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How your part-time job can support your retirement

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By Mark Seed, myownadvisor

Special to Financial Independence Hub 

You probably know from my site, including the last few years, I love sharing case studies.

Part of the reason I enjoy doing so is because of positive reader feedback.

Another reason: I believe any case studies help the process of planning even if your personal finance situation is different.

You can learn from others – what you want and what you don’t want.

Here are some other popular case studies on my site before we get into this one today: how your part-time job can support your retirement.

How much do you need to retire on $5,000 per month?

And this one:

How might you retire on a lower income?

How your part-time job can support your retirement

During the pandemic, that caused so many impacts to so many people on various hardship levels, I recognized that some individuals took income matters into their own hands – they developed a side hustle.

In doing so, these folks aspired to resolve a few issues:

  1. it allowed them to further develop skills they already had or follow their passions, while
  2. making financial ends meet out of necessity.

Now that the global pandemic is thankfully over, many newer entrepreneurs continue to enjoy their side hustle during full-time work or even some retirees continue to work not because they have to, but because they want to.

Beyond maintaining a strong sense of purpose, the financial math suggests working part-time or even occasionally can make a HUGE difference to support your retirement plan.

Over the last few years running Cashflows & Portfolios, I’ve met many people in their 40s, 50s and 60s who are looking to scale back from full-time work, a bit, and instead work part-time or occassionally as they consider semi-retirement.

I am one of them on that path! 🙂

In fact, I shared in our recent Financial Independence Update that my wife has just started a bit of her semi-retirement / work on own terms journey in the last week or so. She is optimistic this can continue for the coming year or potentially longer. That would be ideal for us. I just need to catch-up and try and accomplish the same thing!

So, some folks may work in semi-retirement because they need the money. Not ideal but that works of course.

Others may work mainly because they like what they do, they want to stay busy with a strong sense of purpose, and they even enjoy their co-workers too! Far more ideal which is our plan.

We’ve always considered retiring to something, and transitioning to full-on retirement after a few years of part-time work. We’ll keep that approach alive now that we’re debt-free.

via GIPHY

Consider this question:

Would you rather have really rich experiences when you’re 50 or be really rich when you’re 80?”

We know our answer.

How your part-time job can support your retirement

Given quite a few My Own Advisor readers and Cashflows & Portfolios members are also considering a better life-work balance as they age, I thought it would be interesting to profile a couple that seeks this very objective: how part-time work can support their retirement plan.

Our case study participants today are Brandon and Stacey.

They live here in Ottawa, near me.

After a few full-time decades in the workforce, Brandon and Stacey feel:

“Controlling your time is the highest dividend money pays.” – The Psychology of Money

My couple today wants to know how much they need to earn to meet their retirement income goals.

Today’s post will tell them and it will provide some guidance for you as well. Continue Reading…

Private Equity: A Portfolio Perspective

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So don’t ask me no questions
And I won’t tell you no lies
So don’t ask me about my business
And I won’t tell you goodbye

  • Lynyrd Skynyrd
Image courtesy Outcome/Shutterstock

By Noah Solomon

Special to Financial Independence Hub

I know virtually nothing about investing in private companies. However, I do know a thing or two about the theoretical and practical aspects of asset allocation and portfolio construction. In this vein, I will discuss the value of private equity (PE) investments within a portfolio context. Importantly, I will explain why PE investments may contribute less to one’s portfolio than is widely perceived.

Before I get into it, I am compelled to state one important caveat. Generalized statements about PE are less meaningful than is the case with public equities. The dispersion of returns across public equity funds is far lower than across PE managers. Whereas most long stock funds fall within +/- 5% of the average over a several year period, there is a far wider dispersion among underperformers and outperformers in the PE space. As such, it is important to note that the following analysis does not apply to any specific PE investment but rather to PE as an asset class in general.

The Perfect Asset Class?

PE allocations are broadly perceived as offering higher returns than their publicly traded counterparts. In addition, they are regarded as having lower volatility than and lower correlation to stocks. Given these perceived attributes, PE investments can be regarded as the “magic sauce” for increasing portfolio returns while lowering portfolio volatility. In combination, these attributes can significantly enhance portfolios’ risk-adjusted returns. However, the assumptions underlying these features are highly questionable.

Saturation, Lower Returns, & Echoes of Charlie Munger

It is reasonable to expect that average returns within the PE industry will be lower than in decades past. The number of active PE firms has increased more than fivefold, from just under two thousand in 2000 to over 9000 today. This impressive increase pales in comparison to growth in assets under management, which went from roughly $600 billion in 2000 to $7.6 trillion as of the end of 2022. It seems unlikely if not impossible that the number of attractive investment opportunities can keep pace with the dramatic increase in the amount of money chasing them.

Another reason to suspect that PE managers’ returns will be lower going forward is that their incentives and objectives have changed. The smaller PE industry of yesteryear was incentivized to deliver strong returns to maximize performance fees.  In contrast, today’s behemoth managers are motivated to maximize assets under management and management fees. The name of the game is to raise as much money as possible, invest it as quickly as possible, and begin raising money for the next fund. The objective is no longer to produce the best returns, but rather to deliver acceptable returns on the largest asset base possible. As the great Charlie Munger stated, “Show me the incentive and I’ll show you the outcome.”

There are no Bear Markets in Private Equity!

It is also likely that PE investments on average have both higher volatility and greater correlation to stocks than may appear. The values of public equities are determined by exchange-quoted prices every single day. In contrast, private assets are not marked to market daily. Not only do PE managers value their holdings infrequently, but they also must employ a significant degree of subjectivity in determining the value of their holdings. Importantly, there is an inherent bias for not adjusting private valuations when public equities suffer losses. Continue Reading…

Unique Strategies to Reduce your Car Expenses and Save Money

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It may not seem like it, but owning and driving a car will be a major part of your financial picture throughout your adult life. As with all financial aspects, it pays to be a smart and savvy decision-maker and shopper and to know how to save money on car expenses.

Adobe stock image: Syda Productions

By Dan Coconate

Special to Financial Independence Hub

Cars, believe it or not, are considered an asset. However, it’s good to remember that cars are indeed a depreciating asset. Every year, they decline in value due to wear and tear and also due to the release of newer models. As a result, cars are not a smart investment since they only hold value for a short amount of time.

So be wise about your cars. Making sound financial choices about the cars you drive, and the car insurance you obtain, will equal more money in your pocket in the long run.

First, let’s take a look at some tips on how to save money when you are buying a car. If you’re aiming for a stress-free and independent retirement phase, you’ll love these unique strategies to reduce your car expenses and save money.

Transitioning to early retirement is an exciting chapter that requires a smart approach to manage your finances. Car expenses are significant parts of any driver’s budget, and you can actually save money with a few strategic adjustments. Here are some unique strategies to reduce your car expenses and save money for more pressing needs.

Negotiate with your Insurance Company

One of the most effective ways to reduce car expenses is to negotiate with your insurance company. Many people assume their premiums are non-negotiable, but that’s not true.

By contacting your insurance provider and discussing your current rates, you might find opportunities for discounts or better rates. Highlight your clean driving record or inquire about senior discounts.

Consider Bundling Car Insurance with other Policies

Insurance companies often offer discounts to customers who bundle multiple policies. If you have homeowner’s or renter’s insurance, consider combining it with your car insurance.

This strategy will simplify your payments and provide a discount on your premiums. The savings from bundling can add up over time, helping you reduce your car expenses and invest more in your retirement savings!

Take a Defensive Driving Course

Defensive driving courses are excellent for lowering your insurance premiums. Many insurance companies offer discounts to drivers who have taken these courses. Completing a course shows your insurer that you’re committed to safe driving practices.

Lower your Driving Speed

Driving at low speeds can reduce your car’s fuel consumption. When you maintain a moderate speed, your engine works more efficiently, conserving fuel and reducing wear and tear. Small fuel savings can add up over time, making a noticeable difference in your car-related expenses. Continue Reading…

The Benefits of Geographic Diversification for your Portfolio

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TSInetwork.ca

One key factor in successful investing — apart of course from picking good stocks (or ETFs that invest in those stocks) — is to diversify your portfolio.

Our main suggestion would be to make sure that your holdings are always well-balanced among most if not all of the five economic sectors: Manufacturing, Consumer, Utilities, Resources, and Finance.

That way, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or changes in investor fashion.

By diversifying across the sectors, you also increase your chances of stumbling upon a market superstar: a stock that does two to three or more times better than the market average. These stocks come along every year. By nature, though, their appearance is unpredictable.

It’s also essential to diversify within each sector. For example, you shouldn’t let technology stocks dominate your Manufacturing holdings, nor let telecommunications or phone stocks dominate your Utilities holdings.

What about geographic diversification?

We’ve long said that most Canadian investors should hold the bulk of their portfolio in high-quality, dividend-paying Canadian stocks well balanced across the five sectors (or ETFs that hold those stocks).

We also feel that virtually all Canadian investors should have, say, 20% to 30% of their portfolios in U.S. stocks (many of which also offer you international exposure through their foreign operations).

Beyond that, top international stocks or ETFs can also add valuable diversification to your portfolio—through exposure to foreign businesses and to foreign currencies.

To demonstrate how geographical diversification can benefit investors, we examined the risks and returns of an ETF portfolio consisting of 50% Canadian equities, 30% U.S. equities, and with 20% in equities around the rest of the world. We then compared the risk and returns of this diversified portfolio with a broad Canada-only index.

Geographic diversification can cut risk and raise returns

Our results showed that the risk of the diversified portfolio was lower than the Canadian-only portfolio, while the returns were higher. Continue Reading…

Justwealth: The advantages of Evidence-based Investing

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One of the most important developments in the financial world in recent years has been the growth of evidence-based investing. But what exactly is it? In the first of a new series of exclusive articles for Justwealth, the UK based author and journalist Robin Powell explains why founding your investment strategy on four basic principles can dramatically improve your chances of achieving your long-term goals.

By Robin Powell, The Evidence-Based Investor 

Special to Financial Independence Hub

It takes between seven and nine years to train to be a doctor in Canada. For surgeons it takes as many as 14. Even then, both doctors and surgeons are required to engage in continuous learning throughout their careers.

Becoming a financial adviser, investment consultant or money manager is considerably less onerous. What’s more, unless you deliberately set out to defraud your clients, you’re unlikely to be stripped of your right to operate.

Of course, there are still examples of poor medical practice. It was only as recently as the early 1990s that a group of epidemiologists at McMaster University in Hamilton, Ontario, first coined the phrase evidence-based medicine. Sadly, though, professional malpractice in the investing industry is far more common, and there are many who have worked in it for decades and yet act as if they have little or no grasp of the evidence on how investing works.

A glaring illustration of this is a study published in May 2018 called The Misguided Belief of Financial Advisers. The researchers analyzed the returns achieved by around 4,400 advisers across Canada: both for their clients and for themselves. They found that the advisers made the same mistakes investing their own money as they did when investing their clients’ money.

For example, they traded too frequently, chased returns, preferred expensive, actively managed funds, and weren’t sufficiently diversified. All of those things have been shown, time and again, to lead to lower returns. On average, the clients of the advisers analyzed underperformed the market by around three per cent a year: a huge margin.

What is evidence-based investing?

In recent years, we’ve seen the development of what’s called evidence-based investing (EBI). Like evidence-based medicine, it entails the ongoing critical appraisal of evidence, rather than relying on traditional practices or expert opinions.

So what sort of evidence are we talking about? Essentially there are four main elements to the evidence that underpins EBI.

First, the evidence is based on research that is genuinely independent; in other words, the research wasn’t paid for or subsidized by organizations with a vested interest in the outcome.

Secondly, it’s peer-reviewed. This means that the findings are published in a peer-reviewed journal which is closely examined by experts on the subject.

Thirdly, the evidence is time-tested. Investment strategies often succeed over short time periods, but fail over longer ones. Investors should disregard any evidence that hasn’t stood the test of time.

Finally, the evidence results from rigorous data analysis. As everyone knows, data can be very misleading if it hasn’t been properly analysed.

The good news is that, even when all four of these filters are strictly applied, there is still plenty of evidence to inform our investment decisions. Since the 1950s, finance departments at universities across the globe have produced many thousands of relevant studies.

What does the evidence tell us?

What, then, are the main lessons from academic research on investing? This is a wide-ranging subject, and one we’ll look at in more detail in future articles, but there are four main takeaways.

Markets are broadly efficient

Because markets are competitive and prices reflect all knowable information, it’s very hard to identify stocks, bonds or entire asset classes which are either undervalued or overvalued at any one time. No, prices aren’t perfect, but they’re the most reliable guide we have as to how much a security is worth.

Diversification is an investor’s friend

It’s vital for investors to diversify across different asset classes, economic sectors and regions of the world. As well as reducing your risk, diversification can also improve your returns in the long run, and it is rightly referred to as “the only free lunch in investing.”

Costs make a big difference

The investing industry and the media tend to focus on investment performance. But while performance comes and goes, fees and charges never falter. Continue Reading…