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.”

Lessons we Learned in 2024

Posted By Financial Independence Hub | October 1, 2024

Billy and Akaisha in Sorrento, Southern Italy; Photo courtesy of RetireEarlyLifestyle.com

By Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

“Improvise, Adapt, and Overcome” – Marine slogan

What a year!

Every year brings new challenges that we must face. Life doesn’t stop and the best way to meet the “new” is with an open attitude and a sense of confidence. Fear doesn’t help anyone or anything.

Solid plans often break

Our Readers will sometimes say they have just a few more things to settle, a few more “I’s” to dot and “T’s” to cross before retiring. They’re waiting for the health care issue to be settled, waiting for the bonus check next year, waiting to hit “this” particular financial number, waiting for next year to sell their properties, waiting for things to mellow out in the country, waiting for inflation to go down, waiting for the market to go back up,… they’re waiting…

Personal Financial Independence was put off until this imaginary perfect time, and then finally they planned a year of travel. But BAM! One of the spouses became gravely ill with a disease that not only shook them up, but forced them to shelve all excursion plans. Or the market started pulling back giving them the willies and they lost confidence in their future plans of early retirement.

Ask yourself, “What are you waiting for and why?” Then ask yourself if you have a Plan B for these unexpected situations.

Lots of people wait until they graduate from law school, or get the degree or wait until they get married, or until they buy that perfect house, or until the kids get out of school, or they hit that magic number to retire – in order to be happy.

They live for tomorrow and forget all about the pleasures and happiness of today.

Stop settling, start living. NOW.

You’re not going to get anything in Life by playing it safe. There are no guarantees.

Lesson learned; Faith over Fear, Don’t Worry be Happy

We only have control of ourselves.

I get push back on this one, sometimes. Usually it falls under the “You don’t understand what I’m going through” category.

But if you think about it, stuff happens.

We can’t control a loved one getting ill, can’t control that our children or spouse do what we prefer. We don’t have a lot of say in international peace relations. Whether our children get divorced, illness knocks you or a loved one for a loop, there’s a huge business loss or politics don’t go our way – all we have control over – is our response to the situation.

If you are feeling out of control on your moods, there are lots of tools to clarify your mind and calm yourself down and lots of services available to you. Don’t let the stress build up until you have an even worse situation happen.

Lesson Learned; Life is not in our total control – only our response to it is.

Relationships change

Relationships are cemented or lost every year. Change is part of life, and some relationships don’t move forward with us.

Once again if you think about it, when you got married, had a child, moved cross-country, got that promotion, contracted a serious illness, got divorced, retired early or hit any other life milestone, did some friendships recede?

Most likely.

Life is change and sometimes your better future lies ahead of you, without those loved people in them.

Yes, it IS difficult to let go of habits and people. We’ve all been there at different points in our lives. It’s better to process the loss and continue to move forward, creating the life of our dreams, than to become bitter and angry over the loss.

In my opinion, 2024 was a year of clarification.

What I mean is, yup. Things fall away. Sometimes it’s beloved things and people. I think this helps us to focus on what really matters to us. This is a blessing in disguise and you will be stronger for it.

Lesson Learned; As you grow, some relationships won’t make it into your future.

Fear seems ever-present

When we are afraid of something, chances are, we don’t know much about it. Our perceptions are skewed because of this.

Remember the old saying – FEAR is False Evidence Appearing Real?

Take control and choose to find out more. The knowledge you discover will give you options and open up doors for you. Question the thoughts you are thinking and the beliefs you are holding. Question the definitions you have set for yourself. Fear does not serve you in any way and will only force you to contract, limiting your options even further.

This is a choice.

You can either learn and grow or contract and suffer because of it.

Lesson Learned; Fear is related to ignorance. Choose to learn more

People retreated into perceived safety

There is no safety, there are no guarantees. And sometimes as we age, we think we’ll feel better if we just “don’t take any chances.”

Remember Helen Keller’s quote:

Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing.

You can either live your life or live in FEAR.

Make the most of life every day. It’s later than you think!

Lesson Learned; Life is a risk every day. Manage it.

Anxiety seems to be everywhere

This is a good one, and it surprised me a bit.

Living the “life of my dreams” I hadn’t realized that I was still carrying friction and tension in assorted areas of my life. Billy and I started getting massages more often. I began going to a chiropractor, and my customary yoga became more important. We upped our exercise routine, I meditated more and I opened my mind to new information.

Anything that just didn’t “fall into place easily” or no longer worked … we dropped.

This made us feel freer and gave us more physical energy, clearing our minds.

Lesson Learned; Make things easier on yourself in any and all ways.

Don’t stop living your life

When things change beyond our control, we must find the advantages in the situation and make the most of where we are. Continue Reading…

How a Fed Rate Cut could bolster Canada’s largest Covered Call Bond ETFs

Posted By Financial Independence Hub | September 17, 2024

By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog)

In late August, Federal Reserve chairman Jerome Powell caused a stir among the investing community when he provided the strongest signal yet that the U.S. central bank is gearing up for interest rate cuts starting in September.

At the time of this writing, we are just one day away from that crucial decision. So what will this mean for the yield curve, the direction of the Fed, how the change in policy is affecting markets, and the implications for Harvest Premium Yield Treasury ETF (HPYT:TSX) and the Harvest Premium Yield 7-10 Year Treasury ETF (HPYM:TSX) in the final third of 2024. Let’s explore!

How does the yield curve function?

The yield curve, which is a representation of different bond yields across various maturities, can take varying shapes and curvatures. However, the most talked about is the shape of the yield curve in particularly one that’s either normal or inverted. A normal yield curve will have short-term bond yields that are lower than long-term bond yields. This encapsulates the time and risk premium associated with investing further into the future. However, in a period wherein central banks are seeking to slow economic growth/inflation, near-term rates will be raised in a manner that leads to higher short-term yields versus long-term yields. This is called an inverted yield curve, a much rarer occurrence.

Source: Bloomberg, Harvest Portfolios Group Inc., September 12, 2024

In practice, the difference between the 10-year yield versus the 2-year yield of government bonds is the go-to measure or gauge. The yield curve has been inverted for some time and became dis-inverted (Normal) in August 2024. That is a sign that shorter-term rates are coming down. This likely precedes meaningful interest rate cuts.

Source: Bloomberg, Harvest Portfolios Group Inc., September 12, 2024

What drives the Federal Reserve?

The Federal Reserve (Fed) has a dual mandate: to achieve maximum employment, and to keep prices stable. Despite taking on one of its most aggressive interest rate hiking cycles in history to regain price stability, inflation has failed to return to the target of 2%, albeit subsiding in recent months. The lower levels of inflation come with slowing economic data and weaker-than-expected jobs data, which belies the Fed’s goal of achieving maximum employment. So, what’s next?

With inflation coming down, the Fed members seem ready to cut short-term rates to alleviate the negative impact of higher interest rates on the economy. But before we get excited, it’s worth noting that the Central bank tools traditionally take time to filter through to the economy. Interest rate cuts may not have an immediate impact on the economy and broader markets but will filter over time.

Ultimately, this shift in policy should return the inverted yield curve to a normal yield curve.

Rate expectations: What is already priced in?

The next Fed rate announcement meeting is on September 18, and the market is already pricing in the first rate cut. The size of the cut is still up for debate, but it is likely to be 25 basis points, with a smaller chance that it could be larger at 50 basis points.

Looking further out to the Fed’s remaining two meetings for the rest of the year, the market expects the Fed to cut rates again. That would represent a total of 100 basis points of cuts expected by the end of 2024. Moreover, the market has priced in 10 rate cuts, or 250 basis points, of total interest rate cuts. These are priced in and expected to occur throughout 2025 with the ultimate destination of 3.00% on the overnight rate.

However, interest rates further out the yield curve have also recently moved down quite a bit. This is what’s known in bond-speak as a “bull steepening” — as the curve normalizes yields across maturities shift lower too, and thus bond prices move higher. Indeed, the narrative continues to shift toward the imminent start of this rate cutting cycle.

The 10-year yield was 3.65% at the time of writing. That is already down significantly – 137 basis points – from the peak of interest rates in October 2023.

The implications for the yield curve

What will happen to the yield curve going forward? Portfolio Manager Mike Dragosits, CFA, expects the yield curve to normalize due to several existing factors. The tightening cycle is ending, and the Fed is poised to embark on a rate-cutting cycle. So, this would mean that short-term bond yields may fall faster and stay relatively lower than long-term bond yields. Continue Reading…

Vanguard unveils new Ultra-Short Canadian Government Bond ETF

Posted By Jonathan Chevreau | September 12, 2024

In what it says is its first new ETF announcement in four years, Vanguard Investments Canada Inc. today announced a new Fixed-Income ETF designed to met investors’ short-term savings needs. Here is the full release on Canada News Wire.

Trading on the TSX under the ticker VVSG, Vanguard Canada says the Vanguard Canadian Ultra-Short Government Bond Index ETF offers AAA-rated high-quality government bonds and treasury bills with a low management fee of 0.10%. It seeks to track the Bloomberg Canadian Short Treasury 1-12 month Float Adjusted Index. The release says the ETF will invest primarily in public, investment-grade government fixed-income securities with maturities of less than 365 days issued in Canada.

Vanguard Canada’s first new ETF in 4 years

In an email to me, Vanguard Canada spokesman Matthew Gierasimczuk confirmed “It’s our first ETF launch in four years.” It brings the total number of Vanguard ETFs in Canada to 38, with $80 billion (CAD) in Canadian ETF assets under management. You can find the full list on its website here. Continue Reading…

Canadians leave $17 billion on the table each year from High Fees

Posted By Financial Independence Hub | September 9, 2024

Thanks to high-fee mutual funds, Canadians are leaving a lot of money on the table. While superior ETF investment options have been available for more than two decades, Canadians are slow to help themselves out. Those fees are wealth destroyers. We’re not making the move to ETFs at the pace of the rest of the developed world. It’s a no-brainer. Canadians can find investment options at less than 1/10th the cost. But too much money is still going into the wrong pockets – that of advisors and the mutual fund providers. We’re leaving too much money on the table, in the Sunday Reads.

Here’s the graphic that shows Canada is slow on the uptake …

The irony is that Canadians need to embrace low-cost index funds more than most people on earth. We pay some of the highest fees on the planet. And those high-fee mutual funds most often come attached to an advisor who offers no advice, or poor advice. They are salespersons, not real advisors. From the Globe & Mail piece …

Canadian investors, on the other hand, have been far slower to shift their allegiances to indexing. Since 2013, Canadian passive funds increased their market share from 10.4 per cent to just 15.5 per cent currently. Continue Reading…

Understanding Inflation, Interest Rates, and Market Reaction

Posted By Financial Independence Hub | September 4, 2024

Markets can be Scary but more importantly, they are Resilient

LowrieFinancial.com: Canva custom creation

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Most investors understand or perhaps accept the fact that they are not able to time stock markets (sell out before they go down or buy in before they advance).

The simple rationale is that stock markets are forward looking by anticipating or “pricing in” future expectations.

While the screaming negative headlines may capture attention, stock markets are looking out to what may happen well into the future.

Timing bond markets is even harder than timing stock markets

When it comes to interest rates and inflation, my observation is that the opposite is true. Most investors seem to think they can zig or zag their bond investments ahead of interest rate changes. This is perplexing, as you can easily make the case based on evidence that trying to time bond markets is even more difficult than trying to time equity markets.

Another observation is that many investors tend to be slow to over-react. Reacting to today’s deafening headlines ignores that fact that all financial markets are extremely resilient. Whether good or bad economic news, good or bad geopolitical events, markets will work themselves out and march onto new highs, albeit sometimes punctuated by sharp and unnerving declines. Put another way, declines are temporary, whereas advances are permanent. And remember, this applies to both bond and stock markets.

It is easy to understand why we might be scared about the recent headline inflation numbers and concerned about rising interest. It is very important to keep this in context, which is what we will address today.