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Life after Twitter: Mastodon & other alternatives

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As I posted on Twitter a few days ago, Elon Musk’s ownership is causing a lot of Twitter regulars to rethink their commitment to the platform. Personally, I have invested a lot in the Bird since joining in 2009 and so I am reluctant to storm out of there merely out of sheer petulance. Better, I think, to take a wait-and-see approach and give Elon a chance to salvage it or to burn it to the ground.

But it does behoove regulars to have a contingency plan or Plan B. Once upon a time, I viewed Google Plus as an alternative but it proved to be a virtual ghost town until Google pulled the plug on it. If Twitter keep imploding, perhaps the folks at Google will think of giving it a go again. But in the meantime, there are still LinkedIn and Facebook.

While in Spain this month, I started to experiment with the platform that seems most likely to accumulate disaffected Twitter users: Mastodon. (spelt with the letter o in two places, NOT the letter “a”!

Unlike the centralized Twitter platform, Mastodon is decentralized and that’s the first thing you need to know about it when signing on. First you have to pick a server, which is run by volunteers around the world. I picked one of the few (or only?) Canadian ones: mstdn.ca. It’s also called Mastodon Canada and bills itself as being run by Canadians for Canadians

A new meeting ground for Canadian finance Tweeters and bloggers?

 

Perhaps it’s too early to say, or that it’s wishful thinking, but it seems possible that a critical mass of disaffected Canadian Twitter users may be building there, including a subset of Canadian financial tweeters; I mean tooters!

For me, Truth Social was never an option, for reasons that should be obvious, given its ownership. If there are other Canadian Mastodon servers and there may be, Google Canadian Mastodon servers.

Mastodon takes some getting used to and the learning curve seems steeper than Twitter was in its heyday. At the same time, it’s fun to give one’s atrophied social media little grey cells a new workout, and it’s a learning experience to see new networks and patterns of networks evolve almost from the ground up.

It was helpful to be fairly early with Twitter and in the same way Mastodon has that pioneering feeling here in November of 2022, the first full month of Elon’s Twitter ownership. Mastodon has been around much longer but there’s little doubt there is now a wave of Twitter users descending on the place. Most of the new arrivals admit they’re looking for a possible alternative, or don’t really know why they are there, and most either need a bit of help or encouragement or are a bit more experienced and willing to offer assistance to the newbies.

In fact, mstdn.ca is so new they are still asking for volunteers to moderate and assist with the technical side for those who have the skills. They’ve also just set up a PayPal account to accept donations to offset the server costs.  Continue Reading…

This is your Investment Brain on Pessimism

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Lowrie Financial: Canva Custom Creation

By Steve Lowrie, CFA

Special to the Financial Independence Hub

I’m no psychic. But I bet I can still correctly divine what’s on most investors’ minds these days.

Pessimism, bordering on despair …

Have you been reading the headlines, viewing your investment portfolio, and assuming the worst is yet to come? Welcome to your painful crash course on what market risk really looks like—and more importantly, how it feels.

Most investors say they’re ok living with periodic market risk, as long as it helps them achieve better returns over the long run. We accept (in theory) that tolerating the interim damage done to our own investment portfolios will help us meet our long-term financial goals.

But that’s investment risk in theory. Since it’s been a long time since we’ve encountered an extended bear market climate, you may have forgotten or never known the reality of it. It may not have clicked then, when significant market declines happen, it is usually due to despairingly bad news … amplified by headlines screaming how things are only going to get worse from here.

The reality is, when we’re in the middle of a storm of stuff, our behavioural biases make it very difficult to believe we’ll ever see better days.

Now and Then Investment News

History informs us otherwise. Even in the current climate, there have been plenty of days when stock markets have delivered positive outcomes. Some days, it’s even been very positive.

How does the popular financial media (aka, “group think central”) report the good news? They have a gloomy story to tell, because that’s what’s been selling lately. So, they dig up market pundits who downplay the uptick. They discount the event as being a “short covering,” “relief rally,” “dead cat bounce,” or some other meaningless adage, rather than accurately reporting that this is just how efficient markets operate every day. Without a scrap of plausible evidence, their confident conclusion is that the markets must soon continue their downward spiral.

A relevant question is: What is the pundit’s track record? You have to dig hard to find the data, but even those with the best reputation score less than a coin flip across their body of forecasts. (Actually only 46.9% accurate according to this study.)

On the subject of forecasting generally, David Booth, the co-founder of Dimensional Fund Advisors, recently offered this very practical insight:

Do you really want to invest your hard-earned savings—the money you’ll need for your kids’ college or your own retirement—based on someone’s hunch or wish?

What Goes Down …

From an analytic perspective, the general economy does have its work cut out for it over the foreseeable future. But, believe it or not, I remain optimistic about staying invested in our financial markets, and I think you should be too.

While I’m admittedly an optimist by nature, I’m also evidence-based. So, let’s look at what we know, and how it shapes what to prepare for—i.e., financial markets that should continue to deliver solid rewards to patient investors in the years ahead.

Let’s start with one of those pictures to replace a thousand words. Compliments of our friends at Dimensional Fund Advisors, here’s what U.S. stock and bond markets have done in the past after stumbling into bear market territories. Defying gravity, it would seem what goes down in financial markets has typically gone back up — and kept going over time.

lowrie dimensional equity returns to 2021
*Dimensional Fund Advisors LLP – Past performance, including hypothetical performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. In USD. Market declines or downturns are defined periods in which the cumulative return from an a peak is -20% or lower for equities and -2% or lower for fixed income. Returns are calculated for the 1-, 3-, and 5 year look-ahead periods beginning the day after the respective downturn thresholds are exceeded. The bar chart shows the average returns for the 1-, 3-, and 5-year periods following the 20% for equities and 2% for fixed income thresholds. For the 20% threshold, there are 15 observations for 1-year look-ahead, 14 observations for 3-year look-ahead, and 13 observations for 5-year look-ahead. For the 2% threshold, there are 29 observations for 1-year look-ahead, 26 observations for 3-year look-ahead, and 25 observations for 5-year look-ahead. See “Index Descriptions” in the appendix for descriptions of Fama/French index data. Eugene Fama and Ken French are members of the Board of Directions of the general partner of, and provide consulting services to, Dimensional Fund Advisors SP. Bloomberg data provided by Bloomberg.

As always, we can’t guarantee that’s what will happen this time. Nor is it going to be pleasant to wait for markets to likely do what they’ve done before. But one thing is for sure: If you sell out of today’s markets or make significant changes, you’ll lock in at today’s lows, despite the logic and data that suggests we should expect above-average returns over the next few years. In past posts, I’ve referred to this as one of the Big Mistakes in investing.

Markets, Economies, and Different Drummers

You may also have noticed that financial market pricing is often quite out of sync with economic indicators, especially in more volatile markets. The economy will stumble … and markets will end higher for the day. Or the economy will catch a break, and stock prices drop. Continue Reading…

Earning income from dividends: reality or fantasy?

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By Anita Bruinsma, CFA

Clarity Personal Finance

Special to the Financial Independence Hub

Getting an income from dividends is a concept that is often mentioned in the personal finance world. It can seem like an elusive concept – a unicorn – or perhaps something for the super-rich or those with investment gurus at their disposal. In reality, though, anyone with some savings can earn dividends and it doesn’t require much expertise.

A dividend is a cash payment made by a company to its shareholders. Shareholders are simply people who own stock (or shares) in their company. If I own shares of TD Bank, I get $3.56 per year for every share I own. It might not sound like much, but if I invest $3,000 in TD Bank today, I’d be in line to get $132 over a year. It adds up!

Let’s get something straight though: living entirely off dividends requires a lot of money available to invest. It’s not a reality for most people.

Here are a few numbers to give you context. In order to earn $40,000 a year (before tax) from dividends, you’ll need a portfolio of about a million dollars to invest in stocks.* You’ll then have to pay tax on these dividends (except for those that are earned within your TFSA). As you can see, living off dividends isn’t a strategy available to most people.

If you are looking to supplement your income to maybe pay for your annual vacation, you can earn $5,000 a year (all figures are before tax) with $125,000 to invest. For $10,000 a year, you’ll need about $250,000.

Dividends have more benefits that just giving you cash flow – they also give you a reasonably reliable investment return and can protect against inflation. A company that has a long history of paying a dividend and consistently growing it over time provides a quasi-guaranteed return on a stock. (No dividend is guaranteed but it can be consistent and dependable.) Even though the stock prices goes up and down (unreliable), you’ll get the dividend (reliable). Even better, many companies increase their dividend year after year, sometimes at a rate higher than inflation, so dividends can help protect you from the ravages of inflation too.  You can read more about dividends in a prior blog post.

DRIPs

For those who don’t need the additional cash flow, another way of benefitting from dividends is to reinvest them. There are two ways to receive a dividend: it can be paid in cash into your account or it can be paid to you in shares. This is called a Dividend Reinvestment Plan, or DRIP. If you sign up for a DRIP, you’ll receive additional shares of the company you are invested in. For example, if you own BCE (Bell), and you own 100 shares, you’ll be entitled to a dividend payment of $368 every year. You could get that in cash, or you could get 6 more shares of BCE. This is great because then next year you’ll get a dividend on 106 shares – and the snowball keeps rolling.

There is important roadblock to this strategy for a lot of people: if you want to earn dividends, you have to invest the cash in dividend-paying stocks or funds. This means that if all of your savings amounts to $125,000, and you want to earn $5,000 in dividends, you will need to invest all of it and you will not be well-diversified nor will you have any money in less volatile investments like bonds or GICs. You also need to ensure you have enough money that isn’t invested in the market to use in emergencies or for near-term uses.

Dividend ETFs

If you’ve decided that you want income from dividends and you’re comfortable with having your savings invested in the market, you might asking “Now what?” How do you get these dividends flowing? Well, you’ll need to find investments that pay dividends, preferably reliable, consistent, high, and growing ones. Unless you have a large portfolio, the most efficient and the simplest way to invest for dividends it to put your money in a high dividend-paying exchange traded fund. This kind of ETF will invest in companies that pay high dividends and as an investor, this money will flow through to you via fund distributions, which you can choose to take as cash or re-invest in more units of the fund (like a DRIP).

To find an appropriate ETF, do a Google search for “high dividend yielding ETFs” and drill down into a few. There are three things to look at when choosing which to invest in:

  1. What is the yield? Higher is better.
  2. Does it invest in a broad swath of the stock market? Avoid ones that invest in a specific sector.
  3. What is the MER, or annual fee? The fees on these ETFs are higher than broad market ETFs but you can find a high yielding ETF for less than 0.20% per year.

Yield is the most relevant number to look at with dividend investing. It’s simply a measure of how much income you will get as a percent of the amount you invest. It’s like an interest rate on a GIC: if a GIC pays 4% interest, you get $40 for every $1,000 you invest. If a stock has a dividend yield of 4% you’ll get $40 of dividends for every $1,000 you invest. (Dividends don’t happen in nice round numbers like that, though.) If an ETF has a 4% yield, you’ll get $40 in distributions from the fund.

Although I am not usually a proponent of stock picking, this is one situation where I feel that owning individual, high-dividend paying stocks can be okay. If you have enough money to own a number of stocks, you could put together a portfolio of high-quality dividend stocks that have a long track record of paying and growing their dividends. In Canada, this list would probably include Canadian banks, telecom companies and utilities, among others. For example, a portfolio consisting of TD Bank, Royal Bank, Manulife, BCE, Telus, Enbridge, Fortis and Algonquin Power yields more than 5% right now.

Are you still with me? If that last paragraph made you want to stop reading, please don’t! If you’re not into investing in individual stocks, keep it simple and go the ETF route. Here are a few Canadian ones to look at:

iShares S&P/TSX Composite High Dividend ETF (XEI)

Vanguard FTSE Canadian High Dividend Yield Index (VDY)

BMO Canadian Dividend ETF (ZDV)

(Note: You can also buy U.S. and international dividend ETFs.)

The yields on these ETFs and on dividend-paying stocks are quite high right now. This is because the stock market has fallen. As the price of a stock falls, the dividend yield increases because you need to spend less per share to get the same dividend. To demonstrate, let’s look at BCE (Bell). BCE pays a dividend of $3.68 per year. If the stock is trading at $63 (as it was a year ago) you pay $63 to get a $3.68 dividend, which is a 5.8% yield ($3.68/$63). Today, BCE is trading at $57 which means it has a yield of 6.5% ($3.68/$57). (If you are ticked off at the amount of your internet, cable and cell phone bill with Bell, offset it with some sweet dividends!)

Living off dividends? Probably a pipe dream. Adding some cash flow, getting a good return on your investment, and fighting inflation? Not a unicorn – it’s totally doable!

*Assumes a 4% dividend yield.

Anita Bruinsma, CFA, has 25 years of experience in the financial industry. As a long-time investor, Anita is passionate about demystifying investing to make is accessible to more people. After a long and satisfying career in the world of banking and wealth management, including 15 years managing mutual funds with a Canadian bank, Anita started Clarity Personal Finance, and now helps people learn to better manage their finances, including how to invest for themselves.

Revenge Travel in the post-Covid era, global Market Volatility, US mid-terms, Confidence Man

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Malaga, Spain. Image by Pixels: Oleksandr Pidvalnyi

By the time you read this, I should be in Malaga, Spain, where we’re spending a few weeks. Call this our version of what Robb Engen described in yesterday’s Hub as “Revenge Travel” in the post-Covid era.

I realize that the term post-Covid is hardly an apt one as, from where I sit, Covid and its ever-propagating new variants seem ever with us.

Back in 2020 and 2021, it seemed Covid was something a friend of a friend of a friend contracted: these days, it’s more likely to be a next-door neighbour, friends or family, or perhaps the person staring you in the mirror in the morning. This is not a time to be complacent: I still believe in being cautious, keeping vaccinated and boosted to the max, social distancing in public places, and masking wherever there are significant gatherings.

One thing we noticed early in this trip to Spain is a higher use of masks than in North America: masks are still mandatory or highly encouraged on public transit, trains and for air travel. Last week, the Washington Post and other papers warned of a resurgent Covid wave, possibly coupled with the ordinary Flu and other respiratory viruses, constituting a dreaded possible “tridemic.”

I’m writing this as a grab-bag of recent items. As per usual, the Hub will be publishing every business day, with the help of the many generous financial bloggers who grant permission to republish their excellent insights. You know who you are! (Looking at you, Robb Engen, Bob Lai, Michael Wiener (aka James), Dale Roberts, Kyle Prevost, Mark Seed, Pat McKeough, Steve Lowrie, Adrian Mastracci, Noah Solomon, Anita Bruinsma, Mark Venning, Fritz Gilbert, Billy and Akaisha Kaderli, Beau Peters, Victoria Davis, Emily Roberts, and occasional others, including our regular Sponsor bloggers.)

I do of course  have wireless access and my laptop while abroad, and am at least partly plugged into the blogosphere and markets. As I wrote recently in my monthly MoneySense Retired Money column, 2022 has been a challenging one for investors: even those holding a version of the classic 60/40 Balanced portfolio. Pretty distressing to see both sides of the stock/bond pendulum falling!

Are GICs the answer to the Fixed-income Rout?

I see Gordon Pape commenting recently in the Globe & Mail [paywall] about the fact that most investors will be looking at significant losses this year, unless they were mostly in energy stocks, GICs or short the market. He suggested 1-year GICs paying around 4.5% are one possible remedy. After last week’s Bank of Canada rate 0.5% rate hike, you can now get 5% or more on 5-year GICs, so it seems an apt time to start building or rebuilding 5-year GIC ladders. The way I figure it, the BOC will hike again at the end of the year, perhaps 0.25% or at most 0.5%, and perhaps once or twice in 2023. But if they do succeed in restraining inflation, then that will be that: if rates top out maybe 0.5% more from here and then start to fall again, you may end up kicking yourself for not locking in 5% for 5 years or as long as you can find. This is assuming you are building a ladder and reinvesting prior GICs every quarter or so: as long as SOME money is coming due every three or four months, the locking-in factor is less of a negative.

But before going overboard on GICs, read Robb Engen’s recent blog  at Boomer & Echo: The Trouble with GICs. Robb has an issue with locking your money up for 5 years: an Asset Allocation ETF can do much the same thing if things become normal again, with instant liquidity.

Of course, as many of our guest bloggers have been noting recently, it’s also a good time to “dollar-cost average” your way into high-quality decent-yielding Canadian and US dividend stocks, which to some extent I also have been doing. Continue Reading…

How to plan your own Revenge Travel Year

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Most of you know the story by now. The short version goes: I quit my job at the end of 2019 to focus full-time on financial planning and freelance writing. The underlying motivation was to have more time to travel.

No longer bound by a set number of vacation days, and with work that could be done from anywhere with an internet connection, we planned some epic trips for 2020.

You know what happened next. Trip to Italy – cancelled. Trip to the UK – cancelled. Two years later, with a lot of pent-up demand to continue this vision of our rich life, we embarked on our revenge travel year.

A week in Maui, 3.5 weeks in Italy, 3.5 weeks in the UK, and another eight days coming up in Paris this fall. It has been a crazy and exciting year.

Planning your Revenge Travel Year

Many of you also have a pent-up demand for travel, and have either managed to get away this year or plan to do so in 2023.

Your ideal destinations may differ from mine, but if you’re itching to travel soon then I suggest you start planning now. Here’s how to plan your own revenge travel year:

Time and Place

My wife and I like to plan our trips at least a year or two in advance so we can properly allocate our travel spending.

Like any financial goal, it helps to have a rough idea of how much you’ll spend, plus a time-frame so you can work backwards and ensure an appropriate savings plan.

For example, you might budget $5,000 for a warm holiday next February. That means saving $833 per month for the next six months to reach your goal.

A budget nerd like me maps out spending for an entire year, so I know which months will incur the big expenses.

A more sensible approach might be to set up a sub-savings account for your travel goal. That kind of mental accounting can be a useful part of your financial plan.

Transportation and Accommodation

How will you get there? Plane, train, automobile? Where will you stay? Hotel, Airbnb, in a friend’s guest room?

Are you a luxury traveller, flying business class and staying at the Ritz Carlton? Or are you happy with an economy flight and a Best Western? Will you need to rent a car?

We flew business class from Calgary to Rome, and then again from London to Calgary. I’m not going to lie, it’s pretty nice to actually get some rest in a lie-flat seat and not arrive completely wiped out after a nine-hour flight. But, the economy flight back from Rome wasn’t all that bad.

We also love staying in nice hotels when it’s just me and my wife enjoying a kid-free getaway. Otherwise it’s Airbnbs for the extra space and the kitchen.

I bring up transportation and accommodation because it’s helpful to know which airline you’re going to fly with, which hotel chain you’ll stay at, and which rental car agency you’ll use.

Most airlines, hotels, and car rental agencies have their own loyalty program or belong to a coalition where you can earn points, get discounts, and receive other perks. Sticking to the same 1-2 brands and joining their loyalty programs can help augment your travel budget each and every year.

Rewards and Loyalty Programs

I’ve been a credit card rewards addict for many years. But I don’t just blindly apply for any credit card with a decent welcome bonus. Instead, I’m laser focused on earning points that I can use when I travel, and using credit cards that can help me accumulate those points in a hurry.

My top loyalty programs for travel include:

  • Aeroplan
  • WestJet / RBC Rewards
  • Marriott Bonvoy
  • Scotia Scene+
  • TD Rewards

Aeroplan is easily the best value of the bunch. Expect to redeem Aeroplan points at a value of 2 cents per mile. That’s at least twice the value of most other programs, where you can expect to redeem points at a rate of 0.50 cents to 1 cent per point.

We focus on Aeroplan because flights for four of us to Europe or Maui are expensive. Redeeming Aeroplan points has helped us save thousands of dollars on flights.

I also collect WestJet Dollars from time-to-time, as WestJet is sometimes a good choice for flying out of Lethbridge and for short haul trips to Vancouver. It’s good to have options. RBC Rewards can also be converted to WestJet Dollars.

I collect Bonvoy points because Marriott has the largest collection of hotels in the world and will almost always have an option in the area if we need a hotel.

We had a lovely stay at the Sheraton in Edinburgh and at the Westin Dublin in 2019, and with Marriott’s fifth-night free option we saved a bundle. We also like the free night certificate that comes attached to their Amex affiliated credit card.

Finally, a couple of supplementary loyalty programs (like Scotia Scene+ and TD Rewards) always come in handy to redeem for car rentals, hotels, or tickets to an attraction.

For example, I had more than 100,000 TD Rewards points ($500) and redeemed the points for a car rental in England this summer.

The point is to zero-in on a select few rewards programs that align with your trip or with the way you like to travel, and start racking up points.

Maybe you can shave off $1,000 from that $5,000 trip just by strategically using your points. Or, like I do sometimes, use those points to enhance your stay with a business class ticket, upgrade to a suite with a view, or to see an attraction you might have otherwise deemed too expensive.

Top Credit Cards for Travel

Okay, so which credit cards are best to use for collecting travel points? I wish there was an easy answer, but if you’re planning a revenge travel year soon you’re going to need a complete overhaul of your wallet.

Here’s what I’m packing:

  1. American Express Cobalt Card – Simply put, this is the best credit card in Canada for earning points for travel. New cardholders will get 2,500 points for each month in which they spend $500 (30,000 total). That’s in addition to earning 5x points on groceries. Sign up for this card, use it for $500 per month worth of your grocery (or dining) spending, and after 12 months you’ll have 60,000 Membership Rewards Points. These can be transferred to Aeroplan or Marriott, or used to redeem against purchases made on your card.
  2. American Express Platinum Card – Go big or go home. You’ve got an epic year of travel planned, you need an epic credit card (even for just one year). Yes, the Amex Platinum card comes with a $699 annual fee. But do the math and you’ll see the card easily pays for itself and more. Sign up for this card and you’ll get: Airport lounge access, a $200 travel credit, plus 115,000 points when you spend $6,000 in the first three months. Again, these can be transferred to Aeroplan or Marriott, or used to redeem against purchases made on your card. Time this application to coincide with a large one-time purchase (home or auto insurance for us). Cancel the card after your year of revenge travel, or keep it if you find it useful (I do).
  3. American Express Aeroplan Reserve Card – Another premium card option for a big year of travel ahead. This one comes with a $599 annual fee, but also some incredible perks like Maple Leaf Lounge Access, priority check-in, boarding, and baggage handling (all of which came in handy for us this year). Sign up for this card and you can earn up to 115,000 Aeroplan points when you reach the minimum spending thresholds.
  4. Marriott Bonvoy American Express Card – I’ve held this card for years because of the annual free night certificate, which I think easily pays for the $120 annual fee. We redeemed the hotel certificate for one-night stays in London and in Rome near the airport before our flight, and at the Marriott in-terminal hotel in Calgary before an early departure. Sign up for this card and earn 70,000 Bonvoy points when you spend $3,000 in the first three months. As I said, this one is a long-term keeper.

Next, I have a strategy to earn additional points from holding RBC and TD Cards. Here’s what I do:

  1. WestJet RBC World Elite MasterCard / RBC Avion Visa Infinite – I’ve held each of these cards at one time or another. They often have great sign-up bonuses for doing very little (welcome bonus on approval, or on first purchase), which makes them a no-brainer option for someone looking to accumulate points quickly and hassle-free.
  2. TD Aeroplan Visa Infinite / TD First Class Travel Visa Infinite Card – Same idea, I will often hold one or both of these cards to collect easy sign-up bonuses. The Aeroplan Visa obviously helps accelerate your Aeroplan points, while the First Class Travel Visa earns TD Rewards, which can be redeemed for a number of things – most notably through Expedia for TD (where I redeemed points for that rental car in England).

What I like about the TD and RBC cards, besides the easy to earn welcome bonuses, is that you don’t have to cancel your card before the next year’s annual fee comes due. You can downgrade to a no-fee card, or make a “product switch” from Aeroplan to First Class (and vice-versa), or from Avion to WestJet (and vice-versa), so you keep your credit file open and won’t take a credit hit for closing the account.

Ready Player Two?

Most credit cards come with the option of having a supplementary card: a second card for your spouse or partner to use on the same credit card account. Some even charge an annual fee for this “privilege.” No thanks! Continue Reading…