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Retirement needs a new Definition

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By Ryan Donovan

Special to Financial Independence Hub

Before we dive into this article, let’s play a quick game: a word association game. I’ll bet you a crisp $5 bill, or a shiny loonie for the more risk averse out there, that with three chances, I can guess the first word that pops into your head. Now, it has to be the first word, so no cheating. Ready, set… the word is ‘Retirement.’

If you said ‘Retirement Income,’ ‘Retirement Savings’ or ‘Retirement Home,’ I’ll come to collect my winnings. If you said anything like ‘Travel,’ ‘Hobbies’ or ‘Exploration,  then good on you; I’ll send along an IOU.

The reason I felt so confident taking that bet is because when I tell people that I work in retirement planning, 99 out of 100 times, they assume that I work in financial services. The other time, people ask about senior living. Retirement has become so synonymous with financial planning, and so associated with ‘old age,’ that they’re practically inseparable. Yet, in reality, retirement is a stage of life, not a date on the calendar, an amount in your bank account, and is certainly not a death sentence.

One of our primary goals when creating our startup, RetireMint, was to reframe the national conversation around “what it means to retire,” which, at its core, requires redefining how Canadians prepare for retirement.

Now, I am not discounting the importance and necessity of a sound financial plan. After all, you are reading this in Financial Independence Hub … Yes, financial planning is the keystone of retirement preparation, as you won’t even be able to flirt with the idea of retiring without it. Yet, retirement planning must adopt a much wider definition and break free from the tethered association of solely financial planning.

Retirement should really be a time to enjoy the fruits of your hard labour:  a chapter that will hopefully span decades, fuelled by leisure, exploration, discovery and meaning.

Answering the ‘what, where and how’ of everything you want to see, do and accomplish in this next chapter requires conscious preparation in areas far beyond spreadsheets and bank statements. 

The industry paradigm is that you have about 8,000 days in retirement, or around 22 years. In each of those years, you will have more than 2,000 hours of new-found free time that would have been spent working throughout the majority of your life. Filling these thousands of hours with meaningful and purposeful activity is much more easily said than done.

The common approach to retirement planning (yes, we are now using the wider definition) has been to ‘punt the ball down the field’ and ‘cross that bridge when you get to it.’ Yet, we see time and time again that those who leave their lifestyle planning to their first day of retirement are the ones who have the hardest time transitioning into this next chapter.

The people who say, “I’ll never get tired of sipping Piña Coladas on a beach,” face the same fate as the ones who say “I can’t wait to golf every day.” While these may be dream activities for retirees, they ultimately see diminishing returns if they’re your only activities, because humans are funny creatures:  we need meaning and variation.

Despite its innocent demeanour, retirement has some dark, inconvenient truths: 

  • Ages 50-64, 65-84 and 85+ have the three highest suicide rates in North America, and in the last five years, we’ve seen a 38% increase in suicides among Baby Boomers.
  • Canadians over 65 have a divorce rate three times the national average.
  • Over 25% of older Canadians are socially isolated, which causes a 50% increased risk of dementia.
  • And, 77% of older Canadians live with at least two chronic illnesses or conditions.

It’s statistics like these that starkly highlight the importance of planning for your lifestyle, wellness and purpose, as well as the need for trusted resources to help with this planning. This was the a-ha moment that sparked our urgency to develop RetireMint.

RetireMint stemmed from empirical evidence showing that once people’s finances are at least on the right track, their primary concerns and conversations with their financial advisors shift far beyond the scope of their meetings. “What am I going to do with the grandkids?,” “Where am I going to travel?” “What happens when I lose my work insurance coverage?,” are just a few of the plethora of questions that popped up time and time again.

It’s fantastic that Canadians have this level of trust and comfort with their advisors, but the truth is that financial advisors are not equipped to answer all of these broader retirement inquiries, and they’ll be the first to admit it. It’s clear that this undue burden falls on the shoulders of financial professionals, but if not for them, who is going to provide the answers? Continue Reading…

The Role of Technology in facilitating Impact Investing

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Image by Unsplash

By Devin Partida

Special to Financial Independence Hub

Most investments share a fairly straightforward purpose: making money.

However, the past few years have seen an uptick in impact investing. While financial returns still play a role in this practice, the additional goal is to make a positive difference in the world.

According to Wikipedia, impact investing refers to investments “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.” It’s about alining an investor’s beliefs and values with the allocation of capital to address social and/or environmental issues.

Impact investors want their funds to go toward causes they believe in. Historically, that’s been more easily said than done, but new technology makes it more accessible and reliable than ever. Here’s a closer look at how.

Facilitating Easier Investments

Like in all investments, Technology streamlines the trading process when impact investing. Digital platforms provide a single point where users can look through sustainable or socially conscious options to find an opportunity in less time. The same apps let people invest with a few taps of the screen, bypassing the time and intermediaries of conventional transactions.

Financial technology (fintech) also enables faster, smoother payments once users decide on an investment. Blockchain is one of the most promising innovations here, as even international transactions take just four to six seconds on these networks. Tech like this also reduces processing costs.

Such speed and cost-effectiveness mean impact investing is a more accessible practice. People who are interested but worried about the cost of third-party fees or don’t know where to begin can work around these concerns.

Providing new Impact Investing opportunities

Similarly, fintech provides new ways to get into impact investing. On a surface level, trading apps offer live news and cover deposits to make finding and jumping on unique opportunities easier. Beyond that, tech has democratized the finance industry to let people invest in causes they care about outside the conventional market system.

Peer-to-peer networks are a great example. Crowdfunding platforms like GoFundMe let anyone create a place for others to donate to or contribute directly to social impact. These opportunities are often more targeted than traditional investing. You couldn’t fund someone’s surgery on the stock market, but you can do so easily online.

Maximizing Transparency

New technologies also make it easier to ensure impact investments actually go to the causes they intend to. That’s important because 71% of young investors would turn down a significant sum of money if it meant supporting a company with a negative social or environmental impact.

Blockchain is a big difference-maker because the records are virtually impossible to change. Consequently, companies using the technology in their operations can provide proof of their sustainability or social impact. For example, diamond producer De Beers uses blockchain tracking for tamperproof assurance that its gems are ethically sourced.

The rise of digital data also means finding details on a business’s operations is more straightforward than ever. Similarly, it lets organizations provide specifics on their environmental and social efforts. This transparency helps investors determine if an opportunity aligns with their goals to boost trust in their investments.

Streamlining Impact Reports

Along similar lines, fintech can help impact investors see how their funding affects the causes they support. Many of these platforms were born online and can provide easily accessible updates on how the companies they highlight make a difference. For example, The Impact Crowd requires crowdfunding projects to submit reports at least once a year so users see what their funds do. Continue Reading…

Introducing Harvest High Income Shares: Top U.S. Stocks and High Monthly Income

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By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog) 

On Wednesday, August 21, 2024, Harvest ETFs introduced another innovative product in its growing lineup: Harvest High Income Shares ETFs.

These single-stock ETFs invest in top, well-favoured U.S. stocks, with a focus to provide high income every month from covered call writing.

The Top U.S. Stocks in Scope

Eli Lilly. A dominant global pharmaceutical manufacturer and distributor.

Amazon. A global e-commerce giant that has established a massive logistics network and an innovator in enterprise cloud computing.

Microsoft. A global leader in software services and solutions, as well as hardware technology.

NVIDIA. Established as a huge force in the semiconductor industry, with its graphics processing units (GPUs) at the forefront of the AI revolution.

These U.S. stocks are well known and sought after. They are four of the largest and most widely held stocks in today’s market. They offer a significant building block for covered call writing strategy, in that the shares of these massive companies have very deep and liquid option markets. Further, the level of volatility that accompanies the share prices is high. That makes these great stocks for Harvest’s active and flexible covered call writing strategy.

The Harvest Process:  Strong focus on High and Reliable Income every month

Record matters, and Harvest has it. For 15 years and counting, Harvest has pursued an active covered call writing strategy focused on generating high income, every month for investors in its Income ETFs lineup. Supported by its proven covered call strategy, Harvest has delivered nearly $1 billion in total monthly cash distributions over its 15-year history to investors.

This new, innovative product line, focuses on investing in shares of a single company targeting the largest, most widely held U.S. stocks. Harvest’s investment team — with a combined six decades of investment experience — will use Harvest’s well-established covered call writing strategy to provide high monthly income to investors while delivering on what sets Harvest apart;  that is, ensuring that investors enjoy not just high, but consistent, stable, predictable, and reliable income each month.

The premium income from covered call writing can be treated as capital gains. That means the high income that the Harvest High Income Shares ETFs seek to provide can be regarded as being among most tax-efficient income. The Harvest High Income Shares  ETFs are organized as Canadian Trust Units and are available in Canadian and U.S.-dollar-denominated Units. As open-end mutual funds listed on an exchange (“ETFs”), on the TSX, they provide trading and reporting flexibility for Canadian investors.

Innovation, High Monthly Income, and Upside

The covered calls strategy used in the Harvest High Income Shares  ETFs will operate with up to 50% write level. Harvest’s portfolio management team has stress tested these equities with an average 2-year implied volatility. It found they can produce high levels of income at much lower write levels. Therefore, a 50% write level, in their view, provides a conservative floor to ensure unitholders will be able have reliable high-income generation every month. Continue Reading…

Retired Money: Should retirees consider a Reverse Mortgage?

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My latest MoneySense Retired Money column looks at the question of whether seniors or those near Retirement should consider  taking out a reverse mortgage. Click on the highlighted headline for the full column: Why a reverse mortgage should be a last resort for most Canadian retirees.

At first glance, reverse mortgages sound appealing, especially for those whose wealth mostly resides in their home equity. If you have little other sources of future retirement income, and especially if you have no heirs who will be annoyed at having a reduced inheritance, then the prospect of living in your home in old age and generating tax-optimized retirement income to boot does sound appealing.

Have your Home and your Money too?

As P.J. Wade wrote in her 1999 book, Have Your Home and Money Too,  reverse mortgages can be “your best friend or your worst enemy … your choice!”

However,  there’s not a lot of Reverse Mortgages available in Canada. The two main ones of which I’m aware are Equitable Bank and HomeEquity Bank (aka CHIP). According to Rates.ca “Reverse mortgages always cost more than conventional mortgages because the lender’s funding costs are higher.”

The full column includes input from occasional MoneySense contributor Allan Small, who is a senior investment advisor with IA Private Wealth Inc. as well as a podcaster. He says reverse mortgages “have not played a part in any of the retirement plans and retirement planning that I have done so far in my career. I think the reverse mortgage idea or concept for whatever reason has not caught on.” Also, “those individual investors I see usually have money to invest, or they have already invested. Most downsize their residence and take the equity out that way versus pulling money out of the property while still living in it.”

Milevsky: It all depends on to what a financial strategy is compared

For me, the definitive word on Reverse Mortgages or any other financial instrument goes to noted Finance professor and author Moshe Milevsky. He told me in an email that when it comes to reverse mortgages – or any other financial strategy or product in the realm of decumulation – “I always ask this question before giving an opinion: Compared to what?” He worries about the associated interest rate risk, which is “difficult to control, manage or even comprehend at advanced ages with cognitive decline.”

What are the alternatives to a reverse mortgage? Is it selling the house and moving? Or, Milevsky asks, “Is the alternative reducing your standard of living? Is the alternative taking a loan from a local bookie? It’s the alternative that determines whether the reverse mortgage is a good idea or not … Generally I will not rule them out and I think they will continue to grow in popularity among retiring boomers, but I wouldn’t place them at the very top of the to-do list when you get to your golden years.”

Active or Passive Investing: Which is Best?

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Image courtesy Justwealth

By Robin Powell, The Evidence-Based Investor*  

Special to Financial Independence Hub

* Republished from the Just Word Blog from Robin Powell, the U.K.-based editor of The Evidence-Based investor and consultant to investors, planners & advisors  

There are broadly two types of investing: active and passive investing. Active investors try to beat the market by trading the right securities at the right times. Passive investors simply try to capture the market return, cheaply and efficiently. So which approach is better?

Instinctively, most people who haven’t looked into the issue in any detail tend to assume that active investing is superior. After all, the thinking goes, it’s surely preferable to be doing something to improve your investment performance, instead of just accepting whatever return the market offers. Active investing has certainly been much more popular than passive in the past.

But if you look at the evidence, you’ll see that over the long run, most mutual fund managers have underperformed passively managed funds.

S&P Dow Jones Indices keeps a running scorecard of active fund performance in different countries, including Canada, called SPIVA. It consistently shows that, regardless of whether they invest in equities or bonds, most active managers underperform for most of the time.

The latest SPIVA data for Canada were released a few weeks ago, and they chart the performance of active funds up to the end of December 2023. What the figures show is that the great majority of funds have lagged the relative index once fees and charges are factored in, especially over longer periods of time.

Underperformance over ten years is even more pronounced. For example, 98.04% of Canadian Focused Equity funds, 97.56% of U.S. Equity funds and 97.60% of Global Equity funds underperformed the benchmark. Remarkably, on a properly risk-adjusted basis, not a single U.S. Equity fund domiciled in Canada beat the S&P 500 index over the ten-year period.

In fact, fund managers have found it so hard to outperform that, of the funds that were trading at the start of January 2014, just 61.33% of them were still doing so at the end of December 2023. That’s right, almost four out of ten funds failed to survive the full ten years.

Of course, it might still be worth investing in an active fund if you knew in advance that it’s likely to be one of the very few long-term outperformers. The problem is that predicting a “star” fund ahead of time is very hard to do, and past performance tells us very little, if anything, of value about future performance.

To illustrate this point, the SPIVA team examined the persistence of funds available to Canadian investors. Among Canadian-based equity funds that ranked in the top half of peer rankings over the five-year period to the end of December 2017, only 45% remained in the top half, while 55% fell to the bottom half or ceased to exist, at least in their own right, in the following five-year period.

To be clear, I’m not saying that active managers in Canada are any less competent than their counterparts in other countries. What the SPIVA analysis shows is that managers all over the world struggle to add any value whatsoever after costs. Distinguishing luck from skill in active management is notoriously difficult, but the proportion of funds that beat the markets in the long run is consistent with random chance.

Why do so few active managers outperform?

So why is active fund performance generally so poor? The most important reason is that beating the market is extremely difficult. Why? Because the financial markets are highly competitive and very efficient. Never before have investors had so much information at their disposal. New information is made available to all market participants at the same time, and prices adjust accordingly within minutes, or even seconds.

In the short term, then, prices move up and down in a random fashion. So, identifying a security that is either underpriced at any one time is a huge challenge.

Another reason why active fund performance tends to be so disappointing is that active managers incur significant costs. Salaries, research, marketing, the cost of trading and so on: all of these things need paying for, and it’s the investor who picks up the tab. Once all these costs are added together, they present a very high hurdle for fund managers. Simply put, any outperformance they succeed in delivering is usually wiped out by fees and charges. Continue Reading…