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.”

A fortified U.S. Treasury ETF for Canadians

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Why Harvest ETFs chose to launch its own U.S. Treasury ETF that offers the security of U.S. Treasury Bonds and high monthly income

Image courtesy Harvest ETFs/Shutterstock

By Ambrose O’Callaghan

(Sponsor Content)

The early part of this decade saw the introduction of significant monetary interventions that rivalled the policies pursued by central banks following the Great Recession of 2007-2009. Policymakers were able to resuscitate markets in the face of a global pandemic. However, the end of the pandemic saw the beginning of a surge in inflation rates not seen in many decades.

Central banks responded to soaring inflation with the most aggressive interest rate tightening policy since the early 2000s. Policymakers are encouraged with the result of inflation coming down, but a highly leveraged consumer base has been squeezed by the upward revision in borrowing rates. Moreover, the higher interest rate environment has spurred stock market volatility. That has led to a shift investors’ focus, with investors focusing on capital preservation instead of capital appreciation.

Harvest ETFs’ investment management team believes that we are at or near the peak of the current interest rate tightening cycle. In this climate, the prudent investment strategy will factor in high interest rates while preparing for the eventual downward move that many experts and analysts are projecting for 2024.

That is why we launched the Harvest Premium Yield Treasury ETF (HPYT:TSX). This portfolio of ETFs provides exposure to longer-dated U.S. Treasury bonds that are secured by the full faith and credit of the U.S. government. HPYT employs up to 100% covered call writing to generate a higher yield and maximize monthly cash flow.

Why should you consider exposure to U.S. Treasuries?

Canadian consumers might not be celebrating the rise of interest rates. However, the switch to higher rates could be good news for Canadian savers. Continue Reading…

Why would anyone own bonds now?

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By Mark Seed, myownadvisor

Special to Financial Independence Hub 

“Many investors have been saying for years that rates can only go up from here, rates can only go one direction, rates will eventually go up. Will they?” – My Own Advisor, September 2021.

My, how things can and do change.

In today’s post, I look back at what I wrote in September 2021 to determine if I still feel that way for our portfolio.

Why would anyone own bonds now?

Why own bonds?

For years, decades, generations in fact, bonds have made sense for a diversified, balanced portfolio.

The main reason is this: bonds can reduce volatility due to their low or negative correlation with stocks. The more that investors learn about diversification, the more likely they are to add bonds to their portfolios.

That said, they don’t always make sense for everyone, all the time, always.

I’ll take a page from someone who was much smarter than I am on this subject:

Ben Graham on 100% stocks and cash

Ben Graham, on stocks, bonds and cash. Source: The Intelligent Investor.

Another key takeaway from this specific chapter of The Intelligent Investor is the 75/25 rule. This implies more conservative investors that don’t meet Ben Graham’s criteria above could consider splitting your portfolio between 75% stocks and 25% bonds. This specific split allows an investor to capture some upside by investing in mostly stocks while also protecting your investments with bonds.

Because stocks offer more potential upside, there is higher risk. Bonds offer more stability, so they come with lower returns than stocks in the long run.

As a DIY investor, this just makes so much sense since I’ve seen this playout in my/our own portfolio when it comes to our 15+ years of DIY investment returns. Our long-term returns exceed the returns I would have had with any balanced 60/40 stock/bond portfolio over the same period.

There is absolutely nothing wrong with a 60/40 balanced portfolio held over decades, of course.

From Russell Investments earlier this year:

“Fixed income has historically been considered the ballast in a portfolio, offering stability and diversification against equity market fluctuations. Over the last 40 years, a balanced portfolio of 60% Canadian equities and 40% Canadian bonds would have returned 8.5% annualized with standard deviation of 9.3%. While a portfolio consisting solely of fixed income would have had lower return with lower risk, a portfolio consisting solely of equities would have had only slightly higher return but substantially higher risk.”

Source: https://russellinvestments.com/ca/blog/the-60-40-portfolio

1/1983 – 12/2022 Canada Equities Canada Bonds Balanced Portfolio 
Annualized Return 8.8% 7.2%  8.5%
Annualized Volatility 14.4% 5.3%  9.3%

Pretty darn good from 60/40.

So, while I continue to believe the main role of bonds in your portfolio is essentially safety – not investment returns – we can see above that bonds when mixed with stocks can be enablers/stabilizers and deliver meaningful returns over long investment periods as well.

As Andrew Hallam, a Millionaire Teacher has so kindly put it over the years, including some moments on this site to me:

… when stocks fall hard, bonds act like parachutes for your portfolio. Bonds might not always rise when the equity markets drop. But broad bond market indexes don’t crash like stocks do …

Is that enough to own bonds in your portfolio?

Maybe.

Here are a few reasons to own bonds, in no particular order: Continue Reading…

Bestselling Beat the Bank celebrates its 5th anniversary

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By Larry Bates

Special to Financial Independence Hub

 

My book, Beat the ​Bank: The Canadian Guide to Simply Successful Investing, was published in September 2018. Five years later it continues to be a best seller among Canadian business/investing books.

The book, along with my website and various articles I’ve written have helped many Canadians learn to invest smarter and build (and maintain) larger retirement nest eggs.

Most Canadians continue to be directed by their banks and other advisors to invest through mutual funds. The vast majority of these mutual funds extract annual​ fees ranging from 1.5% to 2.5% from the value of the investment.

Not only are most Canadians unaware of these fees​, very few investors understand the compound damage these fees do over time. Over a lifetime of investing, these fees can reduce retirement nest eggs by 50% or more.

At the same time, the investment industry, including the same banks that sell high-cost mutual funds, offer very low cost, very efficient investment funds (ETFs) that track market indexes​. (There are many other types of ETFs as well. In my view most investors would be well served by sticking to simple index tracking ETFs).

Smarter investing means getting out of high-cost mutual funds and getting into low-cost investment products and services like index ETFs through do-it-yourself investing, using robo-advisors or finding lower cost traditional advisors.

A lot has happened in the world since​ Beat the ​Bank was published five years ago​. Covid-19 did a lot of damage and led to a great deal of unanticipated change. Inflation spiked dramatically causing central banks to raise interest rates. The full impact of higher rates is yet to be fully felt, especially by homeowners whose mortgages will be renewing in the next year or two.

The good news for investors is that bonds and GICs are finally offering decent returns although we will have to wait and see whether earning 5% interest will outpace inflation. And, despite all the uncertainty and chaos over the past five years, the total return of S&P 500 was a pleasing 70% while the total return of the S&P/TSX was 42%.

What hasn’t changed?

  • Markets continue to be uncertain​ (this never changes!)
  • The majority of “advisors” are under no legal obligation to act in their client’s best interest
  • The majority of “advisors” put millions of Canadians into high-cost mutual funds
  • Many prominent mutual funds have not reduced their fees (Why would they lower fees when investors are unaware of the impact of fees?)
  • Mutual funds continue to underperform simple index ETFs
  • Regulators have made some progress but many critical investor protection measures have yet to be implemented

​The ​Beat the ​Bank project, which was sparked​ 7 years ago by my sister’s experience with mutual funds, has been a ​gratifying experience​. I have received hundreds of messages from readers over the past five years, the great majority with positive feedback.

You can get a sense of reader response by checking out Amazon reviews. I certainly have had negative reaction from some advisors and industry people generally, but most professionals recognize the shortcomings of the industry and want to see investors achieve better outcomes with simpler, more efficient investment products and services.

DIY investing not for everyone

Do-it-yourself investing it’s not for everyone. But if you are considering switching to DIY investing, whether you check out my book​ or other independent ​sources​ (books, blogs, podcasts, etc.), I strongly encourage you to take some time to learn investment basics.

Here are just a few tips from Beat the Bank readers for those considering making the move:

“I have found that ETF equity investing is better for me than buying individual stocks.” Continue Reading…

10 Lifestyle Changes that could Lower your Life Insurance Premiums

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Image courtesy FitInsure.ca

By Lorne Marr, Jane Cotnam and Mohammed Azeez Amer,

FitInsure.ca

Special to Financial Independence Hub

Getting the best life insurance premium for the highest possible coverage amount is important. Life insurance is what stands between your and your loved ones’ financial future should something catastrophic happen. Whether it is critical illness insurance that pays a lump sum to the life insured to help with the costs of treatment or a bucket list trip, or life insurance that goes to a beneficiary, applicants have the power to lower their premiums. How? Through lifestyle changes.

Each applicant’s lifestyle figures heavily into the underwriting process for traditional/standard and rated policies. While simplified issue insurance does not have a medical exam, lifestyle/health questions are asked; the answers affect both the success of the application and the premium. Guaranteed issue insurance has no questions or medical exams – but this is typically reserved for applicants as a last resort. Guaranteed issue is expensive, has limiting conditions, and offers low coverage.

By taking care of the following lifestyle factors today, applicants greatly improve their access to favourable premiums on standard insurance.

10 Lifestyle Factors and how they Impact Life Insurance Premiums

  1. Quit smoking – Smoking has been proven to be a major risk factor for many health issues including cancer, heart disease, and stroke.
  2. Lose weight – Being overweight or obese increases your risk of developing chronic diseases such as diabetes, heart disease, and stroke.
  3. Reduce alcohol consumption – Excessive drinking can increase your risk of developing liver disease, high blood pressure, stroke, and other health problems.
  4. Get your blood pressure under control – High blood pressure increases your risk of developing several serious diseases. Keeping your blood pressure under control through diet, exercise, and medication will help reduce this risk.
  5. Lower your cholesterol – High cholesterol increases your risk of developing heart disease, among other problems. Eating a healthy diet and exercising regularly will help lower cholesterol levels.
  6. Increase water intake – Water makes you feel full faster so that you eat less food overall, which helps with weight loss efforts as well as reducing the amount of sugar in the body – and that helps with diabetes management too! Drinking more water throughout the day is an easy way to improve overall health.
  7. Meditate – Meditation has been shown to have positive impacts on both mental health and physical health by reducing stress levels, which in turn helps with weight management efforts too. Taking some time each day to practice meditation is an easy way to improve overall well-being.
  8. Eat more vegetables – Eating more vegetables is an easy way to improve overall nutrition while helping to lower life insurance premiums at the same time. Vegetables are packed with vitamins, minerals, antioxidants, and fibre, which all work together to promote better health outcomes.
  9. Exercise – Regular exercise has been proven to have numerous benefits for both physical and mental well-being including improved moods, increased energy levels, and improved cardiovascular fitness, which all contribute towards lowering life insurance premiums.
  10. Develop good sleep habits – Getting enough quality sleep each night is essential for maintaining good physical and mental health.

A Closer Look: Examples

Insurance broker Jane Cotnam shares a story about the power of weight loss impacting life insurance premiums.

“I had a client who applied for level CI with Canada Life. She was rated for her weight,” says Cotnam. “Bordering on obesity, this was the determining factor in her finally losing the weight. It’s been six months and she is down 50 pounds so far. She’s so much more confident now and will continue to lose weight in order to get a standard premium.”

Broker Mohammed Azeez Amer is also happy to share details by showing how Equitable Life’s Stop Smoking Incentive Program (ELSSIP) works.

“Applicable to Equation Generation IV and Equimax, the ELSSIP can be offered to applicants that have ‘quit smoking for 12 consecutive months within the first two policy years. Equitable Life will refund the difference between what they paid as a smoker and what they would have paid as a non-smoker for a maximum one month period. Eligibility is subject to certain conditions including a negative cotinine level and evidence of continued insurability. Term clients may be eligible to move from a Class 4 Preferred Smoker or Class 5 Smoker to a Class 3 Non-Smoker.’”

The Best Way to Get the Best Rate

Taking care of one’s health improves more than life insurance premiums. It improves quality of life and longevity. Health is a gift you can give yourself, and then enjoy its many resulting benefits. Yet, good health is not always in our hands. Illnesses or accidents can rob us no matter our good intentions. Continue Reading…

An ETF Strategy with Exposure to High Credit Security and High Monthly Income

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Harvest Premium Yield Treasury ETF (HPYT)

Harvest ETFs this week announced its new Harvest Premium Yield Treasury ETF, now available.

By Michael Kovacs, President & CEO of Harvest ETFs

(Sponsor Blog) 

Canadian investors have been forced to adapt to aggressive interest rate hikes from the Bank of Canada. This was preceded by a prolonged period of low interest rates that continued since the 2007-2008 Financial Crisis.

Some experts and analysts are projecting that interest rates are at or near the peak of this tightening cycle. In this environment, an optimal investment strategy factors in high interest rates while preparing for the eventual downward move that many analysts expect in 2024 or later. When the period of high interest rates subsides, there may be great potential for capital appreciation and income generation with an investment strategy that captures those benefits/opportunities. That is where the brand new HPYT ETF comes into play!

What is it?

HPYT is an ETF that holds several long-duration US Treasury ETFs and actively manages a covered call write position on those ETFs to generate an attractive monthly income.  It has an approximate yield of 15%, representing the highest fixed-income yield in Canada. The approximate yield is an annualized amount comprised of 12 unchanged monthly distributions (the announced distribution of 0.15 cents on Sept. 28 multiplied by 12) as a percentage of the opening market price of $12 on September 28, 2023.   Continue Reading…