General

Using Collectibles as a Hedge against traditional Market Volatility

Posted By |
Image by Unsplash: Mick Haupt

By Devin Partida

Special to Financial Independence Hub

Today’s markets are difficult to navigate.

Keeping up with traditional market volatility can be difficult due to constantly changing market indexes and financial trends.

So, how do you stay afloat? To diversify your portfolio with assets that won’t move with the market, invest in collectibles.

What is Considered a Collectable?

Has anything been handed down to you as a generational gift? How about a piece of memorabilia from your favorite band or sports team? If these items are considered valuable due to rarity, historical significance or simple worth, they are considered collectibles.

Collectibles come in all shapes and sizes. From the smallest coins to the biggest cars, they might make valuable investments. Here are typical examples:

Art

One of the most common collectibles, art comes in many different forms. If you have a painting, sculpture or other piece that you think is valuable, you can research your art through museums or online collections.

Coins

Coin collecting is a centuries-old hobby. Coins are small and easy to access, making them an excellent place for beginners to start. Though tiny, they can be highly valuable. The 1943 Lincoln Head Copper Penny was once just a penny but now sells for over $204,000.

Sports Memorabilia

With new stars emerging every year, sports memorabilia will never go out of style. The market for sports collectibles is increasing in value for current sports stars like LeBron James and Steph Curry, alongside Hall of Famers and older sports legends.

Benefits of Investing in Collectibles

Investing in collectibles can bring various benefits — to your wallet and future. Here are four positive impacts:

1. Retain Value during Market Downturns

Volatility occurs when the market experiences dramatic price changes. When stocks change and prices shift, collectibles retain value because they are not solely based on the economy. Collectibles often maintain historical resilience, meaning their historic worth protects them during downturns.

2. Generate Return on Investment (ROI)

Collectibles can yield a great ROI. If you know the value of your collectibles, budget appropriately and care for your items, they could be worth a lot. Most collectibles appreciate around 10% each year, contributing to your financial security.

3. Enjoy a New Hobby

Although collectibles can be used as a financial strategy, they also make a fun hobby. What is something that interests you? Everyone has something that fascinates them, and almost anything can be collected. With collectibles, making smart financial investments can be more exciting.

4. Diversify your Portfolio

Investing in multiple assets is a smart way to protect yourself — and your money. Diversification mitigates unsystematic risks that could occur when the market shifts. Using collectibles along with traditional investments gives you more protection against volatility.

How to make successful Collectible Investments

Collectibles provide many financial benefits, but they also come with risks. Before starting your collection, understand the necessary steps to take and things to watch out for.

Make informed purchases

Do your research first if you want to start a collection or purchase a single item. When investing in online stock, people use investing apps to help them make smart decisions and avoid fraud. In-person investments require the same safety measures. Sellers could trick you into spending money on counterfeit items, so be smart when investing.

Understand Liquidity

Liquidity refers to how quickly an investment can be sold or turned into cash without impacting its price. Although collectibles gain value over time, they are meant to be long-term assets. Unlike stocks and bonds, which can be converted to cash in 1-2 days, collectibles may take years. This doesn’t mean you shouldn’t invest in collectibles — it just means you must be aware of timelines.

Integrate Collectibles into a broader Investment Strategy

Collectibles are a great way to diversify your portfolio as an additional form of investment. You should never rely on one asset, so don’t entirely count on your collectible to secure you financially. Practice safe investing habits by creating a plan and budgeting accordingly. Continue Reading…

Findependence Hub turns 10 years old

Posted By |
Image by Pexels

Hard to believe but Findependence Hub just turned 10 years old. We launched Financial Independence Hub on Nov. 03, 2014. Here is the very first post.

You’ll note that for a long time, we self-referred with the short-hand “The Hub.” This was of course long before another site was launched a few years back also called The Hub. So we try NOT to refer to ourselves using that short form, as it may be confusing.

However, the slogan still applies: North America’s Gateway to Financial Independence. That’s because both our readers and content providers are in Canada and the United States. Given the population differences, though, we are disproportionately Canadian.

From the start, the aim was to publish at least four blogs a week, and often five. In fact, as of this writing, we had published 2,931 blogs: just shy of 3,000. That’s roughly 300 blogs a year.

As we explained a few weeks ago, generally we don’t schedule Wednesday blogs far in advance, in order to leave that slot open for any late-breaking developments. It also allows us to shuffle the schedule when necessary.

The future

So what of the future? Well, my personal financial life is more or less an open book, between what I write here and what I write every month in my Retired Money column at MoneySense.ca.

As I disclosed earlier this year, I am now 71 and therefore enter the magic land of RRIFs as of the end of this year and into January 2025. At some point, I may retrench blog frequency down to three blogs a week instead of four or five: aiming for Monday/Wednesday/Friday. Happy to hear reader and sponsor feedback on that though. I’m also open to partnering suggestions.

Certainly I would like to thank the registered users who have hung in this far, as well as our advertisers who make it possible to provide this content at no charge to readers. Continue Reading…

What Fritz Gilbert learned writing 400 blogs on Retirement

Posted By |
TheRetirementManifesto.com

 

By Fritz Gilbert, TheRetirementManifesto

Special to Financial Independence Hub 

On April 12, 2015, I published my first post.

In the nine years since I’ve kept writing… and writing…and writing.

I’ve published 428 articles about retirement (see my Archives page).  If you do the math * …

…I’ve written the equivalent of 11 books over the past 9 years. *

(* The Math: 1,500 words per post x 428 posts = 642,000 words.  The average 200-page book is 60,000 words, so that’s ~ 10 books.  Add in the actual book I wrote, and it’s equivalent to 11 books in 9 years.)

And yet, with all of the writing, I’ve missed something.

I’ve never taken the opportunity to step back and think about what I’ve learned from all of my writing.

During our recent RV trip to the Ozarks, I took some time to reflect, and today I’m sharing the most important things I’ve learned through my years of writing articles about retirement.

I suspect the most important lesson may surprise you.  But I’m getting ahead of myself…

I’ve written the equivalent of 11 books in the past 9 years, all on retirement. What’s the most important thing I’ve learned in the process? Share on X

What I’ve Learned Writing 400 articles about Retirement

Reflecting on the past 9 years of writing has been an interesting trip down memory lane.

  • The first 3 years, as I was preparing for retirement.
  • The middle 3 years, as I was making the transition.
  • The final 3 years, as I figured it out.

It’s all there.

The 428 articles are like pebbles I’ve sprinkled on the trail, helping those in my footsteps find their way.  I’m thankful I decided to experiment with blogging.  It’s turned into something I love.

But what have I learned?

Image created by Fritz Gilbert on Pinterest

What I’ve Learned about Retirement

  • Retirement is Complex:  Any topic that can fill 11 books has more layers than an onion. Don’t underestimate how complex retirement is.  Yes, we all expect the financial complexity (Bucket Strategies, Roth Conversions, Safe Withdrawal Rates, Estimated Quarterly taxes, Asset Allocation, etc.).  What’s been more surprising to me is the complexity behind the non-financial aspects of retirement.  Working through your experiments to determine how to replace all those non-financial aspects you once received from work (Sense of Identity, Purpose, Structure, Relationships).  As complex as the financial issues are, I would argue the non-financial aspects are more so. Be prepared for ebbs and flows as you go through your retirement transition, you’re entering a maze that’s more complex than most people realize.
  • Retirement can be Difficult:  I’ve gotten hundreds of emails from readers telling me their stories, and I’ve read every one.  Many are stories of the difficulties you’re having adjusting to retirement.  Your stories led me to research the Four Phases of Retirement and realize how blessed I was to be in the 10-15% of retirees who skip the dreaded Phase II.  As you’ll read in the next bullet, I’m convinced there’s a proven way to make retirement less difficult, and I’m fortunate that I chose the right path.
  • There are Proven Ways to Make it Easier:  I was 3 years from retirement when I started this blog.  I’d seen some of my friends struggle with the retirement transition, and I was obsessed with learning why some people have great retirements, whereas others struggle. I was motivated to find the path that led to success and was fortunate to discover it. I’m convinced it wasn’t merely luck, but rather a result of the extensive planning my wife and I did in my final few years of work.  If there’s one trick I’ve learned to make retirement less difficult, it’s the importance of putting in the work to prepare for the transition before you cross The Starting Line. Focus on the non-financial aspects as much (or more) as you do the financial ones.  To understand how I approached the challenge, check out The Ultimate Retirement Planning Guide, which lays out all the steps starting 5 years before you retire.
  • Retirement Changes with Time:  I’ve often said that retirement is like marriage – you never really know what it’s like until you do it.  As I thought about what I’ve learned from writing so many articles about retirement, I realized there’s another parallel between marriage and retirement.  Just as your marriage will evolve over the years, so too will your retirement.   The honeymoon is great, but it doesn’t last forever.  Working through the challenges that surface is one of the fun parts of both marriage and retirement.  No retirement (or marriage) is perfect, but there’s a lot you can do to make it the best experience possible.  Learn to experiment, learn to follow your curiosity, and learn to maintain a positive attitude.  If there’s one piece of advice I’d give to help you deal with the changes that occur throughout your retirement, it is to embrace, nurture, listen to, and follow your curiosity wherever it leads.
  • Retirement can be the Best Phase of your Life:  We all want great retirements, right?  I’m grateful that retirement is the best phase of my life.  Many of you can say the same.  But …. there is a large percentage of folks who can’t.  If you’re struggling, I encourage you to study those in the first camp.  Listen to what they talk about, and observe what they do.  Chances are good you won’t hear much talk about money.  As I wrote in The 90/10 Rule of Retirement, if you’ve done your planning correctly you won’t worry much about money after you retire.  By studying the 72% of happy retirees,  you’ll find the common themes of Curiosity, Purpose, Relationships, Fitness, and Planning.   Focus on doing those things well, and you’ll find, like many others, that retirement can be the best years of your life. It’s interesting to realize how many of those commonalities relate to the non-financial aspects of retirement.  In my experience, it’s in those areas where you’ll find true joy. Continue Reading…

Real Life Investment Strategies #4: Business Owners should Leverage their Corporation for Retirement Savings

Posted By |
Lowrie Financial/Canva Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

When you’re immersed in running a business, thoughts of saving for retirement often take a back seat; Employees in the corporate world may rely on employer pensions, but as a business owner, the responsibility for your retirement falls squarely on your shoulders.

Starting your retirement planning early and consistently contributing allows you to benefit from compounding returns to steadily build your nest egg over time. Investing in your retirement can ensure you have the financial means to enjoy life post-retirement, whether it’s traveling, pursuing new passions, passing along a little financial freedom to family members, and more.

This blog explores how business owners can utilize their corporation (Canadian-controlled private corporations or CCPCs) to retain business income that exceeds operational and personal lifestyle needs.

Changes to Income Tax Rules (Capital Gains Inclusion Rate) can throw Business Owners’ Retirement Savings Plans into Chaos

The 2024 Federal Budget is a perfect example of how income tax rules can change, sometimes less smoothly and with less notice than what is reasonable.

Specifically, the 2024 budget included an increase in capital gains inclusion rate that affects:

  • Individuals with over $250,000 of capital gains in a tax year (only on the amount in excess of $250,000)
  • Corporations
  • Trusts

To make matters worse, the timeframe for any pro-active tax planning was very short and with few specific details before the tax changes became effective on June 25, 2024.

Many have also speculated that capital gain tax increase was a last-minute addition to a budget that was politically motivated and not based on sound economic policy.  Among the critics was none other than, Bill Morneau, the former Trudeau-Liberal finance minister.

There is also a high probability that there will be a change in Federal Government in 2025, which may bring a complete taxation review and reform.  Among the taxation reforms might be to roll back this tax increase.

Given this context and uncertainty, what should an individual with corporate investment assets do?

The best advice I can give you is to step back and view these tax changes versus your long-term financial goals, and to avoid making hasty decisions.  If there is major tax reform in the next few years, many individuals might find their hasty planning decisions to be very costly.

Even with higher capital gains inclusion rates, investing in your corporation still has many advantages.

Using Your Corporation for Retirement Savings still Provides you with Numerous Advantages

Retirees increasingly rely on their savings to sustain their lifestyle after leaving the workforce, presenting unique challenges (and opportunities) for business owners pre- and post-retirement. Over time, these corporations can accumulate investment assets and simply selling the business for retirement funds isn’t always the best option. The corporation can reliably serve as a source of dividends for the owner-manager in retirement. When a corporation is involved, it opens up another retirement savings and withdrawal option which, although advantageous, can be complex. We’ll walk though how saving within your corporation can be a great choice for business owners, but it is quite important to work with a competent independent financial advisor, accountant, and other professionals to determine the best retirement saving planning for each specific situation.

4 Reasons you should be Using your Corporation to Save for Retirement

  1. Tax Deferral

By retaining excess funds within the company, the initial tax benefit is that the income is taxed at a lower corporate rate vs. your personal tax rate – the extent of the advantage can vary depending on whether your corporation qualifies for the small business tax rate, which would be even more advantageous. Hand-in-hand, the tax benefit is also gained by the postponement of personal taxation. When funds are distributed to the business owner later as dividends, even with consideration of tax integration, the investment returns of the funds held within the company can generally more than compensate.

  1. Tax Deferral means more Money to Invest Today

By taking advantage of the tax deferral due to the reduced corporate tax rate, you have access to more investable capital today. This increased liquidity opens up the possibility of generating higher returns on your investments within the corporation, amplifying the potential growth of your wealth over time.

  1. Build Up Long-Term Value of the Corporation

If you plan to sell your corporation down the road, you can also take advantage of the Lifetime Capital Gains Exemption (LCGE), which Budget 2024 is proposing to increase to $1,250,000 (for dispositions after June 25, 2024) when you sell shares in the business.  Let’s say you sell a business for $2 million; the exemption amount means you wouldn’t pay tax on 62.5% of that profit. This translates to hundreds of thousands of dollars in tax savings.

In addition, the LCGE is a lifetime limit – so you can also choose to apply the exemption multiple times until you reach the limit. So, you have the option to sell shares over time and use the LCGE for multiple years until you’ve capped out. Figuring out how best to apply the LCGE can be challenging but worth the effort.

Lastly, with proactive planning, leveraging the lifetime exemptions of multiple family members can potentially mitigate or even eliminate the capital gains tax liability on higher-value businesses. A reliable professional financial planner and accountant can help you determine the best way to allocate and dispose of corporation shares to realize the optimal financial result.

  1. More Options for Savings & Withdrawal Streams = Flexibility

The most important advantage of saving for retirement within your corporation is that it gives you more options for both your retirement savings and investment options and your retirement withdrawal pools. Essentially, it gives you another tool in your toolbox. Most people are limited to three investment streams: RRSP, Tax-Free Savings Account, and Non-Registered Investments.

The corporation gives you a 4th pool of funds to work with – for both saving and withdrawal.  This allows for the flexibility to optimally select the best pool of funds for savings and withdrawal over time. For example, in any given year, your lifestyle needs may drastically change, so saving within the corporation gives you one more place to pull money in a way that best works for you. The following year, you have the flexibility to change it up in a way that works better. You don’t need to be limited to only 3 pools of your savings.

Another option that saving within your corporation opens up is the way you withdraw your money – during your prime working years, as you ramp down, and into retirement. Business owners can take money out of the corporation via dividends or salary.

Dividends are not tax deductible for the corporation. But with dividends, there are also no payroll taxes. Dividends also allow for more flexibility around how much you withdraw from the corporation and when. This is a great advantage for changing needs dictated by your personal lifestyle needs.

Withdrawing from your corporation via salary is advantageous due to the tax deduction for the corporation. In addition, salary withdrawal creates personal RRSP investment room. However, you would need to pay CPP at both the personal and corporate level. In addition, other payroll taxes would be required to be paid by the corporation.

Considerations when Saving for Retirement in your Corporation

With so many advantages to saving within a corporation, it may seem like a no-brainer. However, I need to point out some things you should consider as you use your corporation as a retirement savings pool.

Firstly, there is some extra complexity that comes with managing that extra stream of savings, which makes your reliance on a trusted accountant and financial advisor even more important.

Obviously, there are extra costs that come with owning an incorporated business, but if you are reading this blog, you are already paying these expenses. But, due to the extra complexity of managing more, there might be slightly more costs associated for your accountant. Although more cost, it is likely minimal and wouldn’t offset the advantages.

Another consideration about saving in your corporation is how you plan to retire: selling your business, winding down, succession, downsize, family takeover, etc. Thinking about the right path for the specific situation results in questions (and answers) about the best way to proceed. Continue Reading…

Retired Money: Sun Life enters the Decumulation market

Posted By |

My latest MoneySense Retired Money column looks in-depth at a new “Decumulation” offering from Sun Life, unveiled late in September. You can find the full column by clicking on the highlighted headline: What is Sun Life’s new decumulation product?

As you can see from image below taken from MyRetirement Income’s website, the emphasis is on providing regular income to last to whatever age a retiree specifies. That income is not, however, guranteed as a life annuity would be.

The Globe & Mail’s Rob Carrick first wrote about this shortly after the Sun announcement. My column adds the opinions of such varied Canadian retirement experts as author and finance professor Moshe Milevsky, retired actuary Malcolm Hamilton, Caring for Clients’ Rona Birenbaum and Trident Financial’s Matthew Audrey, as well as Sun Life Senior Vice President, Group Retirement Services, Eric Monteiro.

Some of the more cynical takes are that this is a way for Sun Life to continue to profit from client financial assets gathered during the long accumulation phase, rather than seeing them migrate to other solutions, such as annuities provided by either one of its own life insurance arms or that of rivals.

Aiming for Simplicity and Flexibility

As Sun’s Eric Monteiro told me in a telephone interview, the company’s preliminary research found that rival products that were first on the market (see full MoneySense column) were often perceived as complicated, and as a result uptake of some of these pioneering Decumulation products have been underwhelming. It sought to create a solution that was relatively simple and flexible.

In essence, it is not dissimilar to some Asset Allocation ETFs, such as Vanguard’s VRIF, which is 50% equities and 50% fixed income. But Sun’s product may and probably will have different proportions of the major asset classes. In fact, it lists 16 external global money managers who deploy up to 15 different asset classes, which include Emerging Market Debt, Liquid Real Assets, Direct Infrastructure, Liquid Alternatives and Direct Real Estate. Managers include BlackRock Asset Management, Lazard Asset Management, Phillips, Hager & North, RBC Global Asset Management and its own Sun Life Capital Management. Continue Reading…