Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

Retired Money: A Canadian immigration success story

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My latest MoneySense Retired Money column is a bit of a departure in that its focus is on 57-year old blogger and YouTuber Alain Guillot, who came to Canada from Columbia with nothing but entrepreneurial gumption and a dream of being part of the North America depicted on TV at home.

For the full MoneySense column, click on this headline: The first $100,000 is the hardest to save for newcomers.  

The re-election of Donald Trump is almost certain to make Immigration an even more contentious issue. However, as I am myself the child of (British) immigrants I am naturally sympathetic to those who are brave or desperate enough to leave the land of their births to find opportunities in North America.

Which is one reason that over the past year, I’ve been corresponding with an interesting blogger and former financial advisor, Alain Guillot, and occasionally republish his blogs on my site, Findependence Hub. It’s called simply AlainGuillot.com

           He aims to write at least one blog a week and has 600 subscribers on his YouTube channel,  where he is more than half way to being able to monetize it. Now Guillot has just self-published a short e-book entitled The Wealth Paradox: Navigating Money, Free will, and Success, which you can find on Kindle for a very reasonable price. The subtitle explains more: How unconventional thinking influences your Financial and Personal Life.

Side hustles and Entrepreneurism

           One reason Guillot got my attention in the first place was that he emigrated to Canada from Colombia, a place I once visited (San Andres). He soon discovered he was almost forced to become an entrepreneur in Canada. Continue Reading…

A Password Dividend: Living your Dreams on $4,000 a month (US)

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Image courtesy RetireEarlyLifestyle.com

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

Once someone learns that we retired at the age of 38 in 1991 and have been traveling the world ever since, they ask, “How could you afford such a lifestyle? It must cost a fortune for airfare, to live in guesthouses, hotels, apartments and eating out!”

When we tell them that this lifestyle hasn’t cost us anything — in fact, we made money — they’re floored. Remember, it’s a lifestyle, not a vacation.

When we left the conventional working world in January, 1991, the S&P 500 Index was 312.49. Today it is over 5300. That’s an average of roughly a 10% per year return including dividends. See the calculator below.

The S&P 500 Dividends Reinvested Price Calculator

Sure, we had expenses, but our net worth has outpaced both spending and inflation because we created a money machine.

The cost of not retiring

Whenever we’re considering a trip, we ask ourselves, “Can we afford it?” Our answer shocks some: “We can’t afford not to go.”

We’re no spring chickens at 72. We’ve experienced enough in life to know that we will be more disappointed if we don’t try new things than if we make mistakes at the ones we attempt. We’re only getting one shot at this life, and find that our travel list is getting longer, not shorter.

Over the years many of our friends have passed on: some who never got a chance to retire from their jobs, and they had plenty of money. For the last 3 decades we have been spending about $30,000 per year. We have mentioned a few times about loosening the purse strings and this is what we have done.

We have seen dozens of countries, stayed in resort hotels, purchased new computer equipment and digital toys, refreshed our wardrobes countless times, drank fine wine, had maids, gardeners, and ate at some of the most fashionable restaurants in the world. We have hiked, biked, and scuba’d, lived on tropical islands and in million dollar homes, lived with the Maya, met musicians and magicians and generally enlarged our perspective about the world.

After all this traveling, spending and inflation, our net worth is still higher than when we retired.

So how much did this lifestyle really cost us? Continue Reading…

Bonds: The Comeback Kid

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Image by Shutterstock, courtesy of Outcome

By Noah Solomon

Special to Financial Independence Hub

A change, it had to come
We knew it all along
We were liberated from the fold, that’s all
And the world looks just the same
And history ain’t changed
‘Cause the banners, they all flown in the last war

Won’t Get Fooled Again. The Who;  © Abkco Music Inc., Spirit Music Group

 

As inflation rapidly accelerated towards the end of 2021, bond yields woke up from their decade plus slumber breathing fire and brimstone. Subsequently, bonds have once again become a worthwhile asset class for the first time since the global financial crisis.

I will explore the historical behaviour and characteristics of bonds. Importantly, I will also discuss how they have reclaimed some of their status as a valuable part of investors’ portfolios.

Riding the Roller-Coaster for the Long Term

Notwithstanding that stocks have periodically caused investors some severe nausea during bear markets, those who have been willing to tolerate such dizzy spells have been well-compensated. In Stocks for the Long Run, Wharton Professor Jeremy Siegel states “over long periods of time, the returns on equities not only surpassed those of all other financial assets but were far safer and more predictable than bond returns when inflation was taken into account.”

As the following table demonstrates, not only have stocks outperformed bonds, but have also trounced other major asset classes. The effect of this outperformance cannot be understated in terms of its contribution to cumulative returns over the long term. Over extended holding periods, any diversification away from stocks has resulted in vastly inferior performance.

Real Returns: Stocks, Bonds, Bills, Gold and the U.S. Dollar: 1802-2012

With respect to stocks’ main competitor, which are bonds, Warren Buffett stated in his 2012 annual letter to Berkshire Hathaway shareholders:“Bonds are among the most dangerous of assets. Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal … Right now, bonds should come with a warning label.”

The Case for Bonds

Notwithstanding that past performance is not a guarantee of future returns, the preceding table begs the question of why investors don’t simply hold all-stock portfolios. However, there are valid reasons, both psychological and financial, that render such a strategy less than ideal for many people.

The buy-and-hold, 100% stock portfolio is a double-edged sword. If (1) you can stick with it through stomach-churning bear market losses, and (2) have a long-term horizon during which the need to liquidate assets will not arise, then strapping yourself into the roller-coaster of an all-stock portfolio may indeed be the optimal solution. Conversely, it would be difficult to identify a worse alternative for those who do not meet these criteria. Continue Reading…

Smart tips to Recession-Proof your Household Finances

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Image by Pexels

By Jim McKinley

Special to Financial Independence Hub

With economic uncertainty looming, taking control of your household finances is more important than ever. Preparing for potential downturns doesn’t mean drastic lifestyle changes: it means implementing smart, practical strategies that safeguard your financial well-being. By making a few savvy adjustments, you can create a solid buffer that shields your household from the effects of a recession while keeping your long-term financial goals on track.

Launch a Side Business

 Starting a side business can be a powerful way to add extra income and recession-proof your finances. Whether you’re leveraging a hobby, tapping into a specialized skill set, or exploring new opportunities, a small business can provide a flexible, low-risk way to diversify your income. Consider ventures that align with your interests, such as freelancing, consulting, or offering home services, which tend to remain in demand even during tough times. By starting small and focusing on industries that offer consistent value, you can gradually build a side income that provides financial stability when it’s most needed.

Pay Down your Debt

Paying down debt is one of the most effective ways to strengthen your financial position ahead of a recession. High-interest debt, such as credit-card balances or personal loans, can quickly eat into your budget, making it harder to manage everyday expenses when the economy tightens. Focus on prioritizing payments to reduce or eliminate this kind of debt, starting with the highest interest rates. This not only frees up more of your income but also reduces financial stress. By becoming less reliant on borrowed money, you can better weather potential income fluctuations and maintain greater control over your finances.

Organize your Financial Records

Organizing your financial records can have many benefits, such as improved efficiency, better decision-making, and easier access to important information. Digitizing your documents can help you keep track of them more easily, save space, and add an extra layer of security to protect against theft or damage. After digitizing your records, try the process of splitting PDF content to break  a document into smaller, more manageable files. Continue Reading…

Transitioning from Accumulation to Distribution

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By Alain Guillot

Special to Financial Independence Hub

I have been saving since I arrived in Canada 25 years ago. During my first year I saved as little as $10 month, but in general I saved about $25 during the first 10 years, then I increased the amount I was saving to about $500 per month and during the past 5 years I was saving as much as $1,000 per month.

Finally this year, I stopped contributing to my retirement accounts. Instead, I started taking out whatever I get as a dividend distribution from my non-registered account.

I have to tell you. It feels good!

I have accumulated over $500,000. According to the 4% rule, I can withdraw the equivalent of $20,000 per year, which is more or less my cost of living.

At this moment I am only withdrawing from 1% to 2% of my capital per year. I am withdrawing the dividend distributions from my non-registered accounts.

I see some cash siting on my broker’s account and I just transfer it to my checking account and I invite myself for dinner.

At the beginning of the year, I transfer the maximum allowed from my non-registered account to my TFSA. I have a feeling that the maximum allowed for 2024 will be $7,000. I will be ready.

Transferring capital from non-registered account to TFSA will allow to earn more and pay less taxes.

I am in the fortunate position where I don’t even need my retirement money right now. My part time job, which I love, provides me enough to live.

I think that I will use my retirement money to pay for some luxuries that I haven’t paid for myself before, like… instead of taking one vacation per year, I will take two vacations per year, one to my home country, and another to any other random country. Continue Reading…