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.”

Vanguard unveils new Ultra-Short Canadian Government Bond ETF

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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

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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

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Markets can be Scary but more importantly, they are Resilient

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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.

Interest Rates are Rising (or Falling)

With interest rates in flux, what should you do? Consider this… Continue Reading…

Retired Money: Should retirees consider a Reverse Mortgage?

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My latest MoneySense Retired Money column looks at the question of whether seniors or those near Retirement should consider  taking out a reverse mortgage. Click on the highlighted headline for the full column: Why a reverse mortgage should be a last resort for most Canadian retirees.

At first glance, reverse mortgages sound appealing, especially for those whose wealth mostly resides in their home equity. If you have little other sources of future retirement income, and especially if you have no heirs who will be annoyed at having a reduced inheritance, then the prospect of living in your home in old age and generating tax-optimized retirement income to boot does sound appealing.

Have your Home and your Money too?

As P.J. Wade wrote in her 1999 book, Have Your Home and Money Too,  reverse mortgages can be “your best friend or your worst enemy … your choice!”

However,  there’s not a lot of Reverse Mortgages available in Canada. The two main ones of which I’m aware are Equitable Bank and HomeEquity Bank (aka CHIP). According to Rates.ca “Reverse mortgages always cost more than conventional mortgages because the lender’s funding costs are higher.”

The full column includes input from occasional MoneySense contributor Allan Small, who is a senior investment advisor with IA Private Wealth Inc. as well as a podcaster. He says reverse mortgages “have not played a part in any of the retirement plans and retirement planning that I have done so far in my career. I think the reverse mortgage idea or concept for whatever reason has not caught on.” Also, “those individual investors I see usually have money to invest, or they have already invested. Most downsize their residence and take the equity out that way versus pulling money out of the property while still living in it.”

Milevsky: It all depends on to what a financial strategy is compared

For me, the definitive word on Reverse Mortgages or any other financial instrument goes to noted Finance professor and author Moshe Milevsky. He told me in an email that when it comes to reverse mortgages – or any other financial strategy or product in the realm of decumulation – “I always ask this question before giving an opinion: Compared to what?” He worries about the associated interest rate risk, which is “difficult to control, manage or even comprehend at advanced ages with cognitive decline.”

What are the alternatives to a reverse mortgage? Is it selling the house and moving? Or, Milevsky asks, “Is the alternative reducing your standard of living? Is the alternative taking a loan from a local bookie? It’s the alternative that determines whether the reverse mortgage is a good idea or not … Generally I will not rule them out and I think they will continue to grow in popularity among retiring boomers, but I wouldn’t place them at the very top of the to-do list when you get to your golden years.”

Gen Z driving surge in mobile Debit spending

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Image courtesy Interac Corp.

An Interac survey being released today finds that more than two thirds (69%) of Canada’s Gen Z generation [defined as Canadians aged 18 to 27] have embraced the mobile wallet, while almost as many (63%) would rather leave their old-fashioned physical wallets at home for short trips. Gen Z’s Interac contactless mobile purchases also rose 27% in the first half of 2024, compared to the same period a year earlier.

Gen Z appears to be more enthusiastic than their counterparts in older cohorts: 60% of Millennials [aged 28-43]  embraced mobile wallets, compared to 44% of Gen Xers [aged 44-59] and just 27% of Baby Boomers [aged 60-78.] Only 10% of the older Silent Generation [age 79 or older] did so.

A whopping 63% of Gen Z mobile wallet users have loaded their Interac debit card on their smartphones, and 31% plan to set debit as their default method of payment. For 63% of them, the reason is perceived faster payment times compared to physical card payments.

 “Choosing your default payment method may feel like a small step, but it can play a big role in shaping Canadians’ ongoing spending habits,” said Glenn Wolff, Group Head and Chief Client Officer, Interac in a press release. “When consumers tap to pay with their phones, the decision to select a card from the digital wallet is easy to miss. Canadians could end up unintentionally using a default payment method that prompts them to take on more debt. This differs from traditional physical wallets where the consumer had to select the card they wanted to use each time.”

Majority want to be smarter with money

62% of Gen Z want to be “more mindful when spending” with 57% saying they want the option to use debit when paying in store or online; 79% of them say the cost of living is too expensive and 59% feel the need to be smarter with their money.

Interact says this generation’s desire to control overspending is heightened by back-to-school season: last year, family clothing stores saw almost twice as many Interac Debit mobile purchases in September and October compared to earlier that year in January and February. 54% of Gen Zs see the need to develop new habits to stay in control over their finances, while 56% are setting a timeline for this September to introduce new habits. Continue Reading…