estate. The second priority is given to taxable non-registered accounts, leaving Tax Free Savings Accounts (TFSAs) last.

Non-Registered Funds First: This strategy involves creating retirement income from non-registered funds first, deferring the income taxes payable on registered investments. The second priority is given to registered investments, leaving Tax Free Savings Accounts (TFSAs) last.

Tax Free Funds First: This strategy involves creating retirement income from non-registered funds first and postpones the use of registered funds as long as possible. The second priority is given to Tax Free Savings Accounts (TFSAs), leaving registered funds last.

Determining a Winning Strategy: With all other factors being equal, the winning strategy provides a client longevity and the highest estate value, net of taxes and fees, at life expectancy. The differences in the net estate value represents the income tax savings of the winning strategy.  

Answering Pamela’s second question: “What are other income sources I can rely on?” There are two main programs that provide retirement income for most Canadians: the CPP or Quebec Pension Plan (QPP), and OAS.  The maximum CPP / QPP Pension you could receive starting at age 65 is $1,203.75 monthly ($14,445 annually) for 2021.[1]

Continue Reading…

Greed, Fear and Amnesia: The importance of Cycles

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Image courtesy Outcome and positivemoney.org.

By Noah Solomon

Special to the Financial Independence Hub

Investment guru Howard Marks is the founder and co-chairman of Oaktree Capital Management, the world’s largest investor in distressed securities. Since launching Oaktree in 1995, his funds have produced long-term annualized returns of 19%. According to Warren Buffett, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.”

As indicated by the title of his book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, Marks believes that “the most important thing is being attentive to cycles.” In particular, he discusses the importance of knowing where we stand in various cycles. He contends that most great investors have an exceptional sense for how cycles work and where in the cycle markets stand at any given time. Lastly, Marks insists that investors who disregard cycles are bound to suffer serious consequences.

We live in a World of Relativism

There is a great saying about being chased by a bear, which states “You don’t have to run faster than the bear to get away. You just have to run faster than the guy next to you.”

In the context of investing, outperformance does not necessitate perfection. Success doesn’t come from always being right, but rather from being right more often than others (or from being wrong less often). Whether picking individual stocks or tilting your portfolio more aggressively or defensively, you don’t need to be right 100% of the time; you just need to be right more than others, which by definition leads to outperformance over the long-term. To this end, we have outlined some of our favorite concepts and themes which serve as guideposts for achieving this goal.

It’s all about Fear and Greed: Valuation just goes along for the Ride

The factors that drive bull and bear markets, bubbles and busts are too plentiful to enumerate. The simple fact is that more than any other factor, it is the ups and downs of human psychology that are responsible for changes in the investment environment. Most excesses on the upside and the inevitable reactions to the downside are caused by exaggerated swings in psychology.

Many investors fail to reach appropriate conclusions due to their tendencies to assess the world with emotion rather than objectivity. Sometimes they only pay attention to positive events while ignoring negative ones, and sometimes the opposite is true. It is also common for investors to switch from viewing the very same events in a positive light to a negative one within the span of only a few days (or vice-versa). Perhaps most importantly, their perceptions are rarely balanced.

One of the most time-honored market adages states that markets fluctuate between greed and fear. Marks adds an important nuance to this notion, asserting that “It didn’t take long for me to realize that often the market is driven by greed or fear. Either the fearful or greedy predominate, and they move the market dramatically.” He adds:

Investor psychology seems to spend much more time at the extremes than it does at a happy medium. In the real world, things generally fluctuate between pretty good and not so hot. But in the world of investing, perception often swings from flawless to hopeless. In good times, we hear most people say, “Risk? What risk? I don’t see much that could go wrong: look how well things have been going. And anyway, risk is my friend – the more risk I take, the more money I’m likely to make.” Then, in bad times, they switch to something simpler: “I don’t care if I never make another penny in the market; I just don’t want to lose any more. Get me out!” Buy before you miss out gets replaced by sell before it goes to zero.

Without a doubt, valuations matter. Historically, when valuations have stood at nosebleed levels, it has been only a matter of time before misery ensued. Conversely, when assets have declined to the point where valuations were compelling, strong returns soon followed. But it is important to distinguish cause from effect. Extreme valuations (either cheap or rich) that portend bull and bear markets are themselves the result of extremes in investor psychology. Importantly, human emotions are both fickle and impossible to precisely measure. Noted physicist and Nobel Prize winner Richard Feynman articulately encapsulated this fact, stating “Imagine how much harder physics would be if electrons had feelings!”

Amnesia: The Great Enabler of Market Cycles

Another contributor to irrational investment decisions, and by extension market cycles, is the seemingly inevitable tendency of investors to engage in Groundhog Day-like behavior, forgetting the lessons of the past and suffering the inevitable consequences as a result. According to famed economist John Kenneth Galbraith, “Extreme brevity of financial memory” keeps market participants from recognizing the recurring nature of cycles, and thus their inevitability. In his book, A Short History of Financial Euphoria, he states:

When the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

Average and Normal: Not the same thing

In many ways markets resemble the swinging pendulum of a clock, which on average lies at its midpoint yet spends very little time there. Rather, it spends the vast majority of the time at varying distances to either the right or left of center. In a similar vein, most people would be surprised by both the frequency and magnitude by which stocks can deviate from their average performance, as indicated by the table below.

S&P 500 Index: Deviation from Long-Term Average (1972-2021)

Over the past 50 years, the average annual return of the S&P 500 Index has been 12.6%. The Index fell within +/- 2% of this number in only three of these years, within +/- 5% in only nine, and within +/- 10% in 22 (still less than half the time). Lastly, the index posted a calendar year return of +/- 20% of its long-term average return in nine of the past 50 years (18% of the time).

Also, when a pendulum swings back from the far left or right, it never stops at the midpoint, but continues to the opposite extreme.  Similarly, markets rarely shift from being either overpriced or underpriced to fairly priced. Instead, they typically touch equilibrium only briefly before snowballing sentiment and resulting momentum cause a progression to the opposite extreme. Continue Reading…

New Equity-linked GICs offer equity twist on humble GIC

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By Rachel Megitt, Vice President,

Term Investments & Savings, RBC

(Sponsor Content)

If you’re looking to grow your money, the future looks a lot different than it did even a few months ago, given the current volatility in the markets and intensifying inflation.

We often hear the adage “big risk equals big reward,” but what if you want the reward but aren’t comfortable taking the risk? This is where a new twist on a traditional investment is proving to be a powerful option: equity-linked GICs (Guaranteed Investment Certificates).

In the summer of 2021, we shook up our product line-up and added two new equity-linked GICs that also represented RBC firsts and proudly shared the news, including in a Findependence blog.

New GICs with an equity twist

Within the first six months, we saw client enthusiasm about these two new “GICs with an equity twist” surge well beyond our expectations. Our clients have been clamouring for these GIC options and we believe this reflects the overall desire of Canadian investors to tap into what equity-linked GICs provide: the appealing combination of a guarantee for their initial investment, plus the higher return potential that comes with an equity investment.

While we knew we had created two truly compelling and competitive GICs, we never imagined how strongly these new GICs would resonate across the country. The buzz surrounding these equity-linked options is helping reshape investment conversations in Canada. These GICs offer investors who are reluctant to buy individual equities the opportunity to step into the world of equity investing at both a pace and level of risk they are comfortable with. Continue Reading…