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.”

Top Canadian Dividend ETFs

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By Mark Seed, myownadvisor

Special to Financial Independence Hub 

What makes a great Exchange Traded Fund (ETF)?

What makes a great Canadian dividend Exchange Traded Fund? 

What are the top Canadian dividend ETFs to own?

You’ve come to the right site and the right post for these answers and my thoughts. Let’s go in this updated post!

Top Canadian Dividend ETFs – what is an ETF?

An ETF (Exchange Traded Fund) is a diverse collection of assets (like a mutual fund) that trades on an exchange (like a stock does).

This makes an ETF a marketable security = it has trading capability. Since you and buy and sell ETFs on an exchange during the day, ETF prices can change throughout the day as they are bought and sold.

ETFs may typically have lower fees than mutual funds (although not always), which can make them an attractive alternative to mutual funds.

Based on my personal experiences approaching 20 years as My Own Advisor I find ETFs very easy to buy using a discount brokerage and ETFs can provide a low-cost way to diversify your portfolio.

Although you don’t need to buy equity ETFs, it is my personal belief that you’re FAR better off owning more equities than bonds over long investing periods.

Simply put: learn to live with stocks for wealth-building. I’m trying to do the same!

What goes into a good ETF? What should you consider?

Before we get into my favourite Canadian dividend ETFs, here are some elements to consider as you select your ETFs for your portfolio:

1. Style – ETFs can track an index, follow an industry sector, be rules-based like some smart-beta funds are, or be much more. For the most part, I prefer plain-vanilla, broad market equity indexed ETFs. While I used to own a few dividend ETFs I no longer invest this way. I’ll link to that post later on. That said, Dividend ETFs can provide income to you as an investor; tangible money to use or reinvest as you please.

2. Fees – Hopefully by now from my site you know that high money management fees kill portfolio values over time. I try and keep my management expense ratio (MER) (the fee paid to the fund’s manager, as well as taxes and other costs) low (for as long as possible). Dividend ETFs often come with higher fees due to portfolio turnover. Something to think about.

Further Reading: Learn about MERs, TERs and more about ETF fees here.

3. Tracking error – In short, tracking error is the difference between the performance of the fund (the ETF) and its benchmark (what it tracks). I would advise you to look at the fund’s prospectus before you buy it and strive to own ETFs with low tracking errors.

4. Diversification – Along the same lines ‘Style’, you should be very mindful of the assets within an ETF before you buy it. ETFs are not created equal.

If you’re just starting out your investing journey, you can learn more about ETFs here.

Top Canadian ETFs vs. Dividend ETFs

When in doubt about buying any individual stock, I’ve been a huge fan of Canadian broad market ETFs like XIU, XIC, ZCN, VCN, along with others over the years.

I like XIU in particular.

XIU holds the largest 60 stocks in Canada and most of those stocks held in XIU pay dividends, although not all of them. Paying a dividend comes down to company policy. There are certainly many ways shareholder value is created.

While XIU has nowhere near the number of holdings that VCN has, XIU has delivered stellar long-term returns better than most.

I referenced this above: diversification can be a great ally as a risk mitigation tactic against stock picking but that doesn’t mean owning an ETF is bulletproof. Indexed ETFs hold all the stock studs and duds. Dividend ETFs might do the same. Dividend ETFs may limit your investing universe and your returns compared to other funds. Things to think about.

5. Tax efficiency – If you never intend to max out your TFSAs, RRSPs, kids’ RESPs, or other registered accounts then this is a non-issue for you. For some investors, however, who invest outside registered accounts (such as the aforementioned RRSPs, RRIFs, TFSAs, RESPs, LIRAs) like I do, then you need to consider the tax efficiency of your ETFs.

XIU in particular is very tax efficient. There are other ETFs to consider for tax efficiency as well.

In taxable accounts, I would advise you to look at the fund’s prospectus before you buy it and strive to own ETFs for your taxable account that are tax efficient; for the dividend tax credit or for capital gains.

Further Reading: How to invest for tax efficiency investing in taxable accounts.

6. History – While past performance is never indicative of future results unfortunately ETF/fund history is all we have since nobody can predict the financial future with any accuracy. Consider the track record of the ETF when it comes to returns.

What are my Top Canadian Dividend ETFs?

All data and information was updated in late-July 2024 and is approximate (for total returns) at the time of this post.

ETF Symbol MER # of holdings Total 5-Year Return Total 10-Year Return
VDY 0.22% 56 61% 100%
ZDV 0.39% 51 46% 67%
XEI 0.22% 75 50% 70%
XIU 0.18% 60 55% 103%
Comparison only: XAW 0.20% 8,700+ stocks 71% N/A – 2015 inception date

I’ve added global ETF XAW for comparison purposes only to the other four (4) Canadian dividend ETFs.  (Dislosure: I own XAW ETF and will continue to do so.)

Why I don’t own any Top Canadian Dividend ETFs…

Readers of this site will know I don’t own any Canadian dividend ETFs. I’ll share those reasons:

While the Vanguard Canadian High Dividend Yield Index ETF (VDY) is a good consideration, I own all the top-10 VDY stocks outright / on my own at the time of this post and have done so for 10+ years in many cases. So, no point in duplicating things …  Also, VDY is heavy on Canadian banks so there is sector concentration risk there I could avoid by owning some individual Canadian stocks. I can also decide to own some lower-yielding and higher=growth stocks inside my taxable account. Continue Reading…

Retired Money: Review of Die with Zero and 4,000 Weeks

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Chapters Indigo

My latest Retired Money column looks at two related books: Die with Zero and Four Thousand Weeks.

You can as always find the full version of the MoneySense column by clicking on the highlighted text: Why these authors want you to spend your money and die with $0 saved.

I start with Die with Zero because it most directly deals with the topic of money as we age. In fact, as most retirees know, one of the biggest fears behind the whole retirement saving concept is running out of money before you run out of life.

But it appears that many of us have become so fixated with saving for retirement, we may end up wasting much of our precious life energy, and being the proverbial richest inhabitant of the cemetery. For you super savers out there, this book may be an eye opener, as is the other book, 4,000 Weeks.

As I note in the column, this genre of personal finance started with Die Broke, by Stephen Pollan and Mark Levine, which I read shortly after it was first published in 1998. That’s where I encountered the amusing quip that “The last check you write should be to your undertaker … and it should bounce.”

The premise is similar in both books: there are trade-offs between time, money and health. Indeed,  as you can see from the cover shot above, its subtitle is Getting all you can from your money and your life. As with another influential book, Your Money or Your Life,  we exchange our time and life energy for money, which can therefore be viewed as a form of stored life energy. So if you die with lots of money, you’ve in effect “wasted” some of your precious life energy. Similarly, if you encounter mobility issues or other afflictions in your 70s or 80s, you may not be able to travel and engage in many activities that you may have thought you had been “saving up” for.

A treatise on Life’s Brevity and appreciating the moment

Amazon.com

The companion book is Four Thousand Weeks : Time Management for Mortals, by Oliver Burkeman. If you haven’t already guessed, 4,000 weeks is roughly the number of weeks someone will live if they reach age 77 [77 years multiplied by 52 equals 4,004.] Even the oldest person on record, Jeanne Calment, lived only 6,400 weeks, having died at age 122.

I actually enjoyed this book more than Die with Zero. It’s more philosophical and amusing in spots. Some of the more intriguing chapters are “Becoming a better procrastinator” and “Cosmic Insignificance Therapy.” I underlined way too many passages to flag here but here’s a sample from the former chapter: “The core challenge of managing our limited time isn’t about how to get everything done – that’s never going to happen – but how to decide most wisely what not to do … we need to learn to get better at procrastinating.”

 

 

Unique Strategies to Reduce your Car Expenses and Save Money

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It may not seem like it, but owning and driving a car will be a major part of your financial picture throughout your adult life. As with all financial aspects, it pays to be a smart and savvy decision-maker and shopper and to know how to save money on car expenses.

Adobe stock image: Syda Productions

By Dan Coconate

Special to Financial Independence Hub

Cars, believe it or not, are considered an asset. However, it’s good to remember that cars are indeed a depreciating asset. Every year, they decline in value due to wear and tear and also due to the release of newer models. As a result, cars are not a smart investment since they only hold value for a short amount of time.

So be wise about your cars. Making sound financial choices about the cars you drive, and the car insurance you obtain, will equal more money in your pocket in the long run.

First, let’s take a look at some tips on how to save money when you are buying a car. If you’re aiming for a stress-free and independent retirement phase, you’ll love these unique strategies to reduce your car expenses and save money.

Transitioning to early retirement is an exciting chapter that requires a smart approach to manage your finances. Car expenses are significant parts of any driver’s budget, and you can actually save money with a few strategic adjustments. Here are some unique strategies to reduce your car expenses and save money for more pressing needs.

Negotiate with your Insurance Company

One of the most effective ways to reduce car expenses is to negotiate with your insurance company. Many people assume their premiums are non-negotiable, but that’s not true.

By contacting your insurance provider and discussing your current rates, you might find opportunities for discounts or better rates. Highlight your clean driving record or inquire about senior discounts.

Consider Bundling Car Insurance with other Policies

Insurance companies often offer discounts to customers who bundle multiple policies. If you have homeowner’s or renter’s insurance, consider combining it with your car insurance.

This strategy will simplify your payments and provide a discount on your premiums. The savings from bundling can add up over time, helping you reduce your car expenses and invest more in your retirement savings!

Take a Defensive Driving Course

Defensive driving courses are excellent for lowering your insurance premiums. Many insurance companies offer discounts to drivers who have taken these courses. Completing a course shows your insurer that you’re committed to safe driving practices.

Lower your Driving Speed

Driving at low speeds can reduce your car’s fuel consumption. When you maintain a moderate speed, your engine works more efficiently, conserving fuel and reducing wear and tear. Small fuel savings can add up over time, making a noticeable difference in your car-related expenses. Continue Reading…

Then and Now – Revisiting the need for bonds

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Image courtesy myownadvisor/Pexels

By Mark Seed, myownadvisor

Special to Financial Independence Hub

It has been said bonds make bad times better.

Is this the reason to own bonds?

Welcome to another Then and Now post, a continuation of my series where I revisit some older blogposts and either rip them to shreds (because my thinking has totally changed on such subjects) or I’ll confirm my position on various personal finance topics or specific stock and ETF investments.

Since my last Then and Now post (whereby I shared I sold out of all Johnson & Johnson (JNJ) stock to buy other equities in recent years), I figured it might be interesting to review this post and update my thinking from a few years ago before the pandemic hit – on bonds.

Then – on bonds

Back in 2015 when the original post was shared, I referenced this quote that frames my own portfolio management approach when it comes to my bias to owning stocks over bonds:

“If you want to make the most money, you should invest in stocks. But if you want to keep the money you made in stocks, you should invest in bonds.” – Paul Merriman.

Bonds are essentially parachutes when equity markets fall; bonds will cushion the portfolio landing. And equity markets can fail big at times!

While I understand there are different ways to measure the “equity risk premium,” the summary IMO is the same: the risk premium is the measure of the additional return that investors demand or expect for taking on a particular kind of risk, relative to some alternative.

Buy a bond and hold it until it matures and you know what you will get back.

Invest in equities and the range of outcomes is wide.

With equities, you could make a lot of money, but you could lose a lot.

Equities have to have a higher expected return to compensate investors for taking on this risk.

Otherwise, if the risk premium is not there – why bother with stocks at all?

Now – on bonds

That’s the rub these days, for many investors. Why invest in stocks when interest rates are higher and you can earn 4-5% essentially risk-free?

Of course, there is no way of knowing how equities or bonds will perform until returns for each happen. You can consider rebalancing your portfolio from time to time between stocks and bonds because you expect equities will do better longer-term but that doesn’t mean they will short-term.

Which brings me back to this: risk is the price of the entry ticket to buy and hold stocks. Continue Reading…

9 Business Leaders Share their most Impactful Financial Independence Milestones

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Photo by Karolina Kaboompics on Pexels

In the quest for Financial Independence, milestones vary from mastering debt to embracing minimalism.

We’ve gathered insights from nine professionals, including Finance Experts and Founders, to share their personal triumphs. Discover how these individuals have navigated their paths from mastering debt through frugality to paying off mortgages independently.

  • Mastering Debt through Frugality
  • Achieving Total Debt Freedom
  • Securing a Higher-Paying Job
  • Early Retirement through Real Estate
  • Eliminating Debt with Side Hustles
  • Embracing a Debt-Free Minimalist Life
  • Regulating Finances with Nervous System
  • Strategically Paying off Student Loans
  • Paying Off Mortgage Independently

Mastering Debt through Frugality

Each milestone marked an important stage towards a more confident future on this road to Financial Independence. One turning point occurred when I became a master of managing Debt and adopted frugality as my way of life.

Although, in my pursuit of financial freedom, it dawned on me that Debt was both a burden and a tool; this happened at the time when I decided to confront my debts openly. Eventually, I divided them by interest rates and then talked with lenders about much better repayment terms. With discipline and focus, little by little, I got rid of a mountain of debts while coming closer to financial liberty after each payment.

Another significant landmark was when I began practicing frugality. For instance, being mindful of small savings that accumulate over time into significant wealth-creation opportunities has been one key lesson that I learned from this approach. In other words, I dissected every expense into what need was involved for its necessity or want and became good at finding creative ways to save without losing sight of the quality of life. 

Whether it is meal planning or relying on loyalty programs or DIY solutions; being frugal does not mean living without but instead making conscious decisions towards personal financial objectives.

Whenever I look back on the path that led me toward my financial independence, I don’t see these checkpoints as just what they are; instead, I think of them as turning points in how I think and act. Learning how to manage debt properly and adopting a saving lifestyle have given me complete autonomy over my financial future, thus laying down a foundation for abundance and stability.  –– Arifful Islam, Finance Expert, Sterlinx Global LTD

Achieving Total Debt Freedom

One of the biggest milestones on my journey to Financial Independence was finally becoming 100% debt-free. This achievement felt especially meaningful because it required a serious commitment to smart money management and embracing a frugal lifestyle.

Early in my career, I was weighed down by a ton of student loans and racked up credit-card balances. I realized all that debt was just holding me back from reaching my bigger financial goals and living the life I really wanted. So, I made a decision to make paying it all off as fast as possible my top priority.

I started by creating a super-detailed budget that accounted for every dollar of income and expenses. Then I looked for any areas where I could cut back on non-essential splurging: like eating out, entertainment, shopping sprees, etc. Any money I could free up got funneled directly towards making bigger debt payments, focusing on the highest-interest accounts first.

At the same time, I fully embraced a more frugal, minimalist lifestyle overall. I learned to appreciate simple, free pleasures and find joy in experiences over buying a bunch of material stuff. I also hustled to increase my income through side gigs like freelancing or selling unwanted items.

Through diligent budgeting, living frugally, and a strategic debt repayment plan, I managed to become 100% debt-free within just a few years. Not only did it drastically improve my overall financial situation, but it gave me this incredible sense of freedom and control over my life. It laid the foundation for even bigger money wins down the road while teaching me the value of living below my means to prioritize long-term goals. –– Loretta Kilday, DebtCC Spokesperson, Debt Consolidation Care

Securing a Higher-Paying Job

The most critical milestone I reached was getting a job that paid more than just “enough.” I’ve tried freelancing, selling online, starting a website, doing social media, and I even tried digital marketing for a startup. But it wasn’t until I got a plain old job that just paid more than I needed that I found everything I needed: peace of mind, freedom from debt, the start of a retirement fund, and more.

For anyone who’s struggling even $50 makes the difference between starving or surviving: I suggest just building your skills and portfolio and moving up to better-paying jobs. Get the certainty and security that comes from a regular salary, one that allows you to pay all your bills and gives you breathing space.

Once that’s done, you have the room to plan for the future, to pay off debt, to organize your finances so that if you want to budget, it’s actually possible. — Debashri Dutta, Founder, Dmdutta.com

Early Retirement through Real Estate

Being able to retire in my early Thirties was a significant milestone toward Financial Independence. I started investing in real estate in my twenties, and I had to work two jobs and live frugally to afford a down payment. 

But today? I don’t have to worry about working a job I’m not particularly passionate about. Instead, I can spend my time doing what matters more to me, like coaching others who want to escape the rat race and build financial security for themselves. 

Bottom line: If you have a goal in mind, short-term sacrifices will be worth it in the long run. — Ryan Chaw, Founder and Real Estate Investor, Newbie Real Estate Investing

Eliminating Debt with Side Hustles

I gained Financial Independence through hard work and side hustles. The biggest milestone I achieved was paying off US$60,000 in student loans. That debt was debilitating, and I was able to pay it all off by devoting all the money I made from side hustles to debt reduction. After I paid off my student loans, I used the same methods to pay off the house.

The next milestone that was incredibly important to me was having US$250,000 in savings. That milestone was important because it felt like the investment income began to snowball. It also felt like my hard work was paying off, and it made it easier to make the effort to save money after that point because I felt it working. — Jonathan Geserick, Managing Attorney, Texas Probate Pros

Embracing a Debt-Free Minimalist Life

I had a business go very south about 10-15 years ago. I held on way too long because it was “my baby.” Because of this, I racked up a lot of debt that I really knew I shouldn’t have, trying to save the business.

I moved that debt into a very low-interest situation long ago, which allowed me to pay a very small amount towards the principal and interest every month. That was a great solution; however, I recently decided to just pay the whole thing off. Continue Reading…