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.”

3 tips to House Flipping success for Seniors

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By Jim McKinley

Special to the Financial Independence Hub

If you’ve been looking forward to trying something new in retirement, flipping houses might be the ticket. If you want to be a successful house flipper, follow these steps from Financial Independence Hub to get your business off on the right foot.

1.) Figure out Funding

Funding for house flipping generally comes from two places: investors or hard money loans. Each way has its benefits and drawbacks.

Investors can be a great option because you are bringing someone into the business who wants it to succeed. The money investors give you can also be used more freely than funds from a loan. Auctions, for instance, are an excellent place to pick up homes for cheap, but they often require cash. Most loans won’t cover auction purchases, so investors are an excellent way to open up the world of foreclosed auction homes for you.

The downside to investors is that because they also have an investment in the business, you might have less freedom than you would if you were on your own. Their opinions become as weighty as yours, and you may have to bend to their will when your opinions differ on what to do because they have the money.

Hard money loans are another option for business financing. Instead of basing their approval on you, lenders consider the potential value of the house after repair, called the ARV. If approved, they’ll give you not just the purchase money for the house but what you’ll need to flip it, too, and if the loan goes south, they can get their money back by selling the property. The main drawback to these loans is steep interest.

2.) Know what to look for

The ideal house for flipping is located in an up-and-coming neighborhood, meaning young families and professionals are looking to buy there. It’s located on a good street with low crime and is near nice schools.

According to HGTV, the best houses have areas that can be improved immensely simply by painting. They have solid builds with an attractive layout and unique pieces that give them character. Although it can be tempting to choose homes that could use extreme renovations, those kinds of fixes can take significant time. It’s important to remember that every month you spend working on the house is time that you’re losing money through your loan or paying bills to keep the house up and running. Continue Reading…

Retired Money: How Bond ETF investors can minimize risk of rising rates

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My latest MoneySense Retired Money column has just been published: click on the highlighted text to retrieve the full column: Should investors even bother with Bonds any more?

In a nutshell, once again pundits are fretting that interest rates have been so low for so long, that they inevitably must soon begin to rise. And if and when they do, because of the inverse relationship between bond prices and interest rates, any rise in rates may result in  capital losses in the value of the underlying bonds.

In practice, this means choosing (or switching) to bond ETFs with shorter maturities: the risk rises with funds with a lot of bonds maturing five years or more into the future, although of course as long as rates stay as they are or fall, that can be a good thing.

As the column shows, typical aggregate bond ETFs (like ETF All-Star VAB) and equivalents from iShares have suffered losses in the first quarter of 2021. Shorter-term bond ETFs that hold mostly bonds maturing in under five years have been hit less hard. This is one reason why in the US Vanguard Group just unveiled a new Ultra Short Bond ETF that focuses on bonds maturing mostly in two years or less.

The short-term actively managed bond ETF is called the Vanguard Ultra Short Bond ETF. It sports the ticker symbol VUSB, and invests primarily in bonds maturing in zero to two years. It’s considered low-risk, with an MER of 0.10%.

Of course, if you do that (and bear the currency risk involved, at least until Vanguard Canada unveils a C$ version), you may find it less stressful to keep your short-term cash reserves in actual cash, or daily interest savings account, or 1-year or 2-year GICs. None of these pay much but at least they don’t generate red ink, at least in nominal terms. Continue Reading…

How to raise money-smart kids

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By Gaurav Kapoor, Founder, Mydoh

(Sponsor content)

Financial literacy isn’t an innate skill. Like most skills in life, financial literacy must be learned – the problem is who teaches it? Parents know they play a part, but they may lack the confidence, or the knowledge.

Helping your children develop good money habits as they enter their teen years is a great place to start their financial literacy journey. Teenagers are eagerly seeking out financial independence and may be earning money through an allowance or an after-school job.

As they look to spend their hard-earned money, it’s crucial to set them up for success. After all, money isn’t just about dollars and cents, it’s about the choices we make with it. Parents want to teach their children to be money-smart – to have skills to earn, budget and spend, but they also want to share the value, emotions and experiences that come with money.

This notion of early financial literacy is what motivated me to create Mydoh, the Smart Card for kids.

Check out my best tips below for raising money-smart kids with the help of Mydoh:

Leverage technology that helps your kids learn how to save, and spend, their money

Kids today are more tuned in to technology than ever before – so why not use tech to teach them financial literacy?

Mydoh is a Smart Card for kids that comes with a money management mobile app, available on iOS and coming soon to Android. Kids gain financial skills by earning money through tasks and an allowance (set up by their parents) and by making their own purchases (wherever Visa is accepted) using their Smart Card issued by RBC through the app, with a physical card coming soon. This gives kids the autonomy, competency, and confidence to make their own earning and spending decisions – learning values that help build a strong foundation for the future.

Through the app, kids can manage their own money in the real world, making decisions to spend and earn, while parents get visibility to their spending and can have better money conversations. Continue Reading…

The hidden costs of DIY Financial Planning: Bad Investments cost more than you think

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Today’s Simple Investing Take-Away: Simple investing mistakes can result in bad investments that can derail your long-term financial goals and erode your emotional well-being. One of the biggest missteps, amplified by our behavioural tendencies, is to ignore the many hidden costs of DIY investing. Even if the price paid isn’t obvious, it still takes a toll on your results.

 

Lowrie Financial

 

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Eager to embrace DIY investing? Or have you at least wondered whether you’ve got what it takes to succeed on your own?

I understand the appeal. When you engage a personal financial advisor, you’ll see their advisor fees, loud and clear. The financial regulators require us to disclose them. Plus, at least here at Lowrie Financial, we want you to see them. How else can you tell if you’re getting a fair shake?

But therein lies a dilemma. Thanks to behavioural finance, we know about a multitude of murky costs that can slip in when investors allow their rational resolve and simple investing strategies to be hijacked by their complex instincts and emotions. Some of these self-inflicted costs include:

  • The cost of chasing past returns by getting caught in a “fad” during up markets; or by panicking and selling out during scary times
  • The cost of ignoring tax ramifications of frequent trading in taxable accounts
  • The cost of investing as a form of entertainment, or experimenting with your financial future while learning the ropes

Once you factor in the bad investments and other prices paid by so many DIY investors, financial advisor fees start to seem well worth it. A reputable advisor should help you focus on your personal financial goals while avoiding these and other DIY investing pitfalls.

The cost of chasing Past Returns

Have you heard of “FOMO” or “Fear of Missing Out”? It’s that itchy feeling you get when you long to get in on a red-hot popularity contest, regardless of whether it fits into your financial plan.

Most recently, others seem to be making millions on all sorts of “silly season” exotica: from SPACs and Reddit-fueled stock runs, to cryptocurrency and NFTs. In real time, these may seem like simple investing decisions; jump on the bandwagon and make a ton of money, fast. Unfortunately, by the time you’re aware of a trend on a tear, you’ll be hard-pressed to buy in low enough, sell out high enough, and do both consistently enough to come out ahead in the long run. This means odds are heavily stacked against FOMO-driven investors who try to come out ahead (but usually fail) by chasing after winning streaks.

There are reams of academic inquiries pointing to the merits of more patient simple investing strategies for capturing expected long-term market growth. Recently, a University of British Columbia/Emory University study found (once again) that individual investors in Canada and around the globe tend to underperform the same stocks and markets in which they’re invested. Digging into why, the study’s co-authors found investors created extra self-inflicted investment volatility (nearly 50% higher) by piling into the market “after superior stock returns and before inferior returns.”

These findings only add to a volume of past studies into similar return-chasing adventures. By succumbing to FOMO investing and similar bad investment habits, DIY investors unnecessarily sacrifice available market returns.

The cost of ignoring Tax Ramifications

These days, many people are working from home, with more time to spend consuming financial media or social media forums. A simple look at these investing forums would lead you to believe that everyone from your co-worker, to your favorite sports hero, to popular financial gurus like Canada’s own Chamath Palihapitiya are supposedly seizing big profits and cutting losses in rapid-fire trades day after day. It seems so easy.

Again, if we look at the evidence, the after-cost, after-tax results usually fall short of a simple buy-and-hold approach. In a recent extreme example, a U.S. day-trader used $30,000 in cash, placing 10–50 trades daily, to come out $45,000 ahead in 2020. Not bad. Unfortunately, by failing to understand U.S. tax regulations, like the wash-sale rule, he also generated an $800,000 tax bill on the realized gains. Continue Reading…

What about the Bond Market?

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By John De Goey, CFP, CIM

(Special to the Financial Independence Hub)

Over the past several months, much has been said about the stock market, and for good reason.  What can be lost in the shuffle is what has been going on concurrently in the bond market.  It’s at least as bad. Therefore, if you’re worried about stock valuations, you should probably be really, really worried about bond valuations.  There are, in my view, a lot of borderline reckless income ‘investors’ out there who hold bonds simply because of industry dogma.  Bullshift applies to bonds, too.

Some observers fear inflationary pressure on the horizon.  I’m less convinced, but still, real yields have moved higher due to both an improved growth outlook and additional expected fiscal stimulus.  Today, many people seem comfortable in referring to the environment as the ‘end of the bull market’ in bonds.  The obvious next question is: ‘does that mean we are at the beginning of a bear market in bonds?’.  To me, this is a distinct possibility.

After 40 years, interest rates can’t go much lower

For nearly 40 years, interest rates have been dropping throughout the western world.  Now, we’re at the point where, as a practical matter, they can’t really go lower.  We’re also at a point where, policy guidance from central bankers notwithstanding, rates might have to rise sooner than we thought if the inflationary pressure some expect begins to materialize. Continue Reading…