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How to avoid your own retirement crisis

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By Myron Genyk

Special to the Financial Independence Hub

The Canadian working population feels anxiety about retirement. Numerous surveys have shown that Canadians lack knowledge about how to save for retirement and stress about it. And for good reason – it’s difficult for someone with no personal finance background to know where or how to start. Canadian workers recognize that retirement investing is becoming increasingly important, as 75 per cent of Canadian employees believe there’s an emerging retirement crisis.

So how can you avoid your own retirement crisis? What do you need to do to get started? Generally, the first step is to open an investment account, and to do what is commonly referred to as “self-directed investing” or “DIY investing.”  Once set up, here are five tips to ensure you are successfully investing for retirement:

1.) Start early

Compounded returns work their magic over longer periods of time, so it’s crucial to invest for retirement as early as possible.

For instance, if you invested $1,000 at age 25 and earned a return of 5.00% over 40 years, you would have $7,040 at age 65 (in today’s dollars). If you invested that same $1,000 at age 45, you would need to realize annual returns of 10.25% to have that same amount at age 65. This percentage only increases as you age. Starting early lowers your hurdle rates.

2.) Be consistent

Create a realistic savings plan. Whether it’s setting aside $20 or $200 of your paycheck, it’s important to set the amount and stick to it.

Avoid trying to time the market. So much has been written about how nobody can time markets; some people can be lucky over short periods, but nobody can do this consistently – not a fund manager, not your brother-in-law, not your neighbour.

You might also be enticed to put off saving for a couple of months, putting that money towards a vacation or something.  Deviating from your savings plan could lead to forgetting to resume with your plan, or believing that you don’t need to continue with it.

3.) Keep fees low

Most people might not think much about a 1% or 2% difference in fees.  After all, whether you tip 15% or 16% at your local breakfast diner might be the difference of a few dimes.  However, when incurred over years and decades, these fees can substantially eat into your investment portfolio. Continue Reading…

Healthcare sector offers unique combination of Defense and Growth

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Harvest ETFs CIO explains that as markets take a breather, the healthcare sector continues to show defensive characteristics with exposure to growth prospects

The healthcare sector offers a unique combination of defensive and growth-oriented prospects. Photo Shutterstock/Harvest ETFs

By Paul MacDonald, CIO, Harvest ETFs

(Sponsor Content)

US large-cap healthcare has been a bastion for investors in an otherwise rough market. While not fully insulated from the broad sell-off we’ve seen in recent months, the sector has outperformed due to stable demand, high margins and relatively low commodity price exposure. The Harvest Healthcare Leaders Income ETF (HHL:TSX) combines a portfolio of diversified large-cap healthcare companies with an active covered call strategy to generate consistent monthly cash distributions. The portfolio’s defensive positions, plus its income payments, has resulted in significant outperformance of broader markets.

In the wake of July earnings data, however, we saw some relief come to the broader markets as companies across sectors reported largely in line with expectations, providing much-needed visibility. As markets breathed a sigh of relief, growth-oriented sectors like tech started to pare back losses from earlier in the year. While the healthcare sector has shown its reputation for defensiveness in recent months, we are also seeing that the sector’s growth tailwinds are making a greater impact.

This whole space is innovative: whether that’s a company leading the way on robotic-assisted surgery, or a huge established player like Eli Lily making strides in obesity medication. Healthcare companies have significant growth tailwinds and, in our most recent rebalance of HHL we’ve taken some steps to capture more of those growth prospects.

Positioning HHL for growth prospects

We would stress that the recent rebalance in HHL maintained the ETF’s commitment to subsector and style diversification within the healthcare sector. However, some of the new additions to HHL have positioned the portfolio for greater growth opportunity.

The first move was replacing Agilent Technologies with Danaher in the portfolio holdings. Both companies focus on life sciences, tools & diagnostics, but Danaher has a more diverse line of businesses and a larger market share, which in our experience better positions Danaher for any potential market recovery.

The second move in the rebalance was to remove HCA Healthcare Inc, a value position which had shown worsening earnings visibility and rising costs due to labour issues and add Intuitive Surgical. Intuitive Surgical is the market leader in robotic-assisted surgery, with technology almost a decade ahead of its closest competitor. The robotic-assisted surgery market is currently underpenetrated, and a number of companies are making strides in the space: including Stryker, another HHL portfolio holding. The addition of Intuitive Surgical positions HHL to better participate in that subsector’s growth prospects.

While moves like these are designed to position HHL for improved growth prospects, we should emphasize that the whole portfolio is designed for diversified exposure to the growth opportunities and defensive characteristics inherent in the healthcare sector.

Maintaining defense while capturing growth opportunity

It’s ironic. We can easily think of specific investment sectors as a value-growth binary, trading off one for the other. But the healthcare sector isn’t so simple. Some of the largest companies in this sector have incredible growth prospects due to innovations in treatments, pharmaceuticals, and patient service. At the same time, given the large-cap focus we take in HHL, even our more growth-oriented names have market shares and barriers to entry that can be seen as highly defensive.

Those characteristics have shown themselves throughout 2022, as low commodity price exposures and high margins kept the sector in a state of outperformance. HHL is also one of the 6 Harvest ETFs held in the Harvest Diversified Monthly Income ETF (HDIF:TSX), where it contributes to the overall defensive position of that core portfolio.

There are also two aspects of HHL that beef up its defensive traits: diversification and covered calls. Continue Reading…

6 ways to pay for Unexpected Expenses

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Image by Freepik

By Tanvi Kaushik

Special to the Financial Independence Hub

When you live a salaried life, money is always on your mind. No matter how meticulously you plan your monthly expenses, unexpected expenses may crop up anytime. It could be repairs for your home, a medical expense, a veterinary bill, or a loss in business. In such cases, it is wise to maintain an emergency fund that you can dip into to meet the unexpected expense. But sometimes, savings may not be enough to meet the emergency expenses.

Thankfully, with advanced fintech, it is possible to avail of a loan: big and small. Not only that, you can get the funds quickly in your account.

If you ever face a financial crunch, here are some options you can explore to get funds in a short time.

Ways to pay for Unexpected Expenses

1.) Credit Card

Financial experts usually don’t recommend using a credit card to fund a sizeable emergency expense. A significant expenditure can land you in substantial credit card debt with rising interest rates. However, if your expense is something you can pay back within the interest-free period or your emergency fund is falling short by a small amount, using your credit card can help.

It is also wise to scan the market for other options in such cases. You could explore new financial instruments such as a virtual credit card. Virtual credit cards are digital cards available online. The usage is similar to a conventional credit card with a card number, CVV, and validity. But it works like a flexible personal loan wherein a predetermined amount is transferred to your account, and you pay interest only on the amount you spend using your card. You may use your virtual credit card for limited purposes.

2.) Personal Loan

A personal loan is a valuable financial instrument to tide you over an unexpected financial crunch. Personal loans usually have high interest rates, but depending on your credit score, repayment records, and the loan amount you may find personal loans affordable compared to other financial instruments. Flexible personal loans with shorter repayment cycles allow you to take a loan but only pay for the amount that you use. Flexi personal loans are also available for amounts as small as one thousand, and with affordable interest rates. Salaried people can opt for other kinds of personal loans that enable you to repay the amount in convenient monthly instalments.

3.) Line of Credit

A line of credit enables you to borrow money with a predetermined credit limit. In times of emergency, lines of credit can be valuable financial instruments. A line of credit allows you to borrow as much as needed within a predetermined credit limit. Even if you are unsure of the total amount, you need to meet your emergency expense. The exact repayment plan you get for your line of credit depends on your lender. You may pay back in instalments, or your lender may ask for a lump sum repayment.

4.) Salary Advance

Employers usually support their employees by giving them the option of a salary advance. A salary advance implies that your employer gives you an amount you can repay with small deductions in your future pay-cheques. Usually, payroll advance is convenient and a quick way to get some funds in an emergency. Every company has its own salary advance policy and a specific period for repaying the advance amount. Talk to your finance department to understand the policy and interest rates better. Continue Reading…

Stocks: The Undisputed Champion (by A Country Mile)

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By Noah Solomon

Special to the Financial Independence Hub

In Stocks for the Long Run, Wharton Professor Jeremy Siegel states “over long periods of time, the returns on equities not only surpassed those of all other financial assets but were far safer and more predictable than bond returns when inflation was taken into account.”

As the following table demonstrates, not only have stocks outperformed bonds, but have also trounced other major asset classes. The effect of this outperformance cannot be understated in terms of its contribution to cumulative returns over the long-term. Over extended holding periods, any diversification away from stocks has resulted in vastly inferior performance.

Real Returns: Stocks, Bonds, Bills, Gold, and the U.S. Dollar: 1802-2012

The All-Stock Portfolio: Better in Theory than in Practice

Notwithstanding that past performance is not a guarantee of future returns, the preceding table begs the question why investors don’t simply just close their eyes and hold all-stock portfolios. In reality, however, there are valid reasons, both psychological and financial, that render such a strategy less than ideal for many people.

The buy and hold, 100% stock portfolio is a double-edged sword. If you can (1) stick with it through stomach-churning bear market losses, (2) have a (very) long-term horizon, and (3) don’t need to sell assets for any reason, then strapping yourself into the roller-coaster of a 100% stock portfolio may indeed be the optimal solution. Conversely, it would be difficult to identify a worse alternative for those who do not meet these criteria.

With respect to the emotional fortitude required to stand pat through bear markets, there is considerable evidence that many investors are simply incapable of doing this. Perhaps one of the best illustrations of this fact is Fidelity Investments’ flagship Magellan Fund under the stewardship of legendary investor Peter Lynch. From May 1977 to May 1990, Lynch managed to achieve an annualized return of 29.06% as compared to 15.52% for the S&P 500 Index. However, the average investor in the fund actually lost money during this period.

Many Magellan investors hopped on board when the fund was soaring and then jumped ship during difficult periods. This all-too-common misfortune is well-depicted by the following graph, which demonstrates how emotionally charged decisions can have a devastating effect on long-term performance.

Even if you have the emotional fortitude to stay the course through bear markets, there may be other reasons that compel investors to liquidate stocks, whether it be to fund living expenses, help their children buy homes, or invest in other opportunities. Unfortunately, the markets pay no heed to the convenience of mortals. If you are lucky, the need for cash will materialize at market peaks. Conversely, if you need liquidity near market troughs, then the effect is similar to that detailed in the graph above.

Bonds: the Good News & the Bad News

Historically, investors have used bonds to diversify their stock portfolios and reduce volatility. Investors typically set aside enough in bonds to weather periodic stock market downturns. Over the past several decades, the diversification value from holding bonds has been neutral to overall portfolio returns. During the bull market in bonds of the past 30 years, bond returns have just about kept pace with those of stocks. However, as indicated by the table at the beginning of this missive, this has not typically been the case. Continue Reading…

Building the All-Stock Retirement portfolio

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

How do you build a suitable retirement portfolio, made of stocks? I gave that a go recently on Seeking Alpha. That may lead to a greater debate about ‘can you really build a suitable retirement stock portfolio?’ I’d say that yes you can, but we have to cover off all of the bases (economic conditions). And we have to have a portfolio that takes a defensive stance. Also, the Canadian investor might be in a very fortunate position thanks to defensive wide-moat stocks that pay generous dividends. They can work as bond replacements. We’re building the retirement stock portfolio.

I will give you the juicy bits, but if you are able to access Seeking Alpha here is the original retirement post on Seeking Alpha.

The concept of the retirement all-stock portfolio is to take an all-weather portfolio approach. But instead of using bonds, cash, gold and commodities, we’re going to put stocks in the right place. And we’re going to use the appropriate amount of stocks to cover off the risks.

A good starting point for the all-weather portfolio is the venerable Permanent Portfolio. That model includes only one asset for each economic quadrant.

Stocks. Bonds. Cash. Gold.

Here is an outline of a study from Man Institute that details the types of stocks and sectors that worked in various economic conditions. Keep in mind that REITs have worked for inflation and stagflation from the 1970s. I’ve given REITs a pass for inflation.

Defense wins championships

At its core, the retirement stock portfolio is quite defensive. Certain types of stocks will do the job of bonds. They will help in times of bear markets and recessions. They can also deliver ample income: much more than bonds these days.

The Canadian retirement stock portfolio will take full advantage of the wide moat stocks.

I’ll cut to the chase. Here are the assets to cover off the economic quadrants:

Defensive bond substitute stocks – 60%

Utilities / Pipelines / Telecom / Consumer Staples / Healthcare / Canadian banks

Growth assets – 20%

Consumer discretionary, retailers, technology, healthcare, financials, industrials and energy stocks

Inflation protectors – 20%

REITs 10%

Oil and gas stocks 10%

Not listed in this inflation-protection section is consumer staples, healthcare, utilities and pipeline stocks. Those stocks can do double duty. They work during times of market stress (corrections/recessions) and they can often deliver modest inflation protection as well.

Maybe consider gold and commodities?

While you may opt for a stock/cash portfolio, it may be wise to consider gold and commodities, even if in very modest amounts.

Nothing is as reliable and explosive for inflation as commodities. The most optimal balanced portfolios do include gold.

A 5% allocation to each of gold and commodities may go a long way to protecting your wealth.

An inflation bucket might then look like:

  • Gold 5%
  • Commodities 5%
  • Energy stocks 5%
  • REITs 5%

A cash wedge is not a bad idea

Cash helps your cause during stock market declines, stagflation and deflation. Mark Seed at My Own Advisor plans to use a stock and cash approach for retirement funding.

Given all of the above considerations, a retiree might go off the stock-only-script modestly with 5% weighting to each: gold, commodities and cash. It’s quite likely that the 15% allocation will come in very handy one day. Continue Reading…