General

Why rely on hindsight for retirement saving?

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By Atul Tiwari

Special to the Financial Independence Hub

New research from a colleague has me thinking about hindsight. The trouble, as the saying goes, is that hindsight is 20/20 — and you can’t benefit from it after the fact.

But why not try to benefit from someone else’s hindsight? My colleague Anna Madamba of the Vanguard Center for Investor Research found in a new study that recent retirees were largely satisfied with their financial situations in retirement, but, if they could, would still do some things differently in preparation.

With the benefit of retrospect, 43% of Canadian survey respondents “agreed” or “strongly agreed” that they would have saved more — a higher percentage than garnered by any other answer.

But perhaps it’s too simple to suggest that pre-retirees should just follow the example of others. Many people know at some level that they need to save more. Whether they do often comes down to two things: competing priorities and insight into how much money they’ll have (and need) in retirement.

Obstacles to saving more

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How Smart Beta Strategies fared as Interest Rates rose in 2016

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Rising Rate Case Study (July 8, 2016 to Dec 31, 2016) When U.S. 10- Year Treasury Note Interest Rate Went from 1.36% to 2.44%

By Christopher Gannatti, Associate Director of Research, WisdomTree Investments

Special to the Financial Independence Hub

One of the biggest stories in 2016 was rising interest rates, most specifically that the U.S. 10-Year Treasury Note went from 1.36% on July 8 to 2.44% on December 31.1 While it may be too early to know if the greater than 30-year bull market in bonds (in other words, a longer than three-decade secular trend of falling rates) is over, 2016 did offer an interesting case study of smart beta strategies, many of which had only been in live calculation during falling rate periods.
How Strategies won as Rates rose

In the recent rising rate periods in 2013 (May 2, 2013, to December 31, 2013, when the U.S. 10-Year yield went from 1.62% to 3.03%)2 and 2016, a few big themes became clear:

  • Small Caps: One aspect of small-cap companies is their ability to respond quickly to trends of improving growth, which is typically apparent during periods when the 10-Year yield is increasing. Additionally, they tend to have cyclical exposures regarding sectors instead of more defensive exposures. Also, if the U.S. dollar is strengthening (not unusual when the 10-Year yield is rising), these firms do not tend to have exports as their dominant source of revenue and therefore have less of a competitive headwind.
  • Earnings: Rising rates tend to place strategies with higher valuations at risk, because one impact of rising rates is to lower the current valuation multiple of equities. WisdomTree’s earnings strategies are designed to provide lower price-to-earnings (P/E) ratio exposures to the market segments upon which they focus. It’s also notable that they tend to naturally be under-weight in the more defensive sectors of the market (Utilities and Telecommunication Services are two big examples) that usually tended to do better during the falling rate periods that directly preceded the rising rate period.

How Strategies Lost as Rates Rose

• Low Volatility/Minimum Volatility: It’s important to realize that the word “volatility” relates to both upside and downside market movements, seeking to lower both of them. Continue Reading…

Q&A: How Dividends can speed Financial Independence

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I recently had a chance to discuss a new Canadian advisory on dividend stocks with the people responsible for that newsletter. The advisory comes from TSI Network, founded by Pat McKeough, whose investment approach I have always respected.

The advisory is TSI Dividend Advisor (shown above), and it grew out of a long respect for the power of dividends.

Pat and his investment team have always viewed dividends as a sign of investment quality. By extension, dividend stocks become the most reliable foundation of an investment portfolio built for growing wealth and financial independence.

This confidence in dividends is accompanied by a detailed examination of dividend-paying stocks to identify those with the greatest potential to sustain, and raise, their payouts.

The 8 key points they use to evaluate dividend stocks grew into their Dividend Sustainability Ratings. This proprietary ratings system became the backbone of the new TSI Dividend Advisor.  It was launched late in 2016 to impressive reviews in the media and a flood of subscriptions from Canadian investors.

Here are some of the keys to that success, from the editors’ point of view.

Jon Chevreau:  First of all, Pat, thanks for your time. What role do dividends play in a  successful portfolio? How can they lead to Findependence?

Pat McKeough

Pat McKeough: Top dividend stocks are a key part of a successful portfolio. Top dividend stocks can produce as much as a third of your total return over long periods. These payouts are drawn from earnings cash flow and paid to the shareholders of the company. Typically, these dividends are paid quarterly, although they may be paid annually or monthly as well.

At TSI Network, we think investing in dividend stocks is one of the best investment decisions you can make to achieve Findependence. Dividends serve as a way for companies to share the wealth they accumulate through successfully operating their businesses.

JC: Many stocks have dividends. What makes a top dividend stock?

Jon Chevreau

PM: Top dividend stocks provide steady dividends: a sign of investment quality. Some good companies reinvest profits instead of paying dividends. But fraudulent and failing companies hardly ever pay dividends. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks. For a true measure of stability, focus on companies that have maintained or raised their dividends during economic and stock market downturns. These firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, top dividend stocks provide an attractive mix of safety, income and growth. Continue Reading…

Aman Raina’s Robo portfolio — 2 years later

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Aman Raina

By Aman Raina, Sage Investors

Two years ago I decided to set up an account with an online wealth management company that manages portfolios using algorithms and computer code. At the time, these Robo Advisers were just getting out there but there was a fair bit of buzz on how they could threaten traditional wealth management services.
I was intrigued by the model, but there was one thing that many marketing materials, blogs, and mainstream media was avoiding … do these things make money for investors?

 

I was having a hard finding an answer to this so I decided to try to find out myself.  I set up an account with one of the big Robo Adviser firms. My goal was to go through the process and blog about my experience and more importantly, the results. We’ve now crossed the two-year anniversary of my ROBO account, so let’s take a look at how it’s doing now.

When we last checked in with our ROBO portfolio in January it was taking some hits along with the overall stock market. Since then the market has recovered quite nicely. Let’s take a look under the hood to see if the Robo Portfolio has bounced back.

Performance Continue Reading…

Why aren’t robo-advisors being used by those who need them most?

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By Edward Kholodenko,  Questrade

Special to the Financial Independence Hub

Uber has quickly become the largest personal transportation company in the world, yet it  doesn’t own a single vehicle. That’s because there’s more to Uber than just hailing a ride from your phone. It’s providing more convenience at a lower price and in turn, transforming the transportation industry.

Substitute Uber for Amazon, Airbnb, or any other tech disruptor and a common theme emerges. On the road to becoming mainstream, applications that reduce cost and improve convenience are often first adopted by millennials and the tech-savvy. While the early adopters reap the many benefits of these innovations, those who hesitate are missing out.

Retirement challenge and the Robo-Revolution

When it comes to financial technology, there are certain populations that can no longer afford to be late adopters. Thanks to the innovation in the investment space, preparing for retirement has become easier than ever. Enter robo-advisors: an online wealth management service that provides diversified investing, much like a mutual fund, but at a much lower cost.

Given the current state of retirement savings in Canada, it’s apparent that this technology has great value to those willing to take the leap.

There is concern that 80 per cent of middle-income Canadians nearing retirement won’t have enough to support themselves. The average Canadian’s retirement savings of $71,000 will last only a few years, and, 50 per cent of Canadians are not confident they will have enough to retire comfortably.

Not only are Canadians saving far too little for their retirement, but also many can no longer depend on company pension plans to provide the income needed to stop working.  Our golden years are increasingly self-funded and investment decisions now fall on the shoulders of the individual. There’s a fantastic opportunity for new solutions in this space, and those willing to embrace a solution provided by fintech providers are reaping the reward.

Robo-advisors, in spite of the name, aren’t actually robots. Professional (human) portfolio managers handle all of the investments. In fact, there are two types of managed robo-advisor accounts: actively- and passively-managed:

Actively-managed advisors have a dedicated team of portfolio managers who select investments and adjust the portfolio to take advantage of market opportunities, all of this at a low cost. Passively-managed advisors typically invest according to set investment rules that only track the market.

These advisors use leading technology and proven strategies to provide a better investment experience at a lower cost to the consumer. And, by reinvesting the money you save in fees, individuals are able to increase their retirement savings and returns.

Robo-advisors are helping Canadians retire wealthier

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