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.

Coping with the Fear of Market Downturns

Posted By Financial Independence Hub | March 15, 2023

Image courtesy RetireEarlyLifestyle.com/Kiplinger

By Billy and Akaisha Kaderli

Special to Financial Independence Hub

On our latest adventure, we were on the beach in Isla Mujeres, Mexico when a lady recognized us from our website RetireEarlyLifestyle.com. After some pleasantries, she asked if we could address the fears of the market declining and how to handle it.

We appreciated that input from one of our Readers.

Previous market declines

Since the surviving of the 1987 crash when the Dow Jones Industrial Average fell over 20% in one day, there have been other downturns including the recent ones of 2007-2008 and the Covid meltdown in March of 2021. We have learned from each of them.

They can be trying on one’s patience and confidence, so how is it best to handle them?

Noise, corrections and bears

First, let’s define these meltdowns.

Between a 5-10% decline in the averages is called noise and can happen at any time.

Many individual issues have these gyrations which is why we own the Indexes. They are more stable.

Over a 10% drop is called a correction, meaning it is wringing the excesses out of the markets. The markets are constantly being over-extended and under-extended and these 10% moves correct for those times.

If the averages drop 20% or more, it is considered to be a bear market and we tend to have these every 56 months.

On average, bear markets last 289 days or 9.6 months with an average loss of 36.34%. These can be painful for one’s financial health – or an opportunity – depending on where you are in the investment cycle.

A number of events can lead to a bear market including higher interest rates, rising inflation, a sputtering economy, and a military conflict or geopolitical crisis. Seems we have all of these presently.

If you are in the accumulation phase and buying more shares at cheaper prices, this can be a bonus for you. However, if you are now retired and living off your investments with your account values dropping, that can be difficult to swallow.

How to calm your nerves to prevent panic selling

It’s important to note the difference between trading and investing.

Traders drive the day-to-day activity, booking profits and hopefully taking losses quickly. We investors take a longer view to ride out these cross currents of the markets knowing that – over the long run – we will be fine. Continue Reading…

Living the Dividend Dream

Posted By Financial Independence Hub | March 9, 2023

By Mark Seed

Special to Financial Independence Hub

Incredibly, there are some investors out there truly living their dividend dream.

Today’s post highlights one of those investors for investing inspiration…

But let’s back up a bit …

Some time ago … yours truly wrote a controversial post about the intent to live off dividends and distributions from our portfolio.

Indexers gasped and likely unsubscribed to my site!

Well, even though some considerable time has passed since that post my thinking and income goals remain the same – as least in part for semi-retirement planning:

I continue to believe “living off dividends” (and/or distributions) should work out well for us.

And I’m not alone.

For today’s post, I’m profiling a very successful investor …. who not only dreams of dividends but is living the dividend dream right now.

Living The Dividend Dream

Welcome to the site for this latest investor profile, The Dividend Dream.

I look forward to sharing this interesting new investor profile below but first up, a recap about why dividends and distributions continue to matter to me/us on our income journey.

Yes, my approach to live off dividends remains alive and well in 2023!

My dedicated page including many of the stocks I own.

Here are some reasons why some investors couldn’t care less about dividends:

The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income. Fair.
Dividends are not magical – there is nothing special about them. Sure, of course they are not magical or free!
A dollar of dividends is = a one dollar increase in the stock price. True.
Stock picking (with dividend stocks) is fraught with under performance of the index long-term. I’m not convinced about that.
You can never possibly know long-term how dividends may or may not be paid by any company. Fair.

You do need a bunch of capital to generate meaningful dividend income.

Dividends are part of total return.

Stock picking to some degree opens opportunities for market under performance.

However, my responses and approach to some of these items are as follows, since I believe dividend investing offers far more good than harm:

While market underperformance may occur (that is subjective and up to personal investment success, luck, and other factors that are very difficult to substantiate), dividend investing offers up some essential long-term investing discipline, for me at least, to stay the investing course, including when markets tank in any given year. If anything, I buy more!
This way of investing provides HUGE motivation and inspiration – to keep investing, in any market climate. The way I see it: money that makes money can make more money.
Dividend investing, seeing the tangible money flow into our accounts month-after-month, reinforces my belief that nobody cares more about my financial well-being than I do (except for my wife!). Ha.

All kidding aside…dividend investing and having a plan associated with building ever-growing income offers something that some other ways of investing just can’t readily offer: support for the emotional discipline to execute this strategy, come heck or high water, or even until the end of all capitalism as we know it!

But that’s just me and our plan.

Your mileage might vary and that’s OK.

There are many ways to invest and many reasons that folks invest in what they do.

That said, dividend investing is far from any local phenomena.

I reached out to The Dividend Dream for her to share her reasons for investing in dividend paying stocks, including why dividends matter (or not!), and any considerations she has for any investors at any age on their investing journey. [Editor’s note: for now, “she” wishes to remain anonymous, as explained below; hence there is no photo-JC]

Living The Dividend Dream – Dividend Dream – welcome to the site!

Hey hey … thanks for having me. I appreciate the invite!

Before we dive into your investing thesis, why you own what you own, and much more – tell us a bit about yourself.

Well, what can I say. People call me The Dream, Dream Girl, aka Dreamer.

I’m anonymous for now as I’m still working a bit, although I entered into a “freestyle” work optional state this year (2023). I’m a businesswoman, living in the southern United States. My field is strategy and marketing, and I went to a top MBA school. I’m in my mid-40s and am married to a wonderful woman who is a professor. I am the breadwinner in the family – by far – so I feel financially responsible for our future. And yeah … that’s the skinny, essentially.

Interesting!

I feel personal finance is personal – a constant refrain on this site. What I mean by this is: everyone’s financial situation is different, and they have personal reasons to invest the way they do, to realize their individualized goals.

How did you get started with investing?

I actually have been thinking about “retirement” ever since I was a teenager. Really, it’s always been more about being financially secure and independent. My family fell on some hard times and it scared me. I didn’t really have any choice but to rely on myself. I held several jobs in high school and throughout college. So … long story short, after college I started like everyone else with a 401(k) at work, trying to max that out every year. But when I started getting into my 30s that’s when I started to really breakout out of the mold, rolling past 401(k)s into investment accounts where I had complete control and could pick to hold whatever assets I wanted, not just the choices provided by an employer.

Awesome. OK, let’s get into it. Why dividend investing? Why do you invest the way you do? Continue Reading…

The Vanguard Effect on Mutual Funds, Fees and Performance

Posted By Robb Engen | March 7, 2023

Vanguard is best known in Canada for its low cost, passively managed ETFs. Indeed, since entering the Canadian market in 2011, Vanguard now boasts a line-up of 37 ETFs with more than $40 billion in assets under management – making it the third largest ETF provider in Canada.

Keeping costs low is in Vanguard’s DNA. Their low fee philosophy hasn’t only benefited investors in Vanguard ETFs – it’s helped drive down costs across the Canadian ETF industry. This process has come to be known as the “Vanguard Effect.”

The cost of Vanguard ETFs is 54% lower than the industry average. Since 2011, they’ve cut their ETF’s average MER by almost half – saving their investors more than $10 million.

The Vanguard Effect has made a noticeable difference for ETF investors in Canada, but the vast majority of Canadian investments are still held in actively managed mutual funds.

Mutual fund assets totalled $1.896 trillion at the end of May 2021.
ETF assets totalled $297.4 billion at the end of May 2021.

The Vanguard Effect on Mutual Funds

Vanguard took aim at the Canadian mutual fund market three years ago with the launch of four actively managed funds, including the Vanguard Global Balanced Fund (VIC100), the Vanguard Global Dividend Fund (VIC200), the Vanguard U.S. Value Windsor Fund (VIC300) and the Vanguard International Growth Fund (VIC400).

These funds have gathered about $630 million in assets and are available to fee-based clients as F-Series funds, and to DIY investors through the Questrade and Qtrade online brokerage platforms. F-Series funds do not include embedded or trailing commissions back to the advisor.

Ticker	Name	Category	Management Fee	MER
VIC100	Vanguard Global Balanced Series F	Global Equity Balanced	0.34%	0.54%
VIC200	Vanguard Global Dividend Series F	Global Equity	0.30%	0.48%
VIC300	Vanguard Windsor U.S Value Series F	US Equity	0.36%	0.54%
VIC400	Vanguard International Growth Series F	International Equity	0.40%	0.58%

With three years under their belt in the Canadian mutual fund space, I thought I’d check in on the performance of Vanguard’s mutual funds.

While investors can’t glean much over a three-year period, the Vanguard funds have performed well compared to their benchmarks and industry peers.

Vanguard Global Balanced Fund (VIC100): +9.28% – VIC100 is a global balanced strategy with a strategic mix of 35% fixed income and 65% equities. It was designed to mirror the Vanguard Global Wellington Fund offered in the US – a 5-star rated fund by Morningstar. VIC100’s returns place it in the first quartile of its Global Equity Balanced category since inception.
Global Dividend Fund-Series F (VIC200): +6.06% – VIC200 invests in higher dividend yielding securities across the globe. Its style has been out of favour for most of the time since inception as markets have preferred high growth companies that don’t pay dividends. That has changed Year-to-Date (YTD), and VIC200’s returns are in the first quartile of its Global Equity category.
Windsor U.S. Value Fund-Series F (VIC300): +11.28% – VIC300 is the sister fund to the Vanguard Windsor Fund, offered in the US. The fund offers exposure to US large and mid-cap value stocks. Its value orientation was out of favour for the last few years but it’s ahead of its Russell 1000 Value Benchmark after fees since inception. As value has roared back, the fund is in the first decile of the US Equity category in Canada YTD.
International Growth Fund-Series F (VIC400): +19.20% – VIC400 has been a top performing fund since inception. It offers exposure to stocks primarily outside of North America. It mirrors a fund of the same name offered to US investors since 1981. The US fund is rated 5-stars by Morningstar. VIC400 has outperformed its benchmark by 12% per year.

As of Jun 30, 2021 – Peers beaten in the fund’s Morningstar category
Ticker	Name	Category	Annlzd 3 Yr	% Peers beaten 3 Yr
VIC100	Vanguard Global Balanced Series F	Global Equity Balanced	9.28%	79%
VIC200	Vanguard Global Dividend Series F	Global Equity	6.06%	12%
VIC300	Vanguard Windsor U.S Value Series F	US Equity	11.28%	30%
VIC400	Vanguard International Growth Series F	International Equity	19.20%	98%

[Editor’s Note: in September, Vanguard Canada launched two more mutual funds: VIC500 and VIC600]

I recently had the opportunity to speak with Tim Huver, Head of Intermediary Sales at Vanguard Investments Canada about the success of their mutual funds and what we can expect in the future. Continue Reading…

PWL Capital: Model Portfolio Returns for 2022

Posted By Financial Independence Hub | March 3, 2023

By Justin Bender, CFA, CFP

Special to Financial Independence Hub

Unless you were literally born yesterday, you’re probably already aware that 2022 was an extraordinary year for investing … extraordinarily bad, that is. It hardly mattered which asset mix you invested in. Both stock and bond markets experienced double-digit losses, so even conservative investors with bond-heavy holdings saw their portfolio values plummet.

That’s investing for you. We may not like it, but we actually expect some years to serve up heaping helpings of realized risk, sometimes across the board. It’s the price we pay to expect these same markets to deliver longer and stronger runs of future returns.

From this perspective, we hope you’ll keep your eyes and your asset allocations focused on the future as we review the 2022 performance for the Vanguard, iShares, BMO, and Mackenzie asset allocation ETFs.

Before we look at the 2022 returns for our asset allocation ETFs, let’s check out the year-end results for their underlying holdings, starting with the equity ETFs.

2022 Equity ETF Returns

Canadian equity ETF returns were similar across the board, with losses of around 6%.

Disappointing, for sure, but their performance was still better than that of global stock markets, which lost 12% in Canadian dollar terms. That’s in large part due to the Canadian stock market’s overweight to energy companies. The energy sector happened to have a stellar year, returning over 50% during 2022.

U.S. equity ETFs also ended 2022 on a low note, losing around 20% in U.S. dollar terms. During this time, the U.S. dollar appreciated by 6.8% against the Canadian dollar, reducing the loss for unhedged Canadian investors. Once we factor in the return bump from U.S. dollar exposure, our selection of U.S. equity ETFs lost around 12%-14%, in Canadian dollar terms, net of withholding taxes.

BMO’s trio of U.S. equity ETFs had noticeably higher returns than the others. This is largely due to the methodology used to construct the S&P indexes tracked by BMO’s ETFs. For these indexes, an S&P index committee selects which companies to include in each index. The indexes tracked by the Vanguard, iShares, and Mackenzie ETFs have a less subjective process. This means there is more active decision-making going on in the three S&P indexes tracked by BMO’s ETFs, which led to a wider short-term return difference between BMO and the rest of the more passive index-tracking providers in 2022.

International equity ETFs ended the year on a disappointing note as well, losing between 8%-10%.

Two components explain most of the performance differences among our international ETF providers: Continue Reading…

Warren Buffett calls 2022 a good year for Berkshire

Posted By Financial Independence Hub | March 2, 2023

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

Many investors look forward to the annual letter from Warren Buffett. On Saturday, Berkshire Hathaway reported earnings and Mr. Buffett offered commentary and delivered his annual letter to shareholders. The company reported record operating profits and also beat the market handily in 2022. Fearing a recession in 2023, more investors put their trust (and money) in the hands of the world’s greatest investor. Berkshire Hathaway is the largest position in my wife’s accounts. We’re listening to Warren Buffett on the Sunday Reads.

Warren Buffett’s Berkshire Hathaway Inc on Saturday reported its highest-ever annual operating profit, even as foreign currency losses and lower gains from investments caused fourth-quarter profit to fall. Businesses generated $30.8 billion of profit despite rising inflation. Buffett and friends also increased their cash position to near $130 billion.

Sitting on a massive cash pile

The investment giant held ~$128.7B of cash and short-term securities at Dec. 31, 2022, vs. ~$109.0B at Sept. 30. That’s even with the company acquiring Alleghany Corp. in the last quarter of 2022. Owning or purchasing Berkshire delivers an immediate cash hedge, in “pretty good hands”. Should we get a recession, the Berkshire teams will go shopping in a meaningful way. Corrections are when they do their thing and create the conditions for outperformance.

Berkshire’s share price rose 4% in 2022, far outpacing the S&P 500 which fell 18%, reflecting Berkshire’s status as a defensive investment. I have long suggested that investors consider a position in Berkshire (BRK BRK.B). When the going gets tough, Berkshire often gets going.

In the COVID correction Warren Buffett did not get his chance to be greedy. Massive stimulus quickly ended the shallow recession and stock market correction. From the chart above, we can see that the market started to embrace Mr. Buffett and the stock. Will Mr. Buffett get the chance to spend a good chunk of his $130 billion in a recession? Who knows. But I like the idea of having that cash pile in good hands.

You’ll see just a little bit of outperformance from the time of my article, ha. 71% vs 28%. But to be honest, the S&P 500 gets a little boost for that Author’s Rating evaluation, they did not includes the dividends. But it’s still not a fair fight.

This is not advice, but you might consider Berkshire Hathaway as part of your portfolio defense. For Canadian dollar accounts you can purchase Berkshire Hathaway as a CDR listed on the Neo Exchange. Those are currency hedged.

Dale Roberts is the owner operator of the Cut The Crap Investing blog, and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on Feb. 26, 2023 and is republished on the Hub with permission.