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.

Rethinking Retirement (RIP) and FIRE

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

Today’s post will weave together retirement as seen in a more traditional sense and those who practice F.I.R.E. – an acronym for financial independence and retire early. In the Globe and Mail Brenda Bouw offered that the COVID pandemic is giving early retirees second thoughts, they’re going back to work. On FiPhysician, Dr. David Graham offers that traditional retirement is dead – RIP. The old approach will fall on its face. We might run out of money before we run out of time. We will also see how Justwealth has crushed mutual funds over the last five years. Enjoy. We’re rethinking retirement on the Sunday Reads.

We’ll start with rest in peace RIP retirement on FiPhysician. Or, is retirement an acronym? Of course on this site Dr. Graham inspired – how does the pandemic end?

Well, with the common cold.

We no longer work til we drop dead

That retirement piece shows how retirement risks have changed. We are no longer working until we drop dead Dr. Graham offers. We are living longer (generally are much more healthy) than past decades and centuries and we will spend decades in retirement. The traditional retirement funding approach used by our parents and grandparents will not get the job done. Traditionally, social security (CPP in Canada) a pension and home value would do the trick. That requires a re-think offers Dr. Graham.

For starters those government pension won’t keep up with ‘real inflation’ compared to what the government reports. Lots of fudging of ‘official’ numbers on that front.

So, with the three-legged stool of traditional retirement, you cannot keep up with inflation over longer periods of time. Retirement is an anachronism because you cannot fund it.

On the future of retirement and how we might best prepare …

Consider that which is currently changing the world of employment: smart phones and the gig economy.

You won’t retire in the future; you will monetize your hobby and have gigs from your smart phone. After all, we must move from a knowledge-based society to a wisdom-based one. Everyone has knowledge at the tip of their fingers all the time. Who has all the wisdom?

So funny, as I am personally living that now, and by design. I am living proof as are many in today’s new normal for “retirement”. I have the portfolio, I monetize any knowledge or wisdom that might have value. Any gov pension will be a bonus that will not be counted on in any meaningful way. We have real estate.

Protect the portfolio from inflation

I am also of the school that we can protect our portfolio income assets from inflation. And research shows that we need the true inflation fighters such as gold and other commodities and real assets. Continue Reading…

Flying the Findependence Flag: My appearance on Patrick Francey’s The Everyday Millionaire podcast

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The Everyday Millionaire podcast starring REIN’s Patrick Francey has just released its one-hour-plus interview with me. You can find it (audio) on the regular podcast channels by clicking this title: Flying the Findependence Flag.

The podcast has been going since 2017, and sports the slogan “Ordinary people doing extraordinary things.”

It was a wide-ranging and surprisingly personal interview. Most of Francey’s guests are real estate millionaires: given the bull market in Canadian residential real estate it’s not surprising that most of Francey’s guests are technically millionaires: even starter homes in Toronto are going for a million dollars.

REIN’s Patrick Francey

Patrick Francey is the CEO of REIN, the Real Estate Investment Network, with which I have long been familiar: my daughter Helen once worked there. Sadly, as you will discover on the podcast, I confess that our family never made the plunge into investment real estate beyond owning a principal residence in Toronto. We discuss the fact that while real estate is an excellent way to achieve Financial Independence, some of us are more comfortable with investing in financial assets like stocks and bonds: in so-called “clicks” rather than “bricks.”

The foundation of Financial Independence

As I say in the interview as well as the recently updated US edition of my financial novel, Findependence Day, job one is to purchase a principal residence and pay down the mortgage as soon as possible; hence the saying “The Foundation of Financial Independence is a paid-for home.” Continue Reading…

Two types of overconfident investors

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I started investing in individual stocks shortly after the Great Financial Crisis ended in 2009. I picked an investing strategy that closely resembled the Dogs of the TSX, buying the 10 highest yielding Canadian dividend stocks. As you can imagine, the share prices of these companies got hammered during the stock market crash so I was able to scoop up shares in banks, telecos, pipelines, and REITs on the cheap.

Stocks came roaring back right away and my portfolio gained 35% by the end of 2009. Investing is easy, right?

It took me a while to figure out that my portfolio returns had less to do with my stock picking prowess and more to do with market conditions, luck, and the timing of new contributions. The rising tide lifted all ships, including my handful of Canadian dividend stocks.

I started comparing my returns to an appropriate benchmark to see if my judgement was adding any value over simply buying a broad market index fund. My portfolio outperformed for a few years until it didn’t. In 2015, I had enough and switched to an index investing strategy. Now I invest in Vanguard’s All Equity ETF (VEQT) across all of my accounts.

Related: Exactly How I Invest My Money

New investors who started trading stocks in the past 18 months have likely had a similar experience. Stocks crashed hard in March 2020, falling 30%+ from the previous month’s all-time highs. Since then markets have been on an absolute tear. The S&P 500 is up 91% from the March 2020 lows. The S&P/TSX 60 is up 70%.

That’s just country specific market indexes, mind you. Since March 2020 individual stocks like Facebook and Apple are up 137% and 155% respectively. Tesla is up 700%. Meme stock darlings AMC and GameStop are up 1,045% and 3,621% respectively.

No doubt, unless they’ve done something disastrous, new investors participating in this market have seen incredible returns so far.

This can lead to overconfidence – when people’s subjective confidence in their own ability is greater than their objective (actual) performance.

Overconfident Investors

Larry Swedroe says the biggest risk confronting most investors is staring at them in the mirror. This is the first type of overconfident investor.

Overconfidence causes investors to trade more. It helps reinforce a belief that any investment wins are due to skill while any failures are simply bad luck. According to Swedroe, individual investors tend to trade more after they experience high stock returns.

Overconfident investors also take on more uncompensated risk by holding fewer stock positions.

Furthermore, overconfident investors tend to rely on past performance to justify their holdings and expectations for future returns. But just because stocks have soared over the past 18 months doesn’t mean that performance will continue over the next 18 months.

In fact, you should adjust your expectations for future returns – especially for individual stocks that have increased by 100% or more. No stock, sector, region, or investing style stays in favour forever. If you tilt your portfolio to yesterday’s winners (US large cap growth stocks) there’s a good chance your portfolio will underperform over the next decade.

The second type of overconfident investor is one who makes active investing decisions based on a strong conviction about how future events will unfold.

Related: Changing Investment Strategies After A Market Crash

Think back to the start of the pandemic. As businesses shut down around the world it seemed obvious that global economies would suffer and fall quickly into a massive recession. The stock market crash reinforced that idea. Investors hate uncertainty, but this time it seemed a near certainty that stock markets would continue to fall and remain in a prolonged bear market.

Markets quickly turned around as central banks and governments doled out massive stimulus to keep their economies afloat and their citizens safe at home. Now it became ‘obvious’ that investing in sectors like groceries, cleaning supplies, online commerce, and video technology would produce strong results. Continue Reading…

What would Employees give up to keep Remote Work? 

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By Mike Brown

Special to the Financial Independence Hub

Because of the coronavirus pandemic, there was almost a universal shift to remote work.

It wasn’t supposed to be permanent, just a temporary move to help mitigate the spread of the virus. 

But then employers and employees got used to remote work and some interesting statistics started popping up. A Stanford study of 16,000 workers found working from home increased productivity by 13%, while also leading to improved work satisfaction and a 50% slash in attrition rates. 

A survey by ConnectSolutions found 77% of employees displayed increased productivity if they worked from home just a few times a month. The same study found 30% did more work in less time while working remotely. 

In summation, remote work was a success. 

So successful that now, as the coronavirus pandemic subsides just a bit, there is a fight between employers and employees regarding the return to the office. 

Employees are getting their work done like they always did, sometimes even doing more. They have a case to fight the return to the office. 

In that same vein, employers understand the value of teamwork, camaraderie, and face-to-face interactions. They too have a case to bring back the office.

It will surely be a messy fight mainly because employees now see remote work as part of the new reality, not just a temporary fad. They value their remote work flexibility like they would value salary, benefits, or paid time off, and they will just move to the next employer if their current one makes a return to the office mandatory.

To capture this value placed on remote work, Breeze conducted a survey of 1,000 Americans to see what they would give up if they were able to retain remote work. It’s important to note this survey is meant to capture the value of remote work, not offer suggestions to employers on how they can cut benefits or pay in exchange for remote work.

To have the option of working remotely full-time at their current or next employer, 65% of employees would take a 5% pay cut, 38% would take a 10% pay cut, 24% would take a 15% pay cut, 18% would take a 20% pay cut, and 15% would take a 25% pay cut. 

Moreover, 39% would give up health insurance benefits to retain full-time remote work. Breeze found the average monthly health insurance premium is $187, and most workers have a large percentage of this monthly cost picked up by their employers.

With so many willing to give up this crucial employee benefit, it gives you a good sense of the incredible value that is being placed on remote work. Continue Reading…

Managing Finances as a Small Business Owner: Top Tips

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By Emily Roberts

For the Financial Independence Hub

Being a small business owner is challenging at the best of times. With many responsibilities, there is no surprise that many business owners feel negative impacts on their mental well-being and health.

Financial struggles can significantly contribute to the well-being of business owners. Juggling the books to make sure you keep your head above water can be challenging. None more so than in the wake of the pandemic. Businesses big and small have experienced financial struggles in some way; it has not been easy.

Read on to discover some of our top tips for managing your finances as a small business:

1.) Create Detailed Budgets

It goes without saying that knowing your business profits and outgoings is critical to your ongoing and future success. Without this information, your business will suffer. Create a budget for your company as early as possible. Include any outgoings that you will have to pay.

Comparing the outgoings against the money coming into your business will give you a better idea of your financial health as a company. Assess this information frequently, for your income and outgoings will naturally fluctuate over time.

Keeping up to date with any market changes and internal business factors will significantly impact your ability to manage your finances but are not the only means for doing so.

2.) Educate Yourself

Being at the helm of a business means learning something new every day. Whether you learn something through your own efforts or the means of someone else within your company, educating yourself on business practices on a regular basis will go a long way. Continue Reading…