Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

Semi-Retirement Q&A with Mark McGrath

Posted By |
Image courtesy Tawcan/Unsplash

By Bob Lai, Tawcan

Special to Financial Independence Hub

 

The Financial Independence Retire Early (FIRE) community is a very supportive and tight-knit one. One thing I appreciate from the diverse FIRE community is that there are people ahead of us who are always willing to share their knowledge and help others slightly behind them on the FIRE journey.

I would like to welcome Mark McGrath, CFP and CIM, who entered the world of semi-retirement on April 30. Before semi-retirement, Mark worked as a financial planner and associate portfolio manager at PWL Capital Inc. Based in Squamish, BC, Mark has been helping Canadian physicians, small business owners, and high-net-worth families on their financial decisions about portfolio management, retirement planning, tax planning, estate planning, and risk management. If you like the Rational Reminder podcast, Mark is one of the regular contributors as well.

Q1: Hello Mark, welcome to this little blog of mine. Can you tell us a little bit about yourself? 

Mark McGraff, CFP (Linked In)

Thanks Bob!

I’ve been a financial planner for the past 15 years or so, and have worked primarily with physicians and their families. My most recent role was as a Financial Planner and Associate Portfolio Manager for PWL Capital, and as of May 1st I’ve decided to semi-retire and step away from full-time employment.

In 2022 I started creating educational financial content, writing mostly on Twitter and LinkedIn. I’m a huge advocate for basic financial literacy and getting the big things right, and while I occasionally write about more complex topics, a lot of my content is focused on those core basics like index funds, using your RRSP and TFSA, getting insurance in place, etc.

Outside of work, I spend most of my time with my wife and two young children, and I enjoy reading, playing strategy games, listening to music, and playing the guitar. We like to travel as well but haven’t had much time for that over the past few years, but hopefully that changes now that I have more free time.

Q2. Congrats on your semi-retirement! You mentioned that financial planning is more than spreadsheets, retirement projections, and optimal portfolios, it’s really about helping people find and fund a good life. What is your definition of a “good life?” Explain why it’s important to focus on having a good life rather than spreadsheets and projections. 

Having worked with hundreds of Canadians of varying ages and backgrounds, I’ve realized that many of us never really decide what a good life is for us. We follow the traditional path – go to school, work your whole life, and retire at 65 – without pausing along the way to reflect on what’s important. Retirement can end up being very anti-climactic as a result, and those who haven’t prepared mentally and emotionally can find themselves lost. I saw this happen with my own father, unfortunately, and have spoken to literally hundreds of people who know someone who has gone through something similar.

I recently had this conversation with a 66-year-old professional client of mine, who was having what he called an identity crisis:  he had worked hard for decades, amassed a small fortune, sent his kids through university, and was now unsure about what he was supposed to do with his life. Designing a good life, intentionally and earlier on in his career, may have led him to optimize his time more instead of his wealth. Avoiding this type of regret is a big impetus for my decision to semi-retire.

A good life means different things to different people, of course. For us, it means optimizing the use of these precious years with our young children while we have the energy to do it, and while they still want to hang out with us. My kids are 7 and 2, and growing up fast. I still love financial planning, and likely always will, but we wanted to design our lives so that I could engage in that on my own time, at our own pace.

For me, that means more writing and creating educational content, and likely taking on a select number of clients on a fee-only, advice-only basis. If I can do that successfully, it also means I can do it from anywhere in the world, so we plan on travelling extensively as well. My wife is a systems and industrial engineer specializing in supply chain management and data analytics. She’s basically a math and data nerd. She stepped away from work about 4 years ago to be a full-time mom, but she also wants to find a way to put her skills to use on her own terms.

So our “good life” is spending time together as a family creating experiences, travelling, and doing some fulfilling work.

Q3. It was not easy to walk away from PWL and reach the decision on semi-retirement. Walk me through how you and your wife reached the decision. 

The genesis of this idea came over Christmas in 2023. My wife is from Mexico, and most of her family, including her parents, still live there. We try to visit them twice a year. Her sister Tamara, and her sister’s husband Fernando, moved to Sweden for work four years ago and joined us in Mexico for Christmas that year. Fernando’s hobby is photography, and he was showing us pictures of all the amazing places in Europe they’ve visited since moving to Sweden. My wife and I kept joking that we should just retire and travel as well.

Over the next 15 months or so, that joke kept coming up, and we realized neither of us was really joking. The more seriously we looked at it, the more apparent it became that we had to do it. At first I had planned to see if PWL would let me be a digital nomad, but we quickly shot the idea down – working full time, but just in a different country wouldn’t do – we wouldn’t have control of our time, and would be dealing with different time zones, potentially making work even harder. PWL is an incredible firm with incredible people, and it was really my dream job. At first, I thought I might be crazy for leaving. But I eventually realized I would be crazy to stay.

Being a financial planner I’ve always had a good head for our own personal finances. We saved as much as we could, and I’ve largely used index funds for the past decade. We got lucky a few times in the housing market as well, so our finances were in good shape. That obviously made the decision viable in the first place. That said, I tried not to overthink this decision from a financial perspective. I didn’t model a hundred different scenarios or anything like that.

Knowing that each of us can find a way to generate income if needed, and that we have a decent sized portfolio, was enough analysis for us on that front. Most of the decision making process was a discussion about the non-financial aspects of retirement – purpose, identity, how we want to spend our time, the benefit of being there for our children, etc.

Tawcan: Interesting that your sister-in-law and brother-in-law inspired you on the early retirement idea.

Q4. Tell me more about your plans for the new chapter of your life. 

This summer we’re going to travel Europe, primarily Spain. I plan to fully disconnect from work over that time period and reassess in the fall. I do really like writing and creating educational financial content, so I’m going to focus more on that when we return, though I’m not exactly sure what that looks like yet. Likely a blog at least, perhaps another book or two in the future. I’ve wanted to get into video for some time now, so maybe a YouTube channel at some point.

Other than that, I plan to provide advice-only financial planning, but not full-time. I’m fortunate that I’ve built up a social media audience and an incredible network of other financial professionals, so generating an income this way likely won’t be a challenge for me. So I’ll do that as a way to stay engaged in the planning community and bring in a few bucks to pay the bills as needed. Continue Reading…

Your Money Struggles have nothing to do with Money

Posted By |
Photo courtesy Jessica Moorhouse

By Jessica Moorhouse, CFC™  

Special to Financial Independence Hub

What most people don’t know is that when I first pitched my book idea to my publisher, its original title was More Than Money.

I thought it expressed everything I wanted to say about how most people’s financial struggles went well beyond a lack of money or financial literacy. After more than a decade of discussing money with people from all walks of life as a content creator and helping individuals and couples with their finances as a Certified Financial Counsellor, I saw firsthand how money was rarely the root cause of their financial troubles. Unfortunately, I wasn’t the only person who thought it was a good title. On my last count, there are already five books on Amazon using that same name.

It’s about Everything but Money

It wasn’t until two months after I handed in my manuscript that I finally landed on the right title for my book: Everything but Money. I think it took me that long because I needed to go on a well-overdue journey of self-discovery while writing my book and come to the realization that my own struggles with money have always been about everything but money. Through countless hours of research, interviews, and therapy, I had to face the fact that as a money expert whose job it is to educate people about their finances, my relationship with money was downright toxic.

My Toxic Relationship with Money

At first, I was ashamed. I’m supposed to be the expert here, which should mean I’m a role model and have my stuff together. Although it may look that way on a balance sheet, on the inside, I was an anxious mess who never felt good enough, no matter how much I earned or had in the bank. The real reason I dove head-first into the personal finance space as a young blogger in 2011 was that subconsciously, I thought money would be the solution to all of my unhealed emotional wounds. The unhealthy friendships that damaged my spirit growing up. The middle child syndrome that made me feel invisible. The intense pressure I put on myself to be seen and heard through external validation.

Don’t confuse Money for Happiness (but it can help)

But as I discovered while writing the book, money isn’t some magical cure-all. There’s a reason there are so many miserable millionaires and billionaires out there. Although research shows that money can increase your happiness (to a limit), research also shows it cannot fix your unhappiness. I mean, have you seen Succession? Continue Reading…

Canadians with expensive mutual funds need to learn about ETFs

Posted By |

 

Deposit Photos

By Dale Roberts

Special to Financial Independence Hub

Canadians pay some of the highest investment fees on the planet. Most of the Canadian mutual funds charge very high fees. Those fees directly reduce your returns. Too much of the investment returns end up in the wrong pockets. The very good news is that in 2025 you can move to very good, very simple and very inexpensive investment options. Cutting your fees from the 2.0% area to 0.20% or lower is life-changing. It could even double your retirement nest egg. Who doesn’t want to retire with twice the financial security, twice the lifestyle? Canadians should avoid most mutual funds. It’s so easy to leave your mutual funds and your advisor behind; you can move to a better place.

Most Canadian mutual funds are offered by salespersons, not qualified advisors. These advisors at Canadian banks and other sales shops for the high-fee funds have very low investment knowledge. Their only concern is selling you a product and lining their own pockets.

Beat the bank at their own game

That’s the premise and the truth told by former banker Larry Bates. Larry outlines just how poor are Canadian mutual funds, and the mutual fund industry. Have a read of …

Don’t give away half of your investments – Beat the Bank.

On wealth destruction Larry offers a humorous ‘quote’.

My investments put three kids through University. Unfortunately, they were my advisors’ kids – Anonymous

And there’s the crux, the punchline. When Canadians pay those high fees that average 2.2% annual or more, over an investment lifetime they will give away half of their investment wealth. Don’t be that investor. Don’t let your portfolio get crushed by fees.

Canada’s largest mutual funds, not so bad?

Canada’s largest mutual funds are offered by Canada’s largest bank – Royal Bank of Canada. When I first looked at the RBC Select Funds, including the RBC Select Balanced Portfolio I suggested they were ‘not so bad.’  But over time the fees and poor portfolio management continue to take their toll.

In that post I compare the RBC funds to a simple and superior low-fee approach, using an ETF portfolio. An ETF is an exchange traded fund.

  • Over the last three years the iShares Balanced ETF Portfolio (XBAL.TO) is up 7.4% compared to 5.2% for the RBC Balanced Fund.
  • Over the last 5 years the iShares Balanced ETF Portfolio (XBAL.TO) is up 7.7% compared to 6.2% for the RBC Balanced Fund.

Scorecard: over the last 3 years the RBC fund underperformed by an average of 2.2% annually. Over the last 5 years the RBC fund underperformed by an average of 1.5% annually.

You’ll find other comparisons to RBC Select and dividend funds in that post link.

How bad are TD mutual funds?

Canada’s second largest bank says ‘hold my beer.’ I can take your poor performance and go one better. This past week I looked at TDs very popular portfolio solutions known as the “Comfort” Portfolios. Once again, this is an attempt to create a diversified global balanced portfolio in one offering. A one-fund solution.

Check out the GIC rates at EQ Bank

I compared the Comfort Portfolios to a simple Canadian ETF Portfolio. The following table lists the average annual returns.

The underperformance is tragic. We see the TD portfolios underperforming simple ETF models by 2%, 2.5%, 3.o% annual and more.

Earn 50% more? Double your money over mutual funds?

With an additional 2.5% annual over a 20-year period, you could retire with 59% more. Over a 25-year period you’re talking 80% more. Over 30 years we move to ‘twice as much.’

For the above, I used a simple investment calcuator comparing 6% and 8.5% annual returns. In the investment world your return advantage could be greater or less given the sequence of returns. But it gives us a very good idea of the potential for greater returns, and a much richer lifestyle in retirement.

How to invest in ETFs

lf you’re new to the Exchange Traded Fund (ETF) concept please have a read of …

What is index investing?

An Exchange Traded Fund will allow you to own the companies within a market index, for example the TSX Composite (the Canadian stock market) in one fund, ticker symbol XIC. The fee for buying the Canadian stock market is 0.06%. Yes you read that right, that’s 6/100th of one per cent. Continue Reading…

7 top 401(k) mistakes Beginners make: and how to avoid them

Posted By |
Image by Freepik

By Donnell Stidhum 

Special to Financial Independence Hub

You may think that saving towards retirement is something that can be put off in the future, but as a matter of fact, what happens (or fails to happen) to your savings during your early working years could spell the difference between your retirement savings and failed retirement savings.

One of the most effective tools out there is the 401(k). However, with power, people have responsibility, and regrettably there are a lot of mistakes that are made by beginners that are entirely unnecessary to make. And in the long run it can cost very dearly.

Here are some of the most common 401(k) mistakes beginners make: and how to avoid them.

1.) Not Contributing early enough

It is common and pitiful that most young professionals do not put money into their 401(k) in the belief that they would start the following year when they would have more income and fewer bills. However the greatest benefit of a 401(k) is compounding as you go and the sooner the better.

How to avoid it: Add money to your 401(k) as soon as you can as much as possible (even if it is just 3 per cent of your income). Slowly adding to your payments can change a tremendous amount with time.

2.) Missing out on Employer Match

If your employer offers to match a percentage of your contributions, that’s free money: but many beginners either don’t contribute enough to get the full match or miss it entirely.

How to avoid it: At least contribute sufficient to allow the employer to give full match. E.g. say your company is matching 50% of the first 6% you put in, then you should at least be putting in 6% yourself.

3.) Being unaware of different types of 401(k) accounts

Some 401(k) plans are not equal. Not all beginners are aware that there are various types of 401(k) and most people are not aware that there are different types of 401(k) most popular being Traditional and Roth 401(k)s and that they are quite different in their tax advantages.

  • A Traditional 401(k) lowers your taxes now, but you will pay taxes in retirement when you retire.
  • A Roth 401(k) is a contribution with after-tax money, which means that money can be taken out at retirement without incurring a tax.

How to avoid it: Educate yourself on the various characteristics of both Traditional and Roth 401(k). A Roth 401(k) may be more sensible to invest in currently, should you anticipate moving to a higher bracket as you get older. Continue Reading…

Investing for Income vs. Total Return: Why choose?

Posted By |

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Welcome to a new Weekend Reading edition, on an important but seemingly never-ending debate: should you be investing for income or total return?

Maybe in the end, why choose one over the other at all???

First up, recent articles on my site.

I contributed to this recent MoneySense Best ETFs in Canada edition – that includes one global ETF I own for total return since 2020:

And, I shared our planned financial independendence budget. I would be happy to compare notes with you on what you intend to spend and when in your retirement.

Investing for Income vs. Total Return, why choose?

Leading off this Weekend Reading edition, a theme I’ve written about from time to time here: income investing vs. total return.

Is there a right way to invest? Which one is better?

Both approaches have merit: which was the subject of my enjoyable debate with passionate DIY income investor Henry Mah a few weeks ago. You can watch it here!

Personally, while I’ve always had a passion for owning some dividend-paying stocks in my portfolio and likely always will, I can’t ignore the benefits of total return.

At the core:

Investors often focus on total return and likely should during their asset accumulation years in particular since total return encompasses both income generation, such as dividends, and capital appreciation (changes in the market value of your investments). We should all know by now that growth/price increases remain an essential component of wealth-building: prices moving higher and higher than what you paid for them is good.

Income investing focuses on generating regular cash flow from your investments, rather than solely relying on capital appreciation or downplaying it based on your stock selections. Income funds, income-oriented Exchange Traded Funds (ETFs) or in Henry’s particular case, owning a small basket of concentrated stocks from the TSX that pay dividends has provided income-focused investors like Henry arguably lower-risk for him while growing his income higher over time via higher dividend payments.

Honest Math - Dividends

In the TD debate here, I argued striking the right balance between income needs and growth in the total return equation is probably best for most: it has historically delivered long-term success and there is no reason to believe why a basket of global stocks won’t continue to do so.

So, I get the income investor debate, I really do, and maybe moreso given I consider myself in semi-retirement now; my part-time work started a few months ago.

Investing for income via dividend stocks often includes these benefits for retirees:

  • Tangible income: shares of companies that distribute a portion of their profits to shareholders, are often mature and established businesses that have ample cashflow to sustain their payment obligations. This tangible income (and arguably stable income) can help cover living expenses.
  • Rising income: such established companies can also raise their dividends year-over-year, rewarding shareholders with rising income that can help offset inflationary pressures. Sustained 3-4% or more dividend increases by some companies can be inflation-fighters.
  • Tax benefits: depending on what stocks you own where (i.e., in what accounts), dividend payments can offer favourable tax benefits. Read about the tax treatment of Canadian dividends below. 

Academic history lessons along with any Google search on this subject will show various charts and graphs that demonstrate the critical role that dividends – and, in particular, reinvested dividends – play in delivering an attractive total return to investors over time. But this just makes sense, in that reinvested dividends are like not getting any dividend payment paid to you in the first place …

Another important contributor to equity market returns has been dividend growth. Equities are growth assets – which I argued in the TD debate – so companies who tend to grow their revenues, profits and earnings over time, is the reason why they can continue to reward their shareholders with higher dividend payments. Growth is needed, for total return, for your/our juicy dividend payments to continue. Continue Reading…