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Canadian stocks are better than you think

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By Dale Roberts

Special to Financial Independence Hub

For all of the headwinds and bad press for the Canadian economy, you’d think that the stock market was in a tailspin. But surprisingly, that’s not the case. The TSX Composite and TSX 60 are threatening to make new highs, eh. That’s as U.S. stocks make new high after new high. Given that, balanced portfolios and all-in-one asset allocation ETF portfolios are sailing. Canadian stocks are better than you think.

I am back after a week off. Late in March, I was driving to Florida and I had to change my Sunday morning travel plans, leaving early from Knoxville to make it to Clearwater for fun in the sun and taking in some Blue Jay spring training games.

My $2500 Jays Jersey – true story

Here’s the poster child for poor-performing big-dividend Canadian stocks.

A good summary of the struggling Bell Canada (BCE). Investors might have to wait 2 or 3 years to see that debt under control – and the dividend covered. Rate cuts would/will help the cause. Bell has been a victim of poor to unfair regulation, increased competition and higher borrowing costs.

Even perma Bull Brian Belski of BMO is cautious so say the least. From a Globe & Mail piece:

“We believed sentiment was resoundingly negative and becoming worse. As we approach the end of the first calendar quarter of 2024, we maintain the view that analysts and investors remain overly cautious – fundamental metrics such as earnings, valuation, and operating performance in several areas are showing definitive signs of troughing.

There has been a lot of negative sentimenet towards the Canadian economy, and we likely transfer that emotion to our opinion of the Canadian stock market.

And while the big-dividend space in Canada has been struggling, or at least lagging, the TSX Comp and TSX 60 is on a very nice run. Here are the 5-year returns.

Quite often, stocks like to climb that ‘wall of worry.’ That’s why market timing simply does not work. The markets can have a mind of their own, and they are forward looking. It would be like planning your day’s activities based on next week’s weather forecast.

That’s a total return of over 60% over the last 5 years, and 118% over the last 10 years. Hardly struggling.

Vanguard VDY vs the market

And while the big divs are struggling thanks to the higher rate environment, this long-term chart shows investors have still been rewarded, handsomely.

The returns are almost identical from VDY inception, just over 10 years ago. And surprisingly, from 2020 (when the world changed with the first modern day pandemic that unleashed an inflationary period) VDY is outperforming the market.

There may be another lesson here in consistency and staying the course. That said, readers will know that I am a big fan of the broader Canadian Wide Moat stock model, compared to an exclusive big-dividend model. And look to the more-moats option that includes lower-yielding grocers, railways plus picks of Brookfield and Couche-Tard.

In ETF form the wide moat model follows closely to the BMO Low Volatility ETF – ticker ZLB. That may be Canada’s best option for covering the Canadian space. It has much more sensible sector allocation, and that has contributed to the market beat. I promise to update the returns for the ZLB post shortly.

Another low-volatility stock model

Norman Rothery tracks some wonderful Canadian portfolio models at the Globe & Mail. Here are the current holdings for his market-crushing low-volatility stock portfolio.

ATCO, BCE, Bank of Nova Scotia, CN Railway, Canadian Utilities, Dollarama, Enbridge, Fortis, Great-West Lifeco, Hydro One, Intact Financial, Metro, Power Corp, Pembina Pipeline, Rogers Sugar, Royal Bank of Canada, Sun Life Financial, TD Bank, Waste Connections, TMX Group.

That is a very good stock mix, and with lots of overlap to the wide moat and BMO Low Volatility models. I will be adding Waste Connections as a “pick” for the wide moat model.

More Sunday Reads

At MoneySense Jonathan Chevreau is getting ready to convert his RRSP to a RRIF. That’s mandated of course, at age 71. A Canadian then has to start receiving payments at age 72. If you miss the conversion, your RRSP will be liquidated and you’ll likely face a massive tax bill. Jon provides a very good RRIF overview in that post. Continue Reading…

Taking steps toward Financial Wellness

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By Blair Evans, CFP, CA

Special to Financial Independence Hub

Tomorrow (June 8th) is Global Wellness Day.

The term “wellness” — including emotional, physical, and mental wellness — is finding its way into more and more conversations these days. However, there’s one aspect of general wellness that is often overlooked despite its significant impact: financial wellness.

Given the current economic environment, financial concerns among Canadians are one of the largest sources of stress.  According to a recent study by FP Canada, forty-nine per cent of Canadian adults have lost sleep because of financial worries, which may impact their overall wellness.

Just like physical and mental wellness, there is no one formula to create financial wellness for everyone.

Luckily, there are strategies we can all take to improve our financial wellness. It starts with acting in the present while planning for the future. The path to financial wellness is a personal journey, and a qualified financial advisor can help you take the first step and make important progress.

Prioritizing financial wellness for today

Before working on your financial wellness, it’s important to ask, “What does financial wellness look like for me?”

It can be as simple as creating (and sticking to) a budget or making a realistic and actionable plan to pay off your current debts. Your path to financial wellness can even begin by getting a better understanding of a familiar term: tax.

Whether we like it or not, tax is inevitable, and it impacts nearly every financial decision we make. Therefore, gaining an understanding of your tax situation can provide you with confidence and can help improve your financial wellness.

Depending on your circumstances and stage of life, contributing to your Registered Retirement Savings Plan (RRSP) or First Home Savings Account (FHSA) are two options that may help you prepare for your future, while also reducing your taxable income, meaning you’ll get taxed less come tax season.

Being knowledgeable about the different types of accounts (including RRSPs, FHSAs and Tax-Free Savings Accounts), as well as tax deductions and tax credits available to lessen your tax liability, can also help build financial knowledge and reduce financial stress.

Planning financial wellness for the future

Part of financial wellness is proactive planning so you can feel comfortable and confident in your future. Saving is an important part of building a strong financial future, but financial wellness goes beyond that. Continue Reading…

How Regular People can become Debt-Free with some simple Life Changes

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By Alain Guillot

Special to Financial Independence Hub

Becoming debt free is, for many people in the country, virtually a dream. It’s basically impossible if we’re barely living from paycheck to paycheck, and the debts we accumulate aren’t always unavoidable. However, there are definitely a few things that we can do as individuals to reduce our debts and eventually become debt-free.

In fact, it’s a life goal for many people to just get rid of their debts. Once that happens, they can finally enjoy a life of financial security and be more free with their hard-earned money. So without further ado, let’s take a look at some simple life changes you can make to become debt-free.

Start taking responsibility for your finances

One of the things you have to learn early is that you need to start taking responsibility for your finances.

This all starts by actually looking at your incoming and outgoing money and creating a budget. Start by looking at what you spend your money on, where you can cut down, and also look at how much you’re paying in subscription fees. A lot of people bleed money because they’re not aware of how much they’re actually spending, and this can be an incredibly dangerous habit.

Aim to actually pay off your debt

Lots of people will see the long debt repayment terms and just let it go. They’ll wait several years just to pay off something, and in that time, they’ll have paid a huge amount of interest that could’ve been avoided.

So aim to actively pay off your debt. Reduce expenses from other places (such as entertainment costs) and put all of that into your debt. Continue Reading…

12 Insights on Building Emergency Funds for Family Financial Security

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In the quest for financial stability amidst major life milestones, we gathered wisdom from Finance Experts to CEOs, compiling twelve diverse strategies.

From establishing a safety net to applying the 50-30-20 budgeting rule, these professionals share how they’ve successfully built and maintained emergency funds while pursuing family formation and homeownership.

 

 

 

  • Establish a Safety Net
  • Adopt Frugal Living Practices
  • Set Achievable Saving Goals
  • Automate Savings Allocation
  • Implement Disciplined Saving
  • Live Below Your Means
  • Reduce the Temptation to Spend
  • Diversify Income with Side Hustles
  • Maintain Emergency Fund While Home Owning
  • Strategize with Automatic Transfers
  • Manage Spending, Build Runway
  • Apply the 50-30-20 Budgeting Rule

Establish a Safety Net

As a seasoned finance expert, I understand the critical importance of establishing and maintaining emergency funds, especially when navigating major life milestones like family formation and homeownership. Here are some strategies I recommend for achieving financial security while pursuing these goals:

Building the Safety Net: We suggest a reserve that equals three to six months’ worth of living costs, which acts as a buffer for matters like falling sick, fixing a car, or losing employment. You can begin by making small deposits into a high-interest savings account and then building on it gradually. Save everything!

Goal-Oriented Saving: After setting up an emergency fund, the next step is to save towards your dream house. Consider putting money into Fixed Deposits or Recurring Deposits, as they have guaranteed returns and help inculcate discipline, too. Remember to stay consistent! — Arifful Islam, Finance Expert, Sterlinx Global LTD

Adopt Frugal Living Practices

My husband and I have built and maintained emergency funds by continuing to employ financial tactics we had to use early on in the pandemic, when COVID-19 lockdown-related issues resulted in his salary being temporarily reduced and my hours being cut back.

We were adamant about the need to continue adding even a small amount to our emergency fund since we had purchased a home only the year before. Thanks to friends’ and family’s experiences, we were well aware of the ever-present chance of a home-related emergency.

We decided on a two-pronged approach: We lived beneath our means by greatly curtailing our travel, cultural, and dining-out budget, finding free and low-cost alternatives to enjoy closer to home, as well as cooking new items at home.

We also became savvy consumers. We started comparison shopping for budget items, both big and small. Our biggest savings came from comparing car and home insurance companies: When we switched to a new company, we saved over $700 a year.

Given today’s inflation, these tactics still serve us well. — Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Set Achievable Saving Goals

The strategy I followed for building my emergency fund took a decent amount of time. My plan was to cover three to six months of living costs. I was well aware that saving that much money would take time. So, I started with simple goals like saving $10 a day.

I somewhat understood that the savings goal depends on income and expenses. So, I tried to cover essential expenses first, rather than transferring all my income to savings. I paid off costs such as housing, utilities, transportation, food, and credit-card/loan payments before anything else. Then, I added up my monthly spending and multiplied it by six months. I got the estimated total amount I need to save as an emergency fund.

I decided to keep my funds in a high-yield savings account. These types of accounts are convenient to access and offer good interest rates. As a result, your funds will grow gradually. However, I suggest choosing banks and credit unions insured by the National Credit Union Administration (NCUA) or the Federal Deposit Insurance Corporation (FDIC).

Last but not least, it is better to use a direct deposit service to transfer your money into your bank or savings account. Contact your bank and activate the direct deposit service. It would be wise to split direct deposits and put a certain amount in your emergency fund and the rest in your checking account. — Loretta Kilday, DebtCC Spokesperson, Debt Consolidation Care

Automate Savings Allocation

I’ve always prioritized building an emergency fund because it’s crucial for my family’s financial security and peace of mind. Early in my career, I adopted a simple yet effective strategy: automate and allocate.

I set up automatic transfers from my business income to a separate high-yield savings account every month. Initially, I aimed to save at least six months of living expenses, which I gradually expanded to cover an entire year.

Treating this fund as untouchable for everyday expenses became a safety net that allowed my wife and me to comfortably pursue family goals like buying a home. To balance this security with growth, I also invested in low-risk, highly liquid bonds and money market funds for a portion of the emergency fund. — Michael Sena, CEO and Lead Analytics Consultant, Senacea Ltd.

Implement Disciplined Saving

Building and maintaining an emergency fund has been a cornerstone of ensuring my family’s financial security, especially as we pursued significant goals like family formation and homeownership. From my experience, the key has been a disciplined, proactive approach to saving, paired with a clear understanding of our financial priorities and potential emergencies.

Initially, I established a strict budgeting process where setting aside money for an emergency fund became a non-negotiable monthly expense, similar to mortgage or utility bills. I targeted saving at least three to six months’ worth of living expenses, a common benchmark that provided a safety net capable of covering unexpected events such as medical emergencies or job loss.

To stay disciplined, I automated the transfer of funds from our checking account to a high-yield savings account specifically designated for emergencies. This automation ensured that the savings occurred without requiring active management on my part each month, reducing the temptation to skip or divert these funds toward other uses. Choosing a high-yield account also helped the fund grow faster through interest, maximizing the efficiency of our savings.

As our family grew and our financial situation evolved with goals like buying a home, we reassessed our emergency fund needs regularly. For example, when planning for homeownership, we increased our emergency savings target to account for potential home repairs and maintenance, which are typically more costly than many renters anticipate. This adjustment was crucial in maintaining our financial security after transitioning to homeownership.

Throughout these phases, maintaining open communication about our financial goals and progress has been vital. Regular discussions with my spouse ensured that we were both aligned on our savings goals, understood the reasons behind them, and could track our progress together. — Michael Dion, Chief Finance Nerd, F9 Finance

Live below your Means

The secret to building wealth is living below your means. You need to be clear on the income coming in and the expenses going out. Pay yourself fi rst. The results of compound interest are powerful.

As your income increases, lifestyle inflation creeps in. Lifestyle creep occurs when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities.

Avoid the urge to spend more as you make more. Instead, save more. Invest the difference. As you get a raise, give yourself a raise. Increase your 401(k) contribution. Add to your emergency fund. Your future self will thank you. — Melissa Pavone, Director, Investments CFP, and CDFA, Oppenheimer & Co. Inc. Continue Reading…

Investing Advice to follow in the Midst of Two Wars

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Investing advice when Putin’s at war against Ukraine. Plus, Putin and the Israel-Hamas War

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Russia launched the war in 2014, during the second Obama term, when it invaded Ukraine’s Crimean Peninsula. At the time, the U.S. and NATO were still unsure about how to react to Russia’s aggression toward its former possessions. Many observers felt Russia was just trying to retrieve some of the stature it lost with the collapse of the Soviet Union in the early 1990s.

When Russia invaded Ukraine in 2022, it expected Ukraine to collapse right away (the way France collapsed under the 1940 German invasion, say). The U.S. and other observers feared/expected the same. They still began sending security aid to Ukraine before the invasion. They also used threats of trade and financial sanctions to try to scare Russia off. These steps failed. However, Ukraine fought back surprisingly well and attracted additional aid from the West.

Putin soon saw that he had guessed wrong. But he assumed the West would quickly lose interest. Instead, the West stepped up its aid. Russia then began a series of veiled threats of military escalation, all the way up to tactical nuclear weapons.

My sense is that after its initial stumble, Russia still hoped/believed that if it kept up the military pressure and escalation/nuclear threats long enough, Ukraine and its supporters would agree to a lengthy ceasefire that would work in Russia’s favour.

It seemed to me and many other people that this was unlikely. In April of that year, I wrote that “Russia could launch a nuclear war, but it would find itself fighting against most of the advanced countries of the world. Putin is vain and may be deranged, but he isn’t stupid.”

Later I voiced the off-the-cuff view that any nuclear attack on Ukraine would spark a much more lethal response from NATO forces, which vastly outnumber Russia’s.

Just recently I came across the actual NATO-versus-Russia figures (below) from veteran Toronto journalist Diane Francis, writing in her Substack.com publication. (Note: her chart refers to a Military Asset as a “Characteristic.”)

Military Asset Comparison Between NATO and Russia

Source: dianefrancis.substack.com

The numbers show an even greater numerical advantage for NATO than I imagined. That’s just the start.

The West is also way ahead of Russia in technology, sanctions, finances, morale, global support and pretty much anything else. Russia’s main advantage in war is its ruthlessness in throwing untrained soldiers — mostly from prisons or Russian-speaking racial/cultural minorities — onto the front lines, until the other side runs out of ammunition.

Putin can only hope that Biden or a successor loses his grip and abruptly pulls out of Ukraine the way the U.S. pulled out of Afghanistan in August 2021, after two decades of hostilities.

As the sarcastic one-liner goes, that’s not likely.

Nobody can predict these things, of course. My sense is that we are seeing the last gasps of Europe’s last empire. I’d guess the outcome won’t be pretty or quick, but it may turn out to be a historical milestone. A worldwide swing back toward democracy and away from authoritarianism just might follow.

Putin and the Israel-Hamas War

My guess is that the Israel-Hamas war is just getting started and will last a long time. I also suspect that Putin had something to do with getting it started, and will do what he can to keep it going. After all, when it comes to running his country, Putin takes a grasping-at-straws approach.

Putin may think that bringing the longstanding Mideast conflict back into the headlines is going to improve his chances of conquering Ukraine and bringing the Soviet Union back from the dead.

He thinks taking a long shot is better than no shot at all. Who knows? He might get lucky.

Early on in his war on Ukraine, Putin seemed to think that Chinese dictator Xi Jinping was going to take pity on him and his country, and offer free money and/or weapons to shore up Russia’s Ukraine invasion. Instead, Xi insists on staying out of the war, while paying discount prices for Russian oil. He takes special care not to let his country get caught up in the economic sanctions that the U.S. and NATO countries and allies are directing against the Russians.

It’s not that Putin is stupid. If a war between Israel and Hamas turns out to be a big drain on the U.S. budget, the U.S. might have less money available to arm Ukraine.

Up until lately, however, Israel has had little to say about Russia’s treatment of Ukraine. Israel may soon take a more active role in helping Ukraine defend itself.

Any war is a terrible thing, and this one is no different. Meanwhile, the stock market seems to be creeping upward. Maybe it knows something that Putin hasn’t figured out. If you’re looking for investing advice related to the wars around us, spend more time learning about the wars themselves.

Meantime, if your stock portfolio made sense to you a week or two ago, we advise against selling due to Mideast fears

No matter what the state of the world, here are three rules you can follow for maximum portfolio success:

Rule #1: Invest mainly in well-established, profitable, dividend-paying stocks.

Our first rule will help you stay out of high-risk, low-quality investments. These investments are always available, in good and bad markets. They come with hidden risks due to conflicts of interest and other negatives. Every year, they lead many inexperienced investors to substantial losses. Continue Reading…