The interplay between politics and economics has never been starker. We have an American President who is doing more to stick his nose into the affairs of those that are supposed to be at arms length than any of his predecessors ever dreamed.
Despite this, people who offer commentary on both the economy and capital markets (they are separate things) act as though what’s going on on Capitol Hill is so unremarkable that they conspicuously fail to work any acknowledgement of the dysfunction into their commentary.
Last week, I sat in on a webinar hosted by Jeff Schulze, CFA, who is managing director, head of economic and market strategy for Clearbridge Investments. In his presentation, Schulze noted that the S&P 500 is currently trading at 23 times forward earnings and that only the late 1990s saw a higher number. He added that there has been recent downward pressure on the federal funds rate and opined that the ‘one big beautiful bill’ will offer further fiscal stimulus down the road.
In a dashboard of 12 indicator variables, only one was flashing red (recession). Four were yellow (neutral) and seven were green (expansion). He went on to opine that corporate profits don’t look recessionary. He concluded that a near-term recession is unlikely. I’m not disputing his economic evidence: I’m simply noticing that there was not a word about political implications or developments. That silence strikes me as conspicuously odd.
There are many smart people who look closely at all manner of economic indicators who also look the other way regarding politics. As if they are not related. Why is that? They don’t talk about what’s going on Capitol Hill at all. The topic is taboo. It’s “polarizing.” Some even allege it’s beyond the purview of their mandate. I disagree.
EMH vs Active Management
The efficient market hypothesis (EMH) posits that capital markets do an excellent job of digesting all available information (from all fields of endeavour) quickly and accurately. By synthesizing information into a consistent worldview, EMH implies that no one can reliably ‘beat the market’ through security selection or timing strategies.
The economic forecast offered by Clearbridge seemed predicated on the assumption that what’s going on in Washington is normal, but it also seemed predicated on market inefficiency since Schulze made multiple references to the need for active management. If the market is efficient, then it is already reliably taking the dysfunction in Washington into account. If, on the other hand, it is inefficient, then the vagaries of an unpredictable President stand out as being meaningful and should be noted. So if the conduct of the President is a meaningful consideration, why wasn’t it mentioned by a guy who implicitly rejects EMH? Continue Reading…
By Dale Roberts, CutTheCrap Investing, Retirement Club
Special to Financial Independence Hub
We all make mistakes. There is no such thing as the perfect portfolio. In the accumulation stage we usually have time to recover from mistakes and hopefully we’ll learn from those mistakes. Learning from mistakes will usually move us towards a more passive global core index-based portfolio. In retirement, we don’t always get a second chance. It is crucial to be aware and avoid any retirement pot holes. Kyle at the Canadian Financial Summit asked me to discuss and outline some of the key and common retirement mistakes. Of course, they are too many to mention in a 45-minute interview. Below, I will outline more of the common mistakes in retirement.
Here’s an AI outline of the Canadian Financial Summit.
The Canadian Financial Summit is an annual, free, virtual conference for Canadians to learn about personal finance and investing from Canadian experts. It covers topics like retirement planning, tax optimization, and investment strategies, with content tailored specifically for a Canadian audience to address Canadian-specific financial products and regulations. The goal is to provide practical advice to help attendees save money, invest better, and improve their financial literacy.
Canadian Financial Summit Speakers
The Summit begins on October 22 with headliners such as David Chilton (new Wealthy Barber book out in November), Rob Carrick, Jason Heath, Preet Banerjee and more. Here’s the list of speakers and topics.
Once again, I am covering common retirement mistakes. Here’s the range of topics I had prepared for my discussion with Kyle. We touched on a few of these.
We have to start in the accumulation stage
Many retirement mistakes are born in the accumulation stage, and in the retirement risk zone.
Too much risk
Most investors take on too much risk. They are not investing within their risk tolerance level. That said, it has not been a problem since 2009: we have not been tested. But retirees and near retirees were certainly burned by the financial crisis and the dot com crash. For too many, their retirement was greatly impaired.
And of course, we can add in not taking on enough risk, for those who are risk averse. We need to take on the risk necessary to achieve our financial goals. All said, we always need to invest within our risk tolerance level.
The accumulation stage is dead simple
Go for growth while investing within your risk tolerance level. More money is “more better.” More money will create more retirement income.
Paying ridiculously high fees
Fire your wealth-destroying high-fee mutual funds and the advisor they rode in on. Ditto for the retirement stage. You can do the research necessary, or look to an advice-only planner who specializes in retirement planning.
Don’t count the dividends
Don’t PADI – Potential Annual Dividend Income.
That’s like watching the oil gauge as you try to make the car go faster.
The dividends do not contribute to wealth creation. Dividends are a removal of value; that’s it. The share price drops by the value of the dividend. If you move the dividends back to your stock or ETF holding to buy more shares you are simply owning more shares at lower prices.
As Yogi Berra would ask: do you want your medium pizza cut into 8 slices or 6 slices?
You still have a medium pizza, no matter how you slice it.
Dividends are a tax drag in taxable accounts. You are paying tax on money you don’t need. You are paying tax on money that creates no value. It’s phantom wealth creation, but with real taxes.
Avoid covered calls and other specialty income
They underperform by design. That fact should be outlined in the prospectus.
Canadian home bias
This can be related to a fascination with Canadian dividends or Canadian Blue Chip stocks in general. For sure, building a portfolio of Canadian Blue Chips is known to greatly outperform the TSX Composite. But we need greater diversification to reduce risk.
A Canadian with severe home bias is putting all of their chips on a few sectors, one country and one currency. It’s not smart.
We should consider a global portfolio, at the very least a Canadian and U.S. portfolio.
Stock portfolios that are too concentrated
It’s common to see portfolios with just a few stocks. We need 15 to 20 stocks to mimic an index. You’re likely best to hold 20 or more.
We create severe company risk with a concentrated portfolio.
Clear your debt
Carrying debt into retirement is a common “mistake.” A recent report suggested that 29% of Canadian retirees will carry a mortgage.
Consider the tax burden that it takes to create the income to pay the mortgage. Every extra dollar is at the top marginal rate. It’s a mortgage payment plus tax on top. A $3,000 monthly mortgage payment might cost you $4,000 or more when you consider taxes. It could also contribute to OAS claw back.
Consider the car payment as well. Try to enter retirement with a paid-off vehicle.
This allows us to ‘split income’ before the age of 65. At age 65 we can then split income from your RRIF.
Ditto for setting up joint taxable accounts. Pay attention to attribution rules for taxable accounts.
The Retirement Risk Zone
Not preparing the portfolio (de-risking) for retirement before retirement is a common mistake. We enter the retirement risk zone several years before retirement. That was our topic last year for the Financial Summit.
Mistakes in Retirement
Not running a retirement cash flow calculator
This is a must for every retiree. A retirement calculator will help you discover the most optimal (and tax efficient) order of account harvesting. That is when, and how much, to remove from your RRSP / RRIF, Taxable accounts, and TFSAs, working in concert with pensions, other amounts plus, CPP and OAS. It can help us create tax efficiency and manage OAS claw backs.
Most Canadians will benefit from the RRSP / RRIF meltdown strategy. It involves delaying CPP and OAS for the massive increases in pension-like, inflation-adjusted income.
From age 65 to 70, CPP increases by 42%, OAS increases by 36%.
To delay CPP and OAS we often use the RRSP / RRIF accounts (and at times a slice of TFSA or Taxable) to bridge the gap during those years. That is, we spend more heavily from the RRSP / RRIF while we wait for increased CPP and perhaps OAS.
It’s different for everyone, the retirement cash flow calculators will help you uncover the right approach for you. Only the software knows.
There are many retirement calculator options that are free use, or available at a very low fee. We are reviewing many of them at Retirement Club.
Examples: MayRetire, Milestones, Adviice, Perc-Pro from Frederick Vettese, optiml.ca, PWL Capital also offers a retirement calculator.
Not spending, not enjoying their money
We might embrace a U-shaped spending plan. We spend more in the early years: the go-go years. It might dip in the slow-go years, and then increase again in the later no-go years as health care cost, living in place, or retirement home plus assisted living costs increase greatly.
Billy and Akaisha Kaderli, RetireEarlyLifestyle.com
By Billy and Akaisha Kaderli
RetireEarlyLifestyle.com
Special to Financial Independence Hub
While taking a break from the sun and surf, relaxing in my hotel room in a tiny beach town on Mexico’s rugged Pacific Coast, my cell phone rang.
‘Howdy, Beautiful!’ my friend of four decades shouted from snow country, thousands of miles away. “Been watchin’ your website for years and I read all your stories. Love ‘em. But I thought you were retired!“
How many times over the decades since we left the conventional work force have we heard that challenge? Our responses have ranged from surprised silence to justification of our volunteer work, to just laughing out loud.
We run a popular website, photograph our travels and share our lifestyle adventures with people like you. Some think that by doing this, we have somehow become unfit to call ourselves “retired.”
Today I would like to pose this question to you: “Once you leave the mainstream labor-for-paycheck world and become financially independent, aren’t you free to choose what you do with your time? When is something considered work, and when are you pursuing a passion?“
Receiving Monetary Compensation
Most people with whom we have this conversation have one particular definition of retirement: You are not retired if you are receiving money for work performed.
Well I guess that rules out all of the Wal*Mart Greeters… but seriously, we’d like to counter this simplistic point of view.
If you are a landlord with several rentals that bring in monthly retirement income, can you ever be considered retired? Do you not have to oversee the properties, be responsible for making repairs, pay for maintenance and upkeep and search for qualified tenants? At the very least you must concern yourself with your manager.
What if you are like a friend of ours who discovered he had a latent talent for making sculptures, and now sells his bronze statues all over the eastern seaboard at Toney art shows? He receives funds from his commissioned work, but he couldn’t be happier following his passion. What does he care if someone doesn’t think he is retired?
Other friends whom we know well sold their accounting firm and moved to a working ranch – a dream come true for them. Instead of pushing paper and tax forms, they now raise horses, scoop poop, grow grapes to make award-winning wine, and cultivate boutique vegetables which they sell at local farmers markets. Is that work? No question about it. However, they are undoubtedly following a passion and their lives are enriched because of it.
A friend of ours is a domestic goddess with unmistakable artistic flare, and her husband is an adventurous handyman. They purchase old Victorian homes, renovate them room-by-room and then sell them at profit. Sure they receive income from their labors, but this income isn’t what sustains their portfolio. And why not utilize your talents and implement your dreams at this time of life that should be yours?
If you have left your Monday-through-Friday job but own a diverse portfolio which you must manage, or if you are trading stocks or receiving dividends, does this monetary compensation for your lifestyle disqualify you out of the official definition of being retired? What if you find the world of finance riveting? Are you supposed to stay away because someone somewhere will think you are disingenuous or not “really” retired?
If you are working you are not retired
Some people believe that if you do any sort of activity that would be considered in any fashion to be work, or if it takes any effort whatsoever, you have become unsuitable to wear the “I’m retired” label.
Yet we know all sorts of single retired women who raise dogs to sell, train rescue dogs for animal shelters or have a modest dog-walking “business” that they run in their neighborhoods. How many older retired men have we met over the years and in numerous communities who will fix your plumbing for a pittance or trade, solve an electrical problem or put down some flooring in your home? What if you want to write music, direct a play or act in one? All of this takes effort, focus and work.
What if you wanted to build a boat, restore old classic cars and sell them, or play in a jazz band for the clubs in your town? Are you back to the working grind – or engaging your passion?
Volunteering or mentoring
One may or may not receive compensation for donating time and expertise. Teaching English as a second language could get you out of the house and add dimension to your day, or it could defray the cost of airline tickets to a foreign country. If you allow this skill to enhance your travel budget have you transgressed against The Rules of Retirement?
I taught Thai massage in Mexico for free and created a note card business for the local women in my neighborhood. Billy coached a women’s basketball team to the finals, imported an electronic scoreboard for the city gym and built tennis courts in this same Mexican town. Was this work? Definitely. We both put in more hours than we want to know, but the return was making friends and having personal satisfaction for helping others. Continue Reading…
Retirement planning experts suggest current market conditions may present an opportune moment for retirees to consider annuities. With potentially higher yields available in today’s interest rate environment, strategic approaches like partial annuitization and laddered purchases offer ways to enhance retirement security. Financial advisors emphasize the importance of weighing tax implications and long-term income stability before making decisions about annuities in a changing economic landscape.
Ladder Annuity Purchases to Capture Peak Rates
Favorable Market Creates Opportunity for Retirement Security
Strategic Timing for Annuities in High Rates
Consider Tax Implications before Rushing to Annuitize
Tax Strategy matters more than Current Rates
Lock in Higher Yields while Maintaining Diversification
Balance Security and Flexibility with Partial Annuitization
Act Now before Rate Cuts Lower Lifetime Income
Ladder Annuity Purchases to Capture Peak Rates
Through my work with United Advisor Group helping advisors serve elite clients, I’m seeing a critical window right now for partial annuitization that most people are missing. The current 5-6% immediate annuity rates are the highest we’ve seen in over a decade, but here’s what’s different from typical advice.
I’m recommending clients ladder their annuity purchases over 12-18 months rather than going all-in immediately. We’re working with carriers like Lincoln Financial where a Phoenix client recently locked in 5.4% on a $300K immediate annuity in January, then waited until rates hit 5.8% in March for another $200k portion. This staging approach captures rising rates while securing baseline income.
The sweet spot I’m seeing is 30-40% annuitization for near-retirees, not the 20% most advisors suggest. With our four-custodian structure at UAG, we’re tracking how this higher allocation actually reduces overall portfolio risk more than expected. A Scottsdale couple we work with annuitized 35% at current rates and can now be more aggressive with their remaining assets.
What makes this timing unique is the Federal Reserve’s clear signalling about holding higher rates through 2024. Unlike previous cycles where advisors played wait-and-see, the current economic indicators we track suggest these annuity rates have more staying power, making the decision timeline less pressured than typical rate environments. — Ray Gettins, Director, United Advisor Group
Favorable Market creates Opportunity for Retirement Security
Annuities aren’t flashy: but in today’s rate environment, they’re finally getting their moment.” With interest rates at multi-year highs, this is one of the most favorable environments we have seen in a long time for retirees to consider annuitizing or partially annuitizing. Higher rates mean better payout terms, especially for fixed annuities, giving retirees more predictable income in retirement. But timing is still very important. The decision to annuitize should still be in line with your personal retirement goals, risk tolerance & need for guaranteed income. Partial annuitization provides a great balance for retirees, allowing them to create a stable income stream to cover essential expenses and still have portfolios flexible enough for legacy planning and growth. It’s much more than a response to market conditions. It’s a calculated move towards peace of mind.
Now might be the smartest time in 15 years to consider annuitizing.
It’s actually quite a favorable time for retirees to annuitize, partially or fully, considering the interest rates today that are at their highest levels since before the Great Financial Crisis. Higher interest rates essentially mean stronger payouts than what we have seen over the past decades. This makes them a more attractive option for those looking for a guaranteed lifetime income. Having said that, I still recommend retirees to think of annuitization the same way they think about diversification, strategically, not emotionally. While having a steady stream of income for essential expenses can provide peace of mind, I would never recommend anyone to put all their eggs in one basket.
Employing a blended approach — one that combines annuities with passive real estate investing or dividend-generating assets — can be a much smarter way to go. It’s the right time now to explore annuities as part of a broader retirement strategy. Just make sure that it aligns with your lifestyle goals, risk tolerance, and legacy planning. — Lon Welsh, Founder, Ironton Capital
Consider Tax Implications before Rushing to Annuitize
After working with retirees for 19 years through my accounting firm, I see this timing question differently than most financial advisors. The real issue isn’t just interest rates: it’s the massive tax implications that nobody talks about.
I had a client couple from North Carolina who were considering annuitizing $300K of their retirement savings when rates hit 5.8% last year. Before they pulled the trigger, we ran the numbers on their overall tax strategy. That annuity income would have pushed them into a higher bracket and made 85% of their Social Security taxable instead of 50%.
Instead, we structured a business strategy where they started a simple consulting venture based on his 40 years of manufacturing experience. Now they’re deferring some retirement income, writing off business expenses that were previously personal costs, and timing their annuitization for when they can control their tax bracket more effectively.
The current rate environment is tempting, but I’m seeing retirees lock themselves into higher lifetime tax bills. Run the tax projections first: sometimes waiting 2-3 years while implementing proper business structures saves more money than chasing today’s rates. — Courtney Epps, Owner, OTB Tax
Tax Strategy Matters more than Current Rates
I believe the decision to annuitize in today’s higher-rate environment is more complex than most retirees are told. The bigger question isn’t just the interest rate, it’s how the IRS will tax that income stream over time. Continue Reading…
The Hard Truth about Canada’s most Popular Investment Myth: Why your “Sure Thing” Real Estate Strategy could be Costing you Hundreds of Thousands
Lowrie Financial: Canva Custom Creation
By Steve Lowrie, CFA
Special to Financial Independence Hub
It is hard to go to a Canadian dinner party without someone talking about real estate. Someone’s cottage has doubled in value. A friend just bought a second downtown investment condo. A neighbour is considering a rental property “for the kids.”
We hear it every day from clients. The idea of investing in real estate feels safe, powerful, and smart.
There is a cultural pull here that is almost irresistible:
Tangibility: You can touch it, walk through it, and renovate it.
Familiarity: Almost everyone you know owns a home.
Status: Whether it is a condo downtown, a cottage up north, or a rental property, real estate is a visible symbol of success.
That emotional resonance is powerful and real. But subtlety matters. Let us explore why the emotional weight is so strong, when it outpaces the facts, and why personal homes and even second properties should often be treated as lifestyle decisions rather than wise investment decisions.
Why Real Estate Investment feels Safe and Smart to Canadian Investors
Real estate triggers deeply comforting emotions.
You can see it, unlike stocks that live only on a statement. You can improve it, rent it, or decorate it, which gives you a sense of control. In markets such as Toronto and Vancouver, decades of rising prices reinforce the belief that it is a sure bet.
And of course, there are the stories. Everyone seems to know someone who made a fortune in property. Stories resonate far more than data.
It is like the comfort of holding cash. Cash feels safer than stocks, even though the evidence tells a different story.
Real Estate vs Stock Market Returns: The Data Reveals a Different Story
Here is where the evidence helps keep perspective in check. If you are considering purchasing direct real estate as an investment, the data suggests alternative approaches may deliver better long-term outcomes.
Canadian Stock Market vs Canadian Real Estate Performance
From 1990 to 2023, average Canadian home prices grew about 6.3 percent annually. Once we adjust for maintenance, property taxes, insurance, and transaction costs, which we can reasonably estimate at 2 percent of market value each year, the actual net return drops to about 4.5 percent annually. Meanwhile, the S&P/TSX Composite Index returned roughly 8 percent per year, compounded annually over the same period. Even within Canada, equities have historically outperformed housing as an investment.
Global Diversified Portfolio vs Canadian Real Estate Returns
A globally diversified equity portfolio, such as the MSCI World Index, has historically delivered around 8 percent annually (consistent with Canadian market returns) over long time horizons. This not only outpaces Canadian housing returns but also provides diversification across thousands of companies in dozens of countries. Canadian housing, by contrast, is concentrated in one country and one asset.
Sneaky Hidden Costs and Investment Risks of Direct Real Estate Ownership
Even beyond the headline numbers, direct real estate ownership brings additional challenges:
Concentration risk: One property, in one city, on one street, is hardly diversified.
Illiquidity: Selling in a downturn can be difficult and slow.
Carrying costs: Maintenance, property taxes, insurance, and fees all erode returns.
Leverage risk: Mortgages magnify both gains and losses.
The Cap Rate Crisis: Why Canadian Investment Properties are Failing
Another critical but often overlooked factor in real estate investing is the capitalization rate, or cap rate. This measures the cash flow you receive from a property after expenses, expressed as a percentage of its value.
Historically, investors earned returns from two sources: cash flow (rental income) and appreciation (price gains). But as property prices have risen much faster than rents over the past few years, cap rates have fallen dramatically. Many condos and residential investment properties now have cap rates that are very low, even close to zero. In some cases, especially when using leverage on a direct residential investment property, you get the pleasure of having negative monthly cash flow. Who wants an investment that requires you to put in more of your own money each month to keep it afloat?
That means the only way to make money is if the underlying property continues to appreciate. For a long time, that worked. But as Canadians have seen in recent years, property values can and do fall. Relying solely on appreciation is not a proper investment strategy. It is a gamble.
Real Estate as Lifestyle Choice vs Investment Strategy
There is an important distinction to be made here. Owning your personal home, or even a second property, is rarely a pure investment decision. It is primarily a lifestyle choice.
Your Primary Residence: A Home, Not an Investment Vehicle
Your home provides stability, belonging, and a sense of place. You live in it, you personalize it, and you may even raise a family in it. Its financial appreciation is a by-product, not the primary purpose.
Second Properties and Vacation Homes: When Lifestyle Meets Investment Confusion
Cottages, ski condos, or vacation homes can bring joy, relaxation, and family memories. When acquired with lifestyle purposes in mind, they can be meaningful. But if purchased purely for financial returns, they blur the line between lifestyle and investment and often fall short on performance expectations.
Investment Property Evaluation Framework: The Big Bet Test
Here is a simple framework to evaluate real estate as an investment:
Diversification: Does this spread risk or concentrate it?
Liquidity: Can you access your money if needed?
Scalability: Can you expand without disproportionate risk?
Taxation: Are the benefits what you expect?
A single rental property often fails on diversification, liquidity, and scalability. It is like putting half your portfolio into one stock, in one city, on one street.
REITs: The Smart Alternative to Direct Real Estate Investment
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