Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Harvest launches HRIF – a multi-sector income ETF with no leverage

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Image courtesy Harvest ETFs/Shutterstock

By Michael Kovacs, President & CEO of Harvest ETFs

(Sponsor Blog) 

The Harvest Diversified Monthly Income ETF (HDIF:TSX) was built to meet Canadian investors’ need for income and sector diversity. We built it with a straightforward thesis, by holding an equal weight portfolio of established Harvest Equity Income ETFs, we could deliver growth potential and high monthly income. That made it one of the most popular Canadian ETFs launched in 2022.

Each of the ETFs held in HDIF captures a portfolio of leading large-cap businesses. They also each employ an active and flexible covered call option strategy to generate high income yields, offset downside, and monetize volatility. HDIF combined those ETFs with modest leverage at approximately 25% to deliver an enhanced income yield.

In April of this year, we launched the Harvest Diversified Equity Income ETF (HRIF:TSX). It holds the same equal-weight portfolio of Harvest ETFs, but without the use of leverage. Put simply, leverage adds a level of risk that some investors are not comfortable with. Therefore HRIF can deliver that same diversified portfolio of underlying ETFs and a high income yield in a package that more risk-averse investors may want to consider.

A truly diversified portfolio

At Harvest ETFs, we always start with portfolios of what we see as high-quality businesses. The ETFs held in HRIF capture companies that lead their sectors. By combining those portfolios into a single ETF, HRIF delivers a very diverse exposure to these companies.

The equal-weight portfolio held by HRIF at launch holds the following six ETFs.

Each ETF holds a portfolio of leading companies in their particular sector and market area. We define that leadership through quantitative and qualitative metrics such as market cap, market share, performance history and — in the case of certain underlying ETFs — dividend payment history. The companies selected in each ETF’s portfolio demonstrate leadership across those metrics.

HRIF also delivers a diverse set of performance drivers. Tech has been a market growth leader for over a decade and remains a key allocation for investors. Healthcare shows significant defensive qualities, especially during inflationary and recessionary times. The brand leaders in HBF and Canadian leaders in HLIF are selected in large part due to their resilience across market cycles, market shares, and dividend payment history. US banks have faced headwinds lately but have long-term positive exposure to interest rate increases and remain structurally important to the global economy. Utilities are an almost textbook definition of defensiveness, providing stability and ballast for the ETF.

Taken together, HRIF delivers leadership from a wide set of companies which, combined with its high income yield, makes it an attractive ETF for many investors.

HRIF’s High Income Yield Explained

HRIF launched with an initial target yield of 8.0% annually, paid as monthly cash distributions. That yield is earned by combining the underlying yields of its component ETFs, each of which employ an active & flexible covered call option strategy.

Covered call option ETFs effectively trade some upside potential for earned income premiums by ‘writing’ calls on a percentage of the ETF’s holdings. Where many covered call option ETFs use a passive strategy, writing calls on the same percentage of holdings each month, the Harvest ETFs held in HRIF use an active strategy. Continue Reading…

Tips for Buying a House for those with Poor Credit

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Image Pixabay

By Brittany Cotton

Special to Financial Independence Hub

For people with bad credit, the experience of buying a home can be quite difficult and daunting. It’s a tricky time that necessitates careful planning and preparation.

However, despite the difficulties that low credit scores may present, there are several tips and strategies you can employ to help you navigate the home-buying process. This article highlights some of these innovative strategies.

How to Buy a Home with Less than Stellar Credit

Here are some pointers to help you buy a home even if you have bad credit:

Consider Special Programs

There are numerous loan programs that do not require a high credit score or a down payment if you are a first-time homebuyer or have a low income. Some options [in the United States] to consider include USDA loans, VA loans, and the Fannie Mae HomeReady and Freddie Mac HomeOne and Home Possible loan programs.

Look for the Best Deal

Different mortgage brokers offer various rates of interest, so shop around to find the best deal. According to studies, trying to compare multiple rate quotes could save you a substantial amount of money in the long run.

Look into Down Payment Assistance

If you’re concerned about saving for a down payment, there are more than 2,500 down payment support programs available across the country for which you could be eligible. However, you need to avoid major financial changes. Taking on new debt or making a large purchase can lower your credit score, so avoid doing so while applying for a mortgage.

Things you should know about the Homebuying Process

Before you start looking for a house, you should educate yourself on the ins and outs of house purchases. Here’s a rundown of some key points to keep in mind:

Recognize why you want to Buy a House

Buying a house is a significant investment that shouldn’t be taken lightly. If you don’t know why you would like to buy a house, you may come to regret your decision later on.

Check your Credit Score

Your credit score will help you in evaluating your payment plans; lenders use it to set loan pricing and determine if you can repay your mortgage. The more favorable your credit history, the better your chances of obtaining financing at the best terms and rates. Continue Reading…

New tax-free Questrade FHSA helps Canadians save, invest & realize their dream of homeownership

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Image courtesy Questrade/iStock

By Rob Shields, Questrade 

Special to Financial Independence Hub

On April 1, 2023, Questrade became the first in Canada to offer the new First Home Savings Account (FHSA). For us, this was a major accomplishment in our continued mission to help Canadians on their journey to financial independence. Our goal has always been to challenge the status quo, transforming financial, investing and mortgage services for the good of Canadians. Knowing the Government of Canada was introducing the new FHSA on April 1, the team at Questrade began planning months ago. Our goal was to offer Canadians this account on day one, so they can start saving, investing and growing their money for their first home. Mission accomplished.

Save for a home faster

Saving for a home is a big challenge for many Canadians. With housing prices as they are — especially in major cities — maximizing your down payment is critical. By opening an FHSA account at Questrade, Canadians can invest up to $8,000 annually, deduct their investment contributions from their taxable income and give it the opportunity to grow in the market. They can contribute up to $40,000 in this account, with no limits to how much it can grow, making it a powerful savings tool. Ultimately, they can withdraw it tax-free to use it for a home purchase: with no requirement to repay. The only requirements to open an FHSA are: being a verified resident of Canada, being at least 18 years of age, and being a first-time home buyer.

Imagine a scenario where you open an FHSA account with a goal to buy a house in 10 years. If you maximize your annual contribution limit of $8,000 per year for the first 5 years, you’ll reach the lifetime contribution limit of $40,000 in 5 years. If you invest your account with a Questwealth Aggressive Growth Portfolio, which had an average return of 7.18% per year, your account could grow to $69,993 after 10 years*. That’s $69,993 you can withdraw tax-free to put towards your home, with $29,993 coming just from investment gains. Continue Reading…

Giving with a Warm Hand: through the new FHSA

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Image via Pixels: Rahul Pandit

By Michael J. Wiener

Special to Financial Independence Hub

I expect to be leaving an inheritance to my sons, and I’d rather give them some of it while I’m alive instead of waiting until after both my wife and I have passed away.  As the expression goes, I’d like to give some of the money with a warm hand instead of a cold one.

I have no intention of sacrificing my own retirement happiness by giving away too much, but the roaring bull market since I retired in mid-2017 has made some giving possible.  Back then I thought stock prices were somewhat elevated, and I included a market decline in my investment projections to protect against adverse sequence-of-returns risk.

Happily for me, a large market decline never happened.  In fact, the markets kept roaring for the most part.  As it turned out, I could have retired a few years earlier.  A large market decline in the near future is still one of several possibilities, but the gap between our spending and the money available is now large enough that we are quite safe.

Our lifestyle has ramped up a little over time, but not nearly as much as the stock market has risen.  We just aren’t interested in expensive toys.  Owning a second house or a third car just seems like extra work.  Our idea of fun travel is to go somewhere with nice hiking trails.

So, we have the capacity to help our sons with money, but there is another consideration: what is best for them?  I’m no expert in the negative effects of giving large sums of money to young people, but I’m thinking it makes sense to ease into giving.

Ease into giving with the FHSA

This is where the new First Home Savings Account (FHSA) is convenient for us.  Our plan is to have our sons open FHSAs, and we’ll contribute the maximum over the next 5 years.  This will give them an extra tax refund each year, and if they choose to buy a house at some point, they can use the FHSA assets tax-free as part of their down payment.  If they don’t buy a house, they can just shift the FHSA contents into their RRSPs without using up any RRSP room. Continue Reading…

More on the FHSA [Tax-free First Home Savings Account]

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The FHSA and reasons why younger Canadians should really opt in to opening this account with any intention to buy their first home over time …

By Mark Seed, myownadvisor
Special to Financial Independence Hub

The New Tax-Free First Home Savings Account (FHSA) Facts:

  • Think of the FHSA as a hybrid of the Registered Retirement Savings Plan (RRSP) / Home Buyers’ Plan and Tax-Free Savings Account (TFSA): FHSA contributions are tax-deductible like the RRSP and qualifying withdrawals out of the account are not taxed just like the TFSA.
  • To be eligible to open and contribute to your FHSA you must be:
    • A Canadian resident + 18 years or older + *a first-time home buyer. (Meaning, existing homeowners AND folks that owned a home in the *last four preceding years of trying to open the FHSA won’t qualify to open this account).

*An individual is considered to be a first-time home buyer if at any time in the part of the calendar year before the account is opened or at any time in the preceding four years they did not live in a qualifying home (or what would be a qualifying home if located in Canada) that either (i) they owned or (ii) their spouse or common-law partner owned (if they have a spouse or common-law partner at the time the account is opened).

  • The FHSA can hold stocks and bonds and ETFs just like the TFSA and RRSP.

FHSA Contributions and Tax Deductions:

  1. Individuals would be able to claim an income tax deduction for FHSA contributions made in a particular taxation year; contributions currently capped at $8,000 per year up to a $40,000 lifetime contribution limit. So, a solid 5-years of striving to max-out the account for tax-free withdrawals.
  2. Like the TFSA, your unused FHSA contribution room can be carried forward to the following year but only up to a maximum of $8,000.

FHSA Holding Period and Withdrawals:

The account can stay open for 15 years OR until the end of the year you turn 71 (not very likely???) OR until the end of the year following the year in which you make a qualifying withdrawal from an FHSA for the first home purchase, whichever comes first.

FHSA worst-case? What if you open an account and you don’t purchase a home??

Any savings not used to purchase a qualifying home could be transferred to an RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis, subject to applicable rules. Of course, funds transferred to an RRSP or RRIF will be taxed upon withdrawal.

All that and more, is highlighted in this comparison graphic below via @AaronHectorCFP and more details from Cut The Crap Investing with even more Q&A.

Weekend Reading - The New Tax-Free First Home Savings Account (FHSA)

Reference/Source: https://cutthecrapinvesting.com/2023/03/01/the-tax-free-first-home-savings-account-in-canada-fhsa/

My FHSA Thesis

Overall, pretty great stuff with the FHSA and a major opportunity for younger investors who are really trying to find ways to sock away more money for their very first home.

Continue Reading…