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Financially Surviving a High-Net-Worth Divorce

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By Devin Partida

Special to Financial Independence Hub

Navigating a divorce can be stressful, especially if you have considerable financial assets. While legal separations can be nasty, they don’t have to be.

Discover what counts as a high-net-worth divorce, along with some tips to help you survive it with most of your financials intact.

What is a High-Net-Worth Divorce?

Traditionally, high-net-worth divorces are considered a split of US$1 million dollars between parties. Considering the increased property values and inflation in recent years, a high-net-worth divorce now involves several million dollars worth of financial assets. If you have assets amounting to this sum, you’re looking at a high-net-worth divorce in your hands.

What makes High-Net-Worth Divorces complicated?

Divorce in the U.S. is still prevalent, with estimates that 50% of first marriages will most likely end in divorce. That’s a lot of legal proceedings and assets to divide. Parties with fewer assets to divide often have more uncomplicated legal matters to resolve.

Divorce proceedings get more complex since you have millions of dollars worth of assets to take care of. Many factors come into play, like assets and liabilities acquired before and after the marriage, businesses owned by either or both spouses and investment or pension plans.

Tips on how to Safeguard your Interests during and after a High-Net-Worth Divorce

Wealthy couples typically have a lower divorce risk, but there may come a time when one or both parties decide to call it quits. Although high-net-worth divorces typically involve top-caliber lawyers and advisors, it’s still essential to research what to expect during legal proceedings. Doing so will help you prepare better for the process and safeguard your financials.

Get Expert Legal and Financial Advice

Divorce can be a physically, mentally and emotionally draining process. It’s also time-consuming if you have no idea how to proceed. Getting expert legal and financial advice can save you time and money, especially if you hire lawyers who have your interests in mind.

Hiring an expert mediator is one of the most underrated ways to ensure smooth divorce proceedings. Divorce mediation involves protecting both parties and safeguarding their interests from a neutral standpoint: each side gets what is rightfully theirs, no more and no less.

Know which Assets to Protect

Distinguishing between marital and separate assets is critical to protecting your financials in a divorce. You must ensure you know the value of your assets like properties, businesses, investments and so on. Catalog them depending on their classification so you know which assets to protect from division.

Here’s what you need to know about the difference between marital and separate assets. Continue Reading…

MoneySense Retired Money: Should GICs be the bedrock of Canadian retirement portfolios?

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My latest MoneySense Retired Money column, just published, looks at the role Guaranteed Investment Certificates (GICs) should play in the retirement portfolios of Canadians. You can find the full column by going to MoneySense.ca and clicking on the highlighted headline: Are GICs a no-brainer for retirees? 

(If link doesn’t work try this: the latest Retired Money column.)

Now that you can find GICs paying 5% or so (1-year GICs at least), there is an argument they could be the bedrock of the fixed-income portfolios, especially now that the world is embroiled in two major conflicts: Ukraine and Israel/Gaza. Should this embolden China to invade Taiwan, you’re starting to see more talk about a more global conflict, up to an including the much-feared World War 3.

Of course, trying to time the market — especially in relation to catastrophes like global war and armageddon — generally proves to be a mug’s game, so we certainly maintain just as much exposure to the equity side of our portfolios.

I don’t think retirees need to apologize for sheltering between 40 and 60% of their portfolios in such safe guaranteed vehicles. Certainly, my wife and I are glad that the lion’s share of our fixed-income investments have been in GICs rather than money-losing bond ETFs: the latter, and Asset Allocation ETFs with heavy bond exposure, were as most are aware, badly hit in 2022. But not GICs; thanks to a prescient financial advisor we have long used (he used to be quoted but now he’s semi-retired chooses to be anonymous), we had in recent years been sheltering that portion of our RRSPs and TFSAs in laddered 2-year GICs. Since rates have soared in 2023, we have gradually been reinvesting our GICs into 5-year GICs, albeit still laddered.

The MoneySense column describes a recent survey by the site about “Bad Money advice,” which touched in part on GICs. Almost 900 readers were polled about what financial trends they had “bought into” at some point. The list included AI, crypto, meme stocks, side hustles, tech and Magnificent 7 stocks and GICs. Perhaps it speaks well of our readers that the single most-cited response was the 49% who said “none of the above.” The next most cited was the 16% who cited a “heavier allocation to GICs.” You can read the full overview here but I did find a couple of other findings to be worthy of note for the retirees and would-be retirees who read this column: Not surprisingly, tech stocks (FANG, MAMAA. etc. were the first runnerup to GICs, receiving 13.24% of the responses. Not far behind were the 10.55% who plumped for crypto and NFTs (Non-fungible tokens). AI was cited by 3.7%: less than I might have predicted; and meme stocks were only 2.81%.

As I said to executive editor Lisa Hannam in her insightful article on the 50 worst pieces of financial advice, GICs are at the opposite end of the spectrum from such dubious investments as meme stocks and crypto. (I’d put Tech stocks and A.I. in the middle).

GICs won’t grow Wealth for younger investors, aren’t tax-efficient in non-registered accounts

The GIC column passes on the thoughts of several influential financial advisors. One is Allan Small, a Toronto-based advisor who occasionally writes MoneySense’s popular weekly Making Sense of the Markets column. He is among GIC skeptics. He told me his problem with GIC is that they “don’t grow wealth. They can act as a parking lot for money for some people but over time there have been very few years in which people have made money with GICs, factoring in inflation and taxation.” Continue Reading…

2023 Financial Year in Review | 2024 Investment Market Outlook

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By Steve Lowrie, CFA

Special to Financial Independence Hub

You might assume, the more experienced a financial professional is, the more accurate they can be with their year-end forecasts. Personally, I’ve never tried to predict which hot or cold stocks, bonds, sectors, or market sentiments to chase or flee each year. Instead, the more experience I’ve gained, the more firmly I believe in the Timeless Financial Tips I shared throughout 2023. For me, they serve as the best guide for “predicting” what investors should expect in 2024.

So, considering everything I’ve learned in 2023 (plus the quarter-century prior), I predict …

We cannot possibly predict how 2024 markets will perform.

That’s my expert forecast, and I’m sticking to it. I will, however, add one more prediction, about which I am nearly as certain …

Over time (think multiple years), capital markets WILL deliver positive returns to those who consistently participate in their expected growth.

The 2023 Allure of 5% GIC Returns

If anything, 2023 offered fresh lessons on why it’s better to stick with the financial fundamentals and avoid the perils of market-timing.

As you may recall, we were still licking our 2022 wounds in January 2023, after experiencing an unusually perfect storm of negative annual returns from stocks AND bonds, along with continued high inflation. How unusual was 2022? I looked for the last time investors had experienced across-the-board negative annual returns, plus steep inflation and couldn’t find an example of this, at least in my career.  1994 was the last time both stock and bond returns were negative, however Canadian Inflation (CPI) was a scant 0.25% that year.

Given the 2022 backdrop, no wonder many investors were drawn to GICs and their alluring 5% interest rates in 2023.

It is true, GICs can be helpful for your rainy day funds and similar cash reserves that are awaiting their spending fate. But in 2023, I also saw people using (or, more accurately, abusing) this vehicle to sideline investable cash indefinitely, waiting for seemingly better days to jump into the market. Worse, some investors might have sold off portions of their existing investment portfolio to chase after GIC rates.

Safe Harbors can be a Risky Bet

Unfortunately, waiting for “better” markets before investing or reinvesting according to plan is still market-timing by any other name. And as I’ve covered before, market-timing ignores myriad investment fundamentals.

Among the most important insights to take to heart is how rapidly market tides can turn, leaving the unprepared out of luck. As one of my financial planning colleagues recently described:

“Small hinges swing big doors. [Market] Prices are brutish, irreverent, and unsympathetic to investors putzing about on the sidelines.” – Rubin Miller, Fortunes & Frictions

This message was on clear display in 2023. Talking about swinging markets! I’m willing to bet few, if any of us were expecting such strong annual returns for 2023, especially since most of the reward hinged on a year-end pop.

And yet, it shouldn’t really have come as such a big surprise. It’s exactly how global markets have repeatedly performed over time. It just seems as if investors forget this fundamental every time markets take a break from their historically uphill climb. Continue Reading…

2024 Canadian Retirement Income Guide: 10 potential sources of income

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By Ted Rechtshaffen, CFP

Special to Financial Independence Hub

Over the years, we have received thousands of questions from clients related to a wide range of financial and planning issues.  Without doubt, the highest volume of questions relate to how to manage the transitions from working to retirement.

To help address many of these questions, we have put together the 2024 Canadian Retirement Income Guide.  This can be found on the link here: Canadian Retirement Income Guide – TriDelta Private Wealth.

The Guide highlights ten different sources of retirement income.  Some range from the very common, Canada Pension Plan, to those that may only apply to some – life insurance, corporations, or home equity. The Guide is free and doesn’t require any input to get it (such as name or email.)

Perhaps the most common question is whether to take CPP at age 60 or 65 or even 70.  The thoughts around a potential answer are discussed in the Guide as well as providing a link to a CPP calculator (CPP Calculator – TriDelta Private Wealth) and guidance on how to work with Service Canada.  Similar discussions and links relate to Old Age Security (OAS), ranging from taking it at 65 to age 70, and also factors that might help you to avoid any clawbacks.

Other factors that need to be considered include minimizing taxes, not just for one year, but over the entire post-work period.  One of the reasons for looking at every possible source of retirement income is that this can be the key to planning out the lowest tax retirement.

Some strategies discussed that could lower taxes could include:

  • Delaying OAS and CPP to age 70, but drawing down RRSPs between retirement and age 70 – if you are healthy. The lower income drawdown of RRSPs will result in lower taxes, while helping to maximize government pensions and potentially maintaining full OAS payments.
  • Using a balance of non-registered assets or a home equity line of credit, to keep taxable RRIF income a little lower. Continue Reading…

Market Forecasts: Moonshine & Fooling Yourself

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By Noah Solomon

Special to Financial Independence Hub

American journalist H.L. Mencken stated that “We are here and this is now. Further than that, all human knowledge is moonshine.” His warning always comes to mind at this time of year, when it is customary for market strategists to produce their forecasts for the coming year.

The two main groups of variables that strategists use to ordain the future of markets are (1) macroeconomic factors (interest rates, inflation, employment, economic growth, etc.), and (2) valuations.

As I have previously written, macroeconomic factors are of little use. They are extremely difficult to forecast. Moreover, even if they could be accurately predicted, their effects on markets can vary highly from one cycle to the next. Given these challenges, it is no wonder that producing accurate forecasts has been a fool’s errand. The predictions of major Wall St. strategists have historically been no more accurate than those which could have been made by the toss of a coin. Notwithstanding all the brainpower and analysis involved, their track record suggests that they have merely been fooling themselves.

Turning to valuations, they have historically been unhelpful for forecasting markets over shorter time horizons. History is replete with examples which show that overvalued markets can not only stay overvalued for extended periods but can become even more so before finally reverting to average levels.  Fed Chair Alan Greenspan delivered his “irrational exuberance” speech in December 1996, in which he warned that the stock market might be overvalued. Notwithstanding that he was ultimately right, the S&P 500 Index rose a stunning 116% from the date of his speech to its pre-bear market peak in March 2000.

The same is true of undervalued markets, which can remain cheap and get considerably cheaper before reverting to average levels. By the end of October 2008, precipitous declines in stock prices caused the S&P 500 Index’s valuation to fall below average levels. However, this did not stop markets from continuing to plummet another 29% over the next four months. Nor did it prevent the Index from reaching a bargain basement PE ratio of less than 12 by early March of the following year.

These examples strongly validate John Maynard’s claim that “markets can stay irrational longer than you can stay solvent.”

Good is not the Enemy of Great

Best-selling author Jim Collins has studied what makes great companies tick for more than 25 years. According to Collins:

“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”

With all due respect, this statement does not apply to market forecasting. Predicting what markets will do over the next 12 months has not produced “good” results, and therefore cannot be regarded as a disincentive for producing great ones. Let’s not worry about resting on our laurels until there are some laurels on which to rest!

Putting aside the aforementioned naysaying, there is some hope on the horizon. Although valuations have been (and likely will continue to be) a poor predictor of returns over shorter holding periods, they have proven somewhat effective for longer-term forecasting.

Rolling 5-Year Returns (Past 20 Years)

History clearly illustrates that higher valuations tend to precede lower than average returns over the next five years. Conversely, lower multiples generally portend above average returns over the same time horizon.

Of note, the U.S. has vastly outperformed other markets over the past 20 years. The returns of U.S. stocks following above average valuations have exceeded those of others following below average valuations. This “heads the U.S. wins, tails the U.S. wins less” phenomenon can be largely explained by the global dominance of U.S. companies across leading sectors, and particularly within the technology, pharmaceutical and biotech realms. Alternately stated, rising valuations in the U.S. have been justified by underlying fundamentals, thereby resulting in both high valuations and high returns (relative to those of other countries) for an extended period.

The Punchline: Go Local AND Global

The following return estimates were produced by calculating historical, statistical relationships between valuation and return and then applying these relationships to current valuation levels.

Forecasted 5-Year Returns Based on Current Valuations

To be clear, there are innumerable factors other than valuations that can and will influence markets going forward. However, the fact remains that valuation is an important determinant of returns over the medium term. Continue Reading…