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.

Retired Money: What ETFs are appropriate for retirees?

Posted By Jonathan Chevreau | August 23, 2023

Photo by Alena Darmel from Pexels, via MoneySense.ca

My latest MoneySense Retired Money column looks at what ETFs might be appropriate for retirees and near-retirees. You can find the full column by clicking on the headlined text here: The Best ETFs for Retirement Income.

I researched this topic as part of a MoneyShow presentation on the ETF All-Stars, scheduled early in September, to be conducted by myself and MoneySense editor Lisa Hannam. Regular MoneySense and some Hub readers may recall that I was the lead writer for the annual ETF All-Stars package but after almost a decade decided to pass the reigns to new writers: this year’s edition was spearheaded by Michael McCullough.

While the ETF All-stars (which are selected now by a panel of seven Canadian ETF experts) are appropriate for all ages and stages of the financial life cycle, a solid subset of the picks can safely be considered by retirees. A prime example are the Asset Allocation ETFs, many of which have been All-Star picks since Vanguard Canada launched them several years back, and since matched by BMO, iShares, Horizons and others.

Generally speaking, young people can use the 100% growth AA ETFs like VEQT etc., or (which I’d be more comfortable with), the 80% growth/20% fixed income vehicles like VGRO. Near-retirees might go with the traditional 60/40 stocks/bonds mix of classic balanced funds and indeed pension funds: VBAL, XBAL, ZBAL, to name three.

Those fully in Retirement who want less risk but a bit of growth could flip to the 40/60 stocks/bonds mix of VCNS, XCON (check) and ZCON (check.).

In theory all you need is a single asset allocation ETFs, no matter where you are in the financial life cycle. After all, all these ETFs are single-ticket highly diversified global plays on the stock market and bond market, covering all or most geographies and asset classes. And their MERs are more than reasonable: 0.2% or so.

A single Asset Allocation ETF can suffice, but consider adding some tactical layers

In practice, most investors (whether retired or not) will want to do a bit more tinkering than this. For one, the asset allocation ETFs tend to have minimal exposure to alternative asset classes outside the stocks and bonds realm. They will include gold stocks and some real estate stocks or REITs, but little or no pure exposure to precious metals, commodities or indeed cryptocurrencies. (Maybe that’s a good thing!).

The MoneySense article bounces my ideas for adding tactical layers to an AA ETF. For example, you might use the 40/60 VCNS instead of 60/40 VBAL, for 80% of your investments, reserving the other 20% for more tactical mostly equity specialized ETFs. You’d aim for a net 50/50 asset mix after blending the AA ETF and these tactical ETFs. Continue Reading…

Managing Debt: How Business Leaders Overcame Financial Challenges

Posted By Financial Independence Hub | August 22, 2023

In this article, we’ve gathered seven effective strategies from founders and investment bankers on how to pay off significant debt while striving for financial independence. From embracing the “Snowball Method” to prioritizing high-interest debts, these experts share their personal approaches to achieving a debt-free life.

Embrace the “Snowball Method”
Achieve F.I.R.E. through Diversified Income
Reverse Order your Debt Payment Strategy
Utilize the “Debt Snowflake Method”
Consider Debt Settlement Options
Budget and Start a Side Hustle
Prioritize High-Interest Debts

Embrace the “Snowball Method”

In my journey to financial independence, I’ve found the “Snowball Method” to be an effective strategy for paying off significant debt. It’s like rolling a snowball down a hill; you start small and gain momentum.

I began by paying off the smallest debts first, regardless of interest rates. The psychological boost of eliminating a debt was a powerful motivator, propelling me to tackle the next one. It’s akin to cleaning a cluttered room; you start with one corner and before you know it, the entire room is clean.

This method may not be the fastest or the one that saves the most money in interest, but it’s the one that kept me going, and that’s what matters in the end. It’s not just about the numbers, it’s about the journey and the habits you build along the way. — James Allen, Founder, Billpin.com

Achieve F.I.R.E. through Diversified Income

I am an advocate of the F.I.R.E. movement, having both personal and professional experience with personal finance. I pursued F.I.R.E. because I wanted to follow my interests outside of my 9-to-5 job. I wanted to live a great life while exploring the world and spending more time with family and friends. Most importantly, I didn’t want to worry about finances all my life!

After making wise financial decisions over the years, I could leave my high-stress finance job in July 2019 to pursue my side hustles full-time. What I did was to diligently add to my emergency fund and invest as much as possible. In the first half of 2020, my partner and I could pay off $57,000 in debt, and we are now debt-free. I am now a full-time entrepreneur, with my businesses and side hustles generating a combined multi-six-figure per year income. — Samantha Hawrylack, Founder, How To FIRE

Reverse Order your Debt Payment Strategy

One strategy that has worked for me is to pay off my debt in the reverse order in which it was accrued. This means that I paid off the smallest debt first, and then worked my way through the rest of my debt: the highest interest rate last.

The reason I did this was because it made me feel empowered and focused. I would think about how much money I was saving by paying off one bill early, and then use that motivation as fuel to keep going. — Jaanus Põder, Founder and CEO, Envoice

Utilize the “Debt Snowflake Method”

One effective strategy that helped me pay off significant debt while striving for financial independence is the “Debt Snowflake Method.”

While the “Debt Snowball Method” is more well-known, the Debt Snowflake Method involves finding small, everyday ways to save or earn extra money and immediately using those funds to make additional debt payments. It might seem insignificant, but consistently directing small amounts toward debt can add up surprisingly quickly.

For example, I would take advantage of cash-back apps, sell items I no longer needed, or even offer small freelance services during my free time. Every little contribution would go directly towards my debt, creating a snowflake effect that accelerated my debt payoff journey. Continue Reading…

Timeless Financial Tip #7: 6 Steps to Retiring as Planned

Posted By Financial Independence Hub | August 18, 2023

Canva Custom Creation: Lowrie Financial

By Steve Lowrie, CFA

Special to Financial Independence Hub

Retirement isn’t the only reason to set aside current income for future spending. But since it’s usually the elephant in the financial planning room, it’s worth a Timeless Tip of its own.

The following are 6 ways to leverage lifelong financial planning, so you can retire on your own terms and on your own timeline.

1. Don’t Delay Retirement Planning, Start Today

I know, it’s easy to assume retirement planning is for when you get older. How old? Well, older than you are today (you tell yourself).

It’s also true that a detailed retirement plan is unlikely to come into focus until you’re at least mid- if not late-career. It’s hard to take clear steps toward hazy targets.

But none of this means it’s wise to be too Rip-Van-Winkle-like about your retirement planning. Even if it’s decades away — and especially if it’s not — a few sensible financial planning steps should help you avoid having to take any huge leaps 20 years down the road.

Do Some Financial Forensics

To get started, try doing some Family Spending Forensics. Don’t worry, no forceps will be required to get a grip on what you’ve got and where it’s going. No judgment! Just take a few hours every year or so to ask yourself:

How much am I currently spending, in what categories?
How much am I saving for upcoming expenses?
How much am I investing for the future?

Have a Personalized Financial Plan

Once you have a sense of where you’re at, create a financial plan that outlines where you’d like to go, including in retirement. Your plan should describe what your goals are, when you would like to achieve them, their approximate cost, and where the money will come from. Revisit your plan annually to freshen it, as needed. Having a plan in place will help you:

Spot any spending or saving leaks early on. It’s easier to heal a hole when it’s still small.
Make the most of new income. If you receive a raise, pay off your mortgage, receive an inheritance, or otherwise come across “new” money, your financial plan will inform you how to use the assets for maximum benefit, instead of randomly spending them on “whatever.”
Make good lifetime choices. Few families have more money than they know what to do with. Instead, most of us must bridge gaps between our assets and our aspirations. So, think about:
- How will you bridge your gaps?
- Will you work longer or pursue a higher-paying job?
- Should you spend less, now or in the future?
- Will you choose to invest more aggressively?

A financial plan helps you make good choices among spending/saving tradeoffs: during your working years and into retirement.

Invest Toward and In Retirement

For most of us, our financial success comes from income earned during our career years. But it’s usually essential to also have invested a significant portion of that income into an inflation-beating, globally diversified investment portfolio we can tap in retirement. A financial needs analysis quantifies what your investment portfolio might look like to sustain a satisfying lifestyle in retirement: Continue Reading…

Canada’s Best Energy Dividend Stocks 2023

Posted By Financial Independence Hub | August 15, 2023

By Dale Roberts,

Million Dollar Journey

Special to Financial Independence Hub

Canada’s energy stocks have been a key part of my investing strategy for some time now.

In August of 2020 I asked if Canada’s energy dividends were in trouble?

Of course that was before energy prices and energy stocks were dominating the headlines. At the time Canadian oil prices were about $30 a barrel and energy dividends were under a lot of pressure due to collapsed earnings.

That price has more than tripled, was above $115 U.S. and now sits near $70 U.S. in 2023. Those generous oil prices have fuelled incredible earnings and dividend growth. There is no sector over the last few years with greater free cash flow.

The oil and gas sector was also the only sector in Canada to provide positive total returns in 2022. This came as no surprise, as energy is the only sector known to provide reliable inflation protection.

That said, the price of oil has been coming down thanks to the rising rate environment that is designed to cool economic activity and by extension bring down troubling inflation. We have global recession fears and the Chinese lack of demand has also weighed on oil prices.

The following chart reflects the price of Canadian oil priced in U.S. dollars. In Canadian dollars the price is in the $57 range.

cci graph — *Source: Oilsandsmagazine.com*

Here is a video that explains the spread (difference in prices) between Canadian oil and U.S. oil.

Higher oil prices are wonderful for top Canadian energy companies, mostly operating or active in the Canadian oil sands, but many of the producers also have global operations. They have already become free cash flow gushers. More investors, fund managers and retail investors are going along for the ride.

While the last year hasn’t exactly been spectacular (with the TSX Capped Index ETF XEG down 16%), I’m still up over 270% since I started writing about Canadian energy stocks in August of 2020. That’s before we really dig into the juicy dividend raises and special dividends that poured into my brokerage account over the last few years.

energy stocks dividend graph — *Source: YCharts.com*

In October of 2020, on my blog, I had suggested that investors take a look at Canadian oil and gas stocks:

“The Canadian energy sector has been beaten up. Foreign investors have given up and so have many Canadian investors. Where there is incredible pessimism there can be incredible rewards. But there is certainly no guarantee that the pessimism for the Canadian energy patch is not deserved.
That said, it is also certainly possible that the pessimism has jumped the shark. There may be incredible value in the energy sector for Canadian investors.”

Canadian investors who went against the flow were rewarded handsomely, and it was not as big a risk as many would think. The macroeconomic and energy-specific story was quite simple. Continue Reading…

Lean FIRE (as opposed to Fat Fire)

Posted By Financial Independence Hub | August 11, 2023

By Alain Guillot

Special to Financial Independence Hub

I was told on Twitter that living on less than $24k per year is very frugal. Maybe it is, but I would like to explain how I live on less than $24K and I feel that I live like a king.

(Editor’s Note: The Twitter discussion below followed Monday’s Hub post on by Myownadvisor blogger Mark Seed: Is Fat Fire realistic?)

First of all, my net worth right now is about $500,000. If we use the 4% rule, I should be able to withdraw $20,000K/year ($1,667/month) in perpetuity.

How I live

Map of Alain’s neighbourhood in Montreal

I live in one of the best neighborhoods in Montreal. It’s called “Le Plateau Mont Royal.” I have a beautiful park 10 minutes walking distance to the east, and another more beautiful park 10 minutes walking distance to the west, and I have the Old Port, 20 minutes walking distance to the south.

The street where I live is pedestrian only; it’s a cobblestone street.

Because I have been living in the same apartment for the past 12 years, my rent is low. $815/month.

One of my small pleasures is to go downstairs, to a little park on the corner and drink a beer with my neighbors. (beer from the convenience store $2)

My apartment is what’s called a 3 ½. One bedroom, one living room, a kitchen, and a bathroom. I live on the second floor of a two floor building.

I do my groceries at a small family-owned supermarket where I have been shopping for 12 years and where I know the cashiers and the owners by first name basis. Because I follow a plant based diet, I eat 99% of the time fresh fruit and vegetables. My grocery bill hardly exceeds $10 per day ($300/month). I buy my fruits and vegetables daily.